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Maclellan Group (MLG)

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Tuesday 22 March, 2005

Maclellan Group

Final Results

Maclellan Group PLC
22 March 2005

MacLellan Group plc

22 March 2005

Preliminary announcement of results for the year ended 31 December 2004



I am pleased to report further positive progress for the year ended 31 December
2004.  We have once again grown our turnover and operating profits (before
exceptional items and goodwill amortisation) and enhanced both the scale and
quality of the Group's service offerings by the acquisitions of First Security
Group Limited and TASS (Europe) Limited.

The financial highlights for the year are:

   •Turnover from continuing operations increased to £190.2 million (2003:
    £153.3 million)
   •Profit before exceptional items, goodwill amortisation and taxation
    increased to £6.7 million (2003: £5.5 million)
   •Exceptional items of £2.5 million (2003: £0.1 million) including contract
    debt provision and cessation costs of £1.6 million
   •Profit before taxation was £1.5 million (2003: £3.3 million)
   •Underlying fully diluted earnings per share were 5.2 pence (2003:
    5.0 pence)
   •FRS 14 basic earnings per share were 0.0 pence (2003: 2.6 pence)
   •Proposed dividend 1.0 pence (2003: 0.75 pence) which, subject to
    shareholder approval, will be paid on 4 July 2005
   •Net cash inflow from operating activities of £8.9 million (2003:
    £6.5 million)
   •Year end net debt was £14.1 million (2003: £7.1 million) with net
    interest covered 8.9 times by operating profit from continuing operations
    before goodwill amortisation and exceptional items
   •Forward order book of £622 million

Operational Review

Since the Group made its first acquisition in the facilities services
marketplace in 1998, it has grown rapidly by the acquisition of ten separate
companies which have now been fully integrated.

During the year new business and organic growth accounted for a 16% increase in
turnover from continuing operations.  Our forward order book stands at £622
million and 86% of 2005's budgeted turnover has already been secured.  Net
operating margins before goodwill amortisation and exceptional items were 4.0%
(2003:  3.8%).  A strong net cash inflow from operating activities during 2004
of £8.9 million supported the Group's £1.7 million expenditure on capital
equipment and the cash cost of acquisitions of £9.7 million.   The Group is
prudently financed with a healthy level of interest cover and available bank
facilities of £29 million.

Major new contract wins in 2004 were secured at the Inland Revenue and
Department of Work and Pensions Estate in Newcastle, Boots, Somerfield, Group
Lotus, Outokumpo and Barclays Capital.  The major disappointment in the year was
Lend Lease's decision to take in-house to their own FM company work which had
previously been outsourced to us at the Bluewater and Touchwood shopping

We were delighted that MacLellan International Limited won two Premises and
Facilities Management Partnership Awards in November 2004 as well as a Golden
Service Award for work at Belfast International Airport and a Building
Cleanability Award for work with Daimler Chrysler.  I would once again like to
pass on the Board's thanks to all our employees for their loyalty, dedication
and hard work throughout 2004.

Exceptional items

The Group's restructuring is now complete and exceptional redundancy and
rationalisation costs of £0.9 million have been incurred.

Exceptional contract debt and cessation costs amount to £1.6 million of which
£1.25 million is a provision in respect of outstanding amounts due from Lend
Lease following the cessation of the Bluewater and Touchwood contracts in August
2004.  This amount is in dispute and we are taking legal advice on the
commercial position but we believe it is owed to us and we are vigorously
pursuing full recovery.  In view of the time elapsed, the approach to recovery
that we are being forced to take and its commercial impact on the business
together with the uncertainty over the quantum of and time to recover the debt,
we consider it appropriate to take the most conservative position at this stage
and to make full provision.

Information on this provision is set out in note 1 to this preliminary


The acquisition of First Security Group Limited was concluded in October and is
performing strongly within the Group.  First Security is a highly respected
security services provider which has worked almost exclusively within the M25
area.  It is now expanding its area of coverage and has already won a major new
contract with Sony (UK) Limited (an existing Group customer) in the south-east.

TASS (Europe) Limited joined the Group at the end of November and is also
performing strongly within the Group.


2004 has been a demanding year.  With our integration plans now complete, the
Group is well positioned to grow organically in 2005.  The acquisitions made in
the last quarter will be contributing to an enlarged group with a current
annualised turnover in excess of £230 million.

Our financial strength is firmly underpinned by the Group's strong cash flows
and the Board looks forward to the future with enthusiasm and confidence.

A L R Morton


22 March 2005



MacLellan Group plc aims to be the facilities services provider of choice to
customers in the retail, industrial, commercial, transport and public sectors.

The Group has grown organically and through acquisitions; ten acquisitions and
three disposals have been made since 1998 in order to create a Group that is
solely a provider of facilities services.  As a result, the constituent parts of
the Group all have both a clear identity and a sense of corporate purpose.


Our Integrated Services activities include an ability to deliver multiple
services on large, complex contracts. We have close relationships with our
customers which result in high retention rates when contracts are retendered.
Our Integrated Services operations are delivered, wherever possible, by our own
employees and we currently self perform 54 different services within
approximately 80 integrated services contracts.  We also self perform a large
number of single service contracts for customers and these are mainly for either
cleaning or security services.  The Group's turnover is now split approximately
38% integrated services, 34% cleaning services and 28% security services.  It is
our ability to self perform either single services or integrated services to
customers at multiple locations across the UK and Eire which is a key
differentiating factor in the facilities services marketplace.


The scale of our operations has grown dramatically in recent years. Just six
years ago (i.e. during the financial year ended 30 September 1999) the Group had
a turnover of £34.4 million and employed approximately 2,000 employees.  We now
employ over 13,000 employees, have circa 3,000 live contracts and consequently
need a well developed infrastructure of our own to handle the scale, diversity
and size of business which is now present within the Group.

2004 was a year which saw us review and then implement a new IT Strategy in
order to accommodate the increased size of the business.  We completed the
decentralisation of invoicing and HR systems throughout our Integrated Services
and Cleaning and Specialist Services operations. We decentralised the commercial
cleaning sales function and reduced layers of management to arrive at a market
led operating structure.  Our strengthened Health and Safety regime has enabled
us to reduce insurance costs and we currently have 66 "trainer trainers" spread
across the country supporting and training staff within our operations.  Our
management development programme continued with the graduation of 18 new
managers in 2004 and we look forward to the contribution that these managers
will make in future years.

All of this means that our operations now enjoy both the benefits of local
accountability as regards operating performance but also receive support from
the centre regarding HR, IT, Quality, Health and Safety, management development
and training policies and issues.  This structure is now well positioned to
service our customers' future requirements.


Turnover in 2004 increased by 24% over 2003 of which 8% was attributable to the
effect of current year acquisitions.  Our forward order book currently stands at
£622 million and 86% of our budgeted turnover for 2005 is already secure.  The
good revenue visibility which we enjoy allows us to plan for future profitable
growth in a structured manner.

Net operating margins before goodwill amortisation and exceptional items were 4%
in 2004 (3.8% in 2003). We expect further improvement in 2005 as a result of the
establishment in 2004 of a stable operating and administrative structure as well
as the increased size of the Group's turnover.

Two acquisitions were completed in 2004.  TASS (Europe) Limited was acquired in
November 2004 and further extends the range of self-performed services which we
offer to customers because it is a specialist provider of access and safety
systems. We bought First Security Group Limited in October 2004 to strengthen
our position in the security services sector. Both acquisitions have met our
expectations and neither acquisition requires us to undertake further internal

Major contract wins in 2004 included substantial increases in the scope and
quantity of work for existing major customers such as Group Lotus (which has
been a valued customer for over 10 years), Somerfield, CBRE and Outokumpo as
well as wins for new customers such as Boots, Barclays Capital and the Inland
Revenue and Department of Works and Pension. The contract with the Inland
Revenue and Department of Works and Pensions covers the provision of 17
different facilities services at 3 sites in the North East of England. We were
delighted to win this six year, £8 million per annum contract and look forward
to further developing a relationship which went live on 1 November 2004 and
which has so far exceeded our customers' expectations in terms of service

Net Group borrowings at 31 December 2004 were £14.1 million which included £11.8
million of net bank borrowing. The Group enjoys banking facilities of £29
million and our net debt position is forecast to reduce in 2005 as our
operations continue to generate cash.  Net cash inflow from operating activities
in 2004 was £8.9 million.  Net Group borrowings increased by £7.0 million in
2004 mainly as a result of a net cash outflow of £8.9 million on the acquisition
of First Security Group Limited and TASS (Europe) Limited.  In addition,
£0.8 million of cash was paid in respect of earn out amounts arising on 2003

Exceptional items of £2.5 million included two major but different elements.
The redundancy and rationalisation charge of £0.9 million was the final part of
a planned process which was wholly within our control.  Disappointingly, we had
to recognise exceptional contract debt and cessation costs amounting to some
£1.6 million. The majority of this (£1.25 million) relates to outstanding
amounts due from Lend Lease in respect of the contracts at Bluewater and
Touchwood.  This has been and continues to be time consuming to deal with and
the implications are referred to in the Chairman's Statement.


We are continually looking for better ways to improve the quality of service
delivery to our customers through the use of the latest technology and
equipment.  We have, for instance, introduced hand held wireless technology to
provide instant feedback from operative to help desk resulting in faster
response time in supplying service to the customer.  Hand held technology also
provides instant downloading of performance information against service level
agreements resulting in improved performance standards and the ability to cross
reference and benchmark best practice.

Discussions during 2004 between our systems development and operational teams
have led to the approval for the development of two new in-house applications.
An 'Order Point System' allows users throughout the company to raise orders
within a single 'catalogue' portal knowing that the supplier and price will be
correct and that the order will be managed electronically at all stages. The
second application, an 'Audit Process System' enables a slate computer to be
used to photographically audit a contract/site, allow the audit to be scored,
commented, signed and electronically filed both with MacLellan and the client.
2004 also saw the launch of the first stage in the development of, the
MacLellan Intranet accessible to all employees. The year closed with the
purchase of Business Performance Management Software which will allow the
company to better model and publish its financial data.


We are proud of the fact that, for the industry, we enjoy very high employee
retention rates. The average age of our workforce is in the mid to late thirties
and we employ broadly similar levels of men and women.  Our employees'
enthusiasm and hard work is really what drives our winning performance and the
latest series of industry awards mentioned in the Chairman's Statement is proof
positive of this fact.


The challenges which we face for 2005 include managing the introduction of
licensing throughout our security operations. We are also aware that whilst
turnover and profits before exceptional items, goodwill amortisation and
taxation showed a healthy advance in 2004, our earnings per share did not show
the same level of advancement.

The biggest single challenge for 2005 is, therefore, to deliver significant
growth at the earnings per share level through continuing organic growth and
improved operating performance; management is looking forward to the challenge.

John R Foley

Chief Executive

22 March 2005


for the year ended 31 December 2004

                                         2004                                2003

                         Before       Goodwill &             Before       Goodwill &                           
                         goodwill &   exceptional            goodwill &   exceptional
                         exceptional  items                  exceptional  items
                         items                    Total      items                  Total
                         £000         £000        £000       £000         £000      £000


Existing                 178,085     -            178,085    153,268         -      153,268

Acquisitions             12,080      -            12,080         -           -         -
                         ---------  ---------    ---------  ---------    --------- ---------

                         190,165     -            190,165    153,268         -      153,268

Cost of sales            (165,237)   (284)        (165,521)  (132,402)   (219)     (132,621)
                         ---------  ---------    ---------   ---------   --------- ---------

Gross profit             24,928      (284)        24,644     20,866      (219)      20,647

Goodwill                 -           (2,795)      (2,795)       -        (2,139)    (2,139)

Other                    (17,786)    (2,187)      (19,973)   (15,023)     111       (14,912)
                        ---------   ---------    ---------   ---------  ---------  ---------

                         (17,786)    (4,982)      (22,768)   (15,023)    (2,028)    (17,051)

Other operating          440         -            440           -           -          -

Operating profit

Existing                 6,637       (5,039)      1,598      5,843       (3,128)     2,715
Acquisitions             945         (227)        718          -            -          -
                       ---------    ---------   ---------   ---------  ---------   ---------
                         7,582       (5,266)      2,316      5,843       (3,128)     2,715
Discontinued               -           -            -          -          881        881
operations             ---------    ---------   ---------   ---------  ---------   ---------
                         7,582       (5,266)      2,316      5,843       (2,247)     3,596

Net interest             (851)         -          (851)      (317)          -        (317)
                       ---------    ---------   ---------   ---------  ---------   ---------

Profit on ordinary       6,731       (5,266)      1,465      5,526       (2,247)     3,279
activities before

Tax on profit on
activities              (2,176)     741          (1,435)     (1,560)     297         (1,263)
                       ---------   ---------    ---------   ---------  ---------   ---------                        
Profit for the
financial year          4,555       (4,525)      30          3,966      (1,950)      2,016
                       =========   =========                =========  =========   
Dividends -                                      (1,014)                             (583)
Loss for                                        ---------                          ---------
the financial year                               (984)                               1,433
                                                =========                          =========
Earnings per share
Underlying diluted      5.2p                                5.0p
Underlying              5.4p                                5.2p
FRS14 basic                                      0.0p                                2.6p
FRS14 diluted                                    0.0p                                2.6p


at 31 December 2004

                                                    2004             2003
                                                    £000             £000
Fixed assets
Intangible assets                                   68,520           49,584

Tangible assets                                     7,622            6,120

Investments                                         1,924            1,752
                                                  ---------        ---------
                                                    78,066           57,456
                                                  ---------        ---------

Current assets
Stocks                                              790              608
Debtors                                             38,966           28,663
Cash at bank and in hand                            2,575            1,701
                                                  ---------        ---------
                                                    42,331           30,972
                                                  ---------        ---------

Creditors: Amounts falling due within
one year

Borrowings                                          (6,221)          (5,809)
Other creditors                                     (41,251)         (25,427)
                                                   ---------        ---------    
                                                    (47,472)         (31,236)
                                                   ---------        ---------

Net current liabilities                             (5,141)          (264)
                                                   ---------        ---------

Total assets less current liabilities               72,925           57,192

Creditors: Amounts falling due after
more than one year
Borrowings                                          (10,441)         (2,991)
Other creditors                                     (2,375)          (3,000)
                                                   ---------        ---------
Net assets                                          60,109           51,201
                                                   =========        =========

Capital and reserves
Called up share capital                             5,482            4,464
Ordinary shares to be issued                        2,375            4,600
Share premium account                               48,786           37,713
Other reserves                                      -                204
Profit and loss account                             3,466            4,220
                                                   ---------        ---------
Total shareholders' funds                           60,109           51,201
                                                   =========        =========


for the year ended 31 December 2004

                                                  2004            2003
                                                  £000            £000

Profit for the financial year                     30              2,016
Currency adjustments offset in reserves           26              -
                                                 ---------        ---------
Total recognised gains for the year               56              2,016
                                                 =========        =========


for the year ended 31 December 2004

                                                   2004            2003
                                                   £000            £000

Profit for the financial year                      30              2,016
Dividends                                          (1,014)         (583)
                                                  ---------        ---------
                                                   (984)           1,433

Ordinary shares issued including premium           12,523          2,567
Costs of share issue                               (432)           -
Currency adjustments                               26              -
Ordinary shares to be issued
- arising on acquisitions in the year              1,375           4,600
- earn out consideration settled in shares         (1,000)         -
- reduction in anticipated earn out                (2,600)         -
                                                  ---------      ---------
Net increase in shareholders' funds                8,908           8,600

Opening shareholders' funds                        51,201          42,601
                                                  ---------      ---------
Closing shareholders' funds                        60,109          51,201
                                                  =========      =========


for the year ended 31 December 2004

                                                      2004             2003
                                               Note   £000             £000

Net cash inflow from operating activities        A    8,922            6,470

Returns on investments and servicing of

Interest received                                     147              142
Interest paid                                         (690)            (317)
Interest element of finance lease payments            (143)            (162)
Loan issue costs paid                                 (224)            -
Preference dividends paid                             (13)             (9)
                                                    ---------      ---------
Net cash outflow from returns on investments
and servicing of finance
                                                      (923)            (346)
                                                    ---------      ---------

Taxation                                              (478)            (309)

Capital expenditure and financial investment

Purchase of tangible fixed assets                     (1,885)          (1,074)
Disposal of tangible fixed assets                     163              13
Redemption of shares in unquoted company              28               100
                                                    ---------      ---------
Net cash outflow from capital expenditure and         (1,694)          (961)
financial investment                                ---------      ---------


Acquisitions and disposals

Purchase of subsidiary undertakings                   (5,549)          (2,617)
Repayment of loans acquired with subsidiary           (5,604)          -
Bank / (overdraft) balances acquired with             2,269            (3,747)
subsidiary undertakings
Earn out consideration on acquisitions made           (798)            (293)
in prior year                                        ---------       ---------
Net cash outflow from acquisitions and                (9,682)          (6,657)
disposals                                            ---------       ---------

Equity dividends paid                                 (570)            (379)
                                                     ---------       ---------

Net cash outflow before financing                     (4,425)          (2,182)


Ordinary shares issued                                148              67

Expenses incurred in issue of ordinary shares         (432)            -

Loans due within one year:

-   increases in term debt                            1,364            2,004

-   repayments in year                           C   (2,602)          (3,164)

Loans due after one year:

-   increases in term debt                            8,341            1,546

Capital element of finance lease payments        C    (928)           (791)
                                                    ---------        ---------
Net cash inflow / (outflow) from financing            5,891           (338)
                                                    ---------        ---------
Increase / (decrease) in cash in the year      B, C   1,466           (2,520)
                                                    =========        =========


for the year ended 31 December 2004


                                                     2004             2003
                                                     £000             £000
Operating Activities
Operating profit                                     2,316            3,596

Amortisation                                         2,795            2,139

Depreciation                                         2,134            1,989

Loss on disposal of tangible fixed assets            5                8

Exchange differences                                 25               -

Increase in stocks                                   (182)            (178)

(Increase) / decrease in debtors                     (4,126)          563

Increase / (decrease) in creditors                   5,955            (1,647)
                                                    ---------        ---------
Net cash inflow from operating activities            8,922            6,470
                                                    =========        =========


                                                     2004             2003
                                                     £000             £000
Increase / (decrease) in cash in the year            1,466            (2,520)
Net cash flow from changes in debt                   (5,951)          405
New loan notes                                       (841)            (647)
New finance lease agreements                         (1,434)          (216)
Finance leases acquired with subsidiary undertakings (198)            (141)
Loan issue cost amortisation                         (30)             -
Exchange movements                                   -                (20)
                                                    ---------        ---------
Movement in net debt in the year                     (6,988)          (3,139)
Net debt at beginning of year                        (7,099)          (3,960)
                                                    ---------        ---------
Net debt at end of year                              (14,087)         (7,099)
                                                    =========        =========


                                  At               Other        Debt of           At
                    31 December 2003       Cash non-cash   acquisitions  31 December
                                           flow  changes                        2004
                                £000       £000     £000           £000         £000
Cash at bank and in hand       1,701        874      -               -         2,575
Overdraft                    (1,897)        592      -               -        (1,305)
                            ---------  ---------  ---------     ---------   ---------
                               (196)      1,466      -               -         1,270
                            ---------  ---------  ---------     ---------   ---------

Debt due within one year     (2,924)      2,602  (3,487)             -        (3,809)
Debt due after one year      (2,351)     (9,481)   2,616             -        (9,216)
Finance lease agreements       
-   within one year            (988)        928    (888)          (159)       (1,107)
-   after one year             (640)        -      (546)           (39)       (1,225)
                            ---------  ---------  ---------     ---------   ---------
                              (6,903)    (5,951)  (2,305)         (198)      (15,357)
                            ---------  ---------  ---------     ---------   ---------
                              (7,099)    (4,485)  (2,305)         (198)      (14,087)
                            =========  =========  =========     =========   =========



                                                    2004            2003
                                                    £000            £000
Exceptional items comprise:
Contract debt provision and cessation costs *       1,556           -
Redundancy and rationalisation costs                915             989
Claim settlement (net of costs)                     -               (881)
                                                  ---------      ---------
                                                    2,471           108
                                                  ---------      ---------

*  This item includes £1.25 million in respect of the contract debt provision
referred to in the accounting policy note headed "Contract debt provision -
fundamental uncertainty".

Extract from Accounting Policies:

Contract debt provision - fundamental uncertainty

Facilities management services contracts with Lend Lease were terminated at
31 August 2004.  Amounts due under the contracts of £1.25 million remain
outstanding and are in dispute.  The collection of items comprising this debt is
being vigorously pursued by the Directors who, having sought legal advice,
intend to pursue settlement of the claims in full either by negotiation or
litigation.  However, in view of the time elapsed and the uncertain time
anticipated for resolution, the Directors consider it appropriate to make full
provision in these accounts recognising the fundamental uncertainty (as defined
in SAS 600 "Auditors' Reports on Financial Statements") as to the extent of the
provision necessary.  The provision has been dealt with as an exceptional item
and separately disclosed.

2.       DIVIDENDS
                                                      2004          2003
                                                      £000          £000
Proposed dividends
Equity - ordinary: 1.0 pence per 5 pence share (2003: 996           570
0.75 pence)
Non-equity - preference: 0.35 pence per 10 pence      18            13
share (2003: 0.2625 pence)
                                                    ---------     ---------
                                                      1,014         583
                                                    =========     =========
If approved at the Annual General Meeting, the dividends will be paid on 4 July
2005 to shareholders on the register on 3 June 2005.


The FRS14 basic and diluted earnings per share have been calculated on the
following earnings and weighted
average number of shares in issue:
                                         2004                        2003
                                  Earnings    Number of     Earnings     Number of
                                      £000       shares         £000        shares

Profit for the financial year           30                     2,016
Less: preference dividends            (18)                      (13)
                                   ---------                ---------

Basic EPS: Earnings available to
ordinary shareholders                   12    84,219,321       2,003    76,059,846
Effect of dilutive securities:
Convertible preference shares           18     1,750,000          13     1,750,000
Options                                 -        857,537           -       857,053
                                    --------- ----------    ---------   ----------

Diluted EPS: Adjusted earnings          30    86,826,858       2,016    78,666,899
                                    ========= ==========    =========   ==========
The Directors consider that a more appropriate measure of the performance of the
Group excludes, principally, the effect of goodwill which is a non-cash item.
This measure, the underlying earnings per share, has been calculated on the
above profit adjusted for restructuring and non-recurring items, goodwill
amortisation and
related taxation.  The calculations of earnings per share can be reconciled as
                                       Diluted                      Undiluted
                                2004          2003            2004          2003
                                pence         pence           pence         pence

FRS14 basic                     0.0           2.6             0.0           2.6
Effect of:
- goodwill amortisation         3.2           2.6             3.3           2.8
- contract debt provision and   1.3           -               1.3           -
cessation costs
- redundancy and                0.7           0.9             0.8           1.0
rationalisation costs
- claim settlement              -            (1.1)           -             (1.2)
                             ---------     ---------       ---------     ---------
Underlying basis                5.2           5.0             5.4           5.2
                             =========     =========       =========     =========


The financial information set out above does not constitute statutory accounts
as defined in Section 240 of the Companies Act 1985.  The financial information
for the year ended 31 December 2004 has been extracted from the statutory
accounts on which the auditors have issued an unqualified report and which will
be delivered to the Registrar of Companies in due course.

The financial information for the year ended 31 December 2003 has been extracted
from the statutory accounts for that year; the auditors gave an unqualified
report on the financial statements for that year and the full accounts have been
delivered to the Registrar of Companies.


The Annual General Meeting will be held on 5 May 2005 at MacLellan House, Clews
Road, Oakenshaw, Redditch, Worcestershire, B98 7ST commencing at 12 noon.  It is
expected that the Notice of Meeting, together with the Report and Financial
Statements will be mailed to shareholders on 12 April 2005.


Copies of this announcement are available from the registered office of the
company: Enterprise House, Castle Street, Worcester WR1 3AD. Tel: 01905 744 400



John R Foley
Chief Executive
MacLellan Group plc
Tel: 01905 744400
Mobile: 07785 333480

David Currie
Head of Corporate Finance
Investec Investment Banking
Tel: 0207 597 5970
Mobile: 07970-100700

Trevor Bass
Financial PR
Tel: 0207 067 0743

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            The company news service from the London Stock Exchange