Final Results
Montpellier Group PLC
16 December 2004
Montpellier Group Plc
('Montpellier' or the 'Group')
Preliminary Results for the year ended 30 September 2004
Montpellier, the UK construction business outlines its new strategy and
announces that trading in the second half of the year has been positive.
Financial Highlights
• Group turnover of £459 million (2003: £434 million)
• Group loss before tax of £6.9 million (2003: profit of £6.2 million as
restated)
• Group loss per share of 11.62p (2003: earnings per share of 9.16p as
restated)
• Profitable trading in the second half of the year before exceptional
items
• Securely financed and cash in hand
• Adoption of FRS 17
Operational Highlights
• Group re-focussed into three clear business streams: Social Housing,
Brownfield Remediation and Building in Partnership
• Appropriate provisions in place for all legacy contract exposures
• Implementation of aggressive business controls
• Significantly reduced Group and operational overheads
• £30 million reduction in pension fund deficit
• Strong order book of £422 million focussed on its three chosen market
sectors
• Strengthened management throughout the Group
Roy Harrison, Executive Chairman, said:
'We have completed a comprehensive review of the entire Group, and have, since
the half year, agreed a structure for the operations going forward and
implemented effective controls to ensure the smooth running of the businesses. I
am confident that Montpellier has a future as a focussed construction company
operating in buoyant, higher margin sectors where we can best deploy our
undoubted skills and expertise.'
'We have a much improved business profile and are seeing good levels of growth
within our core activities, more than sufficient to replace the unprofitable
turnover we will lose from discontinued businesses. I look forward to reporting
on further progress next year.'
16 December 2004
Enquiries:
Montpellier Group Plc Tel: 020 7522 3200
Roy Harrison, Executive Chairman
Sandy McArthur, Group Financial Controller
College Hill Tel: 020 7457 2020
Matthew Gregorowski
Mark Garraway
Chairman's Statement
I am pleased to report sound progress in repositioning the Group following a
year of significant change for both shareholders and employees. In particular,
following the discovery and reporting of major contract losses at the half year,
I can further report that the Group has traded profitably in the second half
before exceptional items, that major progress has been made in determining
future Group strategy, resolving legacy contracts, reducing the pension deficit
and achieving both overhead reductions and surplus property realisations.
In recent months the Board has performed a thorough review of the Company's
strategy and of its business operations and has decided to focus on three core
market sectors: Social Housing, Brownfield Remediation and Building in
Partnership. The Group is phasing out exposure to higher risk low margin
business areas and is ensuring that appropriate business controls are
implemented throughout. This followed significant developments that took place
during the year, including the following:
• The Group completed the sale of its investment division announced in
the previous financial year to our major shareholder Browallia reducing their
holding from 50.7% to 33.4%
• The Group completed the sale of four non-core subsidiaries
• Reviews instigated after the Board changes in March of this year led
to the discovery and reporting of major contract problems. Provisions required
against these contracts were the primary determinant for the declaration of a
trading loss at the half year amounting to £20.7 million
• Major changes were made to the senior management team and to the Board
of Directors, including my appointment as Executive Chairman on 24 March 2004
The Board is confident that the difficulties of the past have been resolved and
that the Group is trading positively in its preferred markets.
Subsequent to the interim statement, the restructured Board commissioned a
detailed internal review of the control environment within the Group's
contracting companies and strengthened controls as necessary. A detailed
internal review of all major contracts was commissioned which ensured that the
provisions made against such contracts were appropriate. In addition, the Board
has performed a strategic review of all businesses to ensure that the Group is
able to take full advantage of its strong brands and market positions.
Specific measures undertaken in the period include:
• A clear focus of the Group on three business streams:
o Social Housing
o Brownfield Remediation
o Building in Partnership
• The change from a turnover driven approach to a defined, margin driven
philosophy, phasing out high risk and low margin exposure contracts in a
controlled manner
• Implementation of more aggressive business controls complementing the
Group's strategic direction
• Significant steps taken to reduce the pension deficit and the adoption
of FRS 17 with the inclusion on the balance sheet of the pension fund deficit of
£3.3 million (2003: £33.2 million). This represents a reduction of £29.9
million from the level previously disclosed.
• Appropriate provision made for all identified legacy contract
exposures and problems
• Reduction in Group and operating business costs resulting in a more
efficient and focussed overhead
• Realisation of £4.3 million of cash from surplus property sales. The
Group's property assets will in future be used to provide cash support over the
medium term through an orderly realisation. The Group no longer sees property
investment and development as a core business
As a result of these initiatives the Board is satisfied that the Group is now in
a much healthier condition with a clear focus on maximising profits from its
core contracting businesses.
The Group is now trading profitably, it is securely financed, and has adequate
overdraft and bond facilities to support forecast and increasing trading levels.
There is a strong and growing order book in our three chosen streams of
business. The Group's order book at the end of October 2004 was £422 million,
(2003: £464 million). This year on year reduction reflects the progress of a
controlled withdrawal from non-core work.
Financial Review
Turnover for the year was £459 million (2003: £434 million). Losses for the year
before tax were £6.9 million (2003: a profit of £6.2 million as restated).
Losses per share for the year were 11.62p (2003: earnings per share 9.16p as
restated).
At the year-end the Group had positive net assets after taking account of
un-amortised goodwill recorded on the balance sheet.
Group Refocus
As stated in our announcement on 8 December 2004 the Group will focus on three
specific market sectors: Social Housing, Brownfield Remediation and Building in
Partnership. These are sectors in which the Group's core subsidiaries already
have established brands and market positions, are enjoying continuing growth and
development, and in which Montpellier's activities have been profitable in the
year to 30 September 2004.
Montpellier will service each of these markets through its specialist operating
subsidiaries, reflecting the Group's core contracting skills, strong regional
presence and the strength of its key brands.
Sector Subsidiary Regional Coverage
Social Housing Bullock Midlands and North
Brownfield Remediation VHE National
Shepley Engineering National
Building in Partnership Walter Lilly South
Britannia South West and Wales
Allenbuild National
YJL London London
YJL Infrastructure London
Bullock Construction continues to trade strongly as a market leader in social
housing. The company has record current and forward orders, with the majority of
its work being won on a negotiated or partnered basis. The renewal of the
partnering arrangement with Astra Zeneca also ensures the continuance of this
long-standing relationship.
VHE Construction's core business is brownfield land reclamation and remediation.
The company has developed an in-house capability to apply innovative and
sustainable remediation services including bio-remediation and soil washing
together with traditional methods of increasing the value of redundant estates.
VHE is retained by SecondSite Property (formerly British Gas) for the
reclamation of its nationwide redundant gas works.
Allenbuild operates nationally through four regional offices as a partner
contractor with design and build capability. Allenbuild in the South East has a
£15 million partner scheme with Gentec for the provision of social housing.
Britannia Construction operates in the South West and South Wales and is now in
its 20th year as a partner contractor with Tesco. Britannia is contracted to
build a £15 million police HQ under a negotiated PFI arrangement in Gloucester.
YJL London, working within Greater London on refurbishment and restoration,
operates primarily on health, education and commercial structures. YJL London
has a particular expertise in listed building refurbishment.
Walter Lilly operates in the South East of England and majors in education/
science and residential/commercial through two divisions. Amongst its repeat
clients are the major universities and London property owners such as Cadogan
Estates.
YJL Infrastructure is a specialist rail contractor able to operate within
unsocial and limited site possessions. It is a Tubelines partner on their
Underground station refurbishment program and is shortly to commence on two
Underground Station Step Free Access projects.
Shepley Engineering provides specialist services to the BNFL nuclear site at
Sellafield together with provision of a niche cast iron renovation service.
The Board has adopted a policy of reducing exposure to higher risk, lower margin
projects and of focussing on business areas reflecting the skills and experience
of its successful business management teams.
Each business will be diligently focused on its specialist area of activity and
all new work will be entered into on a highly selective, and controlled basis,
determined by location, contract type, client status and satisfactory
anticipated levels of return. Certain of the Group's businesses did not fit with
this new focus. Accordingly, the following actions have been implemented:
• Realignment of the four Allenbuild trading operations into one
business. This will permit Allenbuild to concentrate on Building in Partnership,
carefully increasing its turnover from a currently restricted level
• Closure of the Group's shop fitting business, Britannia Interiors,
without any material impact on Group operating profit
• YJL Construction did not meet our core criteria and added a layer of
overhead to the southern operations that was considered unnecessary.
Accordingly, its current contracts and certain employees will be reallocated to
our successful Walter Lilly and Britannia businesses in order for the contracts
to be effectively built out. Any new contracts secured through YJL will be
built by Walter Lilly and Britannia as appropriate, and the overhead transferred
will in the future support their own growth programmes into core areas
As a result of these changes the Board has identified ongoing annual savings of
over £3 million per annum at a one off restructuring cost of circa £2 million.
These savings will help underpin the Group's trading performance going forward.
Clear and more robust commercial control mechanisms have been developed and
implemented. Management changes have been made within a number of the Group's
businesses and Group level operational management has been reinforced together
with the appointment of a Group Commercial Director.
These actions will result in a business that is focused and which will operate
from an appropriately sized overhead base. The new focus will allow our Group
companies to concentrate on developing and extending client relationships,
negotiating longer term working agreements and driving repeat and negotiated
business, while continually improving operating processes in order to provide
value for money for our clients.
Dividend
The Board is not recommending the payment of a dividend.
UK Property
Further progress has been made in the year with the disposal of a number of the
Group's non-operational property assets. These included the freehold office site
acquired with the VHE business at Shafton, the sale of a freehold investment
property in Cheltenham and the receipt of an 'overage' in respect of land
previously sold at Broomhills in South Yorkshire. In addition, a development in
Guildford has been pre-sold, reducing the Group's exposure to a negative rental
position. In total these disposals generated a cash inflow of £4.4 million.
USA Property
There has been further substantial progress for Lovell America yielding the
repatriation of a further £2.3 million to the Group. The economy of the
Baltimore/Washington corridor, where the USA property assets are located,
continues to be strong, supported by military and homeland security spending.
Lovell America's future prospects on its four remaining development projects and
land holdings should receive a boost from the increasing scarcity of well
located residential land. The Board expects to realise the bulk of its USA
investment in cash over the next four years.
Pension
The Directors have decided to adopt FRS 17 in full with effect from 1 October
2003 in respect of the accounting for the Group's defined benefit pension
scheme. This has resulted in a restatement of the comparative figures for the
balance sheet and profit and loss account. In the notes to last year's
accounts, the FRS 17 deficit was disclosed as being £33.2 million. In
conjunction with its pension advisors, the Group has reduced the deficit over
this year through the implementation of a number of pension transfer initiatives
to both deferred members and pensioners of the scheme that resulted in a
reduction in the pension fund deficit of £19.2 million and with a total cost of
£5 million. The benefit of this reduction combined with actuarial movements and
ongoing payments into the scheme has resulted in an FRS 17 liability as at 30
September 2004 of £3.3 million gross and £2.3 million net of deferred tax.
Board and Management
Cedric Scroggs retired as Non Executive Chairman and Peter Gyllenhammar resigned
as a Non Executive Director and Deputy Chairman on 11 March 2004. Paul Sellars
resigned as Group Managing Director and left the Board on 31 March 2004. I was
appointed Executive Chairman on 24 March 2004 and my intention is to continue in
this role until a new Chief Executive is appointed next year. I intend to revert
to the role of Non Executive Chairman at the earliest sensible opportunity
thereafter.
The current Board includes Arnold Wagner OBE, Director of Human Resources for
Smiths Group plc and Executive Directors John Gaffney and Phil Underwood both of
whom have many years of experience in successfully operating in the social
housing and land remediation sectors respectively. A further Non Executive
Director will be recruited with the intention to join the Board in early 2005.
Senior Executive Management has been substantially reinforced with the
appointment of Mike Hayes as Operations Director with responsibility for the
Allenbuild companies, Clive Drage as Group Commercial Director and certain
interim appointments at the senior level in subsidiary operations to manage
downsizing of non-core operations.
Employees
On behalf of the Board I would like to thank all of our employees for their
commitment and effort during what has been an extremely difficult period for the
Group. I am satisfied that we have an excellent and experienced work force in
place together with a well established supply chain.
The Future
As a result of the actions taken by the Board and the efforts of everyone in the
Group the outlook for 2005 and beyond is now very positive. The Group's
historical high exposure to developer led inner city residential projects is now
a thing of the past. The re-focussing of the business activity into three market
sectors together with the other steps we have taken as a result of the strategic
review will attract better margins than the Group has earned historically from
its contracting activities whilst retaining positive cash characteristics and
having a lower risk profile. All of these core market sectors have contributed
positively to earnings in 2004.
I am therefore confident that the Montpellier Group has a good future as a
focussed construction company operating in buoyant, higher margin sectors where
we can best deploy our undoubted skills and expertise. We have a much improved
business profile and are seeing good levels of growth within our core
activities.
I will look forward to reporting on further progress next year.
Roy Harrison
Executive Chairman
MONTPELLIER GROUP PLC
Group Profit and Loss Account
for the year ended 30 September 2004
Note Total Total
2004 2003
Restated
£000 £000
Turnover: Group ongoing operations and share of joint ventures 461,695 425,283
Less share of joint ventures' turnover (3,036) (2,473)
Ongoing operations 458,659 422,810
Discontinuing operations 0 11,246
Total continuing operations 458,659 434,056
Discontinued operations 0 0
Group turnover 458,659 434,056
Cost of sales (including exceptional losses on problem contracts) (442,534) (399,776)
Gross profit 16,125 34,280
Administrative expenses (including exceptional reduction in pensions deficit (22,834) (34,086)
following settlements)
Other operating income 2,098 5,477
Group operating (loss) / profit (4,611) 5,671
Income from joint ventures 0 0
Share of associates' profit 0 521
Recognition of goodwill on associates 0 1,191
Ongoing operations (4,611) 2,135
Discontinuing operations 0 (1,407)
Total continuing operations (4,611) 728
Discontinued operations 0 6,655
Total operating (loss) / profit before interest, including share of joint 2 (4,611) 7,383
ventures and associates
Share of associates' exceptional profits 0 1,222
Loss on disposal of subsidiary companies (495) (335)
(Loss) / profit on ordinary activities before interest (5,106) 8,270
Bank interest receivable 2,280 639
Interest payable (2,192) (1,076)
Share of associates' interest payable 0 (561)
Other finance charges - FRS 17 pension (1,921) (1,106)
(Loss) / profit on ordinary activities before taxation (6,939) 6,166
Taxation (payable) / receivable on ordinary activities 3 (106) 1,123
Share of associates' taxation payable 3 0 (93)
(Loss) / Profit for the financial year (7,045) 7,196
Dividends 4 (0) (1,077)
Retained (loss) / profit for the financial year (7,045) 6,119
Basic (loss) / earnings per Ordinary Share 5 (11.62p) 9.16p
Diluted (loss) / earnings per Ordinary Share 5 (11.62p) 9.05p
MONTPELLIER GROUP PLC
Group Statement of Total Recognised Gains & Losses
for the year ended 30 September 2004
Total Total
2004 2003
Restated
£000 £000
(Loss) / Profit for the financial year (7,045) 7,196
Exchange movements in reserves 110 (96)
Surplus on revaluation of landfill assets 416 0
Movement on actuarial deficit in the pension scheme 11,294 (25,340)
Movement on deferred tax relating to the pension deficit (8,943) 7,607
Total losses recognised relating to this year (4,168) (10,633)
Prior Year Adjustment 6 (21,712)
Total losses since the last annual report (25,880)
MONTPELLIER GROUP PLC
Group Balance Sheet
for the year ended 30 September 2004
2004 2003
£000 £000
Restated
Fixed assets
Intangible assets: Goodwill 4,905 5,209
Tangible assets 16,969 18,963
Investments 30 32
Investments in joint ventures:
Loans to joint ventures 625 1,811
Share of gross assets 13,241 17,983
Share of gross liabilities (8,105) (11,469)
5,761 8,325
27,665 32,529
Current assets
Stocks and work in progress 8,641 13,460
Debtors: due after more than one year 10,160 14,297
Debtors: due within one year 94,500 85,020
Current asset investments 17,283
7,388
Cash at bank and in hand 18,068 20,144
138,757 150,204
Creditors: amounts falling due in less than one year (145,383) (129,255)
Net current (liabilities) / assets (6,626) 20,949
Total assets less current liabilities 21,039 53,478
Creditors: amounts falling due after more than one year
Long-term debt (8,363) (8,363)
Other creditors (5,215) (4,685)
Net assets excluding pension liability 7,461 40,430
Pension Liability (2,346) (23,212)
Net assets 5,115 17,218
Capital and reserves
Share capital 5,990 7,881
Share premium account 5,893 5,795
Capital redemption reserve 2,050
-
Revaluation reserve 489 73
Capital reserve 1,846 1,846
Profit and loss account (11,153) 1,623
Equity shareholders' funds 5,115 17,218
MONTPELLIER GROUP PLC
Group Cash Flow Statement
for the year ended 30 September 2004
2004 2003
For the year ended 30 September £000 £000
Restated
Net cash inflow from operating activities 1,677 4,700
Returns on investments and servicing of finance
Interest received 2,279 1,203
Interest paid (2,192) (1,439)
87 (236)
Taxation
Net corporation tax received 527 569
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (682) (1,840)
Payments to acquire current asset investments (9,005) (6,084)
Proceeds on sale of tangible fixed assets 2,681 285
Proceeds on sale of current asset investments 150 2,196
Loans repaid by / (advanced to) joint venture 1,053 (212)
(5,803) (5,655)
Acquisitions and disposals
Receipt from disposal of subsidiary 3,746 -
Cash disposed on disposal of subsidiaries (1,076) -
Payments to acquire associated undertakings - (251)
Receipt from sale of associate - 9,467
2,670 9,216
Equity dividends paid to shareholders (682) (865)
Cash (outflow) / inflow before use of liquid resources and financing (1,524) 7,729
Management of liquid resources
Decrease in liquid resources - 1,890
Financing
Issue of share capital 256 56
Acquisition of own shares (192) -
Movement in short-term borrowings (1,103) 6,110
Finance lease payments (360) (197)
(1,399) 5,969
(Decrease) / increase in cash during the year (2,923) 15,588
MONTPELLIER GROUP PLC
Notes to the Preliminary Statement
for the year ended 30 September 2004
1. Basis of preparation
The preliminary statements have been prepared in accordance with applicable
accounting standards which, except for the adoption of FRS 17 rather than SSAP24
in the accounting for the defined benefit scheme and the recording of the
landfill development fixed asset at valuation rather than cost, have been
applied on a consistent basis. The impact of these changes in accounting
policies are shown in note 6 to this preliminary statement. Although the group
has incurred a loss for the year and has net current liabilities at the year end
the directors are satisfied, on the basis of profit and cashflow forecasts and
the facilities available and expected to be available from its bankers and other
funders, that the Group has sufficient resources to continue trading for the
foreseeable future and it is appropriate to prepare the statements on the going
concern basis.
2. Total operating (loss) / profit
The total operating loss for this year includes the following amounts that the
directors regard as operating exceptional items because of their value and
nature but which do not fall to be recorded as non-operating exceptional items
under the requirements of FRS 3:
2004
£000
Reduction in pension deficit following settlements of liabilities 19,250
Cost of incentives to members connected to the settlements (4,959)
14,291
Contract losses on specific problem contracts incepted in prior years (21,674)
Impairment of current asset investments - to open market valuation (1,617)
Redundancy and reorganisation costs (882)
(9,882)
During this year the Directors have made a number of offers to deferred members
of the scheme to transfer their entitlements under the defined benefit scheme to
a defined contribution arrangement and a number of offers to pensioners of the
scheme to buy out certain benefits attributable under the scheme. The reduction
in pension deficit recorded above shows the movement on the FRS 17 actuarial
deficit relating to these buy outs and transfers and the cost of incentives
reflect the sums paid to facilitate these transfers.
As noted in the half year report and in the Chairman's statement to these
accounts, the Group has suffered a number of issues on contracts that relate to
contracts incepted in prior years where the difficulties relating to these
contracts were not identified in the prior period or became more apparent in
this period as negotiations to resolve the contract terms progressed.
3. Taxation (payable) / receivable on ordinary activities
Analysis of (charge) / credit in year
2004 2003
£000 £000
Current tax:
UK corporation tax on profits of the year - -
Adjustments in respect of previous periods 150 369
150 369
Foreign tax 33 10
Total current tax 183 379
Deferred tax (289) 744
Group taxation (106) 1,123
Share of associates' tax - (93)
Taxation (payable) / receivable on profit on ordinary activities (106) 1,030
There is no UK Corporation Tax charge due to trading losses in this year. The
Group has available further unused tax losses to carry forward against future
taxable profits.
4. Dividends
2004 2003
Pence Pence
Interim dividend - 0.50
Final dividend - 1.15
Total dividend - 1.65
£000 £000
Interim - 395
Final - 682
Total dividend - 1,077
5. (Loss) / earnings per Ordinary Share
2004 2003
Weighted Weighted
average number Restated average number
Earnings of shares EPS Earnings of shares EPS
£000 000s Pence £000 000s Pence
FRS 14 Basis
Basic (loss) / earnings per share (7,045) 60,609 (11.62) 7,196 78,590 9.16
Dilutive effect of options 0 - 0.00 0 891 (0.11)
Diluted (loss) / earnings per share (7,045) 60,609 (11.62) 7,196 79,481 9.05
6. Changes in accounting policies
Pension scheme:
During the year the group has fully adopted the requirements of FRS 17
'Retirement Benefits'. This change in accounting policy has resulted in a prior
year adjustment and comparatives have been restated as necessary. Set out below
is the impact on the group profit and loss account, group statement of total
recognised gains and losses, and the balance sheet for both the current year and
the preceding year.
2003
SSAP 24 Reverse Total pre Apply FRS 17
SSAP24 pension FRS 17
£'000 £'000 £'000 £'000 £'000
Profit & Loss Account
Operating Profit 3,082 2,799 5,881 (210) 5,671
Profit after Tax 5,713 2,799 8,512 (1,316) 7,196
Statement of Total Recognised Gains
& Losses
Actuarial gain - - - (17,333) (17,333)
Balance Sheet
Net Assets 38,930 1,500 40,430 (23,212) 17,218
The prior year adjustment of £21,712,000 reflects the £1,500,000 adjustment to
remove the SSAP 24 pension liability and the £23,212,000 added for the FRS 17
pension liability.
2004
SSAP 24 Reverse Total pre Apply FRS 17
SSAP 24 pension FRS 17
£'000 £'000 £'000 £'000 £'000
Profit & Loss Account
Operating Profit (26,181) 6,887 (19,294) 14,188 (5,106)
Profit after Tax (26,199) 6,887 (19,312) 12,267 (7,045)
Statement of Total Recognised Gains &
Losses
Actuarial gain - - - 2,351 2,351
Balance Sheet
Net Assets 5,321 2,140 7,461 (2,346) 5,115
The charge for SSAP 24 above reflects the actuarial deficit shown under the SSAP
24 valuation performed as at 30 September 2004 which does not reflect the
benefits of the significant reductions in deficit achieved during the year.
Landfill development:
The inclusion of the landfill development at valuation resulted in an increase
in carrying value of £416,000 which has been added to the revaluation reserve.
This change in policy had no impact on the results for the year.
7. Preliminary Statement
This statement, which has been agreed with the auditors, was approved by the
Board on 16 December 2004. It is not the Group's statutory accounts. The
statutory accounts for the year ended 30 September 2003 have been delivered to
the Registrar of Companies and received an audit report which was unqualified
and did not contain statements under s237(2) of the Companies Act 1985. The
statutory accounts for the year ended 30 September 2004 have not yet been
approved, audited or filed.
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