Interim Results

RNS Number : 3242D

Managed Support Services PLC

01 December 2009

 



FOR IMMEDIATE RELEASE                                                                                               1 December 2009

Managed Support Services plc

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009

Managed Support Services plc ("MSS") announces its Interim Results for the six months ended 30 September 2009.  

KEY HIGHLIGHTS

• First major acquisition in Building Services

• Recruitment of high profile industry personnel 

• Focus on services model, closure of Projects division 

• Turnover of £7.8m (2008: £16.3m)

• Statutory loss for the period £2.5m after goodwill write down of £1m and closure costs of £0.9m (2008: profit £0.5m)

Commenting on the results, Simon Beart, Chief Executive said:

"We now have a strategic way forward for the Group as well as the management resources to deliver our ambitions. We anticipate that progress will be rapid as we look to expand the Group".

FOR FURTHER INFORMATION, PLEASE CONTACT:

Managed Support Services plc:
Simon Beart, Chief Executive	07710 444370
Cenkos Securities plc:
Nick Wells	020 7397 8900
Stephen Keys
Buchanan Communications:
Richard Darby	020 7466 5000
Nicola Cronk

Notes to editors

Managed Support Services plc is one of the UK's leading suppliers of technical Building Services. MSS operates in a range of diverse markets with clients in commercial property, hotels, retail and the public sector. Further information is obtainable from www.mssplc.com. 

CHIEF EXECUTIVE'S REVIEW

Overview

The Board is pleased to announce the first acquisition in pursuit of the Group's strategy to build a technical Building Services group.

Following the share placing to raise additional funds completed in March 2009, the Board reviewed a wide range of potential transactions in various industries, in particular transactions where substantial trading entities were experiencing financial or management difficulties. These opportunities were examined at length, in parallel with the option of creating a Building Services offering based on selected elements of the original activities of the Group.

The Board ultimately concluded that shareholder value would more easily and more rapidly be created by building on the Group's Building Services activities.  The Board regard this strategic opportunity as highly attractive, given the fragmented structure of the market and the experience of the newly strengthened management team.

The results for the first six months in respect of the existing Group are disappointing, reflecting poor market conditions.  However, the Board has undertaken further closures and substantial cost reductions to mitigate the effects of a weak market and with the acquisition of Status, these legacy assets will form only a small part of the enlarged Group.

Acquisition of Status 

It was announced today that completion has taken place in respect of the acquisition of the Status Building Services group which has been acquired for an enterprise value of approximately £3.7 million in cash, of which £0.7 million is payable in mid 2010. The latest management accounts indicate that Status had net assets of approximately £100,000 at completion and an annual turnover level of approximately £8 million, some 50 per cent. of which comprises contracted maintenance revenues.

The Status customer base is primarily located in London and the South East where geographic density enables operational efficiencies. The services provided by Status to its customer base are also offered by the smaller MSS Facilities division and we believe that this will generate further efficiencies and improvements in customer service.  

Status is being acquired from the current owner/managers who will undertake a brief handover period but the management of the enlarged group and the responsibilities for rolling out our increased nationwide service offering will be met by the new appointees and existing resources.  

Senior level recruitment 

The decision to focus our activities on the technical Building Services market enabled us to identify individuals with specialist skills and proven ability in this area, since the Group's existing activities have been project related and focused predominantly on air conditioning. In contrast, the enlarged group will now offer a much broader capability, thereby greatly expanding our current, Building Services operation.  

We are therefore pleased to announce that Jamie Reynolds (34) will be joining the Group today. Jamie Reynolds was the co-Chief Executive of GSH Group plc. GSH Group plc was until recently a quoted Facilities Management business with sales of £200 million. GSH grew rapidly in recent years with turnover doubling from July 2004 to July 2008. Jamie Reynolds joined the GSH Group in 1993 and having covered a number of roles within the Group was appointed GSH's youngest Board member, responsible for sales, in 2002. Thereafter, Jamie Reynolds relocated to the US where he successfully grew the GSH Facilities management business from a start up. In October 2008 he was appointed co-Chief Executive of the GSH Group. Jamie Reynolds will join the Board of MSS in January 2010 as Chief Operating Officer.

Further senior management appointments are anticipated shortly. 

Incentive arrangements 

The Board recognises that it is essential for talented senior management in small public companies to be incentivised in order to create shareholder value.

The Board has therefore put in place arrangements whereby Jamie Reynolds will subscribe for shares in a new MSS entity, the effects of which will be to allow him to participate materially in any growth of shareholder value from the time of his appointment.  

This investment will also be supported by the purchase of a shareholding in MSS.  

Building Services 

The Building Services market, which will now be the principal focus for the Group, is diverse and fragmented.  MSS will primarily focus on technical Building Services with high levels of added value.  This market is characterised by attractive levels of contracted, recurring revenue from a relatively diverse customer base of owner/occupiers and building managers.

The market requires a demanding standard of service for customers with high activity levels, but offers the potential for attractive margins reflecting the complexity of the technical services provided.  This is to be contrasted with the higher risk project related sectors of the market where margins have recently reduced substantially and where we see no potential for reasonable activity levels nor acceptable margins for the foreseeable future. Our Building Services customers will continue to require project related solutions but such additional services are low value and low risk and are merely offered as part of the overall customer service.

The delivery of an efficient Building Services operation requires a strong IT and management platform, operating from a low cost central base. The new strategy enables MSS to capitalise on the existing investment in our new IT platform and enables the Group to make economic use of surplus property and cost inherited from the previous management structure. 

The MSS brand will be used to rebrand all current and future acquisitions in order to provide visibility and certainty for our growing customer base. Customers rightly expect high levels of service but also welcome the opportunity to trade with well funded and visible partners who can meet the increasingly high demands of the market. 

Group reorganisation

Following the strategic decision to concentrate on the technical Building Services market, the Board has decided that it is no longer necessary to continue to offer a standalone Projects capability. Whilst this activity was successful and profitable in the prior year, available margins are now unattractive and the offering is no longer core to the Group's range of preferred services.

Following these management actions, the primarily service based revenue stream of the enlarged Group will have higher margins. The Board regards this as a very favourable development. 

Results 

The results for the first six months of the year to 30 September 2009 are in sharp contrast to the strong performance reported a year ago. This is most clearly illustrated at the turnover level which has reduced from £16.3 million to £7.8 million representing an approximate reduction of 50 per cent. of turnover.  An element of this reduction in turnover reflects our lack of willingness to accept unprofitable business. 

The results were also impacted at the gross margin level which was reduced to 22 per cent. from 26.7 per cent. reflecting market conditions, primarily in the Project related activities of the Group. The Board was swift to recognise the need for cost reduction. Continuing administrative expenses were therefore further reduced by a third in order to contain where possible the effects of the reduced gross margin.

Unfortunately, management actions were unable to secure a break even result in the first half and although the trading units made a modest contribution, central costs meant that the Group recorded an overall operating loss. 

The Group has also recognised a further restructuring cost to fund the £0.9 million exit costs of closing the Projects division and the related redundancy costs. 

Financial

The Group balance sheet illustrates the effects of reduced trading levels and the belief that carrying forward work in progress at this stage in the cycle is not prudent.

The goodwill write off of £1 million relates to the closure of the Projects division. This amount was carried forward at March 2009 since the division had enjoyed a successful 12 months of trading to that date.  

Further Group rationalisation of the corporate structure can now take place before the year end and this is likely to lead to the existing balance of goodwill being written off as operating units are streamlined and turnover is concentrated within one, primary legal entity reflecting the unified nature of the Group's services.  This streamlining of activities will yield further savings and will not have a material cost.

The cash flow of the group reflects primarily the acquisition costs of Delrac which was acquired earlier in the year for £0.6 million and the need to fund prior year provisions and restructuring costs of £0.4 million. Net cash balances reduced from a peak of £12 million to approximately £10 million at 30 September 2009. 

Following the acquisition of Status, the Group will still have substantial net cash balances and these will be used over time to make further acquisitions of Building Services operations.  

Outlook

The rapid deterioration of market conditions led to a poor first half trading, primarily as a result of persisting with the Projects division.  However, the acquisition of Status and the closure of Projects will transform the Group.  It is expected that the acquisition of Status will generate a material increase in monthly profitability although having been acquired so late in the year, the full contribution will not be until next year.    

It is anticipated that our low yielding cash balances will be deployed on further acquisitions in the Building Services sector in the next 6-12 months. The combination of a strengthened management team, with proven Building Services experience and a focus on higher margin services revenues, will now enable MSS to make rapid progress.  

Simon Beart

Chief Executive

Consolidated Income Statement

For the period ended 30 September 2009

		Six months ended		Six months ended		Year ended
		30 September 2009		30 September 2008		31 March 2009
	Note	£'000		£'000		£'000
Revenue		7,820		16,289		26,285
Cost of sales		(6,098)		(11,935)		(18,899)
GROSS PROFIT		1,722		4,354		7,386
Administrative expenses before items identified below		(2,240)		(3,353)		(5,943)
OPERATING (LOSS)/PROFIT BEFORE ITEMS		(518)		1,001		1,443
IDENTIFIED BELOW
Restructuring of activities	3	(949)		-		(865)
Amortisation of intangible assets		-		(333)		(812)
Increase in share based payment reserve		(167)		(330)		(432)
Impairment of goodwill	6	(1,000)		-		-
Gain on sale of asset held for sale		-		291		292
OPERATING (LOSS)/PROFIT		(2,634)		629		(374)
Financial income		44		108		226
Financial expenses		-		(7)		(23)
(LOSS)/PROFIT BEFORE TAX		(2,590)		730		(171)
Income tax	4	88		(194)		292
(LOSS)/PROFIT FOR THE PERIOD		(2,502)		536		121
(LOSS)/PROFIT PER SHARE (pence)	5
Basic		(1.51)		0.59		0.13
Diluted		(1.51)		0.57		0.12
ADJUSTED (LOSS)/PROFIT PER SHARE (pence)
Basic		(0.23)		0.94		1.44
Diluted		(0.23)		0.91		1.35

Consolidated statement of changes in equity

For the period ended 30 September 2009

		Six months ended		Six months ended		Year ended
		30 September 2009		30 September 2008		31 March 2009
		£'000		£'000		£'000
At beginning of period		12,060		5,858		5,858
(Loss)/profit for the financial period		(2,502)		536		121
Issue of share capital		-		-		750
Decrease in merger reserve		-		-		(4,163)
Increase in share based payments reserve		167		330		432
Transfer to retained earnings		-		-		55,332
Increase in special reserve		-		-		4,647
Decrease in share premium account		-		-		(50,917)
AT END OF PERIOD		9,725		6,724		12,060
Equity comprises share capital, share premium, merger reserve, share based payments reserve, special reserve and retained profit.

Consolidated balance sheet

As at 30 September 2009

		30 September 2009		30 September 2008		31 March 2009
	Note	£'000		£'000		£'000
NON CURRENT ASSETS
Goodwill	6	1,548		2,000		2,000
Other intangible assets		-		340		-
Property, plant and equipment		105		93		84
		1,653		2,433		2,084
CURRENT ASSETS
Work in progress		-		-		444
Trade and other receivables		3,310		6,069		3,191
Cash and cash equivalents		9,826		7,920		12,000
		13,136		13,989		15,635
TOTAL ASSETS		14,789		16,422		17,719
CURRENT LIABILITIES
Trade and other payables	12	(4,296)		(7,245)		(4,474)
Current tax asset/(liability)		51		(269)		79
Provisions for liabilities		(281)		(744)		(448)
		(4,526)		(8,258)		(4,843)
NET CURRENT ASSETS		8,610		5,731		10,792
NON CURRENT LIABILITIES
Trade and other payables	12	(280)		(490)		(492)
Provisions for liabilities		(258)		(950)		(324)
		(538)		(1,440)		(816)
TOTAL LIABILITIES		(5,064)		(9,698)		(5,659)
NET ASSETS		9,725		6,724		12,060
EQUITY
Share capital		1,652		902		1,652
Share premium account		4,899		55,816		4,899
Merger reserve		-		4,163		-
Special reserve	11	4,647		-		4,647
Share based payments reserve		1,053		784		886
Retained earnings		(2,526)		(54,941)		(24)
TOTAL EQUITY		9,725		6,724		12,060

Consolidated cash flow statement

For the period ended 30 September 2009

			Six months ended		Six months ended		Year ended
			30 September 2009		30 September 2008		31 March 2009
	Note		£'000		£'000		£'000
NET CASH (USED IN)/FROM OPERATING ACTIVITIES BEFORE PAYMENT OF RESTRUCTURING COSTS	8		(1,173)		1,656		1,113
Restructuring cash costs	9		(386)		(961)		(1,699)
NET CASH (USED IN)/FROM OPERATING ACTIVITIES			(1,559)		695		(586)
INVESTING ACTIVITIES
Interest received			44		110		226
Proceeds from sale of assets held for sale			-		1,301		1,301
Proceeds on disposal of property, plant and equipment			-		4		5
Purchases of property, plant and equipment			(43)		(45)		(54)
Net cash from acquisition of subsidiary	6		280		-		-
Purchases of businesses	7		(896)		(1,175)		(1,571)
NET CASH (USED IN)/FROM INVESTING ACTIVITIES			(615)		195		(93)
FINANCING ACTIVITIES
Repayment of obligations under finance leases			-		(34)		(34)
Net proceeds of share issue	11		-		-		5,649
NET CASH (USED IN)/FROM FINANCING ACTIVITIES			-		(34)		5,615
NET (DECREASE)/INCREASE IN CASH			(2,174)		856		4,936
CASH AT THE BEGINNING OF PERIOD			12,000		7,064		7,064
CASH AT THE END OF THE PERIOD			9,826		7,920		12,000

Notes to the financial statements

30 September 2009 

1    GENERAL INFORMATION AND ACCOUNTING POLICIES

These interim consolidated financial statements are for the six months ended 30 September 2009. The interim financial report, which has not been audited or reviewed, has been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union.

The information for the period ended 31 March 2009 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.

The annual financial statements are prepared in accordance with IFRSs 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.

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements.

2    BUSINESS AND GEOGRAPHICAL REPORTING

The Group is involved in the Building Services market and each of the four operating subsidiaries has similar economic characteristics, product offerings and customers. The Group operates entirely in the UK.

3    RESTRUCTURING OF ACTIVITIES

During the period Management has reviewed the performance of the Projects business. This review led to a decision to restructure the business resulting in an impairment charge to goodwill of £1.0 million (see note 6), and the creation of a provision against Work in Progress balances, closure costs and other costs of restructuring.

4    TAX

Corporation tax charge for the six month period to 30 September 2009 has been estimated at £nil (six months ended 30 September 2008: £194,000). No deferred tax asset has been recognised in relation to the losses in the period. The corporation tax credit for the period to 30 September 2009 represents tax refunds received related to prior accounting periods.

5	EARNINGS PER SHARE
	The calculation of basic and diluted (loss)/profit per share is based on the following data:		Six months ended		Six months ended		Year ended
			30 September		30 September		31 March
			2009		2008		2009
			£'000		£'000		£'000
	(Loss)/profit
	(Loss)/profit for the purposes of basic and diluted earnings per share		(2,502)		536		121
	Number of shares
	Weighted average number of shares for the purposes of basic earnings per share		165,203,976		90,203,976		96,453,976
	Potentially dilutive ordinary shares		n/a		3,094,402		6,511,800
	Weighted average number of shares for the purposes of diluted earnings per share		165,203,976		93,298,378		102,965,776
	(Loss)/profit per share
	Basic (loss)/earnings per share (pence)		(1.51)		0.59		0.13
	Diluted (loss)/earnings per share (pence)		(1.51)		0.57		0.12
	ADJUSTED (LOSS)/EARNINGS PER SHARE
	(Loss)/profit as above		(2,502)		536		121
	Restructuring of activities		949		-		865
	Amortisation of intangible assets		-		333		812
	Increase in share based payment reserve		167		330		432
	Gain on sale of asset held for sale		-		(291)		(292)
	Impairment of goodwill		1,000		-		-
	Tax effect of items above (at 28%)		-		(56)		(545)
	(Loss)/profit for the purposes of adjusted earnings per share		(386)		852		1,393
	Adjusted basic (loss)/profit per share		(0.23)		0.94		1.44
	Adjusted diluted (loss)/profit per share		(0.23)		0.91		1.35

6    GOODWILL

In the six months to 30 September 2009 a full impairment provision was made against the goodwill of £1 million in respect of MSS Projects Limited. On 1 May 2009, the Group purchased the entire share capital of Delrac Services Limited for a consideration of £871,000. The net assets acquired of £323,000, including cash acquired of £280,000, resulted in goodwill capitalised of £548,000.

7. ANALYSIS OF CASH FLOWS USED FOR ACQUISITIONS

			Six months ended		Six months ended		Year ended
			30 September		30 September		31 March
			2009		2008		2009
			£'000		£'000		£'000
	Purchase of businesses
	Goodwill and trade of Kitsann		-		-		146
	Acquisition of Delrac Services Limited		871		-		-
	Deferred consideration paid (MSS Southern Ltd)		25		1,175		1,425
			896		1,175		1,571
	On 1 May 2009, the Group acquired 100% of the share capital of Delrac Services Limited.

8	NOTES TO THE CASH FLOW STATEMENT
			Six months ended		Six months ended		Year ended
			30 September		30 September		31 March
			2009		2008		2009
			£'000		£'000		£'000
	Operating loss from continuing activities		(2,634)		629		(374)
	Adjustments for:
	Depreciation of property, plant and equipment		24		4		4
	Amortisation of intangible assets		-		333		812
	Impairment of goodwill		1,000		-		-
	Share based payments		167		330		432
	Profit on disposal of property, plant and equipment		-		(291)		(267)
	Operating cash flows before movement in working capital		(1,443)		1,005		607
	Decrease/(increase) in work in progress		444		434		(10)
	Decrease/(increase) in receivables		169		(754)		2,123
	(Decrease)/increase in payables		(584)		37		(2,268)
	Decrease in provisions		(253)		-		(1,565)
	Cash (utilised)/generated by operations		(1,667)		722		(1,113)
	Income taxes received/(paid)		108		(19)		550
	Interest paid		-		(8)		(23)
	Net cash flow from operating activities		(1,559)		695		(586)
	Restructuring costs paid in period (note 9)		386		961		1,699
	Net cash flow from operating activities before payment of restructuring costs		(1,173)		1,656		1,113

Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and other short term, highly liquid investments with a maturity of three months or less.  

9    RESTRUCTURING COSTS PAID IN PERIOD 

			Six months		Six months		Year
			ended  30 September		ended  30 September		ended 31 March
			2009		2008		2009
			£'000		£'000		£'000
	Redundancy costs		134		349		599
	Onerous property leases		106		326		700
	Professional fees		146		202		400
	Lease hire terminations		-		84		-
			386		961		1,699

10    DIVIDEND  

No dividend is proposed in respect of the period to 30 September 2009 (2008: £nil).

11    CAPITAL REDUCTION

At an Extraordinary General Meeting in July 2008, resolutions were passed to reorganise the parent company's reserves, resulting in the cancellation of the brought forward losses at the date of the Court approval. This approval was received in late September 2008. At 31 March 2009 the parent company had distributable reserves of £1.2m.

On 26 February 2009 the authorised share capital of the Company was increased by £1,350,000.

Between 27 February 2009 and 2 March 2009, 75,000,000 new ordinary shares were placed at 8p per share.

12    DEFERRED CONSIDERATION

Included in Trade and other payables are the following amounts relating to the maximum estimated deferred consideration:

			Six months ended		Six months ended		Year ended
			30 September		30 September		31 March
			2009		2008		2009
			£'000		£'000		£'000
	Trade and other payables
	Short term		395		460		210
	Long term		280		490		492
			675		950		702

13    EVENTS AFTER THE BALANCE SHEET DATE

On 30 November 2009, the Group acquired the entire share capital of Status Building Services Limited.  

14    RISKS AND UNCERTAINTIES

The Board continuously assesses and monitors the key risks of the business. The key risks that could affect the Group's medium term performance and the factors which mitigate these risks have not changed from those set out on pages 9 and 10 of the Group's 2009 Annual Report, a copy of which is available on the Group's website www.mssplc.com.  The Chief Executive's Review includes consideration of uncertainties affecting the Group in the remaining six months of the year.

RESPONSIBILITY STATEMENT

The Directors confirm that this consolidated interim report has been prepared in accordance with IAS34 'Interim Financial Reporting' and that the Chief Executive's review includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

 

END

 

 

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