Interim Results

Montpellier Group PLC 03 June 2004 Montpellier Group PLC ('Montpellier' or the 'Group') Interim Results for the six months ended 31March 2004 Montpellier is a UK based construction Group listed on the Alternative Investment Market. Highlights • Group turnover of £212m (2002: £211.5m) • Group operating loss after tax of £20.7m (2002: operating profit of £3.4m) • Group loss per share of 33.68p (2002: earnings per share of 3.4p) • Positive cash balance of £7m • Focused construction business following sale of Investment Division Roy Harrison, Executive Chairman, said: 'The newly reconstituted Board has in the last two months undertaken a comprehensive business review. We have identified all major contract exposures. Trading in the majority of our operating subsidiaries remains profitable and the Group retains a strong cash position. Whilst the results for the year will still show a significant loss, the Board believes that trading will be profitable in the second half and is confident that the Group will return to profit for the 2004/2005 financial year.' 3 June 2004 Enquiries: Montpellier Group plc Tel: 020 7522 3200 Roy Harrison, Executive Chairman Sandy McArthur, Group Financial Controller College Hill Tel: 020 7457 2020 Matthew Gregorowski Mark Garraway Chairman's Statement The Montpellier Group has now been reconfigured as a focused construction business following the sale of its Investment Division, completed in October last year. The newly reconstituted Board has in the last two months undertaken a comprehensive business review which has revealed a number of problematic contracts primarily in YJL Construction and part of Allenbuild, the full extent of which has only come to light during this review and therefore underlying losses had not been fully recognised. Additional provisions to cover these losses, combined with one off costs connected to necessary reorganisation, have resulted in a considerable loss for the half-year. We are, however, satisfied that this review has now identified all material contract exposures in the Group and we have provided for outstanding contract claims and for expected losses on contracts to the extent considered necessary. We expect the second half of the year will see a return to more normal trading results. The cash cost of these contract problems has already been taken and the Group cash position remains strong. The recent Board and management changes ensure there is a clear focus on the diligent operation of our specialised businesses. The Board intends to focus its business on margin improvement. The Group's chosen market sectors are robust and we are confident that we will be able to achieve overall margin growth and acceptable returns. The majority of our businesses are performing strongly and in line with our expectations. This underlying strength of performance, and the management actions now in place to ensure proper contract controls at YJL Construction and Allenbuild, taken together with necessary cost reductions, give us confidence in a rapid improvement in performance. Operating review The Group comprises a number of niche businesses with long-established brand names operating in both the public and private sectors. The Group's broad spread of expertise includes infrastructure, social housing, design and build, nuclear engineering, land remediation, high quality residential, retail and specialist refurbishment. The Group has increasingly worked on publicly funded projects in the education, health, and infrastructure sectors as well as more specialist areas such as prisons and remand centres. The Group has improved its client service capabilities with a growing and significant proportion of all new contract wins now selected through client partnering and negotiated arrangements. The Group's business specialisations are tabulated below: Company Market Sector Contract Methodology Geographical Focuses Allenbuild Social housing, public Partnering, Midlands, South East, sector, limited North West & North East commercial negotiation, selective tendering Britannia Construction Commercial, retail, Partnering West Midlands public sector Selective tendering South West Britannia Interiors Shopfitting Selective tendering South & Midlands Bullock Construction Social housing, Partnering negotiation Midlands & North pharmaceutical Shepley Engineers Nuclear process services, Framework agreements, UK wide restoration selective tendering partnerships VHE Land redevelopment, Framework agreements, UK wide remediation selective tendering partnerships Walter Lilly Commercial, private, Negotiation, London education 2 stage tendering South East YJL Construction Commercial, residential, PFI partnerships, Southern England health/custodial selective tendering YJL Infrastructure Rail infrastructure Partnering London YJL London Commerical, health, Selective tendering London education The Group's order book at 31 March 2004 was £430 million (2003: £531 million) having written down last year's reported infrastructure work bank to a realistic level. This remains very encouraging, with a full year's work currently secured. Financial Review The Group operating loss for the period after tax was £20.7 million (2003: profit £3.4 million) on turnover of £212.3 million (2003: £211.5 million). As noted in the 2003 report and accounts the Board at that time was aware that there were issues in contract acceptance and pricing at YJL Construction and Allenbuild and that these issues had adversely affected the profitability of these companies. However, it had been considered that appropriate provisions had been made against problem contracts at the year-end. The lack of progress in the settlement of contract claims and variations and the general performance of certain contracts in the period caused this Board to implement a full review of all its businesses which took place during April and May of this year. This review brought to light information that indicated that the position on contracts at YJL Construction and parts of Allenbuild was considerably worse than previous expectations and that contract provisions were significantly understated. Additional provisions of some £15.1 million are necessary to reflect contract exposures and the expected profitability of contracts, and these provisions form the major component of the loss for this half-year period. The Board consider that the level of provisions within the Group is now appropriate. We emphasise that these contract problems were isolated within YJL Construction and Allenbuild and that the other operating companies within the Group continue to apply sensible and prudent procedures in respect of contract acceptance, pricing and provisioning. The cash cost of these contract problems has already been taken and is reflected in the half year cash position. The Group's cash position remains strong. A loss of £0.6 million on contracts was sustained in order to facilitate the disposal of three of the Group's smaller construction subsidiaries, which was completed in the early part of this year. A provision of £1.6 million has been made against the £8.5 million purchase value of two properties (part of YJL Construction) to reflect their market value as at 31 March 2004; these properties were taken in November 2003 as part payment for account settlement. Exceptional costs of £0.8 million have been incurred in the reorganisation of the business during the first half and the Group pension charge, which is considered further below, amounted to £2.2 million. The total of these 'exceptional' costs incurred in the half year as noted above amounts to £20.3 million which, combined with the loss of £0.4 million incurred in the first half generate the overall loss for the half year shown in the profit and loss account. The underlying performance of the majority of the Group's businesses remains robust with strong cash generation and profit margins in Britannia Construction, Bullock Construction, Shepley Engineers, VHE, Walter Lilly, YJL Infrastructure and YJL London. The Board is confident that YJL Construction and Allenbuild will begin to show an improvement in operating performance in the second half, benefiting from closer control and direction from the executive directors and a more diligent application of risk management. The Board intends to focus its businesses on margin improvement in our specialised market sectors. Overheads will be adjusted appropriately in support of this objective. Those businesses, that are performing well, will secure additional resource to expand their operations profitably. Dividends Given the performance for this half year the Board is not declaring an interim dividend (2003: 0.5p per share). The Board will review its dividend policy at the full year after considering the underlying profit position at that time. Board and management Cedric Scroggs retired as non-executive Chairman and Peter Gyllenhammar resigned as a non-executive Director on 11 March 2004. Paul Sellars resigned as Group Managing Director and left the Board on 31 March 2004. I was appointed Executive Chairman on 31 March 2004 and my intention is to continue in this role for as long as is necessary during what is a difficult period for the Group. The Board has been strengthened by the appointment on 2 June 2004 of John Biles, as a non-executive Director. John is currently Finance Director of FKI Group. His considerable expertise will provide the Board with valuable support in particular in dealing with the management of financial risk. In the coming months, senior executive management will be reinforced. This will include the appointment of a Group Commercial Director. Property Apart from the two investment properties noted above, the Group's UK and US property assets are residual estates that have been within the Group for many years. Property management is not a core activity of the Group but we believe that these residual property assets will contribute significant cashflow and a reasonable, albeit fluctuating, level of profits for the Group in the years ahead. The Board remain focused on generating cash from these important assets. Lovell Pension Scheme The Group currently accounts for pension costs in accordance with SSAP24. The administrative expenses in the Profit and Loss Account includes a pension charge of £2.2 million (2003:£nil) which relates to the amortisation of the £34 million pensions deficit, as required by SSAP24, and which was explained in detail in the 2003 annual report and accounts. The Group continues to make payments to the scheme in accordance with the Minimum Funding Requirements, under the guidance of an independent actuary. The Group also continues to make proposals to the scheme trustees and beneficiaries in order to reduce the liabilities under the scheme. These proposals include the buying out of deferred benefits and of pension increases. The latest such initiative, which was completed in May 2004, is expected to reduce the deficit by some £5.7 million and this will be reflected in the accounts for the year ended 30 September 2004. The scheme's deficit is a significant issue for the Group and we will continue to work proactively to limit and reduce the scheme's liabilities. Outlook The review undertaken in the last two months has now been completed. Although this has revealed some unpalatable facts the Board believes it is essential, not only to set out these facts, but also to chart a path back to profitability and the creation of enhanced shareholder value. As a result, the Board has acted swiftly to ensure effective controls and procedures are in place to prevent a repetition of the contract problems that have been revealed. In addition, cost reductions and other controls are in place to ensure all the Group's businesses contribute to margin improvement and that those that can grow profitably receive the investment that they need. Finally, the Group's management is being strengthened. Trading in the majority of our operating subsidiaries remains profitable and the Group retains a strong cash position. Whilst the results for the year will still show a significant loss, the Board believes that trading will be profitable in the second half and is confident that the Group will return to profit for the 2004/2005 financial year. Roy Harrison Executive Chairman 3 June Group Profit and Loss Account for the six months ended 31 March 2004 Notes Six months ended Year ended 31 March 30 September 2004 2003 2003 £000 £000 £000 Turnover: Group and share of joint ventures 212,603 212,841 436,529 Less share of joint ventures' turnover (258) (1,310) (2,473) Group turnover - continuing 212,345 211,531 434,056 Cost of sales (210,521) (191,606) (399,776) Gross profit 1,824 19,925 34,280 Administrative expenses (22,650) (19,659) (36,675) Other operating income 584 574 5,477 Group operating (loss)/profit - continuing (20,242) 840 3,082 Income from joint ventures - - - Share of associates' operating profit - 1,255 521 Amortisation of goodwill on associates - 638 1,191 Total operating (loss)/profit - continuing (20,242) 2,733 4,794 Loss on disposal of businesses 5 (495) - - Share of associates' profit on disposal of - 788 887 subsidiary (Loss) /Profit on ordinary activities before interest and taxation (20,737) 3,521 5,681 Net interest receivable / (payable) 66 (245) (437) Share of associates' net interest payable - (328) (561) (Loss) / Profit on ordinary activities before taxation (20,671) 2,948 4,683 Taxation receivable on ordinary activities 1 - 403 1,123 Share of associates' taxation receivable/ (payable) 1 - 22 (93) (Loss) / Profit for the period (20,671) 3,373 5,713 Dividends 2 - (393) (1,077) (Loss) / Retained profit for the period (20,671) 2,980 4,636 Basic earnings per Ordinary Share 3 (33.68p) 4.30p 7.27p Diluted earnings per Ordinary Share 3 (33.68p) 4.25p 7.19p Group Statement of Total Recognised Gains and Losses Six months ended Year ended 31 March 30 September 2004 2003 2003 £000 £000 £000 (Loss) / Profit for the period (20,671) 3,373 5,713 Exchange movements in reserves (461) 55 (96) Total recognised (losses) / gains since last annual report (21,132) 3,428 5,617 Group Balance Sheet at 31 March 2004 Note 31 March 30 September 2004 2003 2003 £000 £000 £000 Fixed assets Intangible assets: Goodwill 5,057 5,606 5,209 Tangible assets: Investment Properties 7,110 - - Other Tangible Fixed Assets 16,674 18,665 18,963 Investments 31 30 32 Investments in joint ventures: Loans to joint ventures 2,058 580 1,811 Share of gross assets 18,661 16,006 17,983 Share of gross liabilities (12,713) (9,366) (11,469) 8,006 7,220 8,325 Investments in associates - 18,459 - Negative goodwill - (4,984) - - 13,475 - 36,878 44,996 32,529 Current assets Stocks and work in progress 10,928 15,850 13,460 Debtors: due after more than one year 16,632 13,968 14,297 due within one year 83,298 84,804 85,020 Current asset investments - 4,773 17,283 Cash at bank and in hand 7,011 836 20,144 117,869 120,231 150,204 Creditors: amounts falling due within one year (128,564) (118,676) (129,255) Net current (liabilities) / assets (10,695) 1,555 20,949 Total assets less current liabilities 26,183 46,551 53,478 Creditors: amounts falling due after more than one year Long term debt (8,363) (8,798) (8,363) Other creditors (4,999) (349) (4,685) Creditors: amounts falling due after more than 1 year (13,362) (9,147) (13,048) Provision for liabilities and charges (3,041) - (1,500) (16,403) (9,147) (14,548) Net assets 9,780 37,404 38,930 Share capital 4 5,939 7,860 7,881 Share premium account 5,862 5,795 5,795 Revaluation reserve 73 73 73 Capital reserve 3,896 1,846 1,846 Profit and loss account (5,990) 21,830 23,335 Equity shareholders' funds 7 9,780 37,404 38,930 Group Statement of Cash Flow for the six months ended 31 March 2004 Six months ended Year ended Notes 31 March 30 September 2004 2003 2003 £000 £000 £000 Net cash (outflows) / inflows from operating activities 6 (5,384) (6,432) 4,700 Returns on investments and servicing of finance Net Interest received / (paid) 66 (127) (236) Taxation Net corporation tax received 380 596 569 Capital expenditure and financial investment Payments to acquire tangible fixed assets (9,525) (297) (1,840) Proceeds on sale of tangible fixed assets 2,572 - 285 Payments to acquire current asset investments - - (6,084) Proceeds on sale of current asset investments 150 40 2,196 Loans repaid by joint venture (392) (59) (212) (7,195) (316) (5,655) Acquisitions and disposals Cash disposed on disposal of subsidiaries (1,076) - - Payments to acquire associated undertakings - - (251) Receipt from sale of associate - - 9,467 Receipt from sale of business 2,000 - - 924 - 9,216 Equity dividends paid to shareholders (682) (470) (865) Cash (outflow) / inflow before use of liquid resources and financing (11,891) (6,749) 7,729 Management of liquid resources Decrease in liquid resources - 563 1,890 Financing Issue of share capital 174 35 56 Acquisition of own shares (192) - - Movement in short-term borrowings (1,104) 657 6,110 Movement in long-term borrowings - 435 - Finance lease payments (120) (110) (197) (1,242) 1,017 5,969 (Decrease)/increase in cash during the year (13,133) (5,169) 15,588 Note 1 Taxation Six months ended Year ended 31 March 30 September 2004 2003 2003 £000 £000 £000 Current tax: UK corporation tax on (losses) / profits for the period - - - Adjustments in respect of previous periods - 403 369 - 403 369 Foreign tax - - 10 Total current tax - 403 379 Deferred tax - - 744 Group taxation - 403 1,123 Share of associates' tax receivable /(payable) - 22 (93) Taxation receivable on profit on ordinary activities - 425 1,030 The Group has significant unused tax losses available to carry forward against future taxable profits. A significant element of these losses relate to activities which are not forecast to generate the level of profits needed to utilise these losses. At this stage the Directors have maintained a deferred tax asset in respect of these losses at £600,000 being the level provided at 30 September 2003. The Directors consider that this allowance is reasonable in the expectation of the future profitability of the group but will continue to monitor the position. Note 2 Dividends Six months ended Year ended 31 March 30 September 2004 2003 2003 Pence Pence Pence Interim - 0.50 0.50 Final 1.15 - 0.50 1.65 £000 £000 £000 Interim - 395 395 Final 682 - 395 1,077 Note 3 Earnings per Ordinary share 2004 2003 2003 31 March 31 March 30 September Weighted Weighted Weighted average average average number of number of number of shares shares shares Earnings EPS Earnings EPS Earnings EPS £000 Pence £000 Pence £000 Pence Basic earnings per share (20,671) 61,381 (33.68) 3,373 78,443 4.30 5,713 78,590 7.27 Dilutive effect of options - 0 0.00 - 975 (0.05) - 891 (0.08) Diluted earnings per share (20,671) 61,381 (33.68) 3,373 79,418 4.25 5,713 79,481 7.19 Note 4 Share capital Group Six months ended Year ended 31 March 30 September 2004 2003 2003 £000 £000 £000 Authorised: 100,000,000 Ordinary shares of 10p each 10,000 10,000 10,000 10,000 10,000 10,000 Allotted, called up and fully paid: 59,388,757 (2003:March 78,604,877 and September 78,812,777) Ordinary shares of 10p each 5,939 7,860 7,881 5,939 7,860 7,881 Changes in share capital A total of 1,068,575 10p ordinary shares have been issued since 1 October 2003. All shares were issued through the exercises of the Employee Sharesave Scheme ('SAYE'). 20,492,595 shares were bought back, resulting in a share capital figure of 59,388,757. 20,000,000 share were repurchased as part of the consideration for the sale of Union Discount Company to Browallia International BV (see note 5). The remaining 492,595 shares were repurchased from individuals participating in the Employee Sharesave Scheme ('SAYE') Note 5 Disposals 1. On 16 September the Group announced that it had entered into an agreement with Browallia Discount Company Limited (Browallia) and Browallia International BV (BBV) under which the Group would agree to sell all the shares of The Union Discount Company Limited (UDC) to Browallia for a consideration of £12.1m and BBV would sell 20,000,000 Ordinary Shares to Montpellier for a consideration of £8m. In the circular to shareholders dated 24 September 2003 it was noted that Mr P Gyllenhammar, a director of Montpellier, had a material interest in Browallia and BBV and therefore, as the transaction was a related party transaction, all negotiations of the transaction on behalf of the Group were undertaken by the independent directors of the Group and that shareholders approval would be required to complete the transaction. The transaction was formally approved by shareholders on 20 October 2003. The consideration was satisfied as to £8m by set off against the consideration payable by the Group in respect of the purchase of its own shares at a transaction price of 40p per share with the remaining £4.1m being satisfied by the payment of £2m cash and £2.1m in loan notes. A summary of the net assets sold is shown below. £000 Tangible fixed assets 3 Current asset investments 17,133 Bank loan (5,488) Other net current assets 433 Net assets 12,081 The turnover and operating profit of UDC is not material to the results for the period and has therefore not been separately shown as discontinued in the profit and loss account. 2. On 22 October 2003 Montpellier announced the disposal of the entire issued share capital of three of its wholly owned loss-making subsidiaries, Cornhill Interiors Limited, Lodge and Sons (Builders) Limited and YJL Facilities Limited (together the 'Subsidiaries') as well as its 30% interest in McLaren Construction Limited to Roger Feast, former Chief Executive of the Construction Division. Mr Feast resigned from the Board of Montpellier on 3 October 2003 in order to pursue the acquisition of these businesses. Under the terms of the disposal agreement, each of the Subsidiaries was sold for £1, and Montpellier was required to inject sufficient cash into the subsidiaries to ensure that their overall net asset value equated to £495,000. To achieve this position the Group injected funds of £733,000 into the companies pre-disposal of which £383,000 was subsequently waived. A summary of the net assets sold is shown below. £000 Fixed assets 221 Net current assets 624 Loans from Montpellier (350) Net assets 495 The turnover and profitability of these businesses has not been separately disclosed as discontinued within the results for the period, as they do not meet the definition of discontinued activities as set out by FRS 3 'Reporting Financial Performance' and are not material to the group's results. Note 6 Net cash (outflow)/inflow from operating activities 6 months ended Year ended 31 March 30 September 2004 2003 2003 £000 £000 £000 Operating (loss) /profit (20,242) 840 3,082 Depreciation 767 850 1,800 Amortisation of subsidiary goodwill 152 161 314 Exchange losses 250 191 - Decrease in stocks and work in progress 2,529 6,820 9,408 (Profit) / Loss on sale of fixed assets (473) - 20 (Profit) on sale of current asset investments - (402) (633) (Profit) on sale of associate - - (4,673) Increase in operating debtors and prepayments (769) (7,012) (7,237) Increase / (decrease) in creditors and accruals 10,786 (7,301) 3,898 Investment (write down reversal) - (579) (579) Write down of Investment properties and other non-cash movements 1,616 - (700) Net cash (outflow) / inflow from operating activities (5,384) (6,432) 4,700 Note 7 Reconciliation of movement in Group shareholders funds £'000 At 1 October 2003 38,930 Loss for the year (20,671) Share buyback (8,192) Exchange adjustments (461) Issue of share capital 174 At 31 March 2004 9,780 Note 8 Basis of preparation a) The accounts for the six months ended 31 March 2004 and the equivalent period in 2003 have not been audited or reviewed by the company's auditors. They have been prepared in accordance with applicable accounting standards consistent with the accounting policies set out in the 2003 Annual Report. The interim report was approved by the directors on 2 June 2004. b) The abridged information in this statement relating to the year ended 30 September 2003 is derived from full accounts upon which the auditors issued an unqualified opinion and which did not contain a statement under S237(2) of the Companies Act 1985 and which have been delivered to the Registrar of Companies. This interim statement is being sent to all shareholders and is also available upon request from the Company Secretary, Montpellier Group plc, 39 Cornhill, London EC3V 3NU. This information is provided by RNS The company news service from the London Stock Exchange

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