REG-Mouchel Grp plc Preliminary results - Part 1
Released: 06/10/2009
com:20091006:RnsF2758A
.
RNS Number : 2758A
Mouchel Group plc
06 October 2009
6 October 2009
Mouchel Group plc
Preliminary Results
For the year ended 31 July 2009
Mouchel Group plc: consulting and business services group - announcement of
unaudited results for the year ended 31 July 2009
Financial highlights
2009 2008
Revenue £740.6m £656.7m
Underlying operating profit1 £47.3m £41.7m
Underlying operating margins1 6.4% 6.4%
Profit before tax and exceptional items £40.1m £38.8m
Exceptional items (net) £(53.6)m £(12.5)m
(Loss)/profit before tax £(13.5)m £26.3m
Adjusted earnings per share1,2 26.4p 25.7p
Basic (loss)/earnings per share (11.7)p 17.9p
Dividend per share3 6.10p 6.10p
1 Underlying operating profit, underlying operating margins and adjusted
earnings per share exclude those items which the Group presents as exceptional
items in the accounts (including the annual amortisation of intangible assets
arising from business combinations) - see note 3 for full details.
2 Adjusted earnings per share is calculated after adding back shares held by the
employee share trusts to the weighted average number of shares and adjusting
earnings for exceptional items (net of taxation).
3 Includes paid and proposed dividends in respect of the year.
* Revenue growth of 13%, increasing revenues to £740.6m, including organic
revenue growth of 9%;
* Underlying operating profit up 13% to £47.3m, with underlying operating
margins maintained at 6.4%;
* Exceptional items include significant restructuring and asset impairment
charges totalling £50.0m arising as a result of restructuring the Group's
activities in the Middle East, management consulting and rail;
* Adjusted earnings per share increased 3% from 25.7p to 26.4p and dividend per
share for the year maintained at 6.10p;
* Year-end net borrowings reduced from £111.6m to £101.3m since the
half-year;and
* Continuing good visibility of future earnings with forward order book of
£1.9bn and bidding pipeline of £2.2bn.
Business highlights
* Good progress made in addressing challenges encountered during the year, with
most now largely resolved;
* Middle East contract receivables being collected, with a £15.0m impairment
charge made against assets considered at risk,
* Management consulting strengthened through appointment of new senior team and
restructuring of business to reflect current market conditions,
* Railmarket withdrawal substantially completed having now largely concluded
outstanding client commitments,
* Contract win rate forthe second half of the year restored to within target
range of one-in-three to two-in-five of opportunities tendered by value.
* Core business continuing to perform strongly, including good progress in
extending major local authority partnership contracts.
Richard Cuthbert, Chief Executive, commented:
'This has been a difficult and disappointing year for Mouchel. In the second
half we have had to deal with the substantial withdrawal from the rail market,
together with the impact of the economic downturn on our Middle East and
management consulting businesses. These have clouded what has otherwise been
another year of growth and strong performance in our core business.
Looking to the future, the general economic outlook clearly remains challenging.
The pressure on public spending brings uncertainty for all public services
providers, but is also a source of huge opportunity for Mouchel as clients in
all of our target markets strive to deliver better services more efficiently.
Our focus on the transformation of essential services and the maintenance of
vital infrastructure means that we will continue to benefit from sustained
levels of public expenditure in our core markets and from the inevitable trend
for increased outsourcing, signs of which we are already seeing.
These developments, together with the continued strength of our order book and
bidding pipeline, and the fact that we have restored our tender win-rate to
within our target range, mean that we remain confident about our long-term
prospects.'
A presentation will be given to analysts at 9.15 am today, Tuesday 6 October
2009, at the offices of RBS Hoare Govett, 250 Bishopsgate, London EC2M 4AA.
For further information please contact:
Mouchel Group plc
Richard Cuthbert, Chief Executive ]
Kevin Young, Group Finance Director ] 01483 731731
Ian Parker, Marketing and Communications Director ]
Finsbury
Mike Smith ] 020 7251 3801
Charles Watenphul ]
BUSINESS REVIEW
Overview
Mouchel has faced a number of challenges in the second half of the year which
have significantly impacted our performance. Some of these have been caused by
the conditions in the markets in which we operate and some have been particular
to Mouchel. We have struggled for some years to expand our activities in rail
and we decided in the year to substantially exit that market; our management
consulting division has been impacted by the economic downturn and we have
responded by scaling back and restructuring that business; and, like many
others, we got caught up in the Dubai property crash which left us with
over-capacity and severe working capital exposure. These exceptional factors
have created the loss that we have announced today. But it's important to keep
this disappointment in perspective - at an operating level the Group has again
performed well, with double-digit growth of both revenue and underlying
operating profit, although the latter was below the expectations we set in the
Spring of 2008, before the worst impacts of the recession had begun to
materialise.
Revenue increased by 13% to £740.6m, compared with last year. Excluding the
impact of the Hedra acquisition last year, revenue increased by 9% versus the
prior year; maintaining the strong organic growth of recent years, just below
our target range of 10% to 15% per annum. Correspondingly, underlying operating
profit also increased by 13% to £47.3m with underlying operating margins
maintained at 6.4%. Our medium-term target for underlying operating margins
remains unchanged at 8%.
Profit before tax and exceptional items rose by 3% from £38.8m to £40.1m after
taking into account a £4.3m increase in the overall net interest cost,
comprising £2.0m additional interest on bank borrowings and a £2.3m adverse
movement in the financing element of the retirement benefits charge. Excluding
the movement in interest on retirement benefit obligations, which is a non-cash
item, profit before tax and exceptional items increased by 10%.
Although in line with our revised expectations, underlying profits were
significantly below what we had anticipated at the start of the year, due to
difficulties faced by the Group in the Middle East, management consulting and
rail. However, in spite of the current economic environment, our core businesses
have continued to perform strongly given that our activities are still focused
mainly on the UK public sector and in the provision of essential services and
the management of vital infrastructure. We are also benefiting from being able
to help our clients reduce costs and deliver public services more efficiently.
Exceptional costs for the year totalled £53.6m (2008: £12.5m), including £7.4m
(2008: £5.7m) for the amortisation of intangible assets arising from business
combinations. The increase in amortisation compared to the prior year was due to
the acquisition of Hedra in March 2008. Of the balance, £17.1m (2008: £nil)
related to a one-off impairment charge for goodwill and intangible assets,
following the decision during the year to substantially exit the rail sector.
Other exceptional items amounted to £29.1m (2008: £6.8m) and largely comprised
the costs of restructuring the businesses in the Middle East, management
consulting and rail (including an impairment charge of £15.0m against contract
receivables in Dubai), offset in part by a gain on disposal of the Group's
former head office in West Byfleet of £3.8m. Other exceptional items in the
prior year mainly included integration and transition costs associated with the
HBS and Hedra acquisitions.
After taking into account exceptional items, the loss before tax for the year
was £13.5m (2008: profit of £26.3m). Further details on the exceptional items
can be found in note 3.
Segmental performance
Government Services
Revenue for the year increased from £267.1m to £303.8m, largely reflecting the
full-year impact of the Hedra acquisition which was completed on 5 March 2008,
part way through the second half of the last financial year. Excluding the
impact of the acquisition, revenues increased from £246.1m to £253.3m,
reflecting commencement of the Building Schools for the Future (BSF) commission
in Hackney, as well as additional activity in our principal local authority
partnership contracts.
Underlying operating profits, at £14.5m, were only slightly above the £14.4m
reported the previous year due largely to operating margins reducing from 5.4%
to 4.8%. This was disappointing and reflected the continuing evidence of reduced
demand for consulting services in our management consulting business, which we
first highlighted in our half-year announcement. This, and the investment within
management consulting in supporting the expansion and development of the
business elsewhere in the Group, adversely impacted the near-term profitability
of the consulting business in the second half.
As a result of the challenges within management consulting, we took steps in the
second half to reorganise this part of the business in order to improve
performance; this has involved the appointment of a new management team and the
reduction in staff numbers to better match supply and demand and to give us
greater flexibility.
Since the acquisition of HBS and Hedra, we have become one of the leading
providers of strategic partnerships and outsourced services to the local
authority marketplace, where clients are under increasing pressure to improve
services and reduce costs. The combination of the skills acquired as a result of
the two acquisitions is proving increasingly powerful in pursuing new
outsourcing deals and in securing programmes of work to help clients transform
public services.
Local authorities
We continue to build on our major partnerships with local authorities including
Middlesbrough, Lincolnshire, Rochdale, Milton Keynes, Oldham and Liverpool; and
on our other strategic relationships in Hertfordshire and the London Borough of
Hackney. This year we have secured a further four-year contract extension in
Lincolnshire following an earlier one-year extension and the result of a
successful transformation exercise which helped identify significant savings for
the council. Our success in delivering transformation and cost reduction
programmes is also reflected in recent consulting projects, including several
assignments for councils in the Midlands, where we have implemented 'lean' and
'systems thinking' programmes.
Mouchel has been a partner to Lincolnshire County Council for nearly 10 years.
At the time of appointment this was regarded as a groundbreaking business
process outsourcing (BPO) partnership implementing major change to deliver
targeted savings of around £50m over a 10-year period, commencing in 2000. As a
result of the two extensions, the contract now runs to 2015 and we have also
been engaged to support the council's efficiency programme, 'new ways of
working' initiatives, and a wide range of projects within the children and adult
services departments.
We are still short-listed as one of two for a 10-year, bundled services
partnership contract with North East Lincolnshire Council, which will focus on
urban regeneration and economic development and deliver property, housing,
planning and transport services. We have already been appointed to support the
council with their economic well-being and BSF programmes, building on our
earlier success in delivering improved educational outcomes for the authority.
We are in the advanced stages of negotiation with Middlesbrough Council on a
five-year extension to our existing contract, which expires in 2011, and we
expect a decision on this later in the year. Discussions also continue with the
client in Oldham around an expansion in the scope of our services to include
other back-office activities and we expect to secure this in the second half of
the current financial year. We have worked with Oldham and Rochdale to award a
PFI street-lighting contract across both boroughs and are now developing
business cases for further shared service activities, including highway
maintenance and parking management.
More local authorities, driven by the need to become more efficient and save
costs, are seeking to outsource services. As a result, we have either been
short-listed, or expect to be short-listed, for a raft of new bundled services
and BPO opportunities.
Elsewhere in the local authority marketplace, we have won a number of new
contracts during the year, including property design and maintenance services
for Kent County Council and support to the London Borough of Ealing with its
'Decent Homes' initiative.
Education
The focus of our education business continues to be on the provision of
education improvement and property services, mainly via the City Academy and BSF
programmes and to local authority schools generally. We continue to leverage our
existing footprint across the local and regional government sector through our
support of major capital programmes like BSF and using our reputation in
advisory services to target growth in key areas of education services support
and change management.
This year, we have again been extremely successful in tendering for City Academy
projects, winning contracts at Bournemouth, Bristol, St Helens, Isle of Sheppey
and Solihull Academies. Our relationship with the Harris Federation of Academies
continues to grow and we have a strong pipeline of future opportunities. We have
been involved in about a quarter of the 200 Academies which have been opened to
date.
In the BSF area, we are continuing to focus on client side advisory work,
particularly through the provision of management, property, ICT and education
consultancy services. Project development has started on the second phase of the
10-year BSF programme in Hackney. Work on the first phase is also nearing
completion. Also in Hackney, but outside education, we were appointed during
the year as a framework contractor for estates and valuation services in
addition to our existing role as one of the housing management service providers
in the area. Our work installing a new document management system for the
council is also nearing completion.
Emergency services and other public sector organisations
We continue to focus our efforts on supporting other public sector delivery
organisations and are seeing a growing workload with the 'blue light' service
organisations. As a result, we are now working with almost half of the police
forces in England and Wales, including commissions recently secured with Gwent,
Dyfed Powys and Wiltshire constabularies. We have an emerging presence in fire
and rescue services and, in particular, a strong presence in Essex where we have
been supporting the client's IT transformation programme.
We work with over 100 Primary Care Trusts (PCTs) across the country and have
recently assisted the PCTs in Yorkshire and Humber to redesign and implement
their patient referral and clinical decision-making processes.
Management consulting
The acquisition of Hedra plc resulted in a step-change in both the size and
capabilities of our management consulting business. However, integration of the
Hedra business was more problematic than originally envisaged, as was its
trading performance in the current economic environment. We have now
reorganised the business and strengthened the management team, giving us a
stronger base to build on going forward. The one-off costs associated with this
restructure have been separately disclosed as exceptional items.
During the year the business has supported significant cost reduction and
transformation programmes for our major partnerships in Lincolnshire,
Middlesbrough and Oldham. Similar services are being developed for our
commission with Rochdale Council and our change management and business
transformation capability will continue to position us for sustained growth in
the value of these partnerships as well as in our other BPO commissions.
We continue our work with the NHS on the National Programme for IT as part of
the CSC Alliance. The 10-year programme, for which Mouchel is the change partner
for three of the five geographical areas in the UK, involves modernising systems
and improving working practices. Ultimately, the programme will reduce spend and
improve patient care and the environment in which staff work.
We also continue to build a management consulting capability overseas with our
move into Abu Dhabi. We have been appointed to work with the Abu Dhabi
government to implement a knowledge management programme, designed to improve
government effectiveness, and we are preferred bidder on a potentially
significant business process re-engineering opportunity, also for the Department
of Municipal Affairs in Abu Dhabi.
Regulated Industries
Revenue for the year increased by 7% from £168.4m to £180.9m and underlying
operating margins improved from 6.4% to 7.2%. Reduced revenue and profit from
the rail business was more than offset by the increased activity from our
operations in the Gulf prior to the economic difficulties in the United Arab
Emirates (UAE), towards the end of the last calendar year, and the subsequent
sudden slowdown in activity in the region, particularly in Dubai.
Utilities
Although rail and the Middle East have proved to be challenging markets for the
Group over the last year, our utilities business performed strongly. In water,
we have continued to experience relatively strong demand for our services in
spite of the customary slowdown ahead of the next AMP period which commences in
April 2010. Also, notwithstanding current economic conditions, the indications
are still that there will be an increase in expenditure during AMP5 relative to
earlier regulatory periods and we expect to benefit from this given our focus on
maintenance and asset management.
Mouchel's water business is the second largest provider of water-related
consultancy services to the UK water sector, working with every publicly-quoted
water company. During the year, we secured new or additional work with a number
of our water company clients; for example, in the North West, we have been
awarded a five-year extension to our existing contract with United Utilities,
which we hold in joint venture with Kier, Murphy and Interserve.
In Yorkshire, we have continued to support Costain, providing design and build
services to Yorkshire Water for the construction of sewage treatment works and
other major capital projects. We are currently in the process of retendering
this commission in joint venture with Costain and are hopeful of a successful
outcome.
Early in the financial year, we secured and successfully commissioned the
leakage detection contract for all eight zones in Thames Water's North East and
North West areas. As a result, we are now undertaking leakage detection and
associated activities across north London, in two of the client's four area
networks. The contract started in September 2008 for two years and is
potentially extendable by a further five years.
Mouchel also has an extensive track record in flood alleviation. In November
2008, we won Severn Trent's AMP5 feasibility framework, covering a three-year
period and involving studies in wastewater, flooding, and environmental schemes.
In 2007, the severe weather and subsequent floods in part of the country covered
by Severn Trent left thousands of homes without a water supply. Our work with
Severn Trent has identified ways to prevent such a catastrophe from happening
again and, in particular, involved flood prevention works at the Mythe water
treatment works (which had been threatened by floodwaters in 2007). We have also
been liaising closely with the local planning authority and Environment Agency
to negotiate the planning and flood defence consent processes, which has
subsequently led to a larger national project.
Rail
During the year, we have continued to work with London Underground, where we
have been supporting CBS Outdoor with the rollout of its digital advertising
media programme and Thales with its signal upgrading work on the Jubilee and
Northern lines. We have also continued to deliver services direct to London
Underground under a framework set up to develop schemes which will reduce the
temperature on its trains and station platforms.
We have now withdrawn entirely from rail contracting given the unacceptable
margins and business risk. We are currently fulfilling our remaining contractual
commitments on a small number of projects in this area but are not tendering for
further work. Our exit from this part of the market will be marked by the
imminent conclusion of our involvement in the Colchester to Clacton resignalling
contract.
Our other principal area of activity in rail during the last five years has been
structures examination and inspection work for Network Rail, where we learned
during the second half of the financial year that we were unsuccessful with our
tender to secure a position under its Civil Engineering Framework Agreement to
provide these services in future. As a result, our work with Network Rail was
reduced to almost zero and we took the decision to substantially exit the rail
sector as a whole. This has resulted in a significant impairment of goodwill and
other intangible assets, as well as one-off property-related provisions and
redundancy costs for staff who did not transfer to the new service provider. The
impairment charges and other one-off costs have been separately disclosed as
exceptional items.
International
Prior to the recent economic difficulties, we had grown our International
business to become one of the largest providers of infrastructure consultancy
services in the Middle East. Predominantly, this involved working for the
state-backed development companies in the UAE, particularly Dubai, where we had
a leading role on the Dubai Waterfront project and which, until the economic
downturn, was planned to be the world's largest waterfront development.
We have been adversely impacted by the deteriorating economic environment in the
region. Currently there is minimal demand for infrastructure development,
particularly in Dubai, as a result of which we have seen a marked slowdown in
activity levels and in the timing of collection of receivables compared to
earlier years.
Over the past few months, we have been working closely with our clients in the
Middle East to either secure the sums owed to us or to agree payment plans for
the remaining outstanding amounts. As a result, we have now incurred a £15.0m
exceptional impairment charge against fees earned which we have not received. We
have also now substantially restructured our business in the Gulf. This has also
resulted in significant one-off property-related provisions and redundancy costs
which have been separately disclosed as exceptional items.
Looking forward, we are more optimistic for the prospects of the business
elsewhere in the Gulf, though we do not anticipate a return to the very high
levels of activity of 2008. In the UAE, in addition to the management consulting
opportunities with the Department of Municipal Affairs in Abu Dhabi, we are also
now working as part of a major consortium pursuing a public private partnership
contract for the Mafraq to Ghwaifat highway, which is being led by the
Department of Transport in Abu Dhabi. We are continuing to provide
infrastructure design services on the Khalifa Port Industrial Zone development
in Abu Dhabi and, in Kuwait, we were recently successful in our tender for the
design and supervision of part of the new North-South highway.
Highways
Revenue for the year increased 16% from £221.2m to £255.8m, principally as a
result of the Highways Agency (HA) maintenance management contract in Area 3
(Southern England) which commenced on
1 September 2008, as well as additional activity in our maintenance management
commissions and technology commissions generally. At the same time, underlying
operating margins improved slightly from 7.5% to 7.7%.
The highways marketplace in Britain has changed significantly in recent years
and we have continued to adapt to maintain our market leading position in this
area.
Network management
In order book terms, Mouchel's network management commissions for the Highways
Agency, Transport for London (TfL), Transport Scotland and local government
clients provide the greatest visibility of future earnings; with contracts
typically running for between five and seven years. The combination of white-
and blue-collar services generally requires Mouchel to operate in joint venture.
We work with Enterprise plc (formerly Accord plc) in England and with Balfour
Beatty plc in Scotland and Westminster, but we are also still currently working
with Amey plc on HA Area 13 (North West) until the completion of this contract
in July 2010.
As a result of the delay in closing the M25 DBFO contract, we benefited during
the year from an ongoing role in Area 5 (the 'M25 Sphere' contract) where our
responsibilities finally ceased in September 2009. In Area 9 (West Midlands), we
also benefited from a full-year's earnings as the commission, which had been
undertaken in joint venture with Amey, only finished in July 2009. No further
contracts will be bid through the Amey Mouchel joint venture, from which we will
have withdrawn completely on conclusion of Area 13.
Our maintenance management commissions with the HA in Area 1 (South West) and
Area 3 (Southern England), which we undertake in joint venture with Enterprise,
continue to perform well. In Area 3 the impact of the government's 'fiscal
stimulus' has been to increase expenditure through the commission by delivering
schemes to support the sector through the economic downturn.
Our performance on both Areas 1 and 3 through the severe weather last winter won
special commendation, demonstrating our ability to collaborate successfully with
adjacent highway authorities to deliver an effective service and maintain
movement on the M4 motorway and other strategic routes during the worst of the
weather.
The Area 1 and 13 commissions come to an end in the middle of 2010 and the
procurement of new providers is currently ongoing. We have been short-listed as
one of four tenderers in both areas. As we are currently incumbent on both
commissions, we are optimistic of a favourable outcome, although the result of
the tendering process will not be known until late 2009 or early 2010.
The Enterprise Mouchel commission with TfL is also performing well. There is a
strong environmental agenda to this contract and we are meeting our obligations
to reduce its carbon footprint by introducing a range of innovative energy
saving measures.
Mouchel continues to deliver local authority highways services under a range of
single-service partnerships with county councils and unitary authorities and as
part of multi-service partnerships involving the outsourcing of other council
services - the latter through our Government Services business. Mouchel's
highways partnership with Wiltshire County Council has undergone service
transformation as the result of a commission-wide change management exercise. In
Hertfordshire, where our contract has been extended to 2012, we have developed
an efficiency improvement programme in collaboration with the council and the
term contractor under a new risk-reward model that encourages ongoing efficiency
improvements.
We continue to have a healthy pipeline of opportunities in Highways. In addition
to the maintenance management commissions with the HA in Areas 1 and 13, we are
currently tendering a number of opportunities elsewhere. In September 2009, we
were named by Lincolnshire County Council as the preferred bidder for its
highways professional services commission which is a five-year contract,
extendable to 10.
We have recently been short-listed, in joint venture with Carillion, as one of
three bidders for the highways maintenance PFI contract in Sheffield and have
also been appointed in our own right as technical adviser to the London Borough
of Hounslow for its proposed PFI scheme. Overseas, we have formed a joint
venture with the Australian company, Downer EDI, to pursue maintenance
management opportunities. As a result we have now been short-listed for four
potential commissions in Western Australia, where the state government is
pursuing a new approach to highway maintenance, similar to the UK HA's model.
Technology
Mouchel is the only consultant to have developed, designed and delivered a Hard
Shoulder Running (HSR) scheme in the UK, having successfully managed the
implementation of the M42 Active Traffic Management (ATM) pilot scheme south of
Birmingham. We are a key supplier supporting the HA in the implementation of its
Managed Motorway programme, supporting the roll-out of this programme elsewhere
in the Birmingham area and on other parts of the motorway network, notably the
M60 and the M3 and M4. The Managed Motorway concept - which includes HSR, speed
and lane controls, and slip-road signalisation (ramp metering) - increases
capacity in a sustainable way by reducing the scale of construction works. Our
unique experience and recognition of the need for operational issues to lead in
such schemes has been a differentiating factor in this market.
The HA TechMAC schemes continue to perform well, involving Mouchel (in joint
venture with Peek Traffic), in the delivery of technology maintenance, system
performance improvements and congestion management schemes. In 2008/09 this has
included delivering several ramp-metering sites across the network which enabled
the HA to achieve its targets for ramp-metering delivery, as well as the
implementation of on-road technology to support congestion management. Also, in
the technology area, we have just learned that we have been successful with our
tender for the HA National Roads Telecommunications Service (NRTS) PFI
specialist consultancy commission. This is a 10-year client-side technical
advisory role where we will be working in conjunction with a technology provider
to facilitate the improved integration of roadside monitoring equipment with HA
regional traffic control centres.
We have also been successful in securing, in partnership with others, a
technical consultancy framework for the Highways Agency which focuses on
research and technical standards and has a potential duration of two and a half
years.
Civil enforcement
Civil enforcement is also a new, but growing market for Mouchel. Our market
entry was accelerated through the acquisition of technology provider Traffic
Support Limited in 2006. Our offer now extends from the planning and design of
parking schemes through to the delivery of the software and hardware used in
managing parking, the front-line civil enforcement officer service used to
control on-street parking and the back office systems and services needed to
process payments and pursue offenders.
We have now secured a total of three parking and traffic management commissions
and have a substantial pipeline of opportunities in this area, mainly with
London Boroughs. Following our initial success in Hillingdon in 2008, we have
subsequently secured two further similar commissions in Newham and Wandsworth in
2009. We are also currently targeting other major opportunities in London
including Camden and the City of Westminster.
Capital projects
In Northern Ireland, we have been awarded a two-year (with a potential two-year
extension) Consultancy Services Framework for the Strategic Roads Improvement
Programme for the Northern Ireland Roads Service. We continue with our delivery
of the 88km A5 Western Transport Corridor improvement scheme, between Derry and
Aughnacloy. This is the UK's largest 'greenfield' road-building scheme, funded
jointly by the British and Irish governments in order to stimulate economic
regeneration in the North West of Ireland, and has a budget of up to £850m.
Although this is an important commission for us, involvement in major capital
schemes now forms a relatively small proportion of our overall highways
portfolio.
People
In 2008/09 staff numbers fell by about 2% to just over 11,100 people at 31 July
2009. This was due to the downturn in the Middle East and the 'right-sizing' of
activities in the UK, partly offset by staff joining us following contract wins
during the year. Staff turnover reduced to less than 10% (16% in 2007/08) which
is as a result of a less buoyant employment market, as well as our own efforts
to engage and retain a solid skills base in the organisation. The workforce has
become more diverse, women now representing some 29% (compared to 26% the
previous year).
For the second year running, Mouchel has been ranked as one of the Sunday Times
Top Twenty "Best Big Companies to Work For" league of major employers, a
considerable achievement especially in view of the rapid growth of the company.
Board
On 30 January 2009, we announced the appointment of Bo Lerenius to the plc board
as a Non-Executive Director. Bo is the former Group Chief Executive of Stena
Line (1992 to 1998) and of Associated British Ports (1999 to 2007), where he
remained a Non-Executive Director until 31 December 2007. He is currently also a
Non-Executive Director at G4S Plc, Land Securities Group Plc and Thomas Cook
Group Plc. His expertise in some of our core markets, and extensive experience
generally, will be a significant benefit to the Group. Bo succeeded Richard
Benton as Chairman on 1 May 2009.
Richard Benton stood down after 11 years with the Group. He joined us as a
Non-Executive Director in 1998 and became Chairman in 2001, successfully
steering Mouchel through its flotation in 2002 and subsequent merger with
Parkman Group plc in 2003. Richard has made a huge contribution to the
development and growth of the Group and we wish him well for the future.
FINANCIAL REVIEW
Order book and pipeline
At 31 July 2009, the Group's forward order book stood at £1.9bn, broadly
comparable with the £2.1bn at 31 July 2008 and the £2.0bn at the half-year which
means that we continue to have excellent visibility of future earnings. The
bidding pipeline of near-term opportunities and potential contract extensions
stood at £2.2bn, again broadly similar to the £2.2bn and £1.9bn at the last full
and half-years respectively.
The pipeline has benefited relative to the half-year from the inclusion of the
maintenance management contracts in HA Areas 1 and 13 and the highways
maintenance PFI opportunity in Sheffield. We anticipate further growth in the
pipeline in coming months given the number of local authorities currently
contemplating the outsourcing of services.
In terms of bidding for new work, the Group's win-rate during the second half of
the year was restored to within our target range (of between one-in-three and
two-in-five of tenders by value).
Cash flow and working capital
At 31 July 2009, net bank borrowings totalled £101.3m versus £81.9m at 31 July
2008 and £111.6m at the previous half-year.
At the operating cash flow level, the net cash generated from operations before
exceptional items was £32.8m for the period versus £38.0m for the previous year
with an equivalent annual cash conversion ratio of 69% for this year versus 91%
in the previous year. Operating cash flow for the period was impacted
considerably, largely due to the sudden slowdown in the demand for
infrastructure development in the Gulf, especially in Dubai, and the resulting
impact on receivables.
Trade and other receivables before impairment charges increased by £34.6m over
the year, of which £28.8m of the increase related to the Middle East. At 31 July
2009, sums due in the Middle East totalled £38.6m of which £27.8m related to
contracts in Dubai, with the vast majority being due from the local state-backed
development companies. Given the economic slow down in Dubai we have taken an
impairment charge of £15.0m against fees earned which we have not received.
Overall cash performance for the year was also affected by the ongoing
investment in the replacement of the Group's management reporting systems with a
resulting marked increase in capital expenditure. We anticipate that capital
expenditure will reduce to more normal levels in future.
Banking facilities
During the year, the Group's credit facilities were amended and restated. As a
result, the Group now has facilities totalling £190m with Royal Bank of
Scotland, Lloyds TSB and Barclays. Of the £190m, £125m is in the form of
revolving credit facilities, which reduce by £10m in March each year, commencing
March 2010, with the remaining balances of £30m expiring on 1 August 2012, and
£65m expiring on 31 October 2012. The balance of £65m is in the form of a term
loan which also falls due for repayment on 31 October 2012. The interest margin
on the £60m of the revolving credit facilities expiring in August 2012 was kept
at 0.5% to 1.35%, depending on gearing. The interest margin on the balance of
the facilities is 2.0% to 3.5% depending on gearing.
The Group has complied with its banking covenants during the year and considers
that its existing facilities provide adequate funding for the business.
Taxation
The effective rate of tax on profit before tax and exceptional items was 26.0%,
compared with 26.7% for the previous year. The difference between the effective
rate of tax and the statutory rate of 28% reflects the benefit of additional
reliefs, partly offset by the normal level of disallowable expenditure.
Pensions
The Group currently operates three main defined benefit pension schemes: the
Mouchel Superannuation Fund (MSF), the Mouchel Staff Pension Scheme (MSPS) and
the Mouchel Business Services Limited Pension Scheme. The Group also has
admitted body status in the Teesside pre-funded defined benefit scheme.
The Group accounts for all four schemes under IAS 19 Employee Benefits. The IAS
19 charge for the year was £7.1m, compared with £5.2m for last year. The
increase was attributable to a £0.4m reduction in the current service cost and a
£2.3m adverse movement in the financing element of the charge. The charge
continues to benefit from the changes to the MSF and MSPS schemes in 2006/07,
whereby most members in the non-public sector sections of the two schemes moved
from a final salary arrangement to a career average re-valued earnings (CARE)
basis for the calculation of their pension benefits. Under this basis the link
to final salary has effectively been removed for both past and future service.
At 31 July 2009, the total deficit under IAS 19 was £60.3m compared with £67.2m
at 31 January 2009 and £34.6m at 31 July 2008. The movement in the deficit
compared with a year ago reflects actuarial experience in the intervening
period, principally declining asset values and increased liabilities arising
from a reduction in the discount rate applied to the liabilities from 6.6% at 31
July 2008 to 6.0% at 31 July 2009, partially offset by constraints in future
salary increase assumptions.
From a funding point of view, the last actuarial valuations of all the schemes
were undertaken at 31 March 2007 following which funding targets and related
recovery plans were agreed with the relevant trustees. The next valuations will
now take place at 31 March 2010.
(Loss)/earnings per share
Adjusted earnings per share increased 3% from 25.7p to 26.4p. Adjusted earnings
per share is calculated after adding back shares held by the employee share
trusts to the weighted average number of shares. Earnings are adjusted to
exclude amortisation of intangible assets arising from business combinations,
impairment of intangible assets arising from business combinations and other
exceptional items (net of taxation). Basic (loss)/earnings per share were
(11.7)p (31 July 2008: earnings of 17.9p).
Dividends
It is proposed that a final dividend of 3.85p (2008: 4.25p) per ordinary share
will be paid on 18 December to shareholders on the register as at 23 October.
Taken together with the interim dividend of 2.25p per share, this gives a
dividend of 6.10p per share for the year as a whole, maintaining the total
dividend at the same level as the prior year.
OUTLOOK
Although 2008/09 has been a challenging year, there is strong evidence that
Mouchel's services continue to be in demand in the sectors in which we have
become established. Public expenditure is likely to come under increasing
pressure, with capital investments being postponed or scaled down. But in this
environment we expect priority to be given to the provision and transformation
of essential services and to the management and maintenance of vital
infrastructure, all of which are core to our business. Much of this will be
through partnership and outsourcing and will create significant opportunities
for the Group as evidenced by our continuing strong order book and bidding
pipeline. As a result, we have continued confidence in our long-term prospects.
On behalf of the Board
Richard Cuthbert Kevin Young
Chief Executive Group Finance Director
6 October 2009
Consolidated income statement (unaudited)
For the year ended 31 July 2009
Notes Results Exceptional Total Results Exceptional Total
before items 2009 £000 before items 2008
exceptional (note 3) £000 exceptional (note 3) £000
items £000 items £000
£000
Continuing operations:
Revenue 2 740,550 - 740,550 656,743 - 656,743
Cost of sales (616,370) - (616,370) (542,379) - (542,379)
Gross profit 124,180 - 124,180 114,364 - 114,364
Administrative expenses (76,855) (53,562) (130,417) (72,649) (12,450) (85,099)
Operating (loss)/profit 2 47,325 (53,562) (6,237) 41,715 (12,450) 29,265
Interest receivable 1,565 - 1,565 4,756 - 4,756
Finance costs (8,834) - (8,834) (7,708) - (7,708)
(Loss)/profit before tax 40,056 (53,562) (13,506) 38,763 (12,450) 26,313
Taxation 4 (10,401) 10,916 515 (10,338) 3,577 (6,761)
(Loss)/profit for the year 29,655 (42,646) (12,991) 28,425 (8,873) 19,552
Basic (loss)/earnings per share 6 (11.7)p 17.9p
Diluted (loss)/earnings per share 6 (11.7)p 17.7p
Consolidated balance sheet (unaudited)
As at 31 July 2009
Notes
More to follow, for following part double-click [nRn2F2758A]
|