Strategic Review

RNS Number : 3072L

Mountfield Group plc

24 April 2015

 

Mountfield Group Plc

("Mountfield" or the "Group")

Strategic Review

Further to the announcement on 23 December 2014, Mountfield has completed a Strategic Review following the downturn in the Group's performance in 2014, with the intention of returning it to more satisfactory level of profitability in a short period of time ("the Review").

The Review was undertaken by Adrian Sainsbury, Mountfield's non-executive director and Conor O'Mahony, the Group's Chief Financial Officer. It looked at all operational and financial aspects of both Connaught Access Flooring ("CAF") and Mountfield Building Group Limited ("MBG") and its conclusions and recommendations have been accepted and agreed by the Group's Board.

The principal conclusion of the Review was that MBG's had become loss making in 2014 because it had moved away from its original core business of construction work for which it contracted directly with its client. The Review team, having reviewed the business infrastructure have decided that MBG should close down the division that concentrated on large, high-risk builders works packages where work was undertaken on a lump-sum, fixed-price basis. The two remaining divisions (in which MBG has worked directly with the client) have proven to be profit making and in addition to continuing to undertake them MBG will integrate into its business those projects which the Board considers of a low risk nature.

The Review noted that MBG's margins on the builders works packages were at best significantly reduced and at worst were negative. These contracts (and in particular three of them that were undertaken in 2014) have led to MBG becoming unprofitable.

The Review team also concluded that MBG's operating costs in MBG were excessive. This resulted in part from the nature of the work previously undertaken and a reduction would follow from a cessation of that work type, but opportunities to make cuts were highlighted by the Review in other parts of the MBG. The savings that have been highlighted, will include reduction in headcount and of office space and will come into effect over the next 2-3 months. The annual resulting cost savings are expected to be in the region of around £400,000.

The Board expects that the significant changes that are currently being made and that will continue to be implemented, will deliver shareholder value in 2015. The buoyant market conditions that were experienced in late 2014 have continued to date and the Board views the future very positively. As a result of the recent unprofitability of MBG the Board expects that the Group will report, at best, a break-even performance in 2014 and a return to profitability in 2015.

Connaught Access Flooring ("CAF") continues to trade well and is experiencing a strong order book.

The Board believes that as a result of the implementation of the recommendations of the Strategic Review, the Group will be substantially stronger than it was in 2014. The focus on core-contracted work at MBG under a substantially reduced cost-base, should greatly reduce any future contract risk.

Management Changes

Having led the Group for six and a half years, Graham Read will pass the role of Group CEO to Andy Collins, CEO of CAF.

The Board expressed its thanks to Graham (who will continue as CEO of MBG and a Director of the Group) for his leadership of the Group, particularly during the difficult years of the recession.

Balance Sheet Restructured

Finally, the Review highlighted the way in which the Group's balance sheet was weak as a result of the existence on it of the Loan Notes that were issued to Graham and Janet Read and to Andy Collins at the time of Admission. The Board have agreed with the holders of the Loan Notes that they should be cancelled with the net result that approximately £3m of debt will be written off. This will put the Group in a far stronger position going forward and give it a much cleaner balance sheet that will help it achieve its ambition of building a sustainable, diversified construction business.

Contacts:

Mountfield Group PLC	01268 561 082
Andy Collins, Chief Executive Officer
WH Ireland Limited	0207 220 1666
Paul Shackleton
James Bavister

 

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