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Maclellan Group (MLG)

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Thursday 15 September, 2005

Maclellan Group

Interim Results

Maclellan Group PLC
15 September 2005


                              MacLellan Group plc
              Interim report for the six months ended 30 June 2005


Chairman's Statement

Results

I am pleased to report the Group has made excellent progress for the six months
ended 30 June 2005.

The highlights for the six months are:
     
•    Turnover from continuing operations up 30% to £113.5 million (six months to 
     30 June 2004: £87.0 million)

•    EBITDA up by 53% to £5.6 million (2004: £3.7 million)

•    Profit before goodwill amortisation and taxation up by 58% to £3.7 million 
     (2004: £2.3 million)

•    Profit before taxation up by 84% to £1.75 million (2004: £0.95 million)
     
•    Operating margin before goodwill amortisation, interest and taxation 
     increased to 3.8% (2004: 3.0%)

•    Fully diluted earnings per share before goodwill amortisation and
     exceptional items increased to 2.5 pence (2004: 2.2 pence)

•    Basic fully diluted earnings per share increased to 0.6 pence (2004:0.3 
     pence)

•    Net cash inflow from operating activities improved to £2.8 million (2004: 
     outflow of £1.5 million)

•    Period end net debt reduced to £13.4 million (31 December 2004: £14.1 
     million) with net interest covered 6.6 times by operating profit before 
     goodwill amortisation and taxation (31 December 2004: 6.0 times)


It remains the Board's policy at this stage in the Group's development to
recommend only an annual dividend and, therefore, no interim dividend is
proposed.


Operational Review

The acquisitions of First Security Group Limited and TASS (Europe) Limited which
were completed in the second half of 2004 have increased the size and scope of
the Group's service offerings and these businesses now form a part of our
Security and Specialist Services operations for reporting purposes.  These
operations produced an operating profit before goodwill amortisation of £2.2
million on a turnover of £34.3 million representing an operating margin of 6.5%.
Our security businesses (First Security and MacLellan Attlaw) have made good
progress in managing the introduction of the licensing of security guards and we
are on course to meet the regulatory timetable with a view to becoming an
Approved Contractor as defined by the Security Industries Authority.

Our Integrated Services operations produced an operating profit of £2.1 million
on turnover of £79.2 million (2004: £2.1 million operating profit on a turnover
of £78.2 million) despite the £0.4 million one off "hit" to profits caused by
the administrative receivership of the Rover Group in April 2005. The £1.0
million reduction in gross profit mainly caused by the Rover situation and the
cessation of the Bluewater and Touchwood contracts in August 2004 was offset by
a £1.0 million reduction in administrative expenses which is the result of the
effective implementation of a number of systems improvements and technology
initiatives.  These improvements will produce a lasting benefit both in
financial terms and in assisting in the quality of service delivery to our
customers.

All of our operations have continued to win new work and we have secured some
particularly significant new 3 year contract wins since 30 June 2005.  These
contracts will result in additional turnover in excess of £25 million per annum
and include work for CSFB, Sainsbury's, Cushman Wakefield, BMI and CBRE.


Strategy

We have, since 1998, consistently pursued a strategy of increasing the Group's
presence in the outsourced business services market.  We are well positioned to
benefit from the further consolidation which is likely to occur in the market
sectors in which we operate.


Outlook

The Board is encouraged by the very positive progress that has been made to date
in 2005 and looks forward to the future with enthusiasm and confidence.


A L R Morton
Chairman

15 September 2005




GROUP PROFIT AND LOSS ACCOUNT
                                                                       Six months ended         Year ended
                   Six months ended 30 June 2005                           30 June 2004        31 December
                                      (unaudited)                           (unaudited)               2004
                                                                               restated          (audited)
                                                                                                  restated
                    Before goodwill        Goodwill            Total
                               £000            £000             £000               £000               £000

Turnover (note 2)
Continuing operations       113,524               -          113,524             86,995            190,165

Cost of Sales              (99,528)               -         (99,528)           (75,016)          (165,521)

Gross Profit                 13,996               -           13,996             11,979             24,644


Administrative Expenses
Goodwill amortisation             -         (1,908)          (1,908)            (1,362)            (2,795)
Exceptional items (note           -               -                -              (232)            (2,187)
3)
Other                       (9,692)               -          (9,692)            (9,095)           (17,786)
                            (9,692)         (1,908)         (11,600)           (10,689)           (22,768)

Other operating income            -               -                -                  -                440

Operating Profit (note
2)
Continuing operations         4,304         (1,908)            2,396              1,290              2,316

Net interest and              (653)               -            (653)              (341)              (851)
similar items (note 4)

Profit on ordinary
activities before
taxation                      3,651         (1,908)            1,743                949              1,465

Tax on profit on                                             (1,131)              (669)            (1,435)
ordinary activities
(note 5)

Profit on ordinary activities                                    612                280                 30
after taxation

Dividends - including                                        (1,014)              (583)              (583)
non-equity (note 6)

Loss for the financial period                                  (402)              (303)              (553)


Earnings per share (note 7)
Basic                                                           0.6p               0.3p               0.0p
Diluted                                                         0.6p               0.3p               0.0p

Earnings per share before goodwill
amortisation and exceptional items
(note 7)
Basic                                                           2.5p               2.3p               5.4p
Diluted                                                         2.5p               2.2p               5.2p



The above figures are stated on an historical cost basis.

The restatement of the results for the six months ended 30 June 2004 and the
year ended 31 December 2004 relates to the new accounting treatment for proposed
dividends as required by Financial Reporting Standard 21.  Further information
is given in note 6.




GROUP BALANCE SHEET
                                               30 June 2005           30 June 2004       31 December 2004
                                                (unaudited)            (unaudited)              (audited)
                                                                                                 restated
                                                       £000                   £000                   £000
Fixed assets
Intangible assets                                    66,612                 48,222                 68,520
Tangible assets                                       6,790                  5,813                  7,622
Investments                                           1,395                  1,724                  1,924
                                                     74,797                 55,759                 78,066

Current assets
Stocks                                                  679                    536                    790
Debtors                                              38,124                 32,416                 38,966
Cash at bank and in hand                              1,588                    444                  2,575
                                                     40,391                 33,396                 42,331

Creditors: Amounts falling due within
one year
Borrowings                                          (5,024)                (9,173)                (6,221)
Other creditors                                    (37,058)               (24,727)               (40,237)
                                                   (42,082)               (33,900)               (46,458)

Net current liabilities                             (1,691)                  (504)                (4,127)

Total assets less current liabilities                73,106                 55,255                 73,939

Creditors: Amounts falling due after
more than one year
Borrowings                                         (10,006)                (1,736)               (10,441)
Other creditors                                     (2,375)                (2,000)                (2,375)
Net assets                                           60,725                 51,519                 61,123

Capital and reserves
Called up share capital                               5,484                  4,535                  5,482
Ordinary shares to be issued                          2,375                  3,600                  2,375
Share premium account                                48,805                 38,680                 48,786
Profit and loss account                               4,061                  4,704                  4,480
Total shareholders' funds (note 8)                   60,725                 51,519                 61,123


Analysis of shareholders' funds
Equity                                               58,725                 49,519                 59,123
Non-equity                                            2,000                  2,000                  2,000
                                                     60,725                 51,519                 61,123



GROUP STATEMENT OF CASH FLOWS
                                                             Six months       Six months   Year ended
                                                                  ended            ended  31 December
                                                           30 June 2005     30 June 2004         2004
                                                            (unaudited)      (unaudited)    (audited)
                                                  Note             £000             £000         £000

Net cash inflow/(outflow) from operating
activities                                            A           2,821          (1,482)        8,922

Returns on investments and servicing of finance
Interest received                                                    48               96          147
Interest paid                                                     (638)            (308)        (690)
Interest element of finance lease payments                         (59)             (63)        (143)
Loan issue costs paid                                                 -                -        (224)
Preference dividends paid                                             -                -         (13)
Net cash outflow from returns on investments and                  (649)            (275)        (923)
servicing of finance

Taxation                                                        (1,606)               69        (478)

Capital expenditure and financial investment
Purchase of tangible fixed assets                                 (480)            (692)      (1,885)
Disposal of tangible fixed assets                                     6                2          163
Redemption of loan stock in quoted company                          574               28           28

Net cash inflow/(outflow) from capital                              100            (662)      (1,694)
expenditure and financial investment

Acquisitions and Disposals
Purchase of subsidiary undertakings                                   -                -      (5,549)
Repayment of loans acquired with subsidiary
undertakings                                                          -                -      (5,604)
Bank balances acquired with subsidiary
undertakings                                                          -                -        2,269
Earnout consideration on acquisitions made in
prior year                                                            -            (762)        (798)
Net cash outflow from acquisitions and disposals                      -            (762)      (9,682)

Equity dividends                                                      -                -        (570)

Net cash outflow before financing                                   666          (3,112)      (4,425)

Financing
Ordinary shares issued                                               21               38          148
Expenses incurred in issue of ordinary shares                         -                -        (432)
Loans due within one year:
- increases in term debt                                            494            1,139        1,364
- repayments in period                                          (1,855)          (1,605)      (2,602)
Loans due after one year:
- increases in term debt (net of issue costs)                     1,110                -        8,341
Capital element of finance lease payments                         (489)            (554)        (928)

Net cash (outflow)/inflow from financing                          (719)            (982)        5,891

(Decrease)/increase in cash in the period           B,C            (53)          (4,094)        1,466



NOTES TO THE GROUP STATEMENT OF CASH FLOWS
     
A.   RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM
     OPERATING ACTIVITIES

                                                    Six months ended   Six months ended      Year ended
                                                        30 June 2005       30 June 2004     31 December
                                                                                                   2004
                                                         (unaudited)        (unaudited)       (audited)
                                                                £000               £000            £000
Operating Activities

Operating profit                                               2,396              1,290           2,316
Amortisation                                                   1,908              1,362           2,795
Depreciation                                                   1,308              1,013           2,134
(Profit)/loss on disposal of tangible fixed                      (2)                 25               5
assets
Exchange differences                                             (7)                 13              25
Decrease/(increase) in stocks                                    111                 72           (182)
Decrease/(increase) in debtors                                   842            (3,704)         (4,126)
(Decrease)/increase in creditors                             (3,735)            (1,553)           5,955
Net cash inflow/(outflow) from operating                       2,821            (1,482)           8,922
activities
     

B.   RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

                                                    Six months ended   Six months ended      Year ended
                                                        30 June 2005       30 June 2004     31 December
                                                                                                   2004
                                                         (unaudited)        (unaudited)       (audited)
                                                                £000               £000            £000

(Decrease)/increase in cash in the period                       (53)            (4,094)           1,466
Net cash flow from changes in debt                             2,344              1,020         (5,951)
New loan notes                                               (1,603)              (238)           (841)
New finance lease agreements                                    (11)               (54)         (1,434)
Finance leases acquired with subsidiary                            -                  -           (198)
undertakings
Loan issue cost amortisation                                    (32)                  -            (30)
Movement in net debt in the period                               645            (3,366)         (6,988)
Net debt at beginning of period                             (14,087)            (7,099)         (7,099)
Net debt at end of period                                   (13,442)           (10,465)        (14,087)

     
C.   ANALYSIS OF CHANGES IN NET DEBT DURING THE PERIOD

                                   At 31 December               Cash              Other      At 30 June
                                             2004               Flow           non-cash            2005
                                        (audited)                               changes     (unaudited)
                                             £000               £000               £000            £000

Cash at bank and in hand                    2,575              (987)                  -           1,588
Overdraft                                 (1,305)                934                  -           (371)
                                            1,270               (53)                  -           1,217

Debt due within one year                  (3,809)              1,855            (1,906)         (3,860)
Debt due after one year                   (9,216)                  -                271         (8,945)
Finance lease agreements
- within one year                         (1,107)                489              (175)           (793)
- after one year                          (1,225)                  -                164         (1,061)
                                         (15,357)              2,344            (1,646)        (14,659)

                                         (14,087)              2,291            (1,646)        (13,442)



NOTES TO THE INTERIM REPORT
     
1.   Accounting Policies

The financial information contained in this document does not constitute
statutory accounts within the meaning of s240 of the Companies Act 1985 (as
amended).  The figures for the six months ended 30 June 2005 are prepared on the
basis of the accounting policies set out in the Group's financial statements for
the year ended 31 December 2004 amended in respect of FRS 21 and FRS 22.  This
interim report is unaudited.  The results for the year ended 31 December 2004
are abridged from the full Group financial statements for that period upon which
the auditors gave an unqualified report.  The full accounts have been delivered
to the Registrar of Companies.
     
2.   Segmental analysis

The Group's turnover arises from existing continuing operations involved in the
provision of facilities management, security and specialist services.  The
following analysis of the operating profit before goodwill and other income
between the principal reporting segments of business reflects the reporting
structures now established in the Group; the information for 2004 has been given
for comparative purposes.

                                               Six months ended Six months ended       Year ended
                                                   30 June 2005     30 June 2004      31 December
                                                                                             2004
                                                           £000             £000             £000
Turnover
Integrated Services                                      79,202           78,245          159,834
Security & Specialist Services                           34,322            8,750           30,331
                                                        113,524           86,995          190,165
Cost of sales
Integrated Services                                    (70,680)         (68,697)        (140,907)
Security & Specialist Services                         (28,848)          (6,319)         (24,614)
                                                       (99,528)         (75,016)        (165,521)
Gross profit
Integrated Services                                       8,522            9,548           18,927
Security & Specialist Services                            5,474            2,431            5,717
                                                         13,996           11,979           24,644
Administrative expenses
Integrated Services                                     (6,439)          (7,477)         (15,951)
Security & Specialist Services                          (3,253)          (1,850)          (4,022)
                                                        (9,692)          (9,327)         (19,973)
Operating profit before goodwill and other
income
Integrated Services                                       2,083            2,071            2,976
Security & Specialist Services                            2,221              581            1,695
                                                          4,304            2,652            4,671

Other income                                                  -                -              440

Net interest                                              (653)            (341)            (851)

Profit before goodwill & taxation                         3,651            2,311            4,260

     
3.   Exceptional items

Exceptional items comprise:
                                               Six months ended Six months ended       Year ended
                                                   30 June 2005     30 June 2004      31 December
                                                                                             2004
                                                    (unaudited)      (unaudited)        (audited)
                                                           £000             £000             £000
Contract debt provision and cessation costs                   -                -            1,556
Redundancy and rationalisation costs                          -              232              915
                                                              -              232            2,471



NOTES TO THE INTERIM REPORT - continued
     
4.   Net interest and similar items
                                               Six months ended Six months ended      Year ended
                                                   30 June 2005     30 June 2004     31 December
                                                                                            2004
                                                    (unaudited)      (unaudited)       (audited)
                                                           £000             £000            £000
Payable:
Bank loans and overdrafts                                   660              307             761
Other loans                                                  27               45              75
Finance leases and hire purchase agreements                  61               63             143
                                                            748              415             979
Receivable:
Bank                                                        (8)              (2)             (4)
Other loans                                                (87)             (72)           (124)
                                                            653              341             851

     
5.   Tax on profit on ordinary activities

The tax charge for the six months ended 30 June 2005 is based on the effective
tax rate which it is estimated will apply on earnings for the full year.


6.   Dividends

The new Financial Reporting Standard (FRS 21) requires dividends to be debited
to the profit & loss account when they are paid or approved at an Annual General
Meeting.  Previously, the Companies Act 1985 required that proposed dividends be
reported in the profit & loss account.  In applying this change in accounting
practice, the previously reported figures for 2004 have been restated with the
effect that shareholders' funds at 31 December 2004 have been increased by
£1,014,000.

No interim dividend has been declared.  In 2004 there was no interim dividend;
the final dividends of 1.0 pence per ordinary share and 0.35 pence per
preference share were approved at the Annual General Meeting held on 5 May 2005
and paid on 4 July 2005 (2004: final dividends of 0.75 pence per ordinary share
and 0.2625 pence per preference share were approved at the Annual General
Meeting held on 6 May 2004 and paid on 1 July 2004).

     
7.   Earnings per share

The basic and diluted earnings per share have been calculated on the following
earnings and weighted average number of shares in issue:

                                Six months ended      Six months ended         Year ended
                                  30 June 2005          30 June 2004        31 December 2004
                              Earnings    Number of Earnings    Number of Earnings    Number of
                                             shares                shares                shares
                                    £000       '000       £000       '000       £000       '000

Profit for the financial             612                   280                    30
period
Less: preference dividends             -                     -                  (18)
Basic EPS: Earnings available
to ordinary shareholders             612     99,654        280     79,920         12     84,219
Effect of dilutive
securities:
Convertible preference shares          -      1,750          -      1,750         18      1,750
Options                                -        766          -        893          -        857
Diluted EPS: Adjusted                612    102,170        280     82,563         30     86,826
earnings


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 of the underlying earnings per share has been calculated on the
above profit attributable to ordinary shareholders adjusted for exceptional
items, goodwill amortisation and the related tax effect.



NOTES TO THE INTERIM REPORT - continued
     
7.   Earnings per share  continued

The calculations of earnings per share can be reconciled as follows:

                                       Diluted                                   Undiluted
                        Six months Six months ended   Year ended   Six months   Six months   Year ended
                             ended     30 June 2004  31 December        ended        ended  31 December
                      30 June 2005                          2004 30 June 2005 30 June 2004         2004
                             pence            pence        pence        pence        pence        pence

Basic                          0.6              0.3          0.0          0.6          0.3          0.0
Effect of:
-   goodwill
    amortisation               1.9              1.6          3.2          1.9          1.7          3.3
-   contract debt
    provision and
    cessation costs              -                -          1.3            -            -          1.3
-   redundancy and
    rationalisation
    costs                        -              0.3          0.7            -          0.3          0.8
Underlying basis               2.5              2.2          5.2          2.5          2.3          5.4

     
8.   Reconciliation of movements in total shareholders' funds

                                                   Six months      Six months      Year ended
                                                        ended           ended     31 December
                                                 30 June 2005    30 June 2004            2004
                                                  (unaudited)     (unaudited)       (audited)
                                                         £000            £000            £000

Profit for the financial period                           612             280              30
Dividends                                             (1,014)           (583)           (583)
                                                        (402)           (303)           (553)
Ordinary shares issued including premium                   21           1,038          12,523
Costs of share issue                                        -               -           (432)
Currency adjustments                                     (17)               -              26
Ordinary shares to be issued
- arising on acquisitions in the period                     -               -           1,375
- earn out consideration settled in shares                  -         (1,000)         (1,000)
- reduction in anticipated earn out                         -               -         (2,600)
consideration
Net increase in shareholders' funds                     (398)           (265)           9,339

Opening shareholders' funds                            61,123          51,784          51,784
Closing shareholders' funds                            60,725          51,519          61,123

     
9.   Approval



This interim report was approved by a committee of the Board of Directors on 15
September 2005.  This report is being sent to shareholders and is available from
the Company's registered office: Enterprise House, Castle Street, Worcester WR1
3AD and website: www.maclellan-group.plc.uk.


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