Last checked at 22 Dec 2011 07:00
FOR IMMEDIATE RELEASE 22 December 2011
Managed Support Services plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
Managed Support Services plc ("MSS") announces its Interim Results for the six months ended 30 September 2011.
·; Sale of Compliance Division for £3 million
·; Sale of Building Services Division for a headline price of £6.5 million
·; New Investment Policy adopted following disposal of all trading companies
·; Board maximising cash and reducing costs whilst actively pursuing investment opportunities
Commenting on the results, Simon Beart, Chief Executive said:
"We believe the disposal of the Group's trading activities was well timed given the worsening trading environment and the very poor outlook for the Building Services sector.
The Board is now actively considering alternative proposals for the Group"
FOR FURTHER INFORMATION, PLEASE CONTACT:
Managed Support Services plc: | |
Simon Beart, Chief Executive Piers Wilson, Finance Director | 07710 444370 01483 735703 |
Cenkos Securities plc: | |
Nick Wells / Stephen Keys | 020 7397 8900 |
Chief Executive's Review
Summary
The results for the six month period ended 30 September 2011 are primarily of historic interest only, since all the Group's trading activities have now been sold, following completion of the recent sale of the Building Services Division to Initial Rentokil ("Initial").
The profit and loss account for the period treats all trading subsidiaries as discontinued, although completion of the Initial sale took place on 5 December 2011.
The Board is now responsible for maximising the value of the deferred consideration payable under the Initial disposal and thereafter reducing Group costs and liabilities.
Trading
It became apparent during the first quarter of the year that those subsidiaries which were dependent on capital expenditure decisions by customers were going to encounter hostile trading conditions. The Board duly announced in June that material trading losses were being encountered by our small shop fitting subsidiary MSS Interiors, and the larger Installation division of our Building Services operation.
Losses in these units accumulated very rapidly, despite an almost instant reaction to reduce headcount and activity. As losses continued, the decision to close MSS Interiors was ultimately taken and the unit ceased trading in early November, but not before incurring trading losses in the first half of £211,000. MSS Interiors was a business acquired by the previous management team for in excess of £5 million, despite being a vendor dependent, low value added shop fitting business, with no likely disposal value. However, the unit had generated modest profits until this year.
In respect of the Installation activities, this unit represented the already much reduced residual commitment to the high risk, low margin, Installation service formed around an acquisition made by the previous management. This service was valued by certain customers, and was therefore not closed in 2010, but revenue and profitability remained unpredictable and the business frequently required material working capital funding.
The Installation activity also required capital expenditure commitments by customers. Consistent with our experience at MSS Interiors, the Installations unit witnessed a very rapid downturn in activity from April of this year. Turnover levels were reduced to expectations of less than £3 million per annum, having been at over twice that level in prior years.
In addition, the Group experienced a reduction in the discretionary, maintenance related, expenditure by customers. This spend made up approximately 50 per cent. of the revenue within the Group's core Building Services business.
The Building Services recurring revenues held up reasonably well in the half, but profitability was inevitably sensitive to any reduction in the discretionary expenditure element that normally accompanies the planned maintenance revenues.
The core offering of Building Services to our diverse customer base, with a recurring revenue level of approximately £10 million contributed reasonable operating profits in the period, before central costs, although still below management's expectations due to the reduction in discretionary spending.
The Group's Health & Safety Division traded well from acquisition and enjoyed a successful and profitable first half up to the point of disposal at the end of August, to Capita Group plc ("Capita").
Strategic Review
In the light of these market conditions and in particular in the context of larger competitors having to cease trading, it became clear to the Board that the Group's target corporate customers were unlikely to place material new business with smaller suppliers, such as MSS. This lack of customer confidence in the supply chain was particularly frustrating given the quality of our offering and the recent, material contract wins with existing major customers.
The Board therefore decided that the preferable strategy was to realise value from the Group's assets rather than continue to compete in favourable markets.
It was initially agreed to dispose of the Group's Compliance Division. In August 2011, the Group received £3.1 million following the sale of the Compliance Division to Capita which represented a small profit on the Group's investment in the Division. The Compliance Division had traded very well since acquisition, benefitting from improved internal process, the imposition of management disciplines and the appointment of a professional Managing Director.
It was clearly a disappointment to sell the Compliance Division, which was operating in an attractive sector. However, with insufficient capital to fund the Group's desired buy and build strategy, a profitable disposal represented the correct option.
Immediately following the disposal of the Compliance Division, the Group received unsolicited offers for the Building Services Division and details in respect of the division were circulated to a number of potential acquirers.
The Division was subsequently sold for a headline price of £6.5 million, subject to retentions, working capital adjustments and the novation of customer contracts. The price again represented a small profit when compared to the acquisition cost of the two subsidiaries making up almost the whole Division, Status and ECS, which were acquired for a combined net price, including fees of £6.1 million.
It is expected that the majority of the deferred Initial consideration will be received in March 2012 with the final balance to be received in June 2012.
Balance sheet
The Group's balance sheet is presented with the net assets of the trading subsidiaries shown as assets held for sale. Completion of the Initial transaction took place in the second half. At year end, it is anticipated that the balance sheet will merely show cash balances and a small level of trade creditors.
In total, the subsidiaries acquired during 2010 were sold for a profit of some £700,000. The principal diminution of shareholder value over the last two years therefore, reflects the £4.5 million costs of closing the major part of the contracting division during the year ended March 2010 and the funding of losses in that year, during which time the Board was examining the potential for major transactions. The remaining element of cash losses represents the funding of adverse working capital movements and the trading losses from the legacy units.
In respect of the Loan Note Holders, proposals are being made whereby redemption of the Loan Notes reflects the timing of the receipt of the initial and deferred consideration arising from the sale of the Building Services division.
Investment Policy
The shareholders approved an Investing Policy at the General Meeting on 5 December 2011. This policy enables the shares to remain trading on AIM and enables the Board to examine a reasonably wide range of transactions and strategies in order hopefully to recover further shareholder value. The Board is already considering potential acquisitions but such proposals need to be in respect of profitable, cash generative enterprises with competitive positions that are sustainable in a continuing recession.
In the event that no suitable proposal emerges, the Board will ultimately arrange for the residual cash balances to be returned to shareholders in a tax efficient and low cost manner. It should be noted that any distribution of funds can only take place after the Group's tax computations to 31 March 2012 are agreed with HMRC and the warranty periods arising from the disposals have expired at August 2013.
The Board is also mindful that continued running costs need to be reduced. A substantial reduction has already been achieved following the closure of the Woking office and the resignation from the Group of Jamie Reynolds. It is anticipated that further costs savings will be implemented before the financial year end.
Summary
In spite of many, significant new customer wins and the creation of two profitable divisions that were readily sold to two major corporate acquirors, the strategy of creating a substantial building services operator was frustrated by market conditions and the collapse of trading at the Group's legacy subsidiaries. These legacy subsidiaries at one stage made a reasonable contribution to central costs but proved too frail in current markets.
The Board is conscious that shareholders need to see an improvement in shareholder value. Every attempt will be made to identify an attractive opportunity whilst controlling costs.
Simon D. Beart
Chief Executive
CONSOLIDATED INCOME STATEMENT | ||||||
for the period ended 30 September 2011 | ||||||
Six months ended | Six months ended | Year ended | ||||
Note | 30 September 2011 | 30 September 2010 | 31 March 2011 | |||
£'000 | £'000 | £'000 | ||||
Continuing operations | ||||||
Administrative expenses before items identified below | (530) | (398) | (1,103) | |||
OPERATING (LOSS) BEFORE ITEMS | (530) | (398) | (1,103) | |||
IDENTIFIED BELOW | ||||||
Amortisation of intangible assets | - | - | (693) | |||
Increase in share based payment reserve | (86) | (150) | (236) | |||
OPERATING LOSS | (616) | (548) | (2,032) | |||
Financial income | - | 4 | - | |||
LOSS BEFORE TAX | (616) | (544) | (2,032) | |||
Income tax | 3 | - | - | (24) | ||
LOSS FOR THE PERIOD FROM CONTINUING OPERATIONS | (616) | (544) | (2,056) | |||
Discontinued operations | ||||||
(Loss) / profit for the period from discontinued operations | (762) | 173 | 674 | |||
Continuing and discontinued operations | ||||||
LOSS FOR THE FINANCIAL PERIOD | (1,378) | (371) | (1,382) | |||
Basic (loss) / earnings per ordinary share | ||||||
Continuing operations | 4 | (0.29) | (0.33) | (1.10) | ||
Discontinued operations | 4 | (0.36) | 0.10 | 0.36 | ||
Diluted (loss) / earnings per ordinary share | 4 | |||||
Continuing operations | 4 | (0.29) | (0.32) | (1.08) | ||
Discontinued operations | (0.36) | 0.10 | 0.35 | |||
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||||||
for the period ended 30 September 2011 | ||||||
Six months ended | Six months ended | Year ended | ||||
30 September 2011 | 30 September 2010 | 31 March 2011 | ||||
£'000 | £'000 | £'000 | ||||
At beginning of period | 9,342 | 7,568 | 7,568 | |||
Loss for the financial period | (1,378) | (371) | (1,382) | |||
Issue of share capital | - | 446 | 446 | |||
Increase in share premium account | - | 2,474 | 2,474 | |||
Increase in share based payments reserve | 86 | 150 | 236 | |||
AT END OF PERIOD | 8,050 | 10,267 | 9,342 | |||
Equity comprises share capital, share premium, merger reserve, share based payments reserve, special reserve and retained profit. | ||||||
CONSOLIDATED BALANCE SHEET | |||||||||||
as at 30 September 2011 | |||||||||||
Note | 30 September 2011 | 30 September 2010 | 31 March 2011 | ||||||||
£'000 | £'000 | £'000 | |||||||||
CURRENT ASSETS | |||||||||||
Trade and other receivables | 158 | 144 | 60 | ||||||||
Cash and cash equivalents | - | 296 | 404 | ||||||||
Assets held for sale | 14,190 | 21,827 | 20,406 | ||||||||
14,348 | 22,267 | 20,870 | |||||||||
TOTAL ASSETS | 14,348 | 22,267 | 20,870 | ||||||||
CURRENT LIABILITIES | |||||||||||
Trade and other payables | (313) | (615) | (738) | ||||||||
Short term borrowings | (1,224) | (1,129) | (2,784) | ||||||||
Deferred consideration | (275) | (266) | - | ||||||||
Liabilities held for sale | (3,986) | (9,990) | (7,506) | ||||||||
(5,798) | (12,000) | (11,028) | |||||||||
NET CURRENT ASSETS | 8,550 | 10,267 | 9,842 | ||||||||
NON CURRENT LIABILITIES | |||||||||||
Trade and other payables | 5 | (500) | - | (500) | |||||||
TOTAL LIABILITIES | (6,298) | (12,000) | (11,528) | ||||||||
NET ASSETS | 8,050 | 10,267 | 9,342 | ||||||||
EQUITY | |||||||||||
Share capital | 9 | 2,098 | 2,098 | 2,098 | |||||||
Share premium account | 9 | 7,373 | 7,373 | 7,373 | |||||||
Special reserve | - | 4,647 | - | ||||||||
Share based payments reserve | 1,542 | 1,370 | 1,456 | ||||||||
Retained earnings | (2,963) | (5,228) | (1,610) | ||||||||
TOTAL EQUITY | 8,050 | 10,267 | 9,342 | ||||||||
Simon Beart | Piers Wilson | ||||||||||
Director | Director | ||||||||||
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CONSOLIDATED CASH FLOW STATEMENT |
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for the period ended 30 September 2011 |
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Six months ended | Six months ended | Year ended |
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Note | 30 September 2011 | 30 September 2010 | 31 March 2011 |
| |||||||
£'000 | £'000 | £'000 |
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CASH FLOW FROM OPERATING ACTIVITIES |
| ||||||||||
Net cash used in operating activities of continuing operations | 7 | (500) | (472) | (1,090) |
| ||||||
Net cash used in operating activities of discontinued operations | 7 | (1,275) | (1,148) | (1,701) |
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NET CASH USED IN OPERATING ACTIVITIES | (1,775) | (1,620) | (2,791) |
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INVESTING ACTIVITIES |
| ||||||||||
Interest received | - | 4 | - |
| |||||||
Deferred consideration | - | (200) | (466) |
| |||||||
| |||||||||||
Net cash from / (used in) investing activities by continuing operations | - | (196) | (466) |
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Net cash from / (used in) investing activities by discontinued operations | 2,949 | (5,218) | (6,080) |
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NET CASH FROM / (USED IN) INVESTING ACTIVITIES | 2,949 | (5,414) | (6,546) |
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FINANCING ACTIVITIES |
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| |||||||||||
Net proceeds of share issue | - | 2,925 | 2,920 |
| |||||||
Proceeds on issue of convertible loan notes | - | - | 500 |
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Net cash from financing activities by continuing operations | - | 2,925 | 3,420 |
| |||||||
Net cash (used in) / from financing activities by discontinued operations | (1,674) | 911 | 2,827 |
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NET CASH (USED IN) / FROM FINANCING ACTIVITIES | (1,674) | 3,836 | 6,247 |
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NET DECREASE IN CASH | (500) | (3,198) | (3,090) |
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CASH AT THE BEGINNING OF PERIOD | 404 | 3,494 | 3,494 |
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CASH AT THE END OF THE PERIOD | (96) | 296 | 404 |
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NOTES TO THE FINANCIAL STATEMENTS | ||||||||||
30 September 2011 | ||||||||||
1 | GENERAL INFORMATION AND ACCOUNTING POLICIES | |||||||||
These interim consolidated financial statements are for the six months ended 30 September 2011. 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 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. | ||||||||||
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, except as described below. | ||||||||||
Adoption of new and revised standards | ||||||||||
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 April 2011. | ||||||||||
IFRS 10, "Consolidated Financial Statements" (effective for fiscal periods beginning on or after 1st January 2013). | ||||||||||
IFRS 13, "Fair Value Measurement" (effective for fiscal periods beginning on or after 1st January 2013) | ||||||||||
Going concern | ||||||||||
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. | ||||||||||
2 | BUSINESS, GEOGRAPHICAL AND SEGMENTAL REPORTING | |||||||||
The Group's operations were only in the United Kingdom. Following the disposal of the Group's Compliance division, the cessation of operations at its Interior Contractors division and the sale of the Building Services division, the results reported in the Consolidated Income Statement relate solely to the Central division. The Building Services segment, Interior Contracts segment and the Compliance segment are now reported under Discontinued operations. | ||||||||||
3 | TAX | |||||||||
Corporation tax charge for the six month period has been estimated at £nil (six months ended 30 September 2010: £nil). No deferred tax asset has been recognised in relation to the losses in the period. | ||||||||||
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NOTES TO THE FINANCIAL STATEMENTS | ||||||||||
30 September 2011 | ||||||||||
4 | EARNINGS PER ORDINARY SHARE | |||||||||
The calculation of basic and diluted loss per share is based on the following data: | ||||||||||
Six months ended | Six months ended | Year ended | ||||||||
30 September | 30 September | 31 March | ||||||||
2011 | 2010 | 2011 | ||||||||
£'000 | £'000 | £'000 | ||||||||
Continuing operations | ||||||||||
Loss for the financial period | (616) | (544) | (2,056) | |||||||
Number of shares | ||||||||||
Weighted average number of ordinary shares for the purposes of basic earnings per share | 209,802,191 | 165,203,976 | 187,503,084 | |||||||
Potentially dilutive ordinary shares | 2,750,000 | 3,500,000 | 2,750,000 | |||||||
Weighted average number of shares for the purposes of diluted earnings per share | 212,552,191 | 168,703,976 | 190,253,084 | |||||||
Basic (loss) / profit per ordinary share (pence) | ||||||||||
Continuing operations | (0.29) | (0.33) | (1.10) | |||||||
Discontinued operations | (0.36) | 0.10 | 0.36 | |||||||
Diluted (loss) / profit per ordinary share (pence) | ||||||||||
Continuing operations | (0.29) | (0.32) | (1.08) | |||||||
Discontinued operations | (0.36) | 0.10 | 0.35 | |||||||
5 | BORROWINGS | |||||||||
Six months ended | Six months ended | Year ended | ||||||||
30 September | 30 September | 31 March | ||||||||
2011 | 2010 | 2011 | ||||||||
£'000 | £'000 | £'000 | ||||||||
Bank loans due for settlement within one year | 1,224 | 1,129 | 3,017 | |||||||
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NOTES TO THE FINANCIAL STATEMENTS | ||||||||||
30 September 2011 | ||||||||||
6 | CONVERTIBLE SECURED LOAN NOTES | |||||||||
Convertible Loan Notes were issued on 31 March 2011 with a total nominal value of £500,000. The Convertible Loan Notes are convertible by the Note holder into new Managed Support Services plc Ordinary Shares at a conversion price of 5 pence per Ordinary Share. | ||||||||||
If conversion does not take place before 31 January 2015, the Convertible Loan Notes will be redeemed at par by the Company. The notes yield 7%per annum paid semi annually in arrears. | ||||||||||
7 | NOTES TO THE CASH FLOW STATEMENT | |||||||||
Six months ended | Six months ended | Year ended | ||||||||
30 September | 30 September | 31 March | ||||||||
2011 | 2010 | 2011 | ||||||||
£'000 | £'000 | £'000 | ||||||||
Operating loss from continuing activities | (616) | (548) | (1,339) | |||||||
Adjustments for: | ||||||||||
Share based payments | 86 | 150 | 236 | |||||||
Operating cash flows before movement in working capital | (530) | (398) | (1,103) | |||||||
Decrease / (increase) in receivables | 359 | (123) | (39) | |||||||
(Decrease) / increase in payables | (329) | 49 | 187 | |||||||
Decrease in provisions | - | - | (135) | |||||||
Cash utilised by operations | (500) | (472) | (1,090) | |||||||
Net cash used in operating activities of continuing operations | (500) | (472) | (1,090) | |||||||
Net cash used in operating activities of discontinued operations | (1,275) | (1,148) | (1,701) | |||||||
Net cash flow from operating activities | (1,775) | (1,620) | (2,791) | |||||||
8 | DIVIDEND | |||||||||
No dividend is proposed in respect of the period to 30 September 2011 (2010: £nil). | ||||||||||
9 | SHARE CAPITAL | |||||||||
30 September | 30 September | 31 March | ||||||||
2011 | 2010 | 2011 | ||||||||
£'000 | £'000 | £'000 | ||||||||
Authorised | ||||||||||
250,000,000 ordinary shares of 1p each (2010: 250,000,000 ordinary shares of 1p each) | 2,500 | 2,500 | 2,500 | |||||||
Issued and fully paid | ||||||||||
209,802,191 ordinary share of 1p each | 2,098 | 2,098 | 2,098 | |||||||
NOTES TO THE FINANCIAL STATEMENTS | ||||||||||
30 September 2011 | ||||||||||
10 | RELATED PARTY TRANSACTIONS | |||||||||
Apart from the remuneration of the Directors, who are key management personnel of the Group, there have been no other material transactions with the Board. | ||||||||||
11 | EVENTS AFTER THE BALANCE SHEET DATE | |||||||||
On 5th December 2011, the Group disposed of its interests in the Building Services division to Rentokil Initial plc for an initial cash consideration of £4,000,000. Additional consideration of up to £2,500,000 is payable within six months. | ||||||||||
12 | 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 2011 Annual Report, a copy of which is available on the Group's website www.managedsupportservicesplc.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 statement 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). | ||||||||||
S D Beart | P L S Wilson | |||||||||
CHIEF EXECUTIVE | GROUP FINANCE DIRECTOR | |||||||||