Interim Results
Montpellier Group PLC
03 June 2004
Montpellier Group PLC
('Montpellier' or the 'Group')
Interim Results for the six months ended 31March 2004
Montpellier is a UK based construction Group listed on the Alternative
Investment Market.
Highlights
• Group turnover of £212m (2002: £211.5m)
• Group operating loss after tax of £20.7m (2002: operating profit of £3.4m)
• Group loss per share of 33.68p (2002: earnings per share of 3.4p)
• Positive cash balance of £7m
• Focused construction business following sale of Investment Division
Roy Harrison, Executive Chairman, said:
'The newly reconstituted Board has in the last two months undertaken a
comprehensive business review. We have identified all major contract exposures.
Trading in the majority of our operating subsidiaries remains profitable and the
Group retains a strong cash position. Whilst the results for the year will
still show a significant loss, the Board believes that trading will be
profitable in the second half and is confident that the Group will return to
profit for the 2004/2005 financial year.'
3 June 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
The Montpellier Group has now been reconfigured as a focused construction
business following the sale of its Investment Division, completed in October
last year. The newly reconstituted Board has in the last two months undertaken a
comprehensive business review which has revealed a number of problematic
contracts primarily in YJL Construction and part of Allenbuild, the full extent
of which has only come to light during this review and therefore underlying
losses had not been fully recognised. Additional provisions to cover these
losses, combined with one off costs connected to necessary reorganisation, have
resulted in a considerable loss for the half-year.
We are, however, satisfied that this review has now identified all material
contract exposures in the Group and we have provided for outstanding contract
claims and for expected losses on contracts to the extent considered necessary.
We expect the second half of the year will see a return to more normal trading
results. The cash cost of these contract problems has already been taken and the
Group cash position remains strong.
The recent Board and management changes ensure there is a clear focus on the
diligent operation of our specialised businesses. The Board intends to focus its
business on margin improvement. The Group's chosen market sectors are robust
and we are confident that we will be able to achieve overall margin growth and
acceptable returns. The majority of our businesses are performing strongly and
in line with our expectations. This underlying strength of performance, and the
management actions now in place to ensure proper contract controls at YJL
Construction and Allenbuild, taken together with necessary cost reductions, give
us confidence in a rapid improvement in performance.
Operating review
The Group comprises a number of niche businesses with long-established brand
names operating in both the public and private sectors. The Group's broad spread
of expertise includes infrastructure, social housing, design and build, nuclear
engineering, land remediation, high quality residential, retail and specialist
refurbishment.
The Group has increasingly worked on publicly funded projects in the education,
health, and infrastructure sectors as well as more specialist areas such as
prisons and remand centres. The Group has improved its client service
capabilities with a growing and significant proportion of all new contract wins
now selected through client partnering and negotiated arrangements.
The Group's business specialisations are tabulated below:
Company Market Sector Contract Methodology Geographical Focuses
Allenbuild Social housing, public Partnering, Midlands, South East,
sector, limited North West & North East
commercial negotiation, selective
tendering
Britannia Construction Commercial, retail, Partnering West Midlands
public sector
Selective tendering South West
Britannia Interiors Shopfitting Selective tendering South & Midlands
Bullock Construction Social housing, Partnering negotiation Midlands & North
pharmaceutical
Shepley Engineers Nuclear process services, Framework agreements, UK wide
restoration selective tendering
partnerships
VHE Land redevelopment, Framework agreements, UK wide
remediation selective tendering
partnerships
Walter Lilly Commercial, private, Negotiation, London
education
2 stage tendering South East
YJL Construction Commercial, residential, PFI partnerships, Southern England
health/custodial selective tendering
YJL Infrastructure Rail infrastructure Partnering London
YJL London Commerical, health, Selective tendering London
education
The Group's order book at 31 March 2004 was £430 million (2003: £531 million)
having written down last year's reported infrastructure work bank to a realistic
level. This remains very encouraging, with a full year's work currently secured.
Financial Review
The Group operating loss for the period after tax was £20.7 million (2003:
profit £3.4 million) on turnover of £212.3 million (2003: £211.5 million).
As noted in the 2003 report and accounts the Board at that time was aware that
there were issues in contract acceptance and pricing at YJL Construction and
Allenbuild and that these issues had adversely affected the profitability of
these companies. However, it had been considered that appropriate provisions had
been made against problem contracts at the year-end.
The lack of progress in the settlement of contract claims and variations and the
general performance of certain contracts in the period caused this Board to
implement a full review of all its businesses which took place during April and
May of this year. This review brought to light information that indicated that
the position on contracts at YJL Construction and parts of Allenbuild was
considerably worse than previous expectations and that contract provisions were
significantly understated. Additional provisions of some £15.1 million are
necessary to reflect contract exposures and the expected profitability of
contracts, and these provisions form the major component of the loss for this
half-year period.
The Board consider that the level of provisions within the Group is now
appropriate. We emphasise that these contract problems were isolated within YJL
Construction and Allenbuild and that the other operating companies within the
Group continue to apply sensible and prudent procedures in respect of contract
acceptance, pricing and provisioning. The cash cost of these contract problems
has already been taken and is reflected in the half year cash position. The
Group's cash position remains strong.
A loss of £0.6 million on contracts was sustained in order to facilitate the
disposal of three of the Group's smaller construction subsidiaries, which was
completed in the early part of this year. A provision of £1.6 million has been
made against the £8.5 million purchase value of two properties (part of YJL
Construction) to reflect their market value as at 31 March 2004; these
properties were taken in November 2003 as part payment for account settlement.
Exceptional costs of £0.8 million have been incurred in the reorganisation of
the business during the first half and the Group pension charge, which is
considered further below, amounted to £2.2 million.
The total of these 'exceptional' costs incurred in the half year as noted above
amounts to £20.3 million which, combined with the loss of £0.4 million incurred
in the first half generate the overall loss for the half year shown in the
profit and loss account.
The underlying performance of the majority of the Group's businesses remains
robust with strong cash generation and profit margins in Britannia Construction,
Bullock Construction, Shepley Engineers, VHE, Walter Lilly, YJL Infrastructure
and YJL London. The Board is confident that YJL Construction and Allenbuild will
begin to show an improvement in operating performance in the second half,
benefiting from closer control and direction from the executive directors and a
more diligent application of risk management.
The Board intends to focus its businesses on margin improvement in our
specialised market sectors. Overheads will be adjusted appropriately in support
of this objective. Those businesses, that are performing well, will secure
additional resource to expand their operations profitably.
Dividends
Given the performance for this half year the Board is not declaring an interim
dividend (2003: 0.5p per share). The Board will review its dividend policy at
the full year after considering the underlying profit position at that time.
Board and management
Cedric Scroggs retired as non-executive Chairman and Peter Gyllenhammar resigned
as a non-executive Director 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 31 March 2004 and my intention is to continue in this role
for as long as is necessary during what is a difficult period for the Group.
The Board has been strengthened by the appointment on 2 June 2004 of John Biles,
as a non-executive Director. John is currently Finance Director of FKI Group.
His considerable expertise will provide the Board with valuable support in
particular in dealing with the management of financial risk.
In the coming months, senior executive management will be reinforced. This will
include the appointment of a Group Commercial Director.
Property
Apart from the two investment properties noted above, the Group's UK and US
property assets are residual estates that have been within the Group for many
years. Property management is not a core activity of the Group but we believe
that these residual property assets will contribute significant cashflow and a
reasonable, albeit fluctuating, level of profits for the Group in the years
ahead. The Board remain focused on generating cash from these important assets.
Lovell Pension Scheme
The Group currently accounts for pension costs in accordance with SSAP24. The
administrative expenses in the Profit and Loss Account includes a pension charge
of £2.2 million (2003:£nil) which relates to the amortisation of the £34 million
pensions deficit, as required by SSAP24, and which was explained in detail in
the 2003 annual report and accounts. The Group continues to make payments to the
scheme in accordance with the Minimum Funding Requirements, under the guidance
of an independent actuary. The Group also continues to make proposals to the
scheme trustees and beneficiaries in order to reduce the liabilities under the
scheme. These proposals include the buying out of deferred benefits and of
pension increases. The latest such initiative, which was completed in May 2004,
is expected to reduce the deficit by some £5.7 million and this will be
reflected in the accounts for the year ended 30 September 2004. The scheme's
deficit is a significant issue for the Group and we will continue to work
proactively to limit and reduce the scheme's liabilities.
Outlook
The review undertaken in the last two months has now been completed. Although
this has revealed some unpalatable facts the Board believes it is essential, not
only to set out these facts, but also to chart a path back to profitability and
the creation of enhanced shareholder value. As a result, the Board has acted
swiftly to ensure effective controls and procedures are in place to prevent a
repetition of the contract problems that have been revealed. In addition, cost
reductions and other controls are in place to ensure all the Group's businesses
contribute to margin improvement and that those that can grow profitably receive
the investment that they need. Finally, the Group's management is being
strengthened.
Trading in the majority of our operating subsidiaries remains profitable and the
Group retains a strong cash position. Whilst the results for the year will
still show a significant loss, the Board believes that trading will be
profitable in the second half and is confident that the Group will return to
profit for the 2004/2005 financial year.
Roy Harrison
Executive Chairman
3 June
Group Profit and Loss Account
for the six months ended 31 March 2004
Notes Six months ended Year ended
31 March 30 September
2004 2003 2003
£000 £000 £000
Turnover: Group and share of joint ventures 212,603 212,841 436,529
Less share of joint ventures' turnover (258) (1,310) (2,473)
Group turnover - continuing 212,345 211,531 434,056
Cost of sales (210,521) (191,606) (399,776)
Gross profit 1,824 19,925 34,280
Administrative expenses (22,650) (19,659) (36,675)
Other operating income 584 574 5,477
Group operating (loss)/profit - continuing (20,242) 840 3,082
Income from joint ventures - - -
Share of associates' operating profit - 1,255 521
Amortisation of goodwill on associates - 638 1,191
Total operating (loss)/profit - continuing (20,242) 2,733 4,794
Loss on disposal of businesses 5 (495) - -
Share of associates' profit on disposal of - 788 887
subsidiary
(Loss) /Profit on ordinary activities before interest
and taxation (20,737) 3,521 5,681
Net interest receivable / (payable) 66 (245) (437)
Share of associates' net interest payable - (328) (561)
(Loss) / Profit on ordinary activities before
taxation (20,671) 2,948 4,683
Taxation receivable on ordinary activities 1 - 403 1,123
Share of associates' taxation receivable/
(payable) 1 - 22 (93)
(Loss) / Profit for the period (20,671) 3,373 5,713
Dividends 2 - (393) (1,077)
(Loss) / Retained profit for the period (20,671) 2,980 4,636
Basic earnings per Ordinary Share 3 (33.68p) 4.30p 7.27p
Diluted earnings per Ordinary Share 3 (33.68p) 4.25p 7.19p
Group Statement of Total Recognised Gains and Losses
Six months ended Year ended
31 March 30 September
2004 2003 2003
£000 £000 £000
(Loss) / Profit for the period (20,671) 3,373 5,713
Exchange movements in reserves (461) 55 (96)
Total recognised (losses) / gains since last annual report (21,132) 3,428 5,617
Group Balance Sheet
at 31 March 2004
Note 31 March 30 September
2004 2003 2003
£000 £000 £000
Fixed assets
Intangible assets: Goodwill 5,057 5,606 5,209
Tangible assets:
Investment Properties 7,110 - -
Other Tangible Fixed Assets 16,674 18,665 18,963
Investments 31 30 32
Investments in joint ventures:
Loans to joint ventures 2,058 580 1,811
Share of gross assets 18,661 16,006 17,983
Share of gross liabilities (12,713) (9,366) (11,469)
8,006 7,220 8,325
Investments in associates - 18,459 -
Negative goodwill - (4,984) -
- 13,475 -
36,878 44,996 32,529
Current assets
Stocks and work in progress 10,928 15,850 13,460
Debtors: due after more than one year 16,632 13,968 14,297
due within one year 83,298 84,804 85,020
Current asset investments - 4,773 17,283
Cash at bank and in hand 7,011 836 20,144
117,869 120,231 150,204
Creditors: amounts falling due within one year (128,564) (118,676) (129,255)
Net current (liabilities) / assets (10,695) 1,555 20,949
Total assets less current liabilities 26,183 46,551 53,478
Creditors: amounts falling due after more than one year
Long term debt (8,363) (8,798) (8,363)
Other creditors (4,999) (349) (4,685)
Creditors: amounts falling due after more than 1 year (13,362) (9,147) (13,048)
Provision for liabilities and charges (3,041) - (1,500)
(16,403) (9,147) (14,548)
Net assets 9,780 37,404 38,930
Share capital 4 5,939 7,860 7,881
Share premium account 5,862 5,795 5,795
Revaluation reserve 73 73 73
Capital reserve 3,896 1,846 1,846
Profit and loss account (5,990) 21,830 23,335
Equity shareholders' funds 7 9,780 37,404 38,930
Group Statement of Cash Flow
for the six months ended 31 March 2004
Six months ended Year ended
Notes 31 March 30 September
2004 2003 2003
£000 £000 £000
Net cash (outflows) / inflows from operating
activities 6 (5,384) (6,432) 4,700
Returns on investments and servicing of finance
Net Interest received / (paid) 66 (127) (236)
Taxation
Net corporation tax received 380 596 569
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (9,525) (297) (1,840)
Proceeds on sale of tangible fixed assets 2,572 - 285
Payments to acquire current asset investments - - (6,084)
Proceeds on sale of current asset investments 150 40 2,196
Loans repaid by joint venture (392) (59) (212)
(7,195) (316) (5,655)
Acquisitions and disposals
Cash disposed on disposal of subsidiaries (1,076) - -
Payments to acquire associated undertakings - - (251)
Receipt from sale of associate - - 9,467
Receipt from sale of business 2,000 - -
924 - 9,216
Equity dividends paid to shareholders (682) (470) (865)
Cash (outflow) / inflow before use of liquid resources and
financing (11,891) (6,749) 7,729
Management of liquid resources
Decrease in liquid resources - 563 1,890
Financing
Issue of share capital 174 35 56
Acquisition of own shares (192) - -
Movement in short-term borrowings (1,104) 657 6,110
Movement in long-term borrowings - 435 -
Finance lease payments (120) (110) (197)
(1,242) 1,017 5,969
(Decrease)/increase in cash during the year (13,133) (5,169) 15,588
Note 1 Taxation
Six months ended Year ended
31 March 30 September
2004 2003 2003
£000 £000 £000
Current tax:
UK corporation tax on (losses) / profits
for the period - - -
Adjustments in respect of previous periods - 403 369
- 403 369
Foreign tax - - 10
Total current tax - 403 379
Deferred tax - - 744
Group taxation - 403 1,123
Share of associates' tax receivable /(payable) - 22 (93)
Taxation receivable on profit on ordinary
activities - 425 1,030
The Group has significant unused tax losses available to carry forward against
future taxable profits. A significant element of these losses relate to
activities which are not forecast to generate the level of profits needed to
utilise these losses. At this stage the Directors have maintained a deferred tax
asset in respect of these losses at £600,000 being the level provided at 30
September 2003. The Directors consider that this allowance is reasonable in the
expectation of the future profitability of the group but will continue to
monitor the position.
Note 2 Dividends
Six months ended Year ended
31 March 30 September
2004 2003 2003
Pence Pence Pence
Interim - 0.50 0.50
Final 1.15
- 0.50 1.65
£000 £000 £000
Interim - 395 395
Final 682
- 395 1,077
Note 3 Earnings per Ordinary share
2004 2003 2003
31 March 31 March 30 September
Weighted Weighted Weighted
average average average
number of number of number of
shares shares shares
Earnings EPS Earnings EPS Earnings EPS
£000 Pence £000 Pence £000 Pence
Basic earnings per
share (20,671) 61,381 (33.68) 3,373 78,443 4.30 5,713 78,590 7.27
Dilutive effect of
options - 0 0.00 - 975 (0.05) - 891 (0.08)
Diluted earnings per
share (20,671) 61,381 (33.68) 3,373 79,418 4.25 5,713 79,481 7.19
Note 4 Share capital
Group Six months ended Year ended
31 March 30 September
2004 2003 2003
£000 £000 £000
Authorised:
100,000,000
Ordinary shares of 10p each 10,000 10,000 10,000
10,000 10,000 10,000
Allotted, called up and fully paid:
59,388,757 (2003:March 78,604,877 and September 78,812,777)
Ordinary shares of 10p each 5,939 7,860 7,881
5,939 7,860 7,881
Changes in share capital
A total of 1,068,575 10p ordinary shares have been issued since 1 October 2003.
All shares were issued through the exercises of the Employee Sharesave Scheme
('SAYE'). 20,492,595 shares were bought back, resulting in a share capital
figure of 59,388,757.
20,000,000 share were repurchased as part of the consideration for the sale of
Union Discount Company to Browallia International BV (see note 5).
The remaining 492,595 shares were repurchased from individuals participating in
the Employee Sharesave Scheme ('SAYE')
Note 5 Disposals
1. On 16 September the Group announced that it had entered into an agreement
with Browallia Discount Company Limited (Browallia) and Browallia International
BV (BBV) under which the Group would agree to sell all the shares of The Union
Discount Company Limited (UDC) to Browallia for a consideration of £12.1m and
BBV would sell 20,000,000 Ordinary Shares to Montpellier for a consideration of
£8m. In the circular to shareholders dated 24 September 2003 it was noted that
Mr P Gyllenhammar, a director of Montpellier, had a material interest in
Browallia and BBV and therefore, as the transaction was a related party
transaction, all negotiations of the transaction on behalf of the Group were
undertaken by the independent directors of the Group and that shareholders
approval would be required to complete the transaction. The transaction was
formally approved by shareholders on 20 October 2003.
The consideration was satisfied as to £8m by set off against the consideration
payable by the Group in respect of the purchase of its own shares at a
transaction price of 40p per share with the remaining £4.1m being satisfied by
the payment of £2m cash and £2.1m in loan notes.
A summary of the net assets sold is shown below.
£000
Tangible fixed assets 3
Current asset investments 17,133
Bank loan (5,488)
Other net current assets 433
Net assets 12,081
The turnover and operating profit of UDC is not material to the results for the
period and has therefore not been separately shown as discontinued in the profit
and loss account.
2. On 22 October 2003 Montpellier announced the disposal of the entire issued
share capital of three of its wholly owned loss-making subsidiaries, Cornhill
Interiors Limited, Lodge and Sons (Builders) Limited and YJL Facilities Limited
(together the 'Subsidiaries') as well as its 30% interest in McLaren
Construction Limited to Roger Feast, former Chief Executive of the Construction
Division. Mr Feast resigned from the Board of Montpellier on 3 October 2003 in
order to pursue the acquisition of these businesses. Under the terms of the
disposal agreement, each of the Subsidiaries was sold for £1, and Montpellier
was required to inject sufficient cash into the subsidiaries to ensure that
their overall net asset value equated to £495,000. To achieve this position the
Group injected funds of £733,000 into the companies pre-disposal of which
£383,000 was subsequently waived.
A summary of the net assets sold is shown below.
£000
Fixed assets 221
Net current assets 624
Loans from Montpellier (350)
Net assets 495
The turnover and profitability of these businesses has not been separately
disclosed as discontinued within the results for the period, as they do not meet
the definition of discontinued activities as set out by FRS 3 'Reporting
Financial Performance' and are not material to the group's results.
Note 6 Net cash (outflow)/inflow from operating activities
6 months ended Year ended
31 March 30 September
2004 2003 2003
£000 £000 £000
Operating (loss) /profit (20,242) 840 3,082
Depreciation 767 850 1,800
Amortisation of subsidiary goodwill 152 161 314
Exchange losses 250 191 -
Decrease in stocks and work in progress 2,529 6,820 9,408
(Profit) / Loss on sale of fixed assets (473) - 20
(Profit) on sale of current asset investments - (402) (633)
(Profit) on sale of associate - - (4,673)
Increase in operating debtors and prepayments (769) (7,012) (7,237)
Increase / (decrease) in creditors and accruals 10,786 (7,301) 3,898
Investment (write down reversal) - (579) (579)
Write down of Investment properties and other non-cash
movements 1,616 - (700)
Net cash (outflow) / inflow from operating activities (5,384) (6,432) 4,700
Note 7 Reconciliation of movement in Group shareholders funds
£'000
At 1 October 2003 38,930
Loss for the year (20,671)
Share buyback (8,192)
Exchange adjustments (461)
Issue of share capital 174
At 31 March 2004 9,780
Note 8 Basis of preparation
a) The accounts for the six months ended 31 March 2004 and the equivalent period
in 2003 have not been audited or reviewed by the company's auditors. They have
been prepared in accordance with applicable accounting standards consistent with
the accounting policies set out in the 2003 Annual Report. The interim report
was approved by the directors on 2 June 2004.
b) The abridged information in this statement relating to the year ended 30
September 2003 is derived from full accounts upon which the auditors issued an
unqualified opinion and which did not contain a statement under S237(2) of the
Companies Act 1985 and which have been delivered to the Registrar of Companies.
This interim statement is being sent to all shareholders and is also available
upon request from the Company Secretary, Montpellier Group plc, 39 Cornhill,
London EC3V 3NU.
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