Management Resource Solutions Regulatory News (MRS)

5 March 2015 For immediate release

Management Resource Solutions PLC

("MRS" or the "Company")

Proposed Acquisition of the D&M Group

MRS, the human capital resource consultancy quoted on AIM, is pleased to announce the proposed acquisition of the D&M Group, a manufacturing, wet plant hire and dry plant hire group based in Queensland, Australia.

Highlights

· Conditional agreement to acquire the entire issued share capital of the D&M Group for a purchase price of A$6.7m (approximately £3.4m) in cash and the granting of 1,700,000 consideration warrants.

· The acquisition is consistent with the growth strategy set out at the time of admission to the AIM Market last year to strategically expand the group.

· The Company has entered into a A$17.113m debt facility which will be used to satisfy the consideration for D&M, replace D&M and MRS's existing borrowing facilities, allow for investment in new plant and equipment and provide additional working capital for the enlarged group.

· Initial consideration of A$6.7m payable on completion with value of stock held by the D&M Group, capped at A$200,000, payable on or shortly after completion.

· The Directors believe the rationale for the acquisition are:

o Immediately earnings enhancing - In the year ended 30 June 2014, the D&M Group reported a profit before taxation and exceptional costs of approximately A$1.0m (approximately £508,000) on revenue of A$16.87m (approximately £8.56m);

o Long term contracts and client synergy - The D&M Group has a wide base of corporate and public sector clients in oil & gas, mining, civil engineering, infrastructure and construction as well as local government, some of whom have renewed contracts with D&M for three decades. The D&M Group is currently the preferred supplier to, amongst others, Select, Brisbane City Council and Gold Coast City Council; and

o Established business and asset base - The D&M Group currently employs over 60 staff and its hire fleet includes trucks ranging from 3m to 22m, tippers, semi tippers, bobcats, positracks, excavators 1.5t - 45t, backhoes, graders, and rubber-tracked earth moving equipment.

· The Acquisition is considered to be a reverse takeover under the AIM Rules and, as such, requires the approval of shareholders of the Company.

· Following Admission, the D&M Group will continue to have the same key management working within the business as before the Acquisition, all of whom have committed to a minimum of three years with the Enlarged Group. 

Notice of General meeting

The general meeting of the Company to approve the acquisition of D&M will be held at the offices of MRS, Suite 30402, Tower 3, Level 4, 9 Lawson Street, Southport, QLD 4215, Australia on 23 March 2015 at 6.00 p.m. Queensland time (8.00 a.m. UK time).

Paul Morffew, MRS CEO said:

"I am very pleased to announce this acquisition; executing on our growth strategy as set out at the time of admission to AIM. With the purchase of the D&M Group, we have added an established business with a strong financial track record, coupled with long term client relationships. The synergies with our existing business are considerable and the acquisition will be immediately earnings enhancing, adding significant value to the business.

"This transaction will enable us to provide existing clients of both MRS and the D&M Group with new services, whilst positioning us for significant new opportunities that we would otherwise not be in the running for."

-Ends-

For further information:

About MRS

MRS provides project, quality, environmental and health & safety management services to some of the largest companies and projects across Australia, Oceania and Southeast Asia. MRS are sector specialists in the construction, engineering, civil engineering, petrochemical and coal seam gas sectors. MRS sources its contractors from a database of over 23,000 professionals around the globe, allowing it to react quickly and fully to client requirements.

Terms used but not defined in this announcement are defined in the Company's AIM admission document published today. The Admission Document can be found at http://www.mrsplc.net/. 

Acquisition of the D&M Group of Companies

Readmission to trading on AIM

Introduction

MRS, the human capital resource company, is pleased to announce that it has conditionally agreed to acquire equipment hire and manufacturing group, the D&M Group, for a consideration of A$6.7m and the grant of 1,700,000 consideration warrants (the "Acquisition").

The Acquisition constitutes a reverse takeover under the AIM Rules and accordingly it is conditional inter alia on the approval of MRS shareholders.

The Company has published an AIM admission document (the "Admission Document") containing details of the Acquisition and convening a general meeting to be held at the offices of MRS, Suite 30402, Tower 3, Level 4, 9 Lawson Street, Southport, QLD 4215, Australia on 23 March 2015 at 6.00 p.m. Queensland time (8.00 a.m. UK time). Copies of the Admission Document have been sent to shareholders and are available to download from the Company's website www.mrsplc.net.

Overview of MRS's Existing Business

MRS provides consulting services and contract personnel to add value to client projects by optimising business focus and efficiency whilst reducing costs. The majority of MRS's current clients are in the coal seam gas industry in Australia and South East Asia and MRS specialises in project management, quality management, environmental management and health & safety management standards. MRS does not provide mine management or other commoditised services, operating only in specialist, consistently profitable areas.

The vast majority of MRS's existingbusiness is in assuranceservices, including:

• quality assurance, involving the development, implementation, monitoring and auditing of project quality assurance plansand procedures in line with ISO 9001 and projectrequirements as directed by the client;

• quality control services, such as the development and implementation of project qualitycontrol inspection programmes; and

• document and data management services, assisting clients to manage and controlall engineering design deliverables including document management population, maintenance (i.e. registration, scanning and filing),audit and recordingof technical deliverables.

In addition, MRS provides a range of consulting services including:

• environmental impact assessments, which provide an evaluation of the potential physical, biological, cultural,and socioeconomic effects of a project element and its practicalalternatives;

• assurance technical consultancy, such as surveillanceofficers, material, mechanical & welding, electrical & instrumentation and coating & fibreglass inspectors and commissioning support personnel; and

• health and safety, which encompasses the training and implementation of safety systems.

MRS sources its contractors from a database of over 23,000 professionals around the globe, allowing it to reactquickly and fullyto client requirements. As at 31 December 2014,MRS had 36 employees and 10 contractors acting on seven active projects.

The Directors believe that MRS is differentiated from its competitors both by the depth of the talent pool it has available and its ability to respond to requests from clients for new contractors in very short time periods, thus allowing it to deploy staff on a project who fully meet the criteria for the assignment in a matter of days.

MRS has identified opportunity for growth by expanding outside of its core provision of contractors into managing engineering, procurement and construction (EPC) contracts. The Company started a major EPC contract in early 2014 to design and construct two 4,300m3 aviation fuel tanks at Port Moresby Airport in Papua New Guinea. The contract was initially valued at A$11m (approximately £5.6m) over the 2014 financial year but since commencement has grown in scope and is now valued at an estimated A$25m (approximately £12.7m).

Current Trading

Since the start of 2014, MRS has seen an improvement in its trading operations, including a significant new businessin Papua New Guinea whichhas increased in value and scopesince it was initially agreed and is expected to materially improve the Group's revenue and profitabilityin the financial year to 30 June 2015. MRS has experienced a marked increase in enquiries and orders generally along with extensions and expansions of other existing contracts.

The Acquisition of the D&M Group

MRS currently provides intellectual property based consultancy services and is looking to expand into the provision of physical assets to meet customer demand. The acquisition of the D&M Group represents the first step in this strategy.

The D&M Group is a long-established business which will contribute to the Enlarged Group's revenue and profitability immediately. In addition to being able to provide existing clients of both companies with new services the directors of MRS believe there will be significant opportunities to win new clients and utilise the preferred supplier status the Enlarged Group will have with a number of companies and governmental agencies which are not currently engaging MRS or the D&M Group.

Overview of the D&M Group

D&M is a family run business established in 1972 by its Chairman, Doug Phillips, and based in Queensland, Australia. The D&M Group operates four businesses, being D&M Plant Hire, Wrights Plant Hire, DMR and Titan Manufacturing, in three divisions, wet hire, dry hire and manufacturing. The D&M Group has a wide base of corporate and public sector clients in oil & gas, mining, civil engineering, infrastructure and construction as well as local government, many of whom have brought continued business over a number years, with some clients having renewed contracts with the D&M Group for three decades.

The D&M Group currently employs over 60 staff and its hire fleet includes trucks ranging from 3m to 22m, tippers, semi tippers, bobcats, positracks, excavators 1.5t - 45t, backhoes, graders, and rubber-tracked earth moving equipment.

The D&M Group is currently the preferred supplier to, amongst others, Select, Brisbane City Council and Gold Coast City Council.

In the year ended 30 June 2014, the D&M Group reported a profit before taxation and exceptional expenses of approximately A$1.0m (approximately £507,000) on revenue of A$16.87m (approximately £8.56m).

Dry and Wet Hire

D&M Plant Hire, Wrights Plant Hire and DMR supply plant and equipment to companies and government bodies on a range of different developments and projects in Eastern Australia. Over the last 40 years the D&M Group has successfully accomplished large road works, site developments, bulk earthworks, final trim and precision earthworks.

A large percentage of the D&M Group's dry & wet hire revenue is generated by large corporate and public sector customers and the majority of such revenue is derived from hire periods lasting longer than 6 months.

Manufacturing

Titan Manufacturing was started in 1997 to provide repairs and servicing for the D&M Group's equipment in order to extend the life and preserve the value of its assets. Titan Manufacturing subsequently expanded into the design and construction of bespoke earth moving machinery for clients in the coal seam gas and infrastructure sectors.

Historic financial information, current trading and prospects

Set out below is a summary of the financial performance of the D&M Group for the three years ended 30 June 2014 which has been extracted without material adjustment from the audited accounts of the D&M Group. The full audited accounts of the D&M Group are incorporate in the Admission Document

The year to 30 June 2014 saw a move from "wet" hire, whereby the D&M Group supplies both equipment and operators, to "dry" hire of equipment only, resulting in a reduction in fuel and wage expenses but also in the charge out rate for each item in use, leading to the slight decrease in turnover for the year.

The D&M Group acquired an additional A$3m of new equipment during the year, which resulted in an additional depreciation charge of A$500,000, together with the financing costs for this equipment. In addition, the D&M Group incurred a number of extraordinary non-recurring expenses during the year amounting to $668,000, all of which contributed to a fall in reported profit before taxation of 70 per cent., although gross and EBITDA margins increased marginally when compared to 2013.

As the mining sector in Australia has slowed, the infrastructure sector has started to boom due to federal government initiatives. The D&M Group now have a number of new wet hire infrastructure projects about to start, which will see a move back towards the D&M Group's historic business mix with higher charge out rates but also higher associated costs.

D&M is currently engaged on numerous projects and has a pipeline of further projects it hopes to start in the near future. Following completion, the Enlarged Group intends to invest an additional A$1.5m in further increasing the D&M Group's plant and equipment available for hire to service existing and prospective business.

Terms of the Acquisition

MRS has agreed, conditional inter alia upon the approval of shareholders to acquire the D&M Group from the Vendors for a cash consideration as follows:

· A$6,724,095.70 (approximately £3.4m) as reduced by an amount equal to 70 per cent. of the aggregate monetary value of entitlements of the employees of the D&M Group as at the date of completion (estimated to be approximately A$50,000), will be paid upon completion of the Acquisition Agreement;

· on or shortly after completion, MRS will pay to Doug Phillips and Margaret Phillips equally the value of stock held by the D&M Group at completion, subject to a maximum of A$200,000 (approximately £102,000); and

· within 90 days of completion, accounts will be prepared to determine the amount of the trade debtors and cash of the business less the trade creditors of the D&M Group as at the date of completion. If the accounts result in a net profit, MRS must pay that net profit to Doug Phillips and Margaret Phillips equally. If the accounts result in a net loss, the Vendors must pay the net loss to MRS.

In addition, the Company will upon completion of the Acquisition grant to Doug Phillips and Margaret Phillips or their nominees D&M warrants to acquire up to 1,700,000 new Ordinary Shares at a price of 30 pence per share at any time in the period of seven years following completion.

No new ordinary shares in the company are being issued in connection with the Acquisition.

Financing of the Acquisition

To finance¸ inter alia, the cash consideration payable by MRS for the Acquisition, MRS has entered into a debt facility ("Debt Facility") with Halcyon Capital Management Pty Ltd ("Halcyon"). Under the terms of the Debt Facility, Halcyon is advancing, in aggregate, $17.133m (approximately £8.69m) to MRS for the purposes of the Acquisition and to provide working capital to the Enlarged Group.

The principal sum of the Debt Facility is repayable on 23 March 2020 and attracts interest, payable monthly in arrears, of 0.6875 per cent. per calendar month, equivalent to 8.25 per cent. per year.

The Directors anticipate that the sums due under the Debt Facility, which are required to complete the Acquisition, will be made available for drawdown immediately following the General Meeting. If the monies are not made available to the Company pursuant to the Debt Facility at this time, the Acquisition will be delayed or may not be capable of completion.

Board of Directors

Murray d'Almeida, Chairman of the Company, has given notice of his retirement as a director of MRS with effect from 4 June 2015. Murray has successfully guided the Company through its admission to trading on AIM and the acquisition of D&M but has now decided to concentrate on other ventures. A search for his replacement has started and an update will be provided in due course.

Readmission to trading on AIM

The Company's share capital was admitted to trading on AIM on 11 December 2014.

The Acquisition is classified as a reverse takeover under the AIM Rules, which requires that the Company seek Shareholder approval of the Acquisition and apply to have its Ordinary Shares readmitted to trading on AIM. Application will be made to the London Stock Exchange for the Ordinary Shares to be readmitted to trading on AIM with Admission expected to take place on 24 March 2015, subject to the passing of the Resolution by Shareholders at the General Meeting and the Acquisition completing.

No placing of Ordinary Shares or other equity fundraising is being conducted in conjunction with the Acquisition or Admission.

If the Acquisition does not complete for any reason, then the Ordinary Shares will continue to be admitted to trading on AIM.