Management Resource Solutions PLC Proposed -2-

The D&M Group is a long-established business which will contribute to the Enlarged Group's revenue and profitability immediately. In addition to being able to provide existing clients of both companies with new services the directors of MRS believe there will be significant opportunities to win new clients and utilise the preferred supplier status the Enlarged Group will have with a number of companies and governmental agencies which are not currently engaging MRS or the D&M Group.

Overview of the D&M Group

D&M is a family run business established in 1972 by its Chairman, Doug Phillips, and based in Queensland, Australia. The D&M Group operates four businesses, being D&M Plant Hire, Wrights Plant Hire, DMR and Titan Manufacturing, in three divisions, wet hire, dry hire and manufacturing. The D&M Group has a wide base of corporate and public sector clients in oil & gas, mining, civil engineering, infrastructure and construction as well as local government, many of whom have brought continued business over a number years, with some clients having renewed contracts with the D&M Group for three decades.

The D&M Group currently employs over 60 staff and its hire fleet includes trucks ranging from 3m to 22m, tippers, semi tippers, bobcats, positracks, excavators 1.5t - 45t, backhoes, graders, and rubber-tracked earth moving equipment.

The D&M Group is currently the preferred supplier to, amongst others, Select, Brisbane City Council and Gold Coast City Council.

In the year ended 30 June 2014, the D&M Group reported a profit before taxation and exceptional expenses of approximately A$1.0m (approximately GBP507,000) on revenue of A$16.87m (approximately GBP8.56m).

Dry and Wet Hire

D&M Plant Hire, Wrights Plant Hire and DMR supply plant and equipment to companies and government bodies on a range of different developments and projects in Eastern Australia. Over the last 40 years the D&M Group has successfully accomplished large road works, site developments, bulk earthworks, final trim and precision earthworks.

A large percentage of the D&M Group's dry & wet hire revenue is generated by large corporate and public sector customers and the majority of such revenue is derived from hire periods lasting longer than 6 months.

Manufacturing

Titan Manufacturing was started in 1997 to provide repairs and servicing for the D&M Group's equipment in order to extend the life and preserve the value of its assets. Titan Manufacturing subsequently expanded into the design and construction of bespoke earth moving machinery for clients in the coal seam gas and infrastructure sectors.

Historic financial information, current trading and prospects

Set out below is a summary of the financial performance of the D&M Group for the three years ended 30 June 2014 which has been extracted without material adjustment from the audited accounts of the D&M Group. The full audited accounts of the D&M Group are incorporate in the Admission Document

 
                  Year ended      Year ended      Year ended 
                   30 June 2014    30 June 2013    30 June 2012 
---------------  --------------  --------------  -------------- 
                  A$'000          A$'000          A$'000 
---------------  --------------  --------------  -------------- 
 Turnover         16,873          19,032          17,101 
---------------  --------------  --------------  -------------- 
 Profit Before 
  Taxation        339             1,120           1,263 
---------------  --------------  --------------  -------------- 
 Profit After 
  Taxation        145             587             971 
---------------  --------------  --------------  -------------- 
 Net Assets       3,692           3,604           3,486 
---------------  --------------  --------------  -------------- 
 

The year to 30 June 2014 saw a move from "wet" hire, whereby the D&M Group supplies both equipment and operators, to "dry" hire of equipment only, resulting in a reduction in fuel and wage expenses but also in the charge out rate for each item in use, leading to the slight decrease in turnover for the year.

The D&M Group acquired an additional A$3m of new equipment during the year, which resulted in an additional depreciation charge of A$500,000, together with the financing costs for this equipment. In addition, the D&M Group incurred a number of extraordinary non-recurring expenses during the year amounting to $668,000, all of which contributed to a fall in reported profit before taxation of 70 per cent., although gross and EBITDA margins increased marginally when compared to 2013.

As the mining sector in Australia has slowed, the infrastructure sector has started to boom due to federal government initiatives. The D&M Group now have a number of new wet hire infrastructure projects about to start, which will see a move back towards the D&M Group's historic business mix with higher charge out rates but also higher associated costs.

D&M is currently engaged on numerous projects and has a pipeline of further projects it hopes to start in the near future. Following completion, the Enlarged Group intends to invest an additional A$1.5m in further increasing the D&M Group's plant and equipment available for hire to service existing and prospective business.

Terms of the Acquisition

MRS has agreed, conditional inter alia upon the approval of shareholders to acquire the D&M Group from the Vendors for a cash consideration as follows:

-- A$6,724,095.70 (approximately GBP3.4m) as reduced by an amount equal to 70 per cent. of the aggregate monetary value of entitlements of the employees of the D&M Group as at the date of completion (estimated to be approximately A$50,000), will be paid upon completion of the Acquisition Agreement;

-- on or shortly after completion, MRS will pay to Doug Phillips and Margaret Phillips equally the value of stock held by the D&M Group at completion, subject to a maximum of A$200,000 (approximately GBP102,000); and

-- within 90 days of completion, accounts will be prepared to determine the amount of the trade debtors and cash of the business less the trade creditors of the D&M Group as at the date of completion. If the accounts result in a net profit, MRS must pay that net profit to Doug Phillips and Margaret Phillips equally. If the accounts result in a net loss, the Vendors must pay the net loss to MRS.

In addition, the Company will upon completion of the Acquisition grant to Doug Phillips and Margaret Phillips or their nominees D&M warrants to acquire up to 1,700,000 new Ordinary Shares at a price of 30 pence per share at any time in the period of seven years following completion.

No new ordinary shares in the company are being issued in connection with the Acquisition.

Financing of the Acquisition

To finance, inter alia, the cash consideration payable by MRS for the Acquisition, MRS has entered into a debt facility ("Debt Facility") with Halcyon Capital Management Pty Ltd ("Halcyon"). Under the terms of the Debt Facility, Halcyon is advancing, in aggregate, $17.133m (approximately GBP8.69m) to MRS for the purposes of the Acquisition and to provide working capital to the Enlarged Group.

The principal sum of the Debt Facility is repayable on 23 March 2020 and attracts interest, payable monthly in arrears, of 0.6875 per cent. per calendar month, equivalent to 8.25 per cent. per year.

The Directors anticipate that the sums due under the Debt Facility, which are required to complete the Acquisition, will be made available for drawdown immediately following the General Meeting. If the monies are not made available to the Company pursuant to the Debt Facility at this time, the Acquisition will be delayed or may not be capable of completion.

Board of Directors

Murray d'Almeida, Chairman of the Company, has given notice of his retirement as a director of MRS with effect from 4 June 2015. Murray has successfully guided the Company through its admission to trading on AIM and the acquisition of D&M but has now decided to concentrate on other ventures. A search for his replacement has started and an update will be provided in due course.

Readmission to trading on AIM

The Company's share capital was admitted to trading on AIM on 11 December 2014.

The Acquisition is classified as a reverse takeover under the AIM Rules, which requires that the Company seek Shareholder approval of the Acquisition and apply to have its Ordinary Shares readmitted to trading on AIM. Application will be made to the London Stock Exchange for the Ordinary Shares to be readmitted to trading on AIM with Admission expected to take place on 24 March 2015, subject to the passing of the Resolution by Shareholders at the General Meeting and the Acquisition completing.

No placing of Ordinary Shares or other equity fundraising is being conducted in conjunction with the Acquisition or Admission.

If the Acquisition does not complete for any reason, then the Ordinary Shares will continue to be admitted to trading on AIM.

This information is provided by RNS

The company news service from the London Stock Exchange

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