Kazera Global Regulatory News (KZG)

FOR IMMEDIATE RELEASE 7 December 2010

Managed Support Services plc

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010

·; Turnover increased to £11.2m (2009: £7.8m)

·; Recent contract gains announced with the Co-operative Group and Thomas Cook

·; Adjusted* operating profit turnaround to £0.5m (2009: loss £0.5m)

·; Two acquisitions successfully integrated. ECS increases scale and capability in the Building Services market; Data Sound increases visibility of earnings

·; Statutory loss for the period £0.4m (2009: £2.5m)

·; Launch of new software product "Compleye" to improve electronic interface with Health & Safety customers

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

"Our recently announced contract gains and acquisitions have transformed the prospects for the Group. We anticipate further market share gains and we look forward to the next financial year with increasing confidence".

* adjusted for intangibles amortisation, share based payments and acquisition related fees.

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Notes to editors

Managed Support Services plc is a leading supplier of Environmental Compliance and technical Building Services. The Group provides a broad range of Environmental Compliance services and HVAC building maintenance services for commercial properties. MSS operates in a range of diverse markets with customers managing or owning commercial property, hotels and retail buildings. Further information is obtainable from www.mssplc.com.

CHIEF EXECUTIVE'S REVIEW

Overview

It is a pleasure to report a return to profitable trading and important new contract gains. These developments demonstrate success in executing the Group's new strategy.

The current year represents the first year of trading for the Group in pursuit of our strategy to assemble and develop a nationwide, Technical Building Services and Compliance services group.

To achieve the current level of progress has required the recruitment of a capable management team, the acquisition and integration of a number of trading entities and the creation of an efficient trading platform in order to meet the needs of our customer base.

It is satisfying therefore, to be reporting a profitable six months at the same time as meeting all the other challenges of building the Group and integrating acquisitions. Turnover has increased materially to £11.2m and will continue to grow as the effect of the recent ECS acquisition and the newly announced contract gains are recognised in the second half. Adjusted operating profit (before intangible amortisation, share based payments and acquisition related fees) has also shown a sharp turnaround with profits of £0.5m compared to losses last year in the comparable period of £0.5m.

The current financial year to March 2011 will continue to see further development and investment across the Group in order that the next financial year provides a full return for shareholders.

Strategy

The Group is now focused on developing a strong presence in the Technical Building Services market and in the related Compliance markets. For our customers, this service provision covers Health & Safety management, Water quality and control and the management of Fire and Electrical risk within buildings, as well as the full range of HVAC (Heating, Ventilation, Air Conditioning) services.

Our service offerings are complementary, with the common theme being the risks and costs that our customers have to manage as a result of owning and occupying buildings. The competitive tenant environment and legislative pressure create numerous challenges for our customers and we wish to provide services that can contain cost and manage risk on their behalf.

We continue to see the Building Services and Compliance markets as fragmented and in many cases served by small scale enterprises that can no longer meet all the needs of customers. The opportunity therefore, is to become a substantial and credible supplier in these markets by offering the right range of services and by maintaining a strong balance sheet.

The Group now has over 300 employees with the principal operating hubs being in London and Manchester. This coverage means we are able to remain responsive to our clients' daily needs, whilst offering industry proven management and the transparency benefits of listed status.

We will continue to examine small acquisitions where the services available are attractive or where we feel we can provide additional opportunity for the customer.

Contract gains

We announced the new contract with The Co-operative Group on 11 November 2010. This contract commenced delivery on 1 December 2010.

We have also announced today a further significant new contract with Thomas Cook UK Limited. These developments confirm that the Group now has the resources and the management talent to compete nationally and offer complex services in business critical environments.

Acquisitions

We completed the acquisition of Environmental Control Services Ltd ("ECS") at the end of the trading period, on 30 September 2010. The total net cash consideration for the business was £3.2m, funded principally by an equity fundraising.

ECS is a complementary operation we understand well, having been a successful competitor to our Southern Building Services operations. ECS enjoys an impressive level of contracted maintenance revenues and a good reputation in the market for the delivery of the additional works and services that flow from managing the building maintenance needs of customers.

The acquisition of ECS allowed us to crystallise obvious cost saving opportunities, given the geographical overlap of customers and operations, without altering service levels.

We continue to be impressed with the energy and commitment of the ECS team since the acquisition. This has been reflected in good trading since completion, including further growth in the recurring revenue element of the business.

The acquisition of ECS also increases materially our scale and capability in the Building Services market, particularly in the South East and we believe this will be attractive to existing and potential customers. In particular, increased scale and low indebtedness are relevant to our larger corporate customers who are looking for a reliable supplier at a time when there is considerable uncertainty in the market.

At the beginning of the reporting period we acquired Data Sound which now trades under the Group brand as MSS Health & Safety. This business has performed well since acquisition and enjoys a robust business model with the majority of turnover delivered on a contracted, pre scheduled basis.

MSS Health & Safety provides a fully outsourced solution for customers looking to manage their growing Health & Safety obligations, without incurring unnecessary cost or distraction. The unit is fortunate to have a large team of very experienced Consultants who provide customers with advice both on occupational issues and on all environmental control matters. As a result, our Consultants are advising customers on their Water quality, Fire and Electrical risks, all of which are services we can now offer in-house.

In order to improve the electronic interface with our contracted Health & Safety customers, we will be launching a new software product for customers. This new product will give greater visibility of risk management processes for customers, as well as providing an improved document management facility. The product, Compleye, is being developed internally from Group resources. The Group therefore has ownership of the intellectual property and we hope to enjoy recurring revenues as the product is rolled out through the base.

Results

Turnover for the six months to 30 September 2010 was £11.2m, a substantial increase over the prior period of £7.8m, primarily as a result of acquisitions. Activity levels within the Group's existing operations recovered slightly during the period but we continue to be highly selective in respect of project related opportunities.

Gross margins have improved from 22% to 32%. This reflects careful management of the direct workforce as well as the beneficial margin mix from our Compliance activities. However, we expect the gross margin to be somewhat lower for the full year, as a result of the altered revenue mix following the acquisition of ECS.

Indirect costs and administrative expenses rose in line with increased turnover, again largely as a result of acquisitions. Following the acquisition of ECS at the very end of the reporting period, we have been able to generate overhead savings across the Group, the costs and benefits of which will arise in the second half.

The adjusted operating profit for the period was £0.5m (2009: loss £0.5m). The Group is operationally geared and therefore fixed costs and to a large extent, administrative expenses will not increase directly in line with the Group's growing turnover. In addition, we expect our Water division to make a very modest contribution to operating profit in the second half as compared to small losses in the first half.

We were obliged to make an investment in working capital in the first half of the year, partly as a result of sales growth but also as a consequence of negotiated strategic supplier arrangements with the Group's core suppliers. These arrangements attract supplier discounts and offer margin enhancement in exchange for agreed payment terms.

The recently announced contract gains will have only a modest beneficial effect in the current year with the most recently announced contract gain not commencing delivery until mid January 2011. We anticipate however, that these contract gains will make a meaningful contribution in the next financial year to March 2012.

Financial

The balance sheet at the half year includes certain cash balances held within ECS. These cash balances, totalling £1.6m, were transferred to the ECS vendors shortly after the period end, under the terms of the acquisition agreement. Adjusting for the ECS related cash balances, total net indebtedness at the half year was £0.5m. The movement from the net cash position as at March 2010 of £3.9m reflects the cash consideration payments for Data Sound at £2.8m, deferred payments in respect of previous acquisitions of £1m, together with the net cash cost of acquiring ECS. The acquisition of ECS was funded from the net proceeds of a share placing raising a net £2.9m and the Group's own resources.

Outlook

The commercial environment was certainly challenging during the first half. We are assuming that the Building Services market will continue to be competitive for the balance of the year, particularly for lower margin services, although some customers are now committing to major refurbishment projects which were previously on hold.

The demand for our Health & Safety consultancy services continues to be good and we also expect to see growth in our other, smaller Compliance operations, particularly since our Water division has now entered into profit. 

Our significant contract gains demonstrate the success of our overall strategy, even though the associated revenues will come on stream later than initially planned. These new contracts and our pipeline confirm that major, corporate customers now see the Group as a competitive, nationwide provider.

The remainder of the year will see the completion of the Group's operating platform and the integration of ECS. The Board has increasing confidence for the next financial year. 

Simon Beart

Chief Executive