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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Mouchel Group | LSE:MCHL | London | Ordinary Share | GB0031696858 | ORD 0.25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.975 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMMCHL
RNS Number : 3132A
Mouchel Group plc
29 March 2012
29 March 2012
Mouchel Group plc announces Interim Results for the six months ended 31 January 2012
Mouchel Group plc ("Mouchel" or the "Group"), the infrastructure and business services group, today announces its unaudited results for the six months ended 31 January 2012
Financial performance for the half year
Hot Features
Premium
Half year Half year
2012 2011
Revenue GBP270.0m GBP270.3m
Gross contribution(1) GBP20.8m GBP30.1m
Underlying operating (loss)/profit(2) (GBP1.0m) GBP8.9m
Underlying (loss)/profit before tax (GBP6.3m) GBP4.1m
and exceptional items
Exceptional items (GBP5.3m) (GBP5.6m)
Loss before tax (GBP11.6m) (GBP1.5m)
Net bank borrowings GBP104.1m GBP96.9m
Adjusted (loss)/earnings per share (6.8p) 2.6p
Basic loss per share (11.3p) (1.1p)
1 Gross contribution is defined as gross profit less directly attributable divisional overheads, excluding corporate expenses. Certain costs, such as Finance and HR, are run on behalf of all business segments and are excluded from the definition of gross contribution. However, such costs are allocated to business segments under the definition of underlying operating profit. In half-year 2011 the Group accounted for vacant property costs within gross contribution, whereas in half-year 2012 the Group accounted for vacant property costs within corporate expenses.
2 Underlying operating profit, underlying operating margins and adjusted earnings per share exclude exceptional items (including the amortisation of intangible assets arising from business combinations) - see note 3 for full details.
Business headlines
-- Revenue is in line with our expectations with little change from the same period last year.
-- Contribution generated by the business divisions declined as a result of reduced profitability in Government and
Business Services (GBS) as a result of the Comprehensive Spending Review 2010 (CSR 2010), significant reduction
in core consulting in Management Consulting and losses in our Middle East business.
-- GBP120m contract wins in first half year, which includes the expansion of our partnership with Bournemouth
Borough Council to deliver HR and Finance services and the securing of two highways and engineering contracts by
EnterpriseMouchel in Croydon and in Enfield.
-- Order book and bidding pipeline, although reduced, remain strong at GBP1.16bn and GBP1.51bn respectively at 31
January 2012.
-- Banks are supportive and have agreed further amendments to our facility agreements to provide flexibility in the
implementation of our restructuring plans.
-- All options are being evaluated to address the capital structure of the Group. Options include a significantly
dilutive equity raise.
Strategic review
Our strategic review has been completed and a new business plan has been agreed. Four key strategic actions have been identified to deliver sustainable growth and improved profitability:
1. Simplify organisational structure, increasing operational focus at divisional level - two divisions from the previous four to aid simplicity and reduce reporting lines:
o Mouchel Infrastructure Services o Mouchel Business Services 2. Maintain and grow in markets where Mouchel is leading, focusing on our core strengths: o New approach to contract bidding aimed at improving win rates; pipeline cleansed o Plan to grow and develop Australian and restructured Middle East businesses
o Restructure of Management Consulting complete, with emphasis on supporting Mouchel Business Services division
3. Reduce overhead costs to deliver the right cost base for Mouchel - cost savings of circa GBP18m identified, the majority of which to be implemented by September 2012.
4. Increase focus on our contracts to improve profitability and win additional work.
Grant Rumbles, Chief Executive of Mouchel, commented:
"2012 is a year of transition for Mouchel. The first half of this financial year has remained challenging, but we are seeing signs of stabilisation in our core markets. We have completed our strategic review, which looks at every aspect of the business, and have started implementing the changes required to build on our market-leading positions in infrastructure and business services. These changes will concentrate on simplifying our operations and significantly reducing group support costs, while improving our technical ability and client focus. The changes we are announcing today will enhance our ability to deliver operational excellence to our clients. Our lenders are supportive of our plans.
"Mouchel is a good business, with a strong, enduring brand, and we have established that this can be a successful, profitable business with the right cost base and balance sheet. We continue to win important contracts such as the expansion of our contract in Bournemouth to include HR and Finance. We are evaluating all options for restructuring our balance sheet. These options include a significantly dilutive equity raise. The restructure is expected to be completed by the end of the 2012 financial year."
A presentation will be given to analysts at 9.30am today, Thursday, 29 March 2012, at the offices of Goldman Sachs, 120 Fleet Street, London EC4A 2QQ.
A live webcast of the event can be streamed from our website this morning.
Internet users will be able to view this announcement, together with other information about Mouchel Group plc, at the company's website (www.mouchel.com).
For further information, please contact:
Mouchel Group plc
Grant Rumbles, Chief Executive
Rod Harris, Group Finance Director
01483 731731
Brunswick Group
Mike Smith/Aideen Lee/Azhar Khan
020 7404 5959
Mouchel Half-Year Report 2012
Business Review
Introduction
We retain our strong position in our chosen markets, for example, Mouchel has 14% of the local authority market (by contract value), which puts us among the market leaders. We are also among the top three companies in the highways infrastructure services market, while EnterpiseMouchel is a leading integrated provider to the Highways Agency (HA) and increasingly to local authorities. We are also a significant provider to the water consultancy market, where we see additional growth in the next Asset Management Plan (AMP) cycle.
Despite our strong position in the marketplace, our chosen markets remain challenging as clients continue to reduce budgets and press for improved value. We have therefore looked to the long term and undertaken a strategic review of our business. We engaged external experts, Ernst & Young and Credo, to help us undertake the review, which was completed on schedule in the first half of the year. It focused on our group overhead, structure and costs, and an extensive bottom-up analysis was undertaken to examine this in detail. We also evaluated our operating model, our business development activities and looked in depth at our marketing strategy.
We now have a very clear revised strategy and business plan, which is already being implemented. We have identified annualised cost savings of circa GBP18m, primarily from reducing overheads. These cost reductions will return Mouchel to profitability and underpin our long-term growth strategy. Our banks are supportive and have agreed further amendments to our facility agreements to provide flexibility in the implementation of our restructuring plans.
While we have been reviewing the business, we have continued to win work (GBP120m in the first half year), and revenue has remained stable. Although each part of the business is profitable, the contribution each makes to the business is not sufficient to cover central overheads. However, with the cost savings we have identified, Mouchel can return to profitability.
We are continuing to evaluate our options to address the capital structure of the Group. Whilst Mouchel is stable and has a strong underlying business, an appropriate and sustainable level of debt financing will change the perception of us in the marketplace and with clients. In addition, reduced interest payments will increase our earning and cash flow and enable our business to move forward with renewed vigour. We are evaluating all options for restructuring our balance sheet. These options include a significantly dilutive equity raise. The restructure is expected to be completed by the end of the 2012 financial year.
Trading outlook
The market in the UK is likely to remain flat in the short term and we don't envisage a step change in growth within the next 12 to 18 months.
Whilst local authority spending in highways declined in 2010/11, our market has stabilised as Government cuts focus on capital expansion projects rather than the maintenance work we specialise in delivering. We are also well positioned to take advantage of the expected increase in integrated blue-collar and white-collar contracts through our joint venture with EnterpriseMouchel.
We don't see significant growth in our water business in the short term, although work is set to increase as we approach the middle of the AMP5 regulatory period in 2012/13.
We see good opportunities in the Middle East, particularly through our existing clients in the region. We have a strong brand, despite our business there being relatively small compared to the UK. We have largely completed a restructure of this business to provide a stable platform for growth.
In Australia, we have been very successful in a short timescale through our partnership with Downer. There is good potential for work across Highways and Infrastructures Services and our existing highways contracts in Western Australia form a good base to grow and expand our business.
In GBS, our market is expected to grow due to the UK Government's continuing drive to find cost savings and around six new contracts have been let each year since 2005. Our market for management consulting services has experienced a significant decrease in response to Government cuts and budgetary pressures, but two main contracts provide a solid foundation for the business and Management Consulting works closely with GBS to deliver additional services to our existing local authority partnerships.
Overall, whilst our previous expectations for full year revenue have not changed, our expectations for full year earnings performance have been reduced by approximately GBP4m principally due to the additional shortfall in our Middle East and Management Consultancy businesses.
Our strategy
1) Simplify organisational and operational model
We will reduce our organisational structure from four divisions, comprising 14 operating groups and three business development functions, to two divisions, which will focus on our core markets: Mouchel Infrastructure Services and Mouchel Business Services. The new streamlined structure will help to reduce bureaucracy and delegate responsibility and authority more effectively. It will provide tighter control and reduce support costs.
Mouchel Infrastructure Services will comprise our existing Highways and Regulated Industries divisions (including our operations in the Middle East). Mouchel Business Services will comprise our existing Government Business Services (GBS) and Management Consulting divisions.
The two divisions will have their own management teams and boards, which will take responsibility to fulfill the financial targets. This new structure allows corporate head office costs to be reduced accordingly. We will run our business from a smaller property footprint, which currently is too large.
The revised structure will improve client focus and technical capabilities. This focus will deliver operational excellence and help Mouchel to improve win rates and margins.
2) Maintain and grow in markets where Mouchel is leading and focus on our core strengths
In Mouchel Infrastructure Services, we will grow the Highways business in the UK, Australia and the Middle East.
In the UK, we will maintain our current position with our key client the Highways Agency (HA) and growth will be provided from the local authority highways market (currently only 50% of this market is outsourced).
Our successful partnership in Australia has secured new work and won awards for client service and business excellence. We have also identified significant prospects for growth in the Middle East, where governments have committed to a spend of GBP4bn for the development of road infrastructure.
Our water consulting business will be incorporated within Mouchel Infrastructure Services and we will look to grow this by positioning for the UK water industry's AMP6 cycle for 2015-20 (where spend has increased more than 20% in the last three cycles) and in the Middle East.
In Mouchel Business Services, our local government outsourcing business will focus on retaining and growing existing contracts and improving profitability. We will expand the business into adjacent councils to support the partnerships that we have created. We will integrate our management consulting business within our local government outsourcing business to provide innovation and growth.
In the short term, we will focus on our existing clients. Between three and eight new bundled contracts come to market each year and if only the contracts currently being procured are let, the market will grow by at least 5% per annum over the next six years. Mouchel is not currently pre-qualified for any new large BPO contracts. Due to our financial position, we are unlikely to successfully compete and therefore we will focus on improving our bid processes and target selection and be ready to go to market as, and when, our balance sheet has been restructured.
We will also create a new property business unit where we will focus our broad expertise and use this new unit as a foundation for growth.
3) Reduce overhead costs
Our existing structure was developed for a much larger business than we are today and there are opportunities to reduce the size of our corporate centre without damaging our business or affecting the services we deliver. We will achieve savings of circa GBP18m from overheads, which will be achieved in a large part by closing 13 properties. We plan to implement the majority of the savings by the end of September 2012 and the remainder by July 2014. We will also achieve cost savings by improving our financial systems and processes and devolving central functions to the two new divisions.
4) Improve contract win rates and profitability
As part of our strategic review we have cleansed our pipeline of future revenue opportunities, which has seen a reduction by GBP670m to GBP1,507m. A more focused pipeline helps us to concentrate on our most profitable opportunities.
We will improve win rates by implementing new processes and targeting our people and resources at key opportunities. We will also bring in additional people with proven track records to improve our bid performance where necessary.
We will improve contract profitability by delivering services to our clients more efficiently and sharing best practices, new technology and lean processes. We will also appoint a strategic IT partner to support us in this aim.
Restructuring our balance sheet
A key objective is to achieve a restructure of the Group's balance sheet such that Mouchel has a sustainable level of debt to deliver the platform for our operational plans and for the long-term viability of the business. We are evaluating all options for restructuring our balance sheet. These options include a significantly dilutive equity raise. The restructure is expected to be completed by the end of the 2012 financial year.
Trading results
Revenue for the period was GBP270.0m, compared with GBP270.3m for the first six months of last year. Gross contribution was GBP20.8m and operating profit before interest, taxation and exceptional items reduced by 111% to a loss of GBP1.0m, with underlying operating margins declining to a negative 0.4% (2011: positive 3.3%). The loss before tax and exceptional items for the period was GBP6.3m. Charges for exceptional items were GBP5.3m, compared with GBP5.6m last year, leading to a statutory loss before tax for the period of GBP11.6m (2011: loss of GBP1.5m). Earnings per share showed a loss of 11.3p (2011: loss 1.1p). No interim dividend will be declared (2011: nil).
Business Performance
Highways
Our Highways business is a market leader in the management and operation of highway networks, with an emphasis on the use of technology to achieve client outcomes.
We help clients to deliver improvements throughout the whole life cycle of a road asset. Our growth in this sector will come from exploiting this leading position to win the next generation of larger central Government contracts for the management and maintenance of road networks, and from opportunities arising from local government, as clients seek to drive efficiency and effectiveness of service. We will continue to evaluate new opportunities to use these competencies as markets develop in Australia and the Middle East.
Performance
Revenue for the first half of 2011/12 increased by 23% to GBP118.3m (2011: GBP96.3m). Contribution reduced by 6% to GBP9.0m (2011: GBP9.6m).
The CSR 2010 has continued to have an impact on revenue in our UK Highways business (accounting for an GBP11.6m reduction compared to the same six months last year), but this has been matched by an increase in work delivered by EnterpriseMouchel on a number of capital schemes (accounting for an additional GBP11.6m revenue). We have completed setting up a new contract with the National Traffic Information Service (NTIS), delivering an additional GBP4.4m of revenue. However, the NTIS contract has resulted in lower margins, as expected, as set up costs have been expensed and this reflects its position in the project life cycle. We expect it to deliver further profitability in the future as the contract progresses.
We continue to deliver strategically important congestion management schemes (Managed Motorways) for the Highways Agency (HA) on the M6 in the Birmingham area, the first two phases of which are now complete and operational. The next phase of this programme, covering the largely elevated sections of the M6 between junctions 5 and 8, has now commenced. In November 2011, we were also commissioned by the HA to develop proposals for the introduction of Managed Motorways on two congested sections of the M1 motorway, between junctions 28 to 31 and 32 and 35A in Yorkshire. As part of this commission, we are working with the HA to develop a 'delivery hub', involving the HA and key suppliers, to help with the strategic development of its Managed Motorway programme.
Our joint venture operating in the management and maintenance of road networks, EnterpriseMouchel, has grown its revenues in the first half of the year, relative to 2011. In London, EnterpriseMouchel has continued to develop its portfolio, through securing two new contracts. The first, for the London Borough of Croydon, is worth circa GBP8.5m per annum to the joint venture and extends for an initial term of four years, and began operations on 1 October 2011. In Enfield, services started on 6 November 2011 and are worth circa GBP13m per annum for four years.
In Western Australia our joint venture with Downer performed well in the first half of the year, contributing revenues of more than GBP17m. All three of the Integrated Service Arrangement (ISA) contracts for Main Roads Western Australia are now operating well. We are also working with our client to develop and implement innovative network management systems to alleviate the growing congestion problems experienced by motorists in, and around, Perth. Building on experience gained in the UK within the Managed Motorway programme and our broad range of transport technology and operations projects, we are applying our underlying principles within Western Australia. Following a review of the freeway and highway networks, Mouchel identified a range of interventions to alleviate the problems along with recommendations for a programme of works. The first project to be implemented will be the Kwinana Managed Freeway Pilot on the Kwinana Freeway and Roe Highway.
Mouchel has renegotiated its role in the Sheffield PFI bid and no longer has a share of the ownership of the bidding consortium, but has adopted a lower risk, sub-contractor role. If the bid is successful Mouchel will retain a long-term interest in the project as a provider of specialist design and support services.
Regulated Industries
Our Regulated Industries business provides a broad range of services to UK utility companies, and other organisations regulated by Government. This includes strategic consultancy, asset management and maintenance, multi-disciplinary design and engineering and environmental services. The business also undertakes a number of operational activities, including leakage detection.
Growth will be achieved by building on our strong position of delivering infrastructure projects and single services in order to provide integrated contracts and long-term service partnerships. We are also exploring opportunities for our Regulated Industries business through our joint venture with Downer in Australia.
Performance
Revenue for the first half of 2011/12 decreased by 14% to GBP35.6m (2011: GBP41.5m). Contribution reduced by 36% to GBP3.0m (2011: GBP4.7m).
The reduction in revenue in Regulated Industries was due to the disposal of our Rail and Pipeline Design businesses (resulting in a GBP2.7m drop in revenue and a corresponding GBP0.5m fall in contribution). It was also due to reduced work in the Middle East and the UK. The drop in revenue in the Middle East business was GBP1.8m and the contribution also fell by GBP1.8m. Despite this fall, we do see a clear path for the Middle East business to make a positive contribution. Whilst revenue reduced in the UK by GBP1.4m, the business increased contribution by GBP0.6m compared to the same period last year.
We are working for most UK water companies through our various AMP5 water company frameworks and continue to be a major provider in this field. Our activities cover capital design, asset management and operations. Key highlights have been helping Thames Water to meet its stringent leakage target in demanding conditions; an excellent start to our networks design framework with Wessex Water and continued implementation of pump optimisation software (Aquadapt) with our partner, Derceto, for Northumbrian Water. Outside England and Wales, we have recently secured and started a large asset tagging contract with Northern Ireland Water.
The engineering and environment business has won some significant external commissions in the period, notably extending our land referencing framework with Thames Water for its Thames Tideway project, and more recently, being awarded a place on the HS2 Professional Services Framework, again involving land referencing. The insurance business continues to trade well, with further work undertaken on large losses in Chile and Brazil. In the engineering business, our ports and marine team continues to grow with successful project wins, such as the Cairnryan Berth 1 Replacement Linkspan contract on the West Coast of Scotland.
Government and Business Services
Mouchel has 14% of the local government Business Process Outsourcing (BPO) market in the UK. Our plans for growth come from extending the number of services we provide to our existing clients and from winning new partnerships. We are seeing a small increase in the number of local government partnerships being procured as councils continue to drive for cost reductions and service improvement to deliver better outcomes for the communities they serve. In existing partnerships, we are working closely with our clients to help meet their budgetary requirements.
Performance
Revenue for the first half of 2011/12 reduced by 0.2% to GBP104.9m (2011: GBP105.1m). Contribution reduced by 31% to GBP8.1m (2011: GBP11.8m).
Revenue in Government and Business Services continues to be influenced by reductions in discretionary spend on infrastructure and property following the CSR 2010. Revenue has also been reduced as some of our existing contracts (for example with Hackney Homes) have expired and our work has come to an end this year. However these reductions in revenue have been offset by growth from supporting our existing clients with their transformation programmes, which has also led to the transfer of additional services to Mouchel. The fall in contribution is largely explained by the reduction in property related activities, as our contractual arrangements with local authorities mean that we continue to maintain the staff and overheads necessary to deliver a potential upturn in this work.
We are working in partnership with Bournemouth Borough Council to deliver a range of back-office services over 10 years. Whilst this is a key strategic relationship for Mouchel, the contract is expected to generate little margin in the first year or so of operation as investment in service transition and improvement is undertaken. The Council has recently demonstrated its commitment to the partnership by approving the transfer of Finance and HR services into the partnership with effect from 1 February 2012.
In Middlesbrough, where Mouchel works in partnership with the Council to deliver a range of back-office services, we have developed a pension administration and payroll business which serves police and fire and rescue services. In the first half of the year, we have secured work on four police pension frameworks. The latest win, where we were awarded sole supplier status on the West Yorkshire Police Pensions framework, takes the total number of police forces that Mouchel services to nine, making us the leading supplier in police pension administration. There is a further opportunity to work with four more police forces that fall within Mouchel's existing pension frameworks.
In Milton Keynes, we have delivered final net savings of GBP15.6m to Milton Keynes Council through our joint transformation and improvement programme Working Better Together (WBT). WBT, which closed in December 2011, will be followed by a further programme, New Ways of Working, under which Mouchel will deliver large-scale, organisational transformation, covering HR, public access, electronic documentation management and enterprise systems.
The 2020 Liverpool partnership, together with 2020 Knowsley, demonstrated how Mouchel's local government partnerships can deliver growth through the provision of services to clients other than the local authority. This has been achieved by developing skills within the Partnership and widening activities geographically and technically. As well as in Merseyside, the Partnerships deliver projects nationally including: schools in London and Dorset; retail projects in Essex, Buckinghamshire and Derbyshire; and landscape projects in Cumbria and Cheshire. In Liverpool, the Highways team is at the forefront of innovative intelligent transport systems, pollution-monitoring, and city-wide, traffic-control technology.
Following constructive negotiations, we have mutually agreed with Rochdale Metropolitan Borough Council to exit our contract, which is expected to be completed by the end of May 2012.
Management Consulting
The Group's Management Consulting business provides professional services across all our markets, including transformation, performance improvement, efficiency, cost reduction, and managed services. Our clients are local central government organisations and 'governmental' organisations that work in health, education, transport and utilities.
The Government market for consulting services has substantially declined since the CSR 2010 and this 'reduced market' is expected to continue at its current size for a considerable time. We have refocused the core consulting business on transformational, asset and infrastructure services, which continues to add value to all Mouchel's businesses, helping them to win and deliver operational contracts.
Performance
Revenue for the first half of 2011/12 reduced by 59% to GBP11.2m (2011: GBP27.4m). Contribution reduced by 83% to GBP0.7m (2011: GBP4.0m).
The consultancy business is still feeling the effects of the CSR 2010 with a reduction in revenue from core consulting activities and from the one-off BPR project in the Middle East. As a consequence, we have continued to restructure the business, with staff numbers reduced by 35% since July 2011.
Despite local government reducing spending on consulting services, we were able to secure consulting revenue from our long-term partner organisations' BPO contracts in Middlesbrough, Oldham, Lincoln and Bournemouth. Our long-term consulting contract work for the Department of Health (DoH), the Centre for Workforce Intelligence (an independent agency working on specific DoH projects and an operating unit within Management Consulting) helps to determine future DoH workforce requirements. We have maintained our position on the Department for Education's Project Management and Education Services Framework. We are also one of only six companies to have won a place on both Lots within the 2011 Project Management Education Advisory Framework.
UK utility companies have experienced a recent change in regulation and consequently have come under increased pressure from their owners to improve performance, planning and operational effectiveness. Mouchel's presence in the water sector broadened this year when we secured a place on Thames Water's Management Consultancy Framework. Similarly, we continue to work with public and private companies in the transport sector, and on the transformation implementation of our NTIS contract.
We have developed new relationships with a number of private sector funding and developer clients, who value our property expertise, together with our experience and knowledge of local government. Our facilities management team had a successful year with continuing work at the West London Mental Health Trust and new work at the Department for Environment, Food and Rural Affairs.
Financial Review
Divisional presentation
Our divisional performance for the half year has been presented to a gross contribution level, excluding corporate expenses. This approach reflects the internal reporting metrics which we use to manage our business, and is intended to more clearly represent the underlying performance of the Group. This analysis is set out in note 2 (segmental analysis) to our accounts.
This same presentation has been shown for the six months to 31 January 2011 and for the 12 months to 31 July 2011. During these two prior periods the Group accounted for vacant property costs at the divisional gross contribution level, whereas in the six months to 31 January 2012 the Group accounted for vacant property costs within corporate expenses. In the 12 months to 31 July 2012 these vacant property costs are expected to be approximately GBP4m, which would represent an increase over the same period in 2011.
Order book and pipeline
Our order book at 31 January 2012 is at GBP1.16bn (compared with GBP1.6bn at the same time last year). The partnership in Rochdale has been removed as we will exit this contract by the end of May 2012. Mouchel has secured GBP120m of new work in the first half of this year.
Pipeline at the end of January 2012 is at GBP1.51bn (compared with GBP2.0bn 12 months ago). This reflects a reduction in the Sheffield PFI value due to our revised role. There are a number of large bids with decisions due in the second half of 2012. Our BPO pipeline will take time to rebuild, but there are plenty of good opportunities. Revised processes and business development structure will help us compete more strongly for work and only focus our efforts on work which provides the best fit for Mouchel.
Net finance costs
Net finance costs (before exceptional items) for the first half of the year were GBP5.3m (2011: GBP4.8m).
Taxation
The tax charge for the six months ended 31 January 2012 reflects the assessment of the recoverability of deferred tax assets in light of the Group's losses incurred in the period. Deferred tax assets have only been recognised where it is considered probable that losses will be utilised.
Exceptional items
The Group incurred exceptional costs of GBP5.3m (2011: GBP5.6m) in the first half of the year. Major items included an exceptional profit of GBP1.5m in respect of the disposal of non-core Rail and Pipeline Design businesses, GBP3.4m in respect of legal and other financial costs in relation to the Group's refinancing and capital restructuring (2011: GBP3.5m), and GBP2.9m (2011: GBP3.2m) regarding the amortisation of intangible assets. The Group has agreed further amendments to its bank arrangement to allow it the flexibility to reduce its cost base and evaluate and implement a restructuring of the balance sheet
Earnings per share
The Group reported adjusted loss per share (as defined in note 8 to the accounts) of 6.8p (2011: earnings of 2.6p). Basic earnings per share showed a loss of 11.3p (2011: loss 1.1p).
Cash flow and net bank debt position
At 31 January 2012, the Group had net bank borrowings of GBP104.1m, an increase of GBP7.2m from 31 January 2011.
Average net bank borrowings in the first half of the financial year were approximately GBP108.0m (2011: GBP111.0m). This compares to average net bank borrowings in the second half of the last financial year of GBP107.0m
Cash generated from operations before exceptional items amounted to an outflow of GBP5.3m (2011: inflow of GBP4.0m) reflecting the lower profitability. Despite the reported operating loss, the group generated GBP4.0m (2011: GBP15m) of cash pre-working capital outflows. The working capital outflows of GBP9.0m for January 12 are a result of 'normalising' working capital to remove payment delay to creditors.
A significant item explaining the operating cash outflow in the first half relates to the net cash costs exceptional items, which amounted to GBP2.4m (2011: GBP11.7m). GBP1.8m of this related to items expensed relating to restructuring and bid defence in prior periods but not paid out until this financial period. The remaining GBP0.6m related to refinancing costs and staff redundancies.
However, this was compensated by a GBP4.5m cash gain on the disposal of the Rail and Pipeline Design businesses detailed in the investing activities section of the cash flow.
Pensions
The Group operates three main defined benefit schemes; namely, the Mouchel Superannuation Fund, the Mouchel Staff Pension Scheme and the Mouchel Business Services Ltd Pension Scheme. All remaining employees, who contribute to a pension, are members of the Group's defined contribution scheme.
The Group accounts for all of the defined benefit schemes under International Accounting standard (IAS) 19 Employee Benefits. The IAS 19 charge for the year was GBP0.1m compared with GBP2.3m last year. The decrease was mainly attributable to a GBP2.3m reduction in current service cost, which includes a GBP0.6m benefit from the MBS Teesside scheme becoming a defined contribution scheme from 1 June 2011.
The Group deficit on its defined benefit pension schemes, stated before tax and calculated under IAS 19, is GBP49.5m as at 31 January 2012 (GBP35.2m as at 31 January 2011, GBP32.8m as at 31 July 2011). The principal drivers of the increase in the deficit in the past six months were the under-performance of the assets invested in the fund, along with an adverse effect of changes in the actuarial assumptions used to calculate the present value of the scheme liabilities.
The actual return on assets for the six months to January 2012 was 1.2%, compared to an expected return set at the beginning of the period of 6.8%. The discount rate used to calculate the present value of scheme liabilities decreased from 5.4% to 4.8% in the period with a decrease in the expected rate of inflation (consumer price index) from 2.9% to 2.4%. The Group continues to make special contributions to the schemes as part of the deficit reduction programme. In the six months to January 2012, GBP3.3m of contributions were made by the Group, which was GBP2.6m more than the schemes' service costs.
There have been no significant changes in the nature of the defined benefit pension schemes in the past six months.
Principal risks and uncertainties
The directors have considered the risks and uncertainties affecting the Group and its performance in the six months to 31 January 2012. The directors do not believe that there has been a significant change to these risks, which were discussed in full on pages 24 - 27 of the Group's published accounts for the year ended 31 July 2011.
The Group may continue to suffer from lower than normal win rates while there remains a high level of debt and a weak balance sheet. Other risks include those arising from: contract risks due to the complexity of contracts and potential penalties for non performance; financial risks, including the inability to comply with banking covenants, variations in interest rates, foreign exchange rates, credit and liquidity; counterparty risks as highlighted in notes 3 and 9 concerning the BPR contract in Abu Dhabi; taxation risks arising from changes to, and interpretations of, tax laws in any of the markets that the Group operates in; pension risks arising from changes in interest rates and asset values, as well as inflation and the life expectancy of members; market and economic risks arising from significant changes to Government policies, expenditure levels and the potential failure to win new contracts; reputational risks as a result of recent performance and the proposed disposal of the Middle East business (now reversed), which has had an impact on the Group's ability to win new work; safety, health and environmental risks as a result of the type of contracts the Group undertakes; business continuity risks, such as IT infrastructure failures and external incidents such as flu pandemics or acts of terrorism; workforce risks should the Group being unable to attract and retain an appropriately skilled workforce; joint venture risks due to the high percentage of work undertaken through joint ventures.
Responsibilities statement
The names and functions of the directors of Mouchel Group plc are as listed in the Group's Annual Report for 2011 with the following changes:
-- David Shearer was appointed Chairman on 9 January 2012.
-- Sir Michael Lyons stepped down as Interim Chairman on 9 January 2012 but remains the Senior Independent Director.
-- Debbie Hewitt resigned as a Non-Executive Director on 20 January 2012.
-- Richard Rae became a member of the Audit Committee on 4 November 2011 and Chairman of the Remuneration Committee on 20 January 2012.
A list of current directors is maintained on the Group website: www.mouchel.com
The directors confirm to the best of their knowledge:
a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;
b) the interim management report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial Services Authority (DTR); and
c) the interim management report includes a fair review of the information required by DTR 4.2.8R being disclosure of related party transactions and changes therein since the last annual report.
By order of the Board
Grant Rumbles Rod Harris Chief Executive Group Finance Director
Consolidated Income Statement (unaudited)
for the six months ended 31 January 2012
Results Results
before before
exceptional Exceptional exceptional Exceptional
items items(1) Total items items(1) Total
6 months 6 months 6 months 6 months 6 months 6 months
to to to to to to
31/01/2012 31/01/2012 31/01/2012 31/01/2011(2) 31/01/2011(2) 31/01/2011(2)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
===================== ===== ============ ============ =========== ============== ============== ===============
Revenue 2 270.0 - 270.0 270.3 - 270.3
Cost of sales (235.3) - (235.3) (225.8) - (225.8)
--------------------- ----- ------------ ------------ ----------- -------------- -------------- ---------------
Gross profit 34.7 - 34.7 44.5 - 44.5
Administrative
expenses (35.7) (2.7) (38.4) (35.6) (2.1) (37.7)
--------------------- ----- ------------ ------------ ----------- -------------- -------------- ---------------
Operating
(loss)/profit 2 (1.0) (2.7) (3.7) 8.9 (2.1) 6.8
Finance income 4 0.7 - 0.7 0.7 - 0.7
Finance costs 4 (6.0) (2.6) (8.6) (5.5) (3.5) (9.0)
--------------------- ----- ------------ ------------ ----------- -------------- -------------- ---------------
(Loss)/profit before
tax (6.3) (5.3) (11.6) 4.1 (5.6) (1.5)
Taxation 6 (1.7) 0.7 (1.0) (1.2) 1.4 0.2
===================== ===== ============ ============ =========== ============== ============== ===============
(Loss)/profit for the
period (8.0) (4.6) (12.6) 2.9 (4.2) (1.3)
===================== ===== ============ ============ =========== ============== ============== ===============
Basic and diluted
loss per
share 8 (11.3)p (1.1)p
===================== ===== ============ ============ =========== ============== ============== ===============
Consolidated Statement of Comprehensive Income (unaudited)
for the six months ended 31 January 2012
6 months 6 months 6 months 6 months
to to to to
31/01/2012 31/01/2012 31/01/2011(2) 31/01/2011(2)
Notes GBPm GBPm GBPm GBPm
============================================================ ===== ========== ========== ============= =============
Loss for the period (12.6) (1.3)
============================================================ ===== ========== ========== ============= =============
Differences on exchange 0.1 -
Changes in fair value of cash flow hedges
(interest rate swaps):
- (losses)/gains recognised in equity (0.1) 0.2
* gains removed from equity and recognised in the
Consolidated Income Statement in the period. 1.6 1.9
========== =============
1.5 2.1
Actuarial (loss)/gain on pension scheme valuations 15 (19.9) 14.0
Deferred tax on actuarial movement in pension
scheme valuations 5.0 (3.8)
============================================================ ===== ========== ========== ============= =============
Other comprehensive (loss)/profit (13.3) 12.3
============================================================ ===== ========== ========== ============= =============
Total comprehensive (loss)/profit for the
period (25.9) 11.0
============================================================ ===== ========== ========== ============= =============
There is no tax effect for differences on exchange or changes in the fair value of cash flow hedges.
(1) Exceptional items are disclosed in note 3
(2) The figures for the six months ended 31 January 2011 are extracted from the unaudited 2011 Interim Report for the Group
Consolidated Income Statement (audited)
for the year ended 31 July 2011
Results
before
exceptional Exceptional
items items(1) Total
12 months 12 months 12 months
to to to
31/07/2011 31/07/2011 31/07/2011
Notes GBPm GBPm GBPm
=========================== ===== ============ =========== ============
Revenue 2 539.6 11.8 551.4
Cost of sales (443.4) (14.3) (457.7)
--------------------------- ----- ------------ ----------- ------------
Gross profit 96.2 (2.5) 93.7
Administrative expenses (80.5) (60.1) (140.6)
--------------------------- ----- ------------ ----------- ------------
Operating profit/(loss) 2 15.7 (62.6) (46.9)
Finance income 4 1.1 - 1.1
Finance costs 4 (11.8) (7.2) (19.0)
--------------------------- ----- ------------ ----------- ------------
Profit/(loss) before tax 5.0 (69.8) (64.8)
Taxation 6 (5.6) 1.8 (3.8)
=========================== ===== ============ =========== ============
Loss for the year (0.6) (68.0) (68.6)
=========================== ===== ============ =========== ============
Basic and diluted loss per
share 8 (61.7)p
=========================== ===== ============ =========== ============
Consolidated Statement of Comprehensive Income (audited)
for the year ended 31 July 2011
12 months 12 months
to to
31/07/2011 31/07/2011
GBPm GBPm
============================================================= =========== ===========
Loss for the year (68.6)
============================================================= =========== ===========
Differences on exchange (0.5)
Changes in fair value of cash flow hedges (interest
rate swaps):
- losses recognised in equity (1.4)
* gains removed from equity and recognised in the
Consolidated Income Statement in the period. 3.6
===========
2.2
Actuarial gain on pension scheme valuations 10.5
Deferred tax on actuarial movement in pension
scheme valuations (2.6)
============================================================= =========== ===========
Other comprehensive profit 9.6
============================================================= =========== ===========
Total comprehensive loss for the year (59.0)
============================================================= =========== ===========
There is no tax effect for differences on exchange or changes in the fair value of cash flow hedges.
(1) Exceptional items are disclosed in note 3
Group Balance Sheet (unaudited)
as at 31 January 2012
31/01/2012 31/01/2011(1) 31/07/2011(1)
Notes GBPm GBPm GBPm
======================================= ===== ========== ============= =============
Assets
Non-current assets
Goodwill 64.4 109.7 64.4
Other intangible assets 46.7 54.8 50.6
Property, plant and equipment 10.1 14.8 13.1
Deferred tax assets 17.8 20.9 14.3
139.0 200.2 142.4
======================================= ===== ========== ============= =============
Current assets
Trade and other receivables 9 126.9 138.3 120.8
Cash and cash equivalents 14 46.1 56.9 47.3
======================================= ===== ========== ============= =============
173.0 195.2 168.1
======================================= ===== ========== ============= =============
LIABILITIES
Current liabilities
Borrowings 11 - (0.3) (135.1)
Trade and other payables 10 (132.6) (112.1) (124.6)
Current tax liabilities (12.2) (14.4) (12.2)
Provisions for liabilities and charges 12 (2.6) (11.0) (3.3)
Retirement benefit obligations 15 (0.4) (0.7) (0.7)
======================================= ===== ========== ============= =============
(147.8) (138.5) (275.9)
======================================= ===== ========== ============= =============
Net current assets/(liabilities) 25.2 56.7 (107.8)
======================================= ===== ========== ============= =============
Non-current liabilities
Borrowings 11 (140.7) (149.5) -
Trade and other payables (0.1) (0.1) (0.1)
Derivative financial instruments 11 (4.7) (5.6) (6.4)
Provisions for liabilities and charges 12 (4.1) (4.4) (4.2)
Deferred tax liabilities (5.4) (7.5) (6.1)
Retirement benefit obligations 15 (49.1) (34.4) (32.1)
======================================= ===== ========== ============= =============
(204.1) (201.5) (48.9)
======================================= ===== ========== ============= =============
Net (liabilities)/assets (39.9) 55.4 (14.3)
======================================= ===== ========== ============= =============
EQUITY
Share capital 0.3 0.3 0.3
Share premium 27.9 27.9 27.9
Other reserves 13.7 13.0 12.1
(Accumulated losses)/retained earnings (81.8) 14.2 (54.6)
======================================= ===== ========== ============= =============
Total equity (39.9) 55.4 (14.3)
======================================= ===== ========== ============= =============
The notes on pages 16 to 31 are an integral part of the condensed interim consolidated financial information.
(1) The figures given for the six months ended 31 January 2011 are extracted from the unaudited 2011 Interim Report for the Group (subject to the split of Provisions for liabilities and charges between Current and Non-current which was established in the current financial period) and the figures given for the year ended 31 July 2011 are extracted from the audited 2011 Annual Report and Accounts.
Consolidated Cash Flow Statement (unaudited)
for the six months ended 31 January 2012
31/01/2012 31/01/2011(1) 31/07/2011(1)
Notes GBPm GBPm GBPm
===================================================== ===== ========== ============= =============
Cash flows from operating activities
Cash (used in)/generated from operations before
exceptional costs 13 (5.3) 4.0 39.3
Exceptional items (2.4) (11.7) (21.9)
----------------------------------------------------- ----- ---------- ------------- -------------
Cash (used in)/generated from operations 13 (7.7) (7.7) 17.4
Taxation paid - - (0.6)
Taxation refunded - 3.1 3.8
----------------------------------------------------- ----- ---------- ------------- -------------
Net cash (used in)/generated from operating
activities (7.7) (4.6) 20.6
===================================================== ===== ========== ============= =============
Cash flows from investing activities
Net proceeds arising from disposal of Rail and
Energy businesses 4.5 - -
Purchase of property, plant and equipment - (0.7) (1.9)
Purchase of intangible assets - software and
assets in the course of construction (1.2) (0.6) (2.5)
Special contributions to defined benefit pension
schemes (2.6) (3.9) (7.2)
Interest received 0.1 0.2 0.4
Net generated from/(cash used) in investing
activities 0.8 (5.0) (11.2)
===================================================== ===== ========== ============= =============
Cash flows from financing activities
Loan facility drawn down net of loan issue costs 15.2 25.0 6.3
Other loan payments (0.1) (0.5) (0.8)
Finance lease principal payments - (0.1) (0.1)
Finance costs paid (7.2) (3.3) (7.7)
Exceptional finance costs paid (2.2) - (5.0)
===================================================== ===== ========== ============= =============
Net cash generated from/(used in) financing
activities 5.7 21.1 (7.3)
===================================================== ===== ========== ============= =============
Net (decrease)/increase in cash and cash equivalents (1.2) 11.5 2.1
Cash and cash equivalents at 1 August 47.3 45.4 45.4
Effects of exchange rate changes - - (0.2)
Cash and cash equivalents at 31 January and
31 July 14 46.1 56.9 47.3
===================================================== ===== ========== ============= =============
(1) The figures given for the six months ended 31 January 2011 are extracted from the unaudited 2011 Interim Report for the Group and the figures given for the year ended 31 July 2011 are extracted from the audited 2011 Annual Report and Accounts.
Consolidated Statement of Changes in Equity (unaudited)
as at 31 January 2012
Share Share Other Retained
capital premium reserves earnings Total
Notes GBPm GBPm GBPm GBPm GBPm
============================================ ===== ======== ======== ========= ========= ======
Balance at 1 August 2010 0.3 27.9 10.9 4.9 44.0
============================================ ===== ======== ======== ========= ========= ======
Comprehensive income
Loss for the period - - - (1.3) (1.3)
Other comprehensive income
Actuarial gain on pension scheme valuations - - - 14.0 14.0
Deferred tax on pension scheme valuations - - - (3.8) (3.8)
Changes in fair value of derivatives
designated as cash flow hedges - - 2.1 - 2.1
Total other comprehensive income - - 2.1 10.2 12.3
============================================ ===== ======== ======== ========= ========= ======
Total comprehensive income - - 2.1 8.9 11.0
============================================ ===== ======== ======== ========= ========= ======
Transactions with owners
Share based payments - - - 0.4 0.4
Balance at 31 January 2011 0.3 27.9 13.0 14.2 55.4
============================================ ===== ======== ======== ========= ========= ======
Balance at 1 August 2011 0.3 27.9 12.1 (54.6) (14.3)
-------------------------------------------- ----- -------- -------- --------- --------- ------
Comprehensive income
Loss for period - - - (12.6) (12.6)
Other comprehensive income
Actuarial loss on pension scheme valuations 15 - - - (19.9) (19.9)
Deferred tax on pension scheme valuations - - - 5.0 5.0
Changes in fair value of derivatives
designated as cash flow hedges - - 1.5 - 1.5
Currency translation differences - - 0.1 - 0.1
============================================ ===== ======== ======== ========= ========= ======
Total other comprehensive income - - 1.6 (14.9) (13.3)
Total comprehensive income - - 1.6 (27.5) (25.9)
============================================ ===== ======== ======== ========= ========= ======
Transactions with owners
Share-based payments - - - 0.3 0.3
Balance at 31 January 2012 0.3 27.9 13.7 (81.8) (39.9)
============================================ ===== ======== ======== ========= ========= ======
Notes to the condensed interim consolidated financial information (unaudited)
for the six months ended 31 January 2012
1 Basis of preparation
This condensed interim consolidated financial information, which is unaudited for the six months ended 31 January 2012, has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority. It has also been prepared in accordance with the accounting policies the Group expects to adopt in its 2012 Annual Report and unless stated are consistent with those adopted in the consolidated financial statements for the year ended 31 July 2011. These accounting policies are based on the EU-adopted International Financial Reporting Standards (IFRS's) and International Financial Reporting Interpretations Committee (IFRIC) interpretations that the Group expects to be applicable at that time. The IFRS and IFRIC interpretations that will be applicable at 31 July 2012, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing this interim financial information.
This condensed interim consolidated financial information is not audited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. Comparative figures for the year ended 31 July 2011 have been extracted from the Annual Report and Accounts, on which the auditors gave an unqualified opinion, which included an emphasis of matter regarding the recoverability of the Group's debt in respect of the BPR contract in Abu Dhabi. The Group Report and Accounts for the year ended 31 July 2011 have been filed with the Registrar of Companies.
This condensed interim financial information for the six months ended 31 January 2012 has been prepared in accordance with IAS 34, 'Interim financial reporting', as adopted by the European Union. Taxes on income in interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
The condensed interim financial information has been prepared under the historical cost convention except for the following items which are fair valued: share based payments, cash flow hedges and retirement benefit obligations.
The financial statements have been prepared on a going concern basis. In determining that this is an appropriate basis for preparing the financial statements, the directors have given regard to the factors affecting the future development, performance and financial position of the Group including its cash flows, liquidity position, borrowing facilities and the risks and uncertainties relating to its business activities.
As disclosed in note 11, subsequent to 31 January 2012, the Group agreed amendments to its banking facilities. As part of the renegotiation, careful consideration has been given to the budgeting and ongoing cash management within the business which have been subject to extensive review. Notwithstanding the current economic climate, the directors are therefore satisfied that sufficient headroom exists within the Group's banking facilities.
After considering these factors, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed interim consolidated financial information.
New accounting standards and amendments
The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year ended 31 July 2012, but do not have a material impact on the group's results:
-- IFRS 7, 'Financial instruments: Disclosure - Amendments enhancing disclosures about transfers of assets - effective for accounting periods beginning on or after 1 July 2011.
-- IAS 24 (revised): Related Party Disclosures - Revised definition of related parties - effective for accounting periods beginning on or after 1 January 2011.
-- IFRS 1 (amendment), on hyperinflation and fixed dates - effective for accounting periods beginning on or after 1 July 2011.
-- Annual improvements to IFRS's (2010) - effective 1 January 2011.
-- IFRIC 14 (amendment) - Pre-payments of a Minimum Funding Requirement - effective for accounting periods beginning on or after 1 January 2011.
Future accounting standards and amendments
IFRS 11 Joint arrangement - effective for accounting periods beginning on or after 1 January 2013, which will impact the accounts for the year ended 31 July 2014. Given that the Group has a number of joint ventures which are currently proportionately consolidated, it is possible that the standard will have a material impact on the Group's reporting as this will no longer be permitted.
2 Segmental analysis
Business segments
The Group's operations are organised and managed separately, according to the nature of products and services provided.
International Financial Reporting Standard 8 'Operating Segments' (IFRS 8) requires that information reported externally is on the same basis that information is used/reviewed internally and reported to the Chief Operating Decision Maker. In prior years group overheads have been allocated to the business segments thereby showing the underlying operating profit of each of the segments. With the arrival of a new management team the existing reporting basis has been reviewed and operating groups and business segments are now monitored at the contribution level before Group overheads. Consequently the segmental analysis below has been presented showing the gross contribution achieved by each business segment. The overheads previously allocated/absorbed are disclosed as Corporate. Please note that the Corporate segment presented does not represent an operating segment as defined by IFRS 8.
Prior period comparatives have been adjusted accordingly.
Please note there is no impact on the Group's statutory results or earnings per share as a result of this change.
Analysis of results by business segment is as follows:
Government
and Business Management Regulated
Highways Services Consulting Industries Corporate Total
6 months to 31 January 2012 GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ======== ============= =========== =========== ========= =======
Revenue 118.3 104.9 11.2 35.6 - 270.0
======================================== ======== ============= =========== =========== ========= =======
Gross contribution 9.0 8.1 0.7 3.0 (21.8) (1.0)
Restructuring and aborted disposal
costs in the Middle East - - - (0.1) - (0.1)
Restructuring costs in the UK - - (0.4) - - (0.4)
Group capital restructuring - - - - (0.8) (0.8)
Amortisation of intangible assets
arising from business combinations (0.7) (0.7) (1.3) (0.2) - (2.9)
Income and associated costs from
disposal of Rail and Energy businesses - - - 1.5 - 1.5
Operating profit/(loss) 8.3 7.4 (1.0) 4.2 (22.6) (3.7)
======================================== ======== ============= =========== =========== ========= =======
Assets by segment
======================================== ======== ============= =========== =========== ========= =======
Goodwill and other intangibles 28.7 58.8 11.1 12.5 - 111.1
Trade and other receivables 43.8 27.9 15.6 21.1 - 108.4
Other segment assets 7.0 15.8 0.7 5.1 - 28.6
Unallocated assets:
- deferred tax assets 17.8
- cash 46.1
Total assets 312.0
======================================== ======== ============= =========== =========== ========= =======
Liabilities by segment
======================================== ======== ============= =========== =========== ========= =======
Trade payables - current (4.1) (7.4) (2.0) (5.1) - (18.6)
Other segment liabilities (46.1) (43.5) (2.3) (12.1) - (104.0)
Unallocated liabilities:
- borrowings (140.7)
- current tax liabilities (12.2)
- deferred tax liabilities (5.4)
- retirement benefit obligations (49.5)
- derivative financial instruments (4.7)
- other unallocated liabilities (16.8)
======================================== ======== ============= =========== =========== ========= =======
Total liabilities (351.9)
======================================== ======== ============= =========== =========== ========= =======
Total net liabilities (39.9)
======================================== ======== ============= =========== =========== ========= =======
Government
and Business Management Regulated
Highways Services Consulting Industries Corporate Total
6 months to 31 January 2011 GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ======== ============== =========== =========== ========= =======
Revenue 96.3 105.1 27.4 41.5 - 270.3
===================================== ======== ============== =========== =========== ========= =======
Gross contribution 9.6 11.8 4.0 4.7 (21.2) 8.9
Restructuring costs in the UK - - - - (0.4) (0.4)
Recovery of prior year's exceptional
charges - - - 1.5 - 1.5
Amortisation of intangible assets
arising from business combinations (1.1) (0.7) (1.2) (0.2) - (3.2)
Operating profit/(loss) 8.5 11.1 2.8 6.0 (21.6) 6.8
===================================== ======== ============== =========== =========== ========= =======
Assets by segment
===================================== ======== ============== =========== =========== ========= =======
Goodwill and other intangibles 31.4 61.0 54.8 17.3 - 164.5
Trade and other receivables (1) 37.8 31.4 19.1 28.5 - 116.8
Other segment assets (1) 8.5 20.2 1.5 6.1 - 36.3
Unallocated assets:
- deferred tax assets 20.9
- cash 56.9
Total assets 395.4
===================================== ======== ============== =========== =========== ========= =======
Liabilities by segment
===================================== ======== ============== =========== =========== ========= =======
Trade payables - current (8.1) (7.5) (4.2) (3.7) - (23.5)
Other segment liabilities (21.0) (42.9) (3.3) (33.8) - (101.0)
Unallocated liabilities:
- borrowings (149.8)
- current tax liabilities (14.4)
- deferred tax liabilities (7.5)
- retirement benefit obligations (35.1)
- derivative financial instruments (5.6)
- other unallocated liabilities (3.1)
===================================== ======== ============== =========== =========== ========= =======
Total liabilities (340.0)
===================================== ======== ============== =========== =========== ========= =======
Total net assets 55.4
===================================== ======== ============== =========== =========== ========= =======
(1) The comparatives for trade and other receivables and other segment assets have been restated due to a misallocation in the 2011 Interim Report
Government
and Business Management Regulated Total
Highways Services Consulting Industries Corporate Group
12 months to 31 July 2011 GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ======== ============= =========== =========== ========= =======
Underlying revenue 205.6 218.5 33.0 82.5 - 539.6
Exceptional revenue (1) - - 11.8 - - 11.8
Total Revenue 205.6 218.5 44.8 82.5 - 551.4
======================================== ======== ============= =========== =========== ========= =======
Gross contribution 22.5 23.9 5.7 10.4 (46.8) 15.7
Restructuring and aborted disposal
costs in the Middle East - - - (0.3) - (0.3)
Restructuring costs in the UK (2.2) 1.3 (0.6) (0.1) (1.6) (3.2)
Recovery of prior year's exceptional
charges - - - 1.5 - 1.5
Bid defence costs - - - - (2.1) (2.1)
Pension curtailment gain from customer
contract change - 1.9 - - - 1.9
Loss on Management Consulting's
Business Process Re-engineering
contract in the Middle East - - (3.9) - - (3.9)
Provision against Holleran Mouchel
joint venture - - - (4.0) - (4.0)
Amortisation of intangible assets
arising from business combinations (2.2) (1.3) (2.5) (0.4) - (6.4)
Impairment of goodwill - - (41.3) (4.0) - (45.3)
Income and associated costs from
disposal of Rail and Energy businesses - - - (0.8) - (0.8)
Operating profit/(loss) 18.1 25.8 (42.6) 2.3 (50.5) (46.9)
======================================== ======== ============= =========== =========== ========= =======
Assets by segment
======================================== ======== ============= =========== =========== ========= =======
Goodwill and other intangibles 29.6 59.8 12.6 13.0 - 115.0
Trade and other receivables 33.9 23.0 16.5 29.2 - 102.6
Other segment assets 7.3 17.5 1.2 5.3 - 31.3
Unallocated assets:
- deferred tax assets 14.3
- cash 47.3
Total assets 310.5
======================================== ======== ============= =========== =========== ========= =======
Liabilities by segment
======================================== ======== ============= =========== =========== ========= =======
Trade payables - current (2.9) (11.0) (3.1) (4.9) - (21.9)
Other segment liabilities (41.6) (46.1) (4.9) (14.3) - (106.9)
Unallocated liabilities:
- borrowings (135.1)
- current tax liabilities (12.2)
- deferred tax liabilities (6.1)
- retirement benefit obligations (32.8)
- derivative financial instruments (6.4)
- other unallocated liabilities (3.4)
======================================== ======== ============= =========== =========== ========= =======
Total liabilities (324.8)
======================================== ======== ============= =========== =========== ========= =======
Total net liabilities (14.3)
======================================== ======== ============= =========== =========== ========= =======
(1) Exceptional revenue relates to Management Consulting's Business Process Re-engineering contract in the Middle East (see note 3 for further details).
Geographical analysis
The table below represents revenue by geographical origin (the analysis by geographical destination is not materially different to that by origin) and the carrying amount of non-current assets (1) , split according to the geographical location of those assets.
Non-current assets
Revenue (1)
====================== ============================================== ==============================================
6 months 6 months 12 months 6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011 to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm GBPm GBPm GBPm
====================== ============== ============== ============== ============== ============== ==============
United Kingdom 243.6 252.2 512.4 120.6 178.7 127.4
Middle East 6.2 15.8 25.6 0.6 0.6 0.6
Australasia 19.5 1.6 11.9 - - 0.1
Ireland and other
overseas 0.7 0.7 1.5 - - -
====================== ============== ============== ============== ============== ============== ==============
270.0 270.3 551.4 121.2 179.3 128.1
====================== ============== ============== ============== ============== ============== ==============
The Middle East revenue for the period to 31 July 2011 includes GBP11.8m relating to business process re-engineering for the municipalities in Abu Dhabi which is included within the Management Consulting business segment with the balance being included in Regulated Industries.
(1) Non-current assets exclude deferred tax assets
3 Exceptional items
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
========================================== ============== ============== ==============
Restructuring and aborted disposal
costs in the Middle East (1) (0.1) - (0.3)
Restructuring costs in the UK (2) (0.4) (0.4) (3.2)
Recovery of prior year's exceptional
charges in Regulated Industries (3) - 1.5 1.5
Bid defence costs (4) - - (2.1)
Pension curtailment gain from customer
contract change (5) - - 1.9
Loss on Management Consulting's Business
Process Re-engineering contract in
Middle East (6) - - (3.9)
Finance costs (7) (2.6) (3.5) (7.2)
Group capital restructuring (8) (0.8) - -
Provision regarding Holleran Mouchel
joint venture (9) - - (4.0)
Amortisation of intangible assets
arising from business combinations
(10) (2.9) (3.2) (6.4)
Impairment of goodwill (11) - - (45.3)
Income and associated costs from disposal
of Rail & Energy businesses(12) 1.5 - (0.8)
========================================== ============== ============== ==============
Total exceptional items (5.3) (5.6) (69.8)
========================================== ============== ============== ==============
Management use underlying profit to measure and manage the financial performance of the Group on a day-to-day basis. Underlying profit excludes material income and charges considered to be one-off or non-recurring in nature. Underlying profit also excludes the amortisation of intangible assets arising from business combinations. The Group presents these items as exceptional in a separate column in the Income Statement so that the underlying and statutory performance can be seen clearly.
(1) The economic slow down in Dubai initially resulted in the decision to close our Dubai operations following our significant presence reduction in 2009. As a result, the Group incurred restructuring charges of GBP0.1m in the year ended 31 July 2011 mainly in respect of redundancies and surplus property provisions. The decision by the previous management team to sell the Middle East business has now been reversed but only after some legal costs had been incurred in the 6 months to 31 January 2012.
(2) Restructuring costs were incurred to reduce the organisational structure, staffing levels and office portfolio. Further costs will also be incurred in the second half of the year.
(3) Recovery of amounts provided for during the year ended 31 July 2009 as a result of a customer terminating our contract and that after protracted negotiations have been recovered in the year to 31 July 2011.
(4) For the year ended 31 July 2011, costs relate to defences against unsolicited approaches from Costain, Interserv and others.
(5) Pension scheme curtailment gain on the Teesside Pension Scheme in the year ended 31 July 2011 arose from a customer contract change whereby the pension risk now rests with the original customer and so from 1 June 2011 this pension scheme has been accounted for on a defined contribution basis where previously it had been on a defined benefit basis.
(6) The loss in the year ended 31 July 2011 related to a Business Process Re-engineering project undertaken across four Municipalities in the United Arab Emirates and involved the review of current business processes, identification and documentation of best practice processes, staff training and implementation. This project was entered into in April 2010 and represented a significant departure for the Group in that this was the first contract of its kind undertaken by the Group within the Middle East to establish a Middle Eastern Consulting business. The project value is circa 86.4m AED (approx GBP14.9m). Turnover in the year ended 31 July 2011 was GBP11.8m. The Group has decided to disband the unit and capability as this project completes. The project is substantially complete but a number of tasks remain to be finished. Contained within the loss reported are provisions to reflect further costs to complete. The Group has received some monies - 13.4m AED (GBP2.3m) but there is 73.1m AED (GBP12.6m) trade receivables and unbilled revenue outstanding on this project at 31st January 2012. A further 19.6m AED (GBP3.4m) has been received subsequent to 31 January 2012. This debt was discounted during the year end 31 July 2011 to recognise the fact that the monies are expected to be received during this calendar year (see note 9). Management believe the amounts will be recovered in full. However, there can be no certainty in this respect.
(7) The costs incurred to 31 January 2012 relate to the amendments to the Group's medium term bank facilities as detailed in note 11. In the year ended 31 July 2011, finance costs included the write off of unamortised loan issue costs in respect of the existing and old unsecured revolving credit facility (GBP3.6m and GBP2.2m respectively) and additional costs incurred in addressing potential covenant breaches (GBP1.4m) highlighted in the 31 July 2010 Annual Report and Accounts.
(8) The costs incurred to 31 January 2012 primarily relate to legal and other costs incurred in connection with the Group's strategic review as part of its plans to address the capital structure of the Group.
(9) The Group recorded GBP4.0m of provisions against unbilled revenue in the year ended 31 July 2011 relating to the joint venture with Holleran, as Holleran went into administration and has subsequently been liquidated making the recovery from the customers complicated and protracted.
(10) The Group does not consider the amortisation of intangible assets arising from business combinations to be part of the underlying business performance and therefore treats them as exceptional costs.
(11) In the year ended 31 July 2011, the Board concluded that the carrying amount of the Management Consulting Cash Generating Unit required a full impairment of GBP41.3m. In addition a further GBP4m was written off Goodwill relating to the acquisition of Gas Experts Limited within the Regulated Industries segment.
(12) In the period to 31 January 2012 the Group concluded the disposal of non core parts of Regulated Industries, being the Rail and Energy businesses which gave rise to a net profit of GBP1.5m.
The tax effect of the exceptional items is a credit of GBP0.7m (31 January 2011: GBP1.4m credit; 31 July 2011 GBP1.8m credit) in the Consolidated Income Statement. In both the years 2012 and 2011, this credit, which is at a lower rate than the standard rate of corporation tax, reflects management's assessment in respect of the creation of deferred tax assets on carried forward losses. The credit from 2011 is also affected by exceptional items of expenditure, including the impairment of goodwill, which are not tax deductible.
4 Finance income/(costs)
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
========================================================== ============== ============== ==============
Interest income 0.1 0.2 0.4
Net interest receivable on retirement benefit obligations
(note 15) 0.6 0.5 0.7
========================================================== ============== ============== ==============
Finance Income 0.7 0.7 1.1
========================================================== ============== ============== ==============
Interest expense:
- interest payable on bank facilities - - (0.1)
- interest payable on revolving credit facility and
term loans (3.4) (2.9) (6.4)
- amounts payable on interest rate hedges and recycled
from equity (1.6) (1.9) (3.6)
- interest payable on bonds (0.3) (0.1) (0.4)
Amortisation of loan issue costs (0.7) (0.6) (1.3)
Finance costs (excluding exceptional items) (6.0) (5.5) (11.8)
Exceptional finance costs relating to current and
previous revolving credit facility (see note 3) (2.6) (3.5) (7.2)
========================================================== ============== ============== ==============
Finance costs (8.6) (9.0) (19.0)
---------------------------------------------------------- -------------- -------------- --------------
Net finance costs (7.9) (8.3) (17.9)
========================================================== ============== ============== ==============
Loan issue costs of GBP0.7m were amortised during the six months to 31 January 2012.
Unamortised loan issue costs at 31 January 2012 in respect of the revised bank facilities are disclosed in note 11.
5 Employees and Directors
Staff costs during the period were as follows:
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
====================== ============== ============== ==============
Wages and salaries 110.6 119.4 247.4
Social security costs 8.9 10.6 21.5
Other pension costs 7.4 7.7 16.6
Share-based payments 0.3 0.4 0.7
====================== ============== ============== ==============
127.2 138.1 286.2
====================== ============== ============== ==============
Staff costs include GBP0.5m (31 January 2011: GBP0.4m; 31 July 2011: GBP3.0m) relating to exceptional staff costs.
Staff costs exclude redundancy and other exit costs which have been charged against the provision brought forward (see note 12).
Staff costs include temporary staff.
The average number of people (including Executive Directors and temporary staff) employed during the period was as follows:
Government
and Business Management Regulated Group
Highways Services Consulting Industries Functions(1) Total
31 January 2012 Number Number Number Number Number Number
================ ======== ============= =========== =========== ============= =======
Total staff 2,644 3,800 232 1,327 342 8,345
================ ======== ============= =========== =========== ============= =======
Government
and Business Management Regulated Group
Highways Services Consulting Industries Functions Total
31 January 2011 Number Number Number Number Number Number
================ ======== ============= =========== =========== ========== =======
Total staff 3,218 4,138 395 1,648 226 9,625
================ ======== ============= =========== =========== ========== =======
Government
and Business Management Regulated Group
Highways Services Consulting Industries Functions Total
31 July 2011 Number Number Number Number Number Number
============= ======== ============= =========== =========== ========== =======
Total staff 2,894 4,291 301 1,667 249 9,402
============= ======== ============= =========== =========== ========== =======
(1) The increase in the average headcount for Group Functions is due to a transfer of finance staff from the Business Units to Group.
6 Taxation
The tax charge for the six months ended 31 January 2012 reflects the assessment of the recoverability of deferred tax assets in light of the Group's losses incurred in the period.
Deferred tax balances have been calculated at the tax rate of 25% being the rate effective from 1 April 2012. The overall effect of the further proposed changes from 25% to 23% by 1 April 2014, if these applied to the net deferred tax balance at 31 January 2012, would be to reduce the net deferred tax asset by approximately GBP1.0m.
7 Dividends
The Directors are not proposing an interim dividend for the period to 31 January 2012 (six months to 31 January 2011: GBPnil) and do not plan to resume dividend payments until there is evidence of a sustained improvement in performance. In addition, there are also restrictions contained within the banking facilities, as disclosed in note 11 that prevent dividends from being paid until the banking facilities have been repaid in full.
8 (Loss)/earnings per share
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
=================================== ============== ============== ==============
Basic and diluted loss per share (11.3)p (1.1)p (61.7)p
Adjusted (loss)/earnings per share (6.8)p 2.6p (0.5)p
=================================== ============== ============== ==============
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
========================================================== ============== ============== ==============
Loss for the period (12.6) (1.3) (68.6)
========================================================== ============== ============== ==============
Loss for basic and diluted earnings per share (12.6) (1.3) (68.6)
Adjustments:
- other exceptional costs (net of taxation) 2.4 1.8 17.9
- impairment of goodwill - - 45.3
- amortisation of intangible assets arising from business
combinations (net of taxation) 2.2 2.4 4.8
========================================================== ============== ============== ==============
(Loss)/earnings for adjusted (loss)/earnings per share (8.0) 2.9 (0.6)
========================================================== ============== ============== ==============
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
million million million
==================================================== ============== ============== ==============
Weighted average number of ordinary shares 111.2 111.4 111.2
Dilutive share options - - -
Dilutive Save As You Earn schemes - - -
==================================================== ============== ============== ==============
Diluted weighted average number of ordinary shares 111.2 111.4 111.2
==================================================== ============== ============== ==============
Weighted average number of ordinary shares 111.2 111.4 111.2
Average number of shares held by the employee share
trusts 1.2 1.2 1.2
Share options matured in respect of executive share
option schemes - (0.3) -
Warrants outstanding 5.6 - -
==================================================== ============== ============== ==============
Adjusted weighted average number of ordinary shares 118.0 112.3 112.4
==================================================== ============== ============== ==============
Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares during the period.
Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive share options in issue and shares under Save As You Earn schemes. The share price used to calculate diluted earnings per share is based on a weighted average price of 22.32p (31 January 2011: 111.36p; 31 July 2011: 102.75p). Potential ordinary shares are not treated as dilutive when their conversion would increase earnings per share or decrease loss per share from continuing operations. As the Group reported a loss for the period the effects of 23,000 (31 January 2011: nil; 31 July 2011: 1,968,000) anti-dilutive share options were excluded when calculating earnings per share.
As described in note 11, the Company had at 31 January 2012 issued warrants over 5% of the issued share capital of the Company at 0.25p per share. Warrants are not treated as dilutive when, if exercised, they would increase earnings per share or decrease loss per share from continuing operations. As the Group reported a loss for the period the effects of the 5,618,486 (31 January 2011: nil; 31 July 2011: nil) warrants were excluded when calculating earnings per share.
Subsequent to 31 January 2012, the Company issued 1,857,270 additional shares to satisfy the partial exercise of the warrants issued. As part of this exercise 53,015 warrants were cancelled in lieu of payment leaving 3,708,201 warrants unexercised.
Adjusted earnings per share is calculated after adding back shares held by the employee share trusts as well as warrants outstanding to the weighted average number of shares. Earnings are adjusted to exclude exceptional items (net of taxation). The Directors believe that this additional measure provides a better indicator of the underlying trends in the business.
9 Trade and other receivables
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
=================================== ============== ============== ==============
Trade receivables 73.0 71.6 77.6
Unbilled revenue(1) 73.6 83.8 63.8
Impairment provision (39.9) (33.9) (40.5)
=================================== ============== ============== ==============
Net trade receivables and unbilled
revenue 106.7 121.5 100.9
Other receivables 10.0 6.0 10.5
Prepayments and accrued income(1) 10.2 10.8 9.4
=================================== ============== ============== ==============
126.9 138.3 120.8
=================================== ============== ============== ==============
(1) The comparatives for unbilled revenue (increase of GBP4.7m) and prepayments and accrued income (reduction of GBP4.7m) for 31 January 2011 have been restated due to a misallocation in the 2011 Interim Report.
Included within gross trade receivables and unbilled revenue is 73.1m AED (GBP12.6m) owed by the Department of Municipal Affairs in Abu Dhabi, of which 19.6m AED (GBP3.4m) was received in March 2012. As detailed in note 3, this debt was discounted during the year end 31 July 2011 to recognise the fact that the monies are expected to be received during this calendar year. There can be no certainty to this.
10 Trade and other payables - current
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
====================================== ============== ============== ==============
Trade payables 18.6 23.5 21.9
Tax and social security payable 11.2 12.7 13.5
Other payables 14.9 7.2 14.7
Accruals 59.4 44.5 44.9
Deferred income and customer advances 28.5 24.2 29.6
====================================== ============== ============== ==============
132.6 112.1 124.6
====================================== ============== ============== ==============
Accruals include the bank facility amendment fees payable of GBP10.2m as explained in note 11.
11 Borrowings
On 26 January 2011 the Group signed new medium-term banking facilities with its existing relationship banks. The key terms of the new facilities were: total facilities of GBP170.0m extending to 31 March 2014; interest above LIBOR on the facility of 3.1% - 4.0% dependent on ratios; two repayments each of GBP7.5m on 31 July 2012 and 31 July 2013; in the event that an additional voluntary repayment of GBP30.0m had not been made before 31 May 2012, an increase in margin of 2% and the issue of warrants at that time over 5% of the issued share capital of the Company at an issue price of the lower of 75p per share and 80% of the share price at that time; and a restriction on resuming dividend payments until the voluntary repayment of GBP30.0m had been made.
The financial covenants applying to this facility and as defined therein were: a maximum ratio of net debt (including bonds) to EBITDA; a minimum ratio of EBITDA to net interest payable; and a minimum debt service coverage (the ratio of free cash flow to interest and principal repayments). These covenants were tested on a quarterly basis.
The facility also provided bonds and guarantees as detailed in note 16.
On 29 November 2011 and again on 28 March 2012 the Group amended the medium term banking facilities that had been signed on 26 January 2011. The total value of the facilities is GBP180.0m comprising a term loan of GBP129.0m and revolving credit facilities of GBP51m including a GBP16m "Top-up" facility.
Pursuant to the amendments, the Company has agreed to pay an amendment fee of GBP2.25m on the earlier of 31 July 2013, and the date of a relevant restructuring, to issue warrants over 5% of the existing issued share capital of the Company at a subscription price of 0.25p per share, subject to standard anti-dilution provisions, which replace the existing contingent obligation to provide warrants to the lenders, and to pay an additional fee - the equity tracker fee - which is payable upon a change of control and that is the economic equivalent of 5% of the enlarged issued share capital of the Company.
It is intended that a restructuring of the Group's balance sheet will take place prior to the end of the current financial year in the interests of the Group and its stakeholders. This restructuring may include the injection of additional equity capital or a change of control ("Restructuring"). If the Restructuring is achieved by 31 July 2012, then depending on the timing of the Restructuring, either no restructuring fee would be payable or a fee of between GBP1.5m and GBP3.0m would be payable. In the event that a Restructuring is not achieved by 31 July 2012, an amendment fee of GBP8.0m would be payable. Such additional amendment fees shall be payable on the earlier of 31 July 2013 and the date of the Restructuring. Pending the repayment of the Group's borrowing facilities in full, the restriction on dividend payments will remain in place.
The interest margin over LIBOR on the amended term loan is 3.85%.The interest margin on the amended revolving credit facilities is 6.5% over LIBOR apart from the margin on the Top-up facility which is 10% over LIBOR. The provision that was contained in the original facilities of 26 January 2011 that there will be an increase in the interest margin of 2% if an additional voluntary repayment of GBP30.0m has not been made by 31 May 2012 has been removed. Furthermore, the obligatory term loan repayment of GBP7.5m that was due on 31 July 2012 and which has been extended to 28 February 2013 is now further extended to 31 July 2013. The repayment of the Top-up facility has also effectively been extended from 28 February 2013 to 31 July 2013.
The Board believes that the facility amendments demonstrate the support of the Group's Banks. The facilities have been constructed to provide the Board with time to right-size the Group balance sheet while providing economic incentives to achieve this right-sizing at the earliest practical opportunity. The amendments provide the Group with critical time to identify and implement value creation initiatives to enhance value. While the Top-up facility is relatively expensive, the Group intends to use it sparingly, if at all, but it provides the Group with critical working capital headroom.
The financial covenants applying to the amended facilities are tests of EBITDA on a quarterly basis until 30 April 2013. On 31 July 2013 the covenants revert to those in the facility signed on 26 January 2011.
Loans are repayable as follows:
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
================================================ ============== ============== ==============
Obligations due within one year - 0.3 135.1
Obligations due within one and two years 15.0 7.5 -
Obligations due within two and five years 135.2 146.3 -
================================================ ============== ============== ==============
Total loans due 150.2 154.1 135.1
Loan issue costs incurred (10.2) (4.3) (4.3)
Amortisation of loan issue costs 0.7 - 4.3
================================================ ============== ============== ==============
Total borrowings 140.7 149.8 135.1
(Less)/add: Non bank borrowings and issue costs 9.5 4.0 (0.1)
Deduct: cash and cash equivalents (note 14) (46.1) (56.9) (47.3)
================================================ ============== ============== ==============
Net bank borrowings 104.1 96.9 87.7
================================================ ============== ============== ==============
As at 31 July 2011 there were no unamortised arrangement fees from the previous facilities.
Loan issue costs of GBP10.2m associated with the new amended banking facility have been accrued for (see note 10) and were capitalised during the period and are being amortised over the life of the loan. The resulting amortisation charge of GBP0.7m has been included in finance costs (note 4).
The Group has entered into agreements to partially hedge against the interest rate risk on the revolving credit facility and term loans described above. The fixed interest rate hedges vary from 3.22% to 5.33% against floating LIBOR rate. The expiry date of these hedges is between 1 August 2012 and 31 March 2014. At 31 January 2012, the total fair value of derivatives designated as cash flow hedges was a liability of GBP4.7m (31 January 2011: liability of GBP5.6m; 31 July 2011: liability of GBP6.4m).The whole movement in the fair value is recorded in the Consolidated Statement of Changes in Equity as the hedges are considered highly effective.
The Group did not breach any of its banking facilities covenants during the half year to 31 January 2012.
At 31 January 2011, there was a secured loan of GBP0.3m which was repayable in instalments. The loan, on which interest is charged at 7.44%, finished in October 2011. The balance outstanding at 31 July 2011 was GBP0.1m.
12 Provisions for liabilities and charges
31/01/2012 31/01/2011 31/07/2011
GBPm GBPm GBPm
=============================== ========== ========== ==========
Restructuring provisions(1) 0.3 5.1 0.8
Insurance/claims provisions(2) 2.5 3.5 1.9
Dilapidations provisions(3) 3.0 3.0 3.1
Onerous contacts(4) 0.9 3.8 1.7
=============================== ========== ========== ==========
Balance at end of period 6.7 15.4 7.5
=============================== ========== ========== ==========
Current 2.6 11.0 3.3
Non-current 4.1 4.4 4.2
========================= === ==== ===
Balance at end of period 6.7 15.4 7.5
========================= === ==== ===
Insurance/
Restructuring claims Dilapidations Onerous
provisions(1) provisions(2) provisions(3) contracts(4) Total
GBPm GBPm GBPm GBPm GBPm
======================================= ============== ============== ============== ============= =====
At 1 August 2011 0.8 1.9 3.1 1.7 7.5
======================================= ============== ============== ============== ============= =====
Amounts provided for during the period 0.4 0.7 0.4 - 1.5
Amounts utilised during the period (0.9) (0.1) (0.5) (0.8) (2.3)
At 31 January 2012 0.3 2.5 3.0 0.9 6.7
======================================= ============== ============== ============== ============= =====
(1) Restructuring provisions principally relate to redundancy costs expected to be incurred at the balance sheet date as a result of communicated and committed restructuring plans. The majority of these provisions will unwind within one year. No reimbursement is expected for these provisions.
(2) Insurance/claims provisions reflect management's view of the likely outcome of insurance and other legal claims made against the group in connection with operational activities. These provisions are held until utilised, by the settlement of a claim, or until such time as the claim is considered unlikely. Due to the very nature of these provisions it is uncertain when they may unwind as individual cases progress at unpredictable rates. Based on historic trends and given the nature of the items being provided against it is management's judgment that they will largely settle within 2 to 5 years of the year end. No reimbursement is expected for these provisions.
(3) Dilapidation provisions relate to the expected costs of meeting dilapidation/reinstatement requirements for properties leased by the group when they are exited and these are provided for over the term of the lease. The lease expiry dates range between one and 10 years. No reimbursement is expected for these provisions.
(4) Onerous contract provisions relate principally to property lease contracts where the ongoing level of unavoidable costs is not expected to be fully recovered by the economic benefits expected to be derived from using those properties. The expectation is that this expenditure will be incurred over the remaining periods of the leases which range up to 12 months. No reimbursement is expected for these provisions.
13 Cash generated from operations
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
====================================================================== ============== ============== ==============
Loss for the period before taxation (11.6) (1.5) (64.8)
Adjustments for:
- depreciation 2.6 2.8 5.7
- gross loss on disposal of property, plant and equipment 0.4 - 0.1
- gross loss on disposal of intangible assets - - 0.2
- amortisation of intangible assets - arising from
business combinations 2.9 3.2 6.4
- software and
other acquired
intangibles 2.0 2.6 5.3
- impairment of goodwill and intangible assets arising
from business combinations - - 45.3
- share based payments cost (excluding tax) 0.3 0.4 0.7
- other exceptional costs 2.5 2.4 18.1
- (gain)/loss on foreign exchange (0.4) - 0.4
- interest receivable (0.7) (0.7) (1.1)
- finance costs 6.0 5.5 11.8
Changes in working capital:
- (increase)/decrease in trade and other receivables
including unbilled revenue (before exceptional impairment
charges) (5.2) 2.4 14.7
- decrease in trade and other payables (4.1) (13.1) (3.5)
====================================================================== ============== ============== ==============
Cash (used in)/generated from operations before exceptional
items (5.3) 4.0 39.3
Exceptional receipt - 1.8 1.5
Exceptional items (2.4) (13.5) (23.4)
====================================================================== ============== ============== ==============
Cash (used in)/generated from operations (7.7) (7.7) 17.4
====================================================================== ============== ============== ==============
14 Cash and cash equivalents
Cash and cash equivalents are analysed as follows:
6 months 6 months
to to 12 months
31/01/2012 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
========================== =========== =========== ==============
Cash and cash equivalents 46.1 56.9 47.3
========================== =========== =========== ==============
Of the above cash balances, GBP28.2m (31 January 2011: GBP15.9m; 31 July 2011: GBP22.8m) is restricted by virtue of it being held within our joint ventures and captive insurance company.
15 Retirement benefit obligations
The Group operates several occupational pension schemes for its employees. These schemes are a combination of defined benefit and defined contribution schemes.
There were no changes in the nature of any of the schemes in the six months to 31 January 2012.
Movements in the present value of the defined benefit obligation in the six months to 31 January 2012 are as follows:
Total
GBPm
============================================ =====
Retirement benefit obligation 1 August 2011 32.8
Service cost 0.7
Net interest income (0.6)
Company contributions (3.3)
Actuarial loss on pension scheme valuations 19.9
Retirement benefit obligation at 31 January
2012 49.5
============================================ =====
Current liability 0.4
Non-current liability 49.1
===================================== ====
Total liability in the balance sheet 49.5
===================================== ====
Actual return less expected return on pension
scheme assets 7.9
Effect of changes in assumptions on the present
value of scheme liabilities 12.0
------------------------------------------------ ----
Actuarial loss on pension scheme valuations as
above 19.9
================================================ ====
The expected return on pension scheme assets for the six months to 31 January 2012 was based on a return rate of 6.8%. The actual return on pension scheme assets in the six months to 31 January 2012 was 1.2%.
The actuarial valuation of the retirement benefit obligation has increased in the six months to 31 January 2012 due to a decrease in the discount rate used from 5.4% to 4.8% with a decrease in the expected rate of price inflation (CPI) from 2.9% to 2.4%
16 Contingent liabilities
Contingent liabilities at 31 January 2012 in respect of guarantees and indemnities in the normal course of business totalled GBP14.5m (31 January 2011: GBP15.3m; 31 July 2011: GBP15.2m). Much of this arises from bonds issued by our bankers in support of specific contracts and which can be called at any time by the client who would ordinarily do so in the event of our poor contractual performance. No such calls were made during the year. No reimbursement would be expected if calls were made.
In addition, bank overdrafts of subsidiaries were guaranteed at 31 January 2012 up to GBP0.3m (31 January 2011: GBP0.3m; 31 July 2011: GBP0.2m); the amount overdrawn at that date being GBPnil (31 January 2011: GBPnil; 31 July 2011: GBPnil). These overdrafts are unsecured.
The Company and several of its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary course of business. Provisions are maintained by the Group having regard to the size and nature of the claims and the Group's best estimate of the likely settlement. The Directors do not believe that the outcome of these proceedings, actions and claims, either individually or in aggregate, will have a materially adverse effect upon the Group's financial position.
The Group's liabilities under the revolving credit facility detailed in note 11 is guaranteed, on a joint and several basis, by Mouchel Group plc, Mouchel Finance Limited, Mouchel Limited, Mouchel Ewan Limited, Mouchel Rail Limited, Mouchel Traffic Support Limited, Mouchel Holdings Limited, Mouchel Business Services Limited and Mouchel Management Consulting Limited.
17 Post-balance sheet events
On 28 March 2012 the Group signed amendments to its banking facilities as detailed in note 11.
As described in note 8, subsequent to 31 January 2012, the Company issued 1,857,270 additional shares to satisfy the partial exercise of the warrants issued. As part of this exercise 53,015 warrants were cancelled in lieu of payment leaving 3,708,201 warrants unexercised.
18 Related party transactions
The following transactions were undertaken with the joint venture entities to which the Group is party:
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
============================================== ============== ============== ==============
Sales to joint venture entities 10.4 9.2 21.1
Purchases from joint venture entities 1.7 0.6 0.5
Net amount due to the Group at the period-end 3.7 5.3 4.2
============================================== ============== ============== ==============
Loans to related parties:
6 months 6 months 12 months
to 31/01/2012 to 31/01/2011 to 31/07/2011
GBPm GBPm GBPm
================================= ============== ============== ==============
Balance at 1 August - 1.2 1.2
Loans advanced during the period 7.0 4.7 6.6
Loan repayments received - - (7.8)
Balance at end of period 7.0 5.9 -
================================= ============== ============== ==============
The loans to related parties are to joint venture companies.
The Group made contributions of GBP3.3m (31 January 2011: GBP6.2m; 31 July 2011: GBP11.6m) to the defined benefit pension schemes during the period.
Compensation paid to key management of the Group was GBP1.1m for the period (31 January 2011: GBP1.2m; 31 July 2011: GBP2.7m).
Independent review report to Mouchel Group plc
Introduction
We have been engaged by the company to review the condensed interim consolidated financial information in the half-yearly financial report for the six months ended 31 January 2012, which comprises theconsolidated income statement, consolidated statement of comprehensive income, group balance sheet, consolidated cash flow statement, consolidated statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS's as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Emphasis of matter - recoverability of the Group's trade receivables and unbilled revenue in respect of the BPR contract
In forming our conclusion, which is not modified, we have considered the adequacy of the disclosures made in note 3 and note 9 to the condensed interim consolidated financial information which describe the uncertainties surrounding the recoverability of the Group's exposure at 31 January 2012 of AED 73.1m (GBP12.6m) on the BPR contract in Abu Dhabi.
Conclusion
Based on our review, other than the matter explained above, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP Chartered Accountants 28 March 2012 London
Notes
a) The maintenance and integrity of the Mouchel Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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