Last checked at 19 Nov 2008 07:01
FOR IMMEDIATE RELEASE 19 November 2008
Managed Support Services plc
INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2008
Managed Support Services plc announces its Interim Results for the six months ended
30 September 2008.
KEY POINTS
Strong first half trading
Excellent cash conversion
Net cash balances £7.9 million (as at 18 June 2008: £5.2 million)
Turnover £16.3 million (6 months ended 31 March 2008: £16.4 million)
Adjusted profit before tax £1.1 million* (6 months ended 31 March 2008: loss £5.8 million)
Adjusted earnings per share* 0.94p (6 months ended 31 March 2008: loss 3.5p)
* Statutory PBT £730,000, statutory EPS 0.59p.
Commenting on the results, Simon Beart, Chief Executive said:
"This is a very good start to the year and demonstrates the success of the Group's new structure. We obviously have concerns about the economic climate but with large, surplus cash balances and proven management we would hope to be a beneficiary of any economic dislocation".
FOR FURTHER INFORMATION, PLEASE CONTACT:
| Managed Support Services plc: | |
| Simon Beart, Chief Executive Piers Wilson, Group Finance Director | 07710 444370 01483 735703 |
| Cenkos Securities plc: | |
| Nick Wells | 020 7397 8900 |
| Stephen Keys | |
| Buchanan Communications: | |
| Richard Darby | 020 7466 5000 |
| Chris McMahon |
CHIEF EXECUTIVE'S REVIEW
Overview
I am pleased to report satisfactory trading and strong cash generation in the first six months of trading to 30 September 2008. This turnaround from the previous six months ended 31 March 2008 reflects the success of the restructuring programme and the necessary cost cutting undertaken by senior management.
The Group has reported a first half turnover of £16.3 million (March 2008: £16.4 million) and an adjusted operating profit before share based payments and intangible asset amortisation of £1 million ("adjusted EBIT"). Prior period comparisons are largely irrelevant since the Group is now in a different format and operating with a substantially reduced headcount.
Adjusted profit before tax was £1.1 million and adjusted earnings per share were 0.94p. Statutory profit after tax was £536,000, with earnings per share of 0.59p.
Following the restructuring of the installation and contracting elements of the Group, MSS is primarily focused on delivering a building management and services offering to large customers in the hotel, office and industrial markets.
It is the intention to deploy the Group's substantial, surplus cash balances via acquisition in order to increase and broaden the services we can offer to major customers. To date, the prices for potential acquisitions do not reflect the Board's view of fair value in the current economic climate. Accordingly the Board believes that patience is appropriate.
TRADING
The Group now has a March year end. As a result, we believe approximately two thirds of activity and profitability will be generated in the first six trading months of each fiscal year. During this first half, across the Group, turnover levels have been at or above budget. The focus has been to ensure that projects and services are only delivered where acceptable margins are available and where the financial status of the customer is secure.
This policy has meant that in some instances turnover opportunities have not been pursued, but the Board sees no value in pursuing lower margin business, which also requires working capital investment, when there are opportunities to specialise in more secure, services related work.
Highlights in the period have been the excellent performance of our facilities and maintenance activities, where the management team have successfully re-engaged with major customers and have greatly improved transparency and customer service levels. We believe these activities will continue to appeal to customers since they are delivered under a public company brand, supported by a strong balance sheet and managed by a professional team, to high standards.
We have also enjoyed good levels of business in our projects and installation units. These units have also benefited from greatly improved operational and management procedures. The simplification of the Group and the improvement in the reporting controls has led to good business levels translating into satisfactory profitability and strong cash flow.
Cash controls
The new management team has placed a heavy emphasis on cash generation. It is pleasing to see that cash conversion has been high, reflecting both working capital recoveries and the careful management of current business.
The Group's surplus property was also sold during the period. This transaction generated a profit of £291,000 from cash proceeds of £1.3 million.
The Group has funded substantial redundancy and restructuring payments during the period. These amounts have been separately disclosed and amounted to £961,000. This cash spend was primarily in respect of the restructuring undertaken in the prior period. No material future cash spend is anticipated.
In future years the Group has very modest and containable vacant property lease obligations whilst the remaining earn out payments are expected to be less than £1 million. An amount of £250,000 is payable in early 2009 with the balance to be paid over the next three accounting periods.
Financial
Operating cash flow in the period, before payment of restructuring costs, was £1.66 million which represents a cash flow conversion ratio of 166 per cent., when compared to adjusted operating profit. During the period deferred consideration payments totalling £1.18 million were made in relation to acquisitions completed in May 2007, prior to the change of management.
The estimated tax charge for the period is £194,000 (a rate of 15 per cent.) being the current estimate of the effective tax rate expected for the full year, as applied to the six month period, taking into account brought forward tax losses where available.
Adjusted earnings per share in the six month period were 0.94p per share (Unadjusted 0.59p).
In October 2008, the High Court approved a capital reconstruction. The effect of this reconstruction is to remove the accumulated profit and loss deficit in Managed Support Services plc. This will allow the consideration of dividend payments in the future, if appropriate.
Net cash balances as at 30 September were £7.92 million. Operating cash flow in the second half is expected to be positive. Material tax refunds in excess of £500,000 have been received since 30 September 2008 as a result of the losses incurred in the periods to 30 September 2007.
Outlook
The second half of the year will show lower activity levels due to normal seasonal variations, but the Board currently believes that the full year outcome will be satisfactory.
The Board is clearly mindful of the worsening economic climate and the potential consequences of a severe recession. However, to date, we have enjoyed the benefits of stable, cash generative trading, reflecting strong and capable management teams. The Group also has access to very substantial, surplus cash balances. We believe therefore, that irrespective of an economic downturn, the Group is well placed to exploit future opportunities.
Simon Beart
Chief Executive
Consolidated income statement
Six months ended 30 September 2008
| 6 months ended | |||
| Note | 30 September 2008 | 31 March 2008 | |
| Revenue | 16,289 | 16,440 | |
| Cost of sales | (11,935) | (13,586) | |
| Gross profit | 4,354 | 2,854 | |
| Other operating income | - | 61 | |
| Administrative expenses | (3,353) | (11,471) | |
| Operating profit/(loss) before items identified below | 1,001 | (8,556) | |
| Amortisation of intangible assets | (333) | (334) | |
| Increase in share based payment reserve | (330) | (213) | |
| Operating profit/(loss) | 338 | (9,103) | |
| Other gains and losses | 6 | 291 | - |
| Finance income | 108 | 234 | |
| Finance costs | (7) | (37) | |
| Profit/(loss) before tax | 730 | (8,906) | |
| Tax | 4 | (194) | - |
| Profit/(loss) for the period | 536 | (8,906) | |
| Earnings/(loss) per share | |||
| Basic | 5 | 0.59p | (9.93p) |
| Diluted | 0.57p | (9.93p) | |
| Adjusted earnings/(loss) per share | |||
| Basic | 0.94p | (3.5p) | |
| Diluted | 0.91p | (3.5p) | |
Consolidated statement of changes in equity
Six months ended 30 September 2008
| 6 months ended | ||||
| 30 September 2008 £'000 | 31 March 2008 £'000 | |||
| At beginning of period | 5,858 | 13,876 | ||
| Profit/(loss) for the period | 536 | (8,906) | ||
| Increase in share capital | - | 32 | ||
| Increase in merger reserve | - | 643 | ||
| Increase in share based payment reserve | 330 | 213 | ||
| At end of period | 6,724 | 5,858 | ||
Consolidated balance sheet
30 September 2008
| Note |
30 September 2008 £'000 |
31 March 2008 £'000 | ||
| Non-current assets | ||||
| Goodwill | 2,000 | 2,000 | ||
| Other intangible assets | 340 | 666 | ||
| Property, plant and equipment | 93 | 63 | ||
| 2,433 | 2,729 | |||
| Current assets | ||||
| Work in progress | - | 434 | ||
| Trade and other receivables | 6,069 | 5,393 | ||
| Cash and cash equivalents | 7,920 | 7,064 | ||
| Assets held for sale | - | 1,010 | ||
| 13,989 | 13,901 | |||
| Total assets | 16,422 | 16,630 | ||
| Current liabilities | ||||
| Trade and other payables | 11 | (7,245) | (7,614) | |
| Current tax liabilities | (269) | (87) | ||
| Obligations under finance leases | - | (34) | ||
| Provisions | (744) | (1,214) | ||
| (8,258) | (8,949) | |||
| Net current assets | 5,731 | 4,952 | ||
| Non-current liabilities | ||||
| Trade and other payables | (490) | (700) | ||
| Long-term provisions | (950) | (1,123) | ||
| (1,440) | (1,823) | |||
| Total liabilities | (9,698) | (10,772) | ||
| Net assets | 6,724 | 5,858 | ||
| Equity | ||||
| Share capital | 902 | 902 | ||
| Share premium account | 55,816 | 55,816 | ||
| Merger reserve | 4,163 | 4,163 | ||
| Share based payments reserve | 784 | 454 | ||
| Retained earnings | (54,941) | (55,477) | ||
| Total equity | 6,724 | 5,858 | ||
Consolidated cash flow statement and analysis of net cash
30 September 2008
| 6 months ended | ||||
| Note | 30 September 2008 £'000 | 31 March 2008 £'000 | ||
| Net cash from/(used in) operating activities before payment of restructuring costs | 1,656 | (3,680) | ||
| Restructuring costs | 8 | (961) | - | |
| Net cash from/(used in) operating activities | 695 | (3,680) | ||
| Investing activities | ||||
| Interest received | 110 | 234 | ||
| Proceeds on disposal of available-for-sale investments | 1,301 | - | ||
| Proceeds on disposal of property, plant and equipment | 4 | 114 | ||
| Purchases of property, plant and equipment | (45) | (214) | ||
| Purchase of businesses | (1,175) | (850) | ||
| Net cash (used in)/from investing activities | 195 | (716) | ||
| Financing activities | ||||
| Repayments of borrowings | - | (1,140) | ||
| Repayments of obligations under finance leases | (34) | (112) | ||
| Net cash used in financing activities | (34) | (1,252) | ||
| Net increase/(decrease) in cash and cash equivalents | 856 | (5,648) | ||
| Cash and cash equivalents at beginning of period | 7,064 | 12,712 | ||
| Cash and cash equivalents at end of period | 7,920 | 7,064 | ||
| Net cash analysis | 30 September 2008 £'000 | 31 March 2008 £'000 | |
| Cash and cash equivalents | 7,920 | 7,064 | |
| Finance lease liabilities | - | (34) | |
| Net cash | 7,920 | 7,030 | |
Notes
Six months ended 30 September 2008
1. General information and accounting policies
These interim consolidated financial statements are for the six months ended 30 September 2008. 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 2008 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 segments
The Group is involved in the Heating/Ventilation and Buildings services market. The Group operates entirely in the UK.
3. Seasonality of sales
The Directors estimate that due to the seasonality of activity in the Group's markets, in particular the low activity levels in December and January, approximately two thirds of annual profitability will fall in the first half, and one third in the second half of the fiscal year to 31 March.
4. Taxation
Corporation tax for the six month period has been estimated at 15 per cent. (six months ended 31 March 2008: £Nil) representing the best estimate of the effective corporation tax rate expected for the full year, taking into account brought forward tax losses where these are available.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
| Earnings | 6 months to 30 September 2008 £'000 | 6 months to 31 March 2008 £'000 | |
| Earnings/(loss) for the purposes of basic and diluted earnings per share | 536 | (8,906) | |
| Number of shares | No. | No. | |
| Weighted average number of ordinary shares for the purposes of basic earnings per share | 90,203,976 | 89,661,578 | |
| Potentially dilutive ordinary shares | 3,094,402 | n/a | |
| Weighted average number of ordinary shares for the purposes of diluted earnings per share | 93,298,378 | 89,661,578 | |
| Earnings per share | |||
| Basic earnings/(loss) per share | 0.59p | (9.93p) | |
| Diluted earnings/(loss) per share | 0.57p | (9.93p) | |
| £'000 | £'000 | ||
| Adjusted earnings per share | |||
| Earnings/(loss) | 536 | (8,906) | |
| Adjustments for: | |||
| Amortisation of intangibles | 333 | 333 | |
| Charge of share based payments | 330 | 213 | |
| Profit on disposal of property | (291) | - | |
| Impairment of goodwill and restructuring costs | - | 5,220 | |
| Tax effect of items above | (56) | - | |
| Adjusted earnings/(loss) | 852 | (3,140) | |
| Adjusted earnings/(loss) per share | 0.94p | (3.50p) | |
| Adjusted diluted earnings/(loss) per share | 0.91p | (3.50p) |
6. Assets held for sale
On 15 August 2008, the Group completed the sale of a property held for sale. Net proceeds of £1.30 million were received which resulted in a profit of £291,000.
7. Notes to the cash flow
| 6 months ended | ||
| 30 September 2008 £'000 | 31 March 2008 £'000 | |
| Operating profit/(loss) for the period | 338 | (9,103) |
| Adjustments for: | ||
| Depreciation of property, plant and equipment | 4 | 458 |
| Amortisation of intangible assets | 333 | 334 |
| Impairment of intangibles | - | 2,731 |
| Share based payment expense | 330 | 213 |
| Loss on disposal of property, plant and equipment | - | 170 |
| Operating cash flow before movements in working capital | 1,005 | (5,197) |
| Decrease in WIP and inventories | 434 | 1,460 |
| (Increase)/decrease in receivables | (754) | 2,964 |
| Increase/(decrease) in payables and provisions | 37 | (2,300) |
| Net movement in working capital | (283) | 2,124 |
| Cash generated/(used) by operations | 722 | (3,073) |
| Income taxes paid | (19) | (570) |
| Interest paid | (8) | (37) |
| Net cash from/(used in) operating activities | 695 | (3,680) |
| Restructuring costs paid in the period | 961 | - |
| Net cash from/(used in) operating activities before payment of restructuring costs | 1,656 | (3,680) |
8. Restructuring Costs
Restructuring costs paid in the six month period, which were all accrued as at 31 March 2008, comprise redundancy costs and loss of office payments, £349,000; onerous property lease payments and settlements, £326,000; professional fees £202,000; and lease hire terminations, £84,000.
9. Dividend
No dividend is proposed in respect of the period to 30 September 2008. The Directors may give consideration to the proposal of a full year dividend, following a review of the full year's trading.
10. Events after the balance sheet date
Cancellation of share premium account and merger reserve
The High Court approved a capital reduction in October 2008. This has allowed the accumulated deficit on the Managed Support Services plc profit and loss reserve as at 1 October 2008 to be cancelled.
11. Deferred consideration
Included in Trade and other payables are the following amounts relating to deferred consideration:
| 30 September 2008 £'000 | 31 March 2008 £'000 | |||
| Trade and other payables | ||||
| Short term | 460 | 1,425 | ||
| Long term | 490 | 700 | ||
| Total deferred consideration | 950 | 2,125 | ||
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 page 12 of the Group's 2008 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 IAS 34 '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).
Simon Beart Piers Wilson
Chief Executive Finance Director