Renew Holdings Regulatory News (RNWH)

31 Aug 2005 07:00

Montpellier Group PLC31 August 2005 Montpellier Group Plc ("Montpellier" or the "Group") Proposed Disposal of Bullock Construction The Board of Montpellier is today pleased to announce that is has conditionallyagreed to sell Bullock Construction Limited ("Bullock"), its principal socialhousing subsidiary, to DTB Holdings, a company which has been established by aManagement Buy-Out team led by John Gaffney, managing director of Bullock, whoresigned as a director of Montpellier on 30 August 2005 to facilitate thetransaction. The total consideration of the proposed disposal is £42.2 million, whichrepresents Bullock's estimated net worth at completion and goodwill valued at£23 million. Net cash receivable by Montpellier after repayment of intra-groupdebts will be £22 million. The Board firmly believes that funds from the agreed disposal of Bullock will: • Provide the Group with the scope to deal fully with all remaining legacy contract and property valuation issues • Establish the necessary resources to develop the Group's remaining businesses in line with the skills and experience of their management teams and progressively grow earnings from the existing overhead base • Significantly strengthen the Group's balance sheet, allowing appropriate banking and bonding facilities to be established and providing financial security to support future contract tendering • Provide greater security for all stakeholders in the Group Background and Reasons for Disposal Following a change of management in the winter of 2003/2004, the new Boardconducted a strategic review of the Group's activities, performance andprospects, having inherited a group of companies which proved to be in a seriousfinancial position. Subsequent Board actions, including making major provisionsin respect of identified problem contracts, implementing a comprehensiverestructuring of the Group's operations, and addressing the material deficit inthe Group's pension scheme, led to a significant loss before tax for the 2004financial year. Together with delays in anticipated property sales, this has weighed heavily onthe Group's financial position, making it difficult to compete successfully fornew business and support ongoing trading. The Board has also continued toreview all the Group's contracts and restructuring exposures on a regular basis,and has identified the necessity for a further provision in respect of a legacycontract exposure in one of its subsidiaries. Having considered a number of alternatives, the Board believes that the proposeddisposal of Bullock on the agreed terms will provide the Group with thecertainty and scope to deal fully with all remaining legacy contract andproperty valuation issues. It will also greatly strengthen the Group's balancesheet and allow appropriate banking and bonding facilities to be established,enabling the Board and management to focus on the Group's two remaining corebusiness streams free of financial constraint. The Board firmly believes that funds from the disposal of Bullock will providethe necessary resources to develop these businesses in line with their skillsbase, focused on margin enhancement and low risk contracting. The strengthenedbalance sheet will provide the necessary financial security to support futurecontract tendering and progressively grow earnings from the reduced overheadbase. Future Shape of the Group The Group recently announced the appointment of Brian May as Chief Executive.Mr May has extensive experience in the construction industry, and under hisleadership the Group will be well positioned to take maximum advantage of thestrong markets in which its businesses operate, thereby delivering satisfactoryand reliable returns. In addition, the actions taken by management, theirapproach to securing new work and the control mechanisms which are in placeacross the Group are resulting in a much reduced risk profile going forward. Through VHE, the Group provides specialist remediation services across the UK.VHE itself deals with brownfield land reclamation, principally of formerindustrial sites to enable development and includes soil and waste treatmentservices, and Shepley Engineers focuses on nuclear decommissioning. All of VHE'sspecialist services are in high demand, underpinned by the Government'scommitment to the development of brownfield land and to maintenance anddecommissioning of UK nuclear assets, a long-term multi-billion pound commitmentby the Nuclear Decommissioning Authority. The Group's partnered building operations consists of a number of specialistconstruction businesses - Allenbuild, Britannia, Walter Lilly, YJL London andYJL Infrastructure - each of which operates in niche market sectors and benefitsfrom strong regional brands. All of these businesses are well positioned to takeadvantage of good market opportunities and, following the reorganisation ofAllenbuild, are winning new work through partnering agreements with key clientsin both the public and private sectors. The combined turnover of the Group's residual businesses for the year ended 30September 2004 was £402 million. In line with the Group's refocusing the orderbook as at 31 July 2005 was £226 million, reflecting the downsizing and closureof certain problematic businesses. In addition, the Group has a number ofproperty assets both in the US and UK which are being actively managed. TheBoard is pursuing options to maximise the realisable value from these propertiesover the next five years, in turn providing further funding to support growth inthe core construction businesses. Conclusion In the sale of Bullock, the Board received approaches regarding Bullock from anumber of parties in addition to the management team, including a venturecapital group and some of its trade competitors. Following professionalevaluation of the value of Bullock, on the terms of the approaches received andthe transaction risk involved with each approach, the Board has concluded that adisposal of Bullock to its management team provides fair value and the highestdegree of certainty both to Shareholders and the Group as a whole. As a result, the Directors of Montpellier, having been so advised by RowanDartington, the Company's nominated adviser, which has confirmed its opinionthat the terms of the transaction are fair and reasonable, are unanimously andstrongly recommending all Montpellier shareholders to vote in favour of thedisposal. Roy Harrison, Executive Chairman, commented: "The new Board inherited a business which subsequently proved to have a numberof issues, including major legacy contract exposures and inappropriate propertyvaluations. Together with the Group's pension deficit, these have resulted in adrain of more than £30 million on the Group's finances. "Over the past 18 months we have worked tirelessly to resolve many of theseissues, most of which have been successfully dealt with and the remainder ofwhich we are confident can now be fully addressed. However, these haveultimately threatened the ability of our subsidiary companies to continuetrading competitively, despite having made considerable progress in implementinggood control mechanisms throughout the Group and reducing its risk profile,while improving the quality and focus of its order book. "Having explored a number of avenues to resolve the Group's resulting financialdifficulties, we received an approach from the management of Bullock. Afterassessing several competitive approaches, we considered this to be an attractivesolution, sufficient to resolve all remaining legacy issues and immediatelyprovide the Group with the necessary financial security to support the remainingbusinesses and provide certainty to all our stakeholders. "The Group's core construction businesses have excellent opportunities to takeadvantage of resilient markets in their specialist areas of activity. UnderBrian May's leadership and with strong management teams and the right structuresin place, the Board is confident that the Group has a sound future." The transaction is conditional only on the approval of Montpellier'sshareholders and a Circular containing a Notice convening an ExtraordinaryGeneral Meeting to be held at 12 noon on Friday 16th September has today beenposted to shareholders. 31 August 2005 Enquiries: Montpellier Group Plc Tel: 020 7522 3200 Roy Harrison, Executive ChairmanSandy McArthur, Group Financial Controller College Hill Tel: 020 7457 2020Matthew Gregorowski This information is provided by RNS The company news service from the London Stock Exchange