Interim Results

Mavinwood PLC 07 September 2006 Mavinwood Plc ('Mavinwood' or 'the Company') Interim results for the six months ended 30th June 2006 and acquisition of Mono Services Limited - Continued development organically and by acquisition to a business capitalised at Â£60m - Acquisition of Wansdyke for Â£11m on 10th February - Acquisition of Independent Inspections for Â£10m on 18th July - Acquisition of Mono today for Â£6m - Focus on two divisions well placed for further growth Financial highlights 2006 2005 Turnover Â£16.3m Â£0.5m Earnings before interest, tax, goodwill amortisation and share option charge (EBITA) Â£2.4m Â£(0.1m) Profit before tax Â£0.7m Â£(0.1m) Basic earnings per share 0.06p (0.36p) Profit before tax, goodwill amortisation and share option charge Â£1.9m Â£(0.1m) Adjusted basic earnings per share 0.39p (0.18p) Kevin Mahoney, Chief Executive, commented: 'I am delighted with the progress Mavinwood has made in the first half of the year. We have acquired Wansdyke and since 30 June, acquired Independent Inspections and now Mono. The acquisition of Wansdyke made us a significant player in the document handling market. The acquisitions of Independent Inspections and Mono build our presence, alongside ANSA, in the emergency services sector with a focus on insured repair solutions. Mono is an excellent fit with our existing emergency services businesses and I am particularly pleased that senior management will be staying with the company. All our operating companies are performing well and are benefiting from good continuity of management. We plan to integrate the acquired businesses and add complementary operations in the future, pursuant to our strategy of building a market-leading UK support services group.' Enquiries: Mavinwood plc Kevin Mahoney, Chief Executive 020 7661 9650 Mike Vincent, Finance Director 020 7661 9651 Threadneedle PR John Coles 020 7936 9604 Background Mavinwood was launched on AIM on 5 November 2004 and is pursuing a buy and build strategy in the support services sector. The strategy is to acquire and develop specialist support services businesses which have the potential for growth, either organically or in combination with other complementary businesses. The focus is on the emergency services (especially where there is an insured repair) and document handling sectors. Chief Executive's review Review of operations The first six months of 2006 saw the further growth of the Mavinwood Group. We are developing the two divisions of emergency services and document handling. Our existing businesses, ANSA and Restore, performed well and we acquired Wansdyke, another document handling business on 10 February 2006. On 18 July we acquired Independent Inspections for Â£10m funded by a Placing of Â£12m which has given us the capacity to make further acquisitions for cash. We are very pleased to announce today the completion of the acquisition of Mono for Â£6m which will extend our product offering in the emergency services sector. Emergency services ANSA grew its profits further in the first half of 2006 driven by cost reductions and business process re-engineering. Sales were Â£12,633,000 and EBITA was Â£1,750,000 giving a return on sales of 13.9%. Investment in sales and marketing is being made in the second half of the year together with continued emphasis on cost saving projects. The training arm of ANSA suffered some loss of personnel and sales dropped from Â£754,000 in the second half of 2005 to Â£713,000 in the first half of 2006. Action has been taken to recruit training staff and sales are returning to their 2005 levels. Independent Inspections was established in 1989 and offers a validation/ restoration service or facilitates a replacement service of damaged floorings or carpets and upholstery to the insurance industry in all the major postcodes of the UK. In the year ended 31 December 2005 the business generated sales of Â£6,486,000 and EBITA (normalised for non-recurring costs) of Â£927,000. The business, which was acquired after 30 June, is performing to expectations. Revenue enhancement and cost saving opportunities are already in hand. Mono offers a domestic repair service to insurance companies, loss adjusters and housing associations. In the year ended 31 December 2005, the business generated sales of Â£11,224,000 and a loss before tax of Â£55,000 (normalised EBITA was a profit of Â£671,000). Net assets at 31 December 2005 were Â£878,000. It is currently a regional business based in the North West and is capable of being rolled out across the UK, supplemented by other acquisitions as appropriate. ANSA, Independent Inspections and Mono provide the Group with a trio of high quality businesses serving principally the insurance sector. The businesses will be working closely together to provide their customers with the range of services at the high levels of service they are seeking. Document handling Restore generated sales of Â£2,021,000 and EBITA of Â£555,000 in the first half of 2006 compared to sales of Â£511,000 and EBITA of Â£121,000 in the seven weeks ended 30 June 2005. Return on sales has progressed from 23.7% to 27.5%, principally due to increased volumes. Wansdyke made its maiden contribution of Â£1,633,000 in sales and Â£517,000 in EBITA for the five months ended 30 June 2006. The return on sales was 31.7%. There is still significant unutilised capacity in the freehold underground storage sites at Wansdyke. A project to integrate the operational systems and finance infrastructure of both businesses is well underway. Approximately Â£27,000 of integration costs have been taken in Wansdyke in the first half with further costs to come in the second half. The project should yield cost savings starting in late 2006 but mostly benefiting 2007. Central costs The central costs of Mavinwood totalled Â£439,000 (2005: Â£195,000). The increase is principally due to the directors no longer receiving discounted salaries and waiving benefits. A financial controller was appointed bringing the Head Office complement to three. In the first half of 2005, Mavinwood was a cash shell looking to make its first acquisition whereas in 2006 the Group is fully operational with five businesses. Acquisitions We acquired Wansdyke Security Limited on 10 February for Â£11m in cash. The acquisition enhances our product offering in document handling and extends our geographic coverage to the West of England, the Midlands and Wales. On 25 May, the contingent consideration due on the acquisition of Restore was settled at Â£2,150,000, half in cash and half in new Mavinwood shares. The payment of this amount brought the total consideration for Restore to Â£8.3m. On 18 July we acquired Independent Inspections Holdings Limited for an initial consideration of Â£10m. The consideration was satisfied by Â£9m in cash and Â£1m in shares. The cash element was funded by a Placing of Â£12m at 12p per share. The ''over raise'' in the Placing after costs was approximately Â£1.8m which was used to reduce debt in the short term. The vendor, who is staying with the business, can earn contingent consideration of up to Â£4m linked to the future performance of the business. Â£2m would be payable in March 2008 assuming EBITA of Â£1.7m is delivered in 2007 and a further Â£2m would be payable in cash in March 2009 on the basis that EBITA of Â£2m is delivered in 2008. The maximum total consideration is Â£14m. Today we completed the acquisition of Mono Services Limited for an initial consideration of Â£6m, plus Â£0.4m of net debt, utilising some of the debt capacity generated by the Placing. Costs of the acquisition were Â£0.4m. The Â£6m of initial consideration comprises cash of Â£5.7m and Â£0.3m in Mavinwood plc ordinary shares, priced at 15p. Application for admission of these two million shares to trading on AIM has been made and dealings are expected to commence on 13 September. Contingent consideration of up to Â£1m could also be payable, in two amounts, over the next two years. The contingent consideration is Â£2 for every Â£1 by which EBITA for the year ending 31 August 2007 exceeds Â£0.9m together with a further sum of Â£2 for every Â£1 by which EBITA for the year ending 31 August 2008 exceeds the actual EBITA for the year to 31 August 2007. The maximum contingent consideration of Â£1m is payable if the EBITA reaches Â£1.4m in the year to 31 August 2008. Results The results comprise three elements in the first half of 2006; â€¢EBITA of ANSA and Restore for six months â€¢EBITA of Wansdyke for five months to 30 June â€¢Central costs for six months Turnover Sales from existing operations (ANSA and Restore) were Â£14,654,000 (2005: Â£511,000). The 2005 comparative was purely Restore's turnover for the seven weeks ended 30 June 2005. The acquisition of Wansdyke contributed Â£1,633,000 giving Group turnover of Â£16,287,000 (2005: Â£511,000). Earnings before interest, tax, goodwill amortisation and share option charge (EBITA) EBITA from existing operations (ANSA and Restore less central costs) was Â£1,866,000 (2005: loss of Â£74,000). The 2005 comparative comprised Â£121,000 from Restore less central costs of Â£195,000. The acquisition of Wansdyke contributed Â£517,000 giving Group EBITA of Â£2,383,000 (2005: loss Â£74,000). Interest Net interest payable was Â£525,000 (2005: income Â£11,000) as we borrowed to part fund the acquisitions of Restore and ANSA in 2005 and fully fund the acquisition of Wansdyke in February 2006. Interest cover in the half year compared to EBITA was 4.5x. Amortisation Goodwill amortisation in the half year was Â£869,000 (2005: Â£59,000). The 2006 amortisation relates to the total goodwill arising on the acquisitions of ANSA, Restore and Wansdyke whereas the 2005 charge only related to the goodwill arising on the acquisition of Restore. All goodwill is being amortised over 20 years. Share options We have included a fair value calculation in the half year of the Group's share-based payment awards, totalling Â£316,000 (2005: nil). The valuations have been performed by a third party consultancy in accordance with the Financial Reporting Standard, FRS 20. Taxation The taxation charge on the profit on ordinary activities (excluding goodwill amortisation) of 30% (2005: nil) has been based upon the estimated effective tax rate for calendar 2006. There is no tax relief on the amortisation of goodwill. Earnings per share (EPS) Basic EPS was 0.063p (2005: loss 0.36p). Adjusted basic EPS before goodwill amortisation and share option charge was 0.39p. Assuming the exercise of all options and awards under our Long Term Incentive Plan plus the conversion of the convertible A shares at an average price per ordinary share in the first half of 2006 of 13.63p, the fully diluted EPS before goodwill amortisation and share option charge (net of tax) would become approximately 0.35p. This represents dilution of approximately 10% compared to the basic adjusted EPS. Dividend Mavinwood intends to continue to re-invest profits in the business and the Board is not declaring an interim dividend. Cash flow The net cash inflow from operating activities after capital expenditure was Â£1,931,000 (2005: outflow Â£200,000) for the half year ended 30 June 2006. The difference between this operating cash inflow and EBITA of Â£2,383,000 was due to a working capital outflow of Â£535,000 less the excess of depreciation of Â£416,000 over capital expenditure of Â£346,000. Significant items of capital expenditure included the further fitting-out of sections of Wansdyke's underground storage areas and archive racking at Restore. The total outflow on the purchase of subsidiaries was Â£12,493,000. This amount included Â£10,968,000 plus costs of Â£445,000 for Wansdyke and Â£1,075,000 as the cash element of the contingent consideration for Restore. Net debt At 30 June 2006, net debt of the Group amounted to Â£15,383,000 (less deferred financing costs of Â£243,000). After the Placing to acquire Independent Inspections and now the acquisition of Mono for Â£6m, proforma net debt stands at approximately Â£20m. The Board believes this level of net debt gives the Group capacity to consider and make further acquisitions for cash. Our bank facilities with Allied Irish Banks, p.l.c. were expanded in order to acquire Mono. In addition, the maturity of the facilities has been extended from mostly three years to February 2009 out to five years to September 2011. Board There were no changes to the Board in the half year. Advisers Effective from today we have appointed Collins Stewart as our nominated advisor and broker. Outlook The Group ended the half year with three established businesses and a market capitalisation of approximately Â£60m. The emergency service and document handling industries continue to grow strongly in 2006 and the Group is trading in line with expectations. We have already added Independent Inspections and Mono to emergency services and we intend to add further businesses to both our divisions in due course. 7 September 2006 Kevin Mahoney Chief Executive Unaudited consolidated profit and loss account for the six months ended 30 June 2006 Six Six months months Year to 30 to 30 ended June June 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 as restated -------- -------- --------- Turnover: - Continuing operations 14,654 511 15,264 - Acquisitions 1,633 - - ------------------------- -------- -------- --------- Group turnover 16,287 511 15,264 Cost of sales (10,432) (225) (10,640) ------------------------- -------- -------- --------- Gross profit 5,855 286 4,624 Administrative expenses (4,657) (419) (3,861) ------------------------- -------- -------- --------- EBITA 2,383 (74) 1,708 Earnings before interest, tax, goodwill amortisation and share option charge (EBITA) Share option charge (316) - (85) Goodwill amortisation (869) (59) (860) ------------------------- -------- -------- --------- Operating profit/(loss): - Continuing operations 766 (133) 763 - Acquisitions 432 - - ------------------------- -------- -------- --------- Group operating profit 1,198 (133) 763 Net interest (payable)/receivable (525) 11 (213) ------------------------- -------- -------- --------- Profit/(loss) on ordinary activities before tax 673 (122) 550 Taxation (462) - (427) ------------------------- -------- -------- --------- Profit/(loss) on ordinary activities after tax 211 (122) 123 Dividends - - - ------------------------- -------- -------- --------- Retained profit/(loss) for the period 211 (122) 123 ------------------------- -------- -------- --------- Earnings/(loss) per share (pence per share) Basic 0.06p (0.36)p 0.07p Fully diluted 0.06p (0.36)p 0.06p ------------------------- -------- -------- --------- Unaudited consolidated balance sheet as at 30 June 2006 30-Jun 30-Jun 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 as restated -------- -------- --------- Fixed assets Intangible assets 33,696 32,676 31,224 Tangible assets 10,429 2,105 1,996 ------------------------- -------- -------- --------- 44,125 34,781 33,220 ------------------------- -------- -------- --------- Current assets Stocks and work in progress 170 177 250 Debtors 6,894 5,979 5,509 Cash at bank 1,695 1,261 837 ------------------------- -------- -------- --------- 8,759 7,417 6,596 Creditors - amounts falling due within one year (10,133) (10,727) (9,166) ------------------------- -------- -------- --------- Net current (liabilities) (1,374) (3,310) (2,570) ------------------------- -------- -------- --------- Total assets less current liabilities 42,751 31,471 30,650 Creditors - amounts falling due after more than one year (13,942) (4,654) (3,564) Provision for liabilities and charges (238) (193) (117) ------------------------- -------- -------- --------- Net assets 28,571 26,624 26,969 ------------------------- -------- -------- --------- Capital and reserves Called up share capital 393 383 383 Share premium account 27,524 26,444 26,459 Share option reserve 401 - 85 Profit and loss account 253 (203) 42 ------------------------- -------- -------- --------- Total equity shareholders' funds 28,571 26,624 26,969 ------------------------- -------- -------- --------- Unaudited consolidated cash flow statement for the six months ended 30 June 2006 Six Six months months Year to 30 to 30 ended June June 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 ------------------------- -------- -------- --------- Net cash inflow/(outflow) from operating activities 2,264 (172) 1,209 Returns on investment and servicing of finance Net interest paid (465) 11 (133) Interest element of finance lease payments (8) - (13) ------------------------- -------- -------- --------- 1,791 (161) 1,063 ------------------------- -------- -------- --------- Taxation - - (213) ------------------------- -------- -------- --------- Capital expenditure and financial investment Purchase of tangible fixed assets (346) (28) (182) Sale of tangible fixed assets 13 - - ------------------------- -------- -------- --------- (333) (28) (182) ------------------------- -------- -------- --------- Acquisitions Purchase of subsidiaries and costs (12,493) (21,942) (22,079) Cash acquired with subsidiaries 1,251 1,166 1,150 ------------------------- -------- -------- --------- Net cash outflows before financing (9,784) (20,965) (20,261) ------------------------- -------- -------- --------- Financing Principal repayment due under finance leases (84) - (203) Net proceeds from issue of shares - 22,982 22,982 Bank loan advances 12,000 - 5,140 Deferred financing costs (136) - (202) Bank loan repayments (257) (2,725) (1,000) Repayment of indebtedness acquired (881) - (7,588) ------------------------- -------- -------- --------- 10,642 20,257 19,129 ------------------------- -------- -------- --------- Increase/(decrease) in cash 858 (708) (1,132) ------------------------- -------- -------- --------- Notes to the consolidated interim report for the six months ended 30 June 2006 1.a) Basis of preparation This report was approved by the directors on 7th, September 2006. The interim financial statements have been prepared using accounting policies and practices consistent with those adopted in the accounts for the year ended 31 December 2005 with the exception of the application of FRS 20 (see below) and are also consistent with those which will be adopted in the 2006 Annual Report and Accounts. The interim financial statements are un-audited. The financial information contained in this Report does not constitute statutory accounts as defined by Section 240 of the Companies Act 1985. The figures for the year ended 31 December 2005 have been extracted from the statutory accounts which have been filed with the Registrar of Companies but have been restated for the impact of FRS20. The auditors' report for 2005 accounts was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 1.b) Adoption of new accounting policies The adoption of FRS 20 - share based payments, which is effective for accounting periods ending on or after 1 January 2006, requires a prior period adjustment to be made, including the deferred tax implication of this adjustment. This has created a share option reserve at 30 June 2006 of Â£401,000 and a corresponding deferred tax asset of Â£120,000 and reduced the retained profits by Â£281,000; of this amount, Â£60,000 is attributable to the year ended 31 December 2005. 2 Segmental information All turnover is derived from the UK. Segmental analysis Six Six months months Year to 30 to 30 ended June June 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 as restated ------------------------- -------- -------- --------- The turnover for the period was derived from the group's principal activities as follows: Document handling 3,654 511 2,291 Emergency services 12,633 - 12,973 ------------------------- -------- -------- --------- 16,287 511 15,264 ------------------------- -------- -------- --------- The profit before tax is derived from the group's principal activities as follows: Document handling 1,072 121 614 Emergency services 1,750 - 1,589 Central costs (439) (195) (495) Share option charge (316) - (85) Goodwill amortisation (869) (59) (860) Net interest (payable)/receivable (525) 11 (213) ------------------------- -------- -------- --------- 673 (122) 550 ------------------------- -------- -------- --------- 3 Notes to the cash flow statement Six Six Year months months ended to 30 to 30 31-Dec June June 2006 2005 2005 Â£'000 Â£'000 Â£'000 as restated ------------------------- -------- -------- --------- Operating profit/(loss) 1,198 (133) 763 Depreciation 416 24 305 Share option charge 316 - 85 Goodwill amortisation 869 59 860 ------------------------- -------- -------- --------- 2,799 (50) 2,013 Decrease/(increase) in stocks & WIP 94 3 195 (Increase) in debtors (833) (114) (64) Increase/(decrease) in creditors 204 (11) (935) ------------------------- -------- -------- --------- Net cash inflow/(outflow) from operating activities 2,264 (172) 1,209 ------------------------- -------- -------- --------- 4 Earnings/(loss) per ordinary share Basic earnings/(loss) per share has been calculated on the profit/(loss) after taxation for the period/year and the weighted average number of ordinary shares in issue during the period/year. Adjusted earnings/(loss) per share which is before goodwill amortisation and the stock option charge has been presented in addition to the basic earnings/(loss) per share as defined by FRS 22 since, in the opinion of the directors, this provides shareholders with a more appropriate representation of the earnings derived from the group's present businesses. Six months Six months Year ended to 30 June to 30 June 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 as restated --------------------------- ---------- --------- --------- Profit /(loss) after taxation on ordinary activities 211 (122) 123 ========== ======== ======== No. of No. of No. of shares shares shares Weighted average equity in issue 334,570,268 34,199,448 184,579,044 --------------------------- ---------- --------- --------- Basic earnings/(loss) per ordinary share 0.06p (0.36)p 0.07p Goodwill amortisation 0.26p 0.18p 0.46p Share option charge (net of tax) 0.07p - 0.03p --------------------------- ---------- --------- --------- Adjusted earnings/(loss) per ordinary share 0.39p (0.18)p 0.56p --------------------------- ---------- --------- --------- (before the goodwill amortisation and the share option charge) --------- --------- --------- ----------------------------- The diluted earnings per share is the basic earnings per share adjusted for the dilutive effect of the conversion into fully paid shares of the outstanding share options and awards under the LTIP. It is also adjusted for the conversion of the A shares into ordinary shares at a price of 13.63p; being the average price per ordinary share in the half year ended 30 June 2006 (year ended 31 December 2005 average price 10.05p). No. of No. of No. of shares shares shares Weighted average equity in issue 372,029,322 34,199,448 195,666,915 --------------------------- --------- --------- ---------- --------------------------- ---------- --------- ---------- Fully diluted earnings/(loss) per ordinary share 0.06p (0.36)p 0.06p Goodwill amortisation 0.23p 0.18p 0.44p Share option charge (net of tax) 0.06p - 0.03p --------------------------- ---------- --------- ---------- Adjusted fully diluted earnings/(loss) per ordinary share 0.35p (0.18)p 0.53p --------------------------- ---------- --------- ---------- (before the goodwill amortisation and the share option charge --------- --------- ---------- ----------------------------- 5 Analysis of changes in At Six Acquisitions Non-cash At 30 net debt months 01-Jan Cash- (Excluding movement June 2006 flow cash) 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 --------------------- -------- -------- ---------- --------- ------- Cash at bank and in hand: Increase/(decrease) in cash during the year 837 858 - - 1,695 Bank loans & notes due within one year (1,500) (619) (881) - (3,000) Bank loans & notes due after one year (3,657) (10,243) - - (13,900) Finance leases due within one year (175) 83 (86) - (178) --------------------- -------- -------- ---------- --------- ------- (4,495) (9,921) (967) - (15,383) Deferred financing costs 160 136 - (53) 243 --------------------- -------- -------- ---------- --------- ------- (4,335) (9,785) (967) (53) (15,140) --------------------- -------- -------- ---------- --------- ------- 6 Intangible fixed assets Six months Six months Year ended to 30 June to 30 June 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 -------- -------- --------- 1 January 31,224 - - Additions - Restore - 8,784 8,268 Additions - ANSA - 23,951 23,816 Reduction in Restore contingent consideration (443) - - Additions - Wansdyke 3,784 - - ------------------------- -------- -------- --------- 34,565 32,735 32,084 Less amortisation (869) (59) (860) ------------------------- -------- -------- --------- Period end 33,696 32,676 31,224 ------------------------- -------- -------- --------- Goodwill on acquisition is being amortised over 20 years. 7 Acquisition Book value at Fair value Fair value at acquisition adjustment acquisition Â£'000 Â£'000 Â£'000 ------------------------- --------- --------- --------- Wansdyke Fixed assets 3,217 5,283 8,500 Working capital (507) (507) Taxation (647) (647) Cash 1,250 1,250 Loans (881) (881) Finance leases (86) (86) ------------------------- --------- --------- --------- Net assets acquired 2,346 5,283 7,629 ------------------------- --------- --------- Goodwill capitalised 3,784 --------- Consideration 11,413 ------------------------- --------- --------- --------- Satisfied by: Cash to vendors 10,968 Related costs of acquisition 445 ------------------------- --------- --------- --------- 11,413 ------------------------- --------- --------- --------- In preparation for IFRS3, to be adopted in the financial statements for the year ending 31 December 2007, the fixed assets were valued by an independent firm of Chartered Surveyors at Â£8.5m and the intangible assets were valued by an independent specialist. The increase in value to Â£8.5m is reflected as a fair value adjustment. 8 Reconciliation of movement in Six months Six months Year ended Shareholders' funds to 30 June to 30 June 31-Dec 2006 2005 2005 Â£'000 Â£'000 Â£'000 as restated ------------------------- -------- -------- --------- Profit/(loss) for the financial period 211 (122) 123 Share option reserve 316 - 85 Issue of shares during the period 1,075 25,795 25,795 Issue costs - (962) (962) Recovery of prior year flotation costs - - 15 ------------------------- -------- -------- --------- Net additions to shareholders' funds 1,602 24,711 25,056 Opening shareholders' funds 26,969 1,913 1,913 ------------------------- -------- -------- --------- Closing shareholders' funds 28,571 26,624 26,969 ------------------------- -------- -------- --------- ENDS This information is provided by RNS The company news service from the London Stock Exchange

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