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Mouchel Grp plc (MCHL)

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Tuesday 29 March, 2011

Mouchel Grp plc

Interim Results

RNS Number : 7840D
Mouchel Group plc
29 March 2011
 



29 March 2011

 

Mouchel Group plc

 

Interim Results

 

Mouchel Group plc ("Mouchel" or the "Group"), the consulting and business services Group, today publishes its unaudited results for the six months ended 31 January 2011.

 


Financial Performance for the half year:

 


           Half year

          Half Year

Half Year


                   2011

                2010

% change

Revenue

             £270.3m

            £312.4m

- 13%

Underlying operating profit1

                £8.9m

              £19.7m

-55%

Underlying profit before tax and exceptional items

                £4.1m

             £15.0m

- 73%

Exceptional items

            - £5.6m

           - £18.5m


Loss before tax

             - £1.5m

           - £3.5m


Net bank borrowings

               £96.9m

            £115.7m

- 16%

Adjusted earnings per share

                 2.6p

                9.9p

-74%

Basic loss per share

(1.1)p

(1.9)p

42%

 

1 Underlying operating profit, underlying operating margins and adjusted earnings per share exclude exceptional items (including the amortisation of intangible assets arising from business combinations) - see note 3 for full details

 

Business headlines:

 

 

·      Successful completion of refinancing in January 2011, two months ahead of schedule, (total facilities of £170m over 3 years)

 

·      Strong order book (£1.6bn at the end of January 2011) and bidding pipeline (£2.0bn), providing excellent visibility for the Group

 

·      Strategic contract wins in the period including: 3 highway maintenance contracts in Australia (worth a total of £138m over five years) and an incremental partnership contract with Bournemouth Council (worth £148m over 10 years)

 

·      Good progress with debt reduction plan; Mouchel has agreed heads of terms with an investment partner for its Middle East business and has begun preparatory work for the disposal of certain non-core businesses in the UK

 

·      Effective management of the Group's staff costs, amounting to annual cost savings of circa £32m (ahead of our initial target of £25m)  

 

 

Richard Cuthbert, Chief Executive of Mouchel Group plc, commented:

 

"It has been another challenging period for Mouchel. Our clients have been impacted by the tough economic climate, leading to cuts in capital and maintenance programs and a decline in spending, which has negatively affected our performance. Furthermore recent corporate activity has been an unwelcome disruption to our business. We are nevertheless trading broadly in line with our expectations.

 

We also announce today that we are no longer in talks with Interserve and have decided it is not in shareholders' interests to proceed with Costain. Although we can see some benefit, in the current environment, from being part of a larger group, the significant integration risks and the prospective valuation meant that we were unable to recommend the transaction to shareholders. 

 

We remain very confident in our prospects as a stand-alone business. We have a focused strategy, established market positions and great client relationships. We will continue to play a leading role in transforming essential services and sustaining vital infrastructure across the UK public sector and in selected overseas territories. In an environment where all of our clients are facing the challenge of delivering higher quality services more efficiently, it is clear that our skills will be increasingly in demand and this underpins our long term, positive outlook."

 

 

A presentation will be given to analysts at 9.15 am today, Tuesday 29 March 2011, at the offices of RBS, Hoare Govett,  250 Bishopsgate, London EC2M 4AA.  For further information please contact:

 

Mouchel Group plc                 

Richard Cuthbert, Chief Executive                                   ]
David Tilston, Group Finance Director                              ]           01483 731731                      

Finsbury          

Faeth Birch                                                                    ]           020 7251 3801

Andrew Dowler                                                               ]

Charles Watenphul                                                         ]

 

Introduction

Mouchel is a consulting and business services group that improves day-to-day life for millions of people by providing the design, management and operational skills needed to transform essential public services and to sustain vital infrastructure.

 

We work mainly with the UK public sector and have particularly strong relationships with local authorities as a result of the many long-term, large-scale contracts that we have secured in recent years. Most of our clients are facing the challenge of providing 'more for less' as a result of Government cutbacks in public spending following the Comprehensive Spending Review (CSR) published in October 2010.

 

The drive for efficiencies and cost savings, the need to transform services and the potential for outsourcing and service re-engineering all provide significant prospects for Mouchel in the medium to long term.  However, in the short term, most of our clients have been impacted by considerable uncertainty, immediate cuts in capital and maintenance programmes and a sharp decline in spending, all of which has had consequent impact on our performance.

 

Mouchel holds market-leading positions in the highways, water, local authority business process outsourcing (BPO) and public sector consulting markets in the UK.  In spite of the current economic climate, our strategy remains focussed on these core businesses and markets, together with similar services in selected overseas territories. We are confident that our strategy and business model provide a sustainable business through the economic cycle.

 

Against this background, and as anticipated, Mouchel has made slow progress in the first half of the year and we retain our strong focus on clients, costs and cash. We continue to have a strong order book (£1.6bn at the end of January 2011) and bidding pipeline (£2.0bn) which provides the Group with forward visibility. During the period, we have secured a number of important contract wins in our core Highways and Government Services businesses, including a 10-year partnership contract with Bournemouth Borough Council which began in December 2010; and two five-year highway maintenance contracts in partnership with Downer in Western Australia.

We successfully refinanced our principal banking facilities, resulting in secured bank facilities of up to £170m that extend over the next three years. This gives stability to the Group and ensures that we can continue to compete effectively in our core markets.

Given the fall in revenue that we have experienced as a result of the public spending cut-backs, our focus has been on reducing our cost base, conserving our cash resources and deepening and enhancing our client relationships. The Group has introduced a new operating model based on shorter reporting lines and increased co-operation between operating units across the group. The changes in structure have been underpinned by changes in systems, controls and governance. This approach has enabled the business to have the necessary operational flexibility to adapt to the challenging economic environment. As a result, Mouchel has reduced staff from circa 10,200 at 31 July 2010 to circa 9,700 at 31 January 2011, and with approximately 450 further redundancies anticipated before April 2011, helping to lower our annualised cost base by circa £32m, significantly ahead of our initial £25m target. We have also realised annualised savings of over £1m from the closure of 14 offices, reducing our office space by 7%, and anticipate reducing occupied space by another 13% over the next twelve months leading to further annualised savings of over £2m.  These actions have reduced costs by £4m in the first half of the year and the savings already implemented will reduce costs by an additional £13m in the second-half, with projected total savings of £17m therefore being realised from these actions in the current financial year.

 

CORPORATE ACTIVITY

 

The takeover approaches to acquire Mouchel during the period inevitably proved to be a disruption for both our staff and our clients as we face up to the challenges of the tough trading environment.

  

The Board of Mouchel announced on 24 February that the Company had signed a co-operation agreement in relation to a potential offer being made for the Company.  On 25 February, Interserve announced that it was the potential offeror referred to in Mouchel's announcement.

 

Following mutual due diligence, Interserve submitted a revised and significantly reduced conditional proposal valuing each Mouchel share at 135 pence, including 50 pence in cash. 

 

On 21 January Costain announced a conditional proposal comprising 0.5531 Costain shares and 30 pence in cash for each Mouchel share which at that time valued Mouchel at 153.2 pence per share plus the entitlement to any final dividend payable by Costain in respect of the year ended 31 December 2010.  On 17 February, after conducting some initial due diligence Costain reduced its proposal to 0.5531 Costain shares and 22.25 pence in cash and with no entitlement to any final dividend.

 

The Board believes that Interserve's revised conditional proposal significantly undervalues the business and that Costain's proposal has an unacceptably high level of execution risk to warrant further discussions.  Any such discussions and due diligence would also entail a further period of uncertainty and disruption to the business.

 

Accordingly, and having consulted a number of Mouchel's largest shareholders (who, in total, represent over 50 per cent. of Mouchel's issued share capital), the Board has decided it is not in shareholders' interests to proceed with any further discussions with Interserve or Costain. This announcement has not been made with the consent of either Interserve or Costain.  There can be no certainty at this stage whether any offer will be made by either Interserve or Costain or as to the terms of any offer which might be made.  Accordingly, the Company remains in an offer period for the purposes of the City Code on Takeovers and Mergers.

Trading results

Revenue for the period was £270.3m, compared with £312.4m for the first six months of last year, which was mainly a consequence of the Government's deficit reduction measures. As a result, operating profit before interest, taxation and exceptional items reduced by 55% to £8.9m with underlying operating margins declining to 3.3% (2010:6.3%). Profit before tax and exceptional items for the period consequently fell 73% to £4.1m, in line with our expectations. Charges for exceptional items were reduced to £5.6m (compared with £18.5m last year) leading to a statutory loss before tax for the period of £1.5m (2010: loss of £3.5m). Earnings per share showed a loss of 1.1p (2010: loss 1.9p). As previously guided, no interim dividend will be declared (2010: 2.25p per share interim dividend).

Business Performance

Government and Business Services

Revenue for the first half of 2010/11 from Government and Business Services was £105.1m, down 6% from the corresponding period in the previous year. Underlying profitability reduced to £4.5m (from £7.5m), explained primarily by:

•  lower demand in discretionary property-only contracts - profitability on such contracts declined by 66 per cent compared with last year; and

•  the reduction in revenues for long-term outsourcing or "bundled" contracts (down 7%). This was partly offset by the commencement of the Bournemouth Borough Council contract in December 2010. Margins declined 0.7% overall on these contracts as a result.

We have adopted a consistent approach across this part of the business, with the focus on extending services to existing clients and providing transformation services to deliver efficiencies. As part of our focus on maximising operational efficiency, headcount declined 4% to 4,023 compared with the same period last year despite the inclusion of staff transferred in under the Bournemouth Borough Council contract.

On 1 December 2010 we secured a 10-year bundled services contract with Bournemouth Borough Council. There are three main building blocks within the agreement (core services, transformation and value add). The total contractual revenue for the core services is £148m over 10 years. We expect to develop a carbon management centre of excellence and a shared service hub in Bournemouth, taking on more council services and attracting customers from beyond Bournemouth's boundaries. 

Good progress has been made in our existing partnerships:

Oldham - we have seen further services transfer from Oldham Council to Unity (our JV with Oldham Metropolitan Borough Council), including accounts payable, credit control, transactional HR and payroll, further highways maintenance activities and registrars.

Middlesbrough - we have grown our Pensions Centre of Excellence, adding two clients and extending arrangements with a further three. We have also expanded our Education ICT offering by successfully winning the contract for the Sidney Stringer Academy in Coventry.

Liverpool 2020 (our JV with Liverpool City Council) and Knowsley 2020 (our JV partnership with Knowsley Metropolitan Borough Council) - we have won work with other clients in the region.

Lincolnshire - we continue to add to our portfolio of East Midlands Police Authorities and to drive through efficiencies in back-office functions for the County Council

Hackney - we commenced phase 2 of our BSF project.

Milton Keynes Council - a programme, known as 'WorkingBetter Together' has been agreed, comprising 22 transformational projects, which impact a range of front-line and back-office services within the Council and define cost savings worth around £18m.

 

All of these projects highlight our position as a market leader within the sector. Our clients recognise and trust in our ability to transform and improve their services at a lower, long-term cost. This has provided us with an opportunity to broaden and deepen our relationships with them, strengthening our market leadership position. In the meantime we await the emergence of opportunities with potential new clients where the procurement process is lengthy and consequently where contract mobilization would be in the next financial year or beyond.

Management Consulting

Our Management Consulting division continued its recovery in trading performance seen in the second half of last year, reporting underlying operating profits of £2.2m compared with a small loss in the same period last year. Revenue was down 10% at £27.3m on a comparable basis. This turnaround was achieved by a combination of management changes and a rationalisation of the consultancy workforce undertaken in the previous financial year. Headcount at January 2011 was down 22% at 358 compared with the position at the end of January 2010.

The UK public sector demand for management consultancy services was severely reduced during the half year as a result of the Government's cost reduction programme, with over-arching governance processes put in place to limit the use of consultants, particularly in central government. This lack of demand has had most impact in terms of reduced bidding opportunities but has also led to reduced fee rates. Notwithstanding the poor market, Management Consulting has had a successful half year.

We have continued our long-term relationships with our local government partners and provided transformation and cost reduction services in Lincolnshire, Bath and North East Somerset and Milton Keynes. Through our partners, we also provided ICT and other services to the Isle of Wight and the London Boroughs of Croydon and Havering.

Our Health business was strong, through our long-term relationship with CSC Alliance on the National Programme for IT, and the Department of Health's Healthy Schools programme. The Centre for Workforce Intelligence (CfWI) mobilised at the start of the year and is fully established and staffed.

Mouchel's consulting practice in Abu Dhabi has continued to deliver on the major business process re-engineering programme for the Abu Dhabi government.

Whilst the market remains flat, we see our "hands on" delivery of cost savings as a key differentiator for our clients. Our focus remains on offering transformation, efficiency and cost reduction services as these are the results many of our existing customers are seeking currently.

Highways

Revenue for the first half of 2010/11 for the Highways business was £96.3m, representing a 22% reduction on the comparative period. The expected fall in revenue was as a result of the ending of the previous Government's fiscal stimulus packages and due to restraints this financial year on public sector spending immediately following the CSR. This reduction in revenue led to an 82% decline in underlying operating profits to £1.7m as we initially withheld our decision to release staff until the extent of the deferral in demand from our client base became apparent.

In the UK our provision of infrastructure services, which includes our Managing Agent Contracts (MACs) for the Highways Agency, saw activity levels down 20% and underlying operating profits halved. The impact on demand for consultancy services was more severe as clients deferred discretionary work, resulting in a 30% revenue decline and the business suffering a loss. Our Australian business mobilized the first of our new contracts secured in Western Australia with our JV partner.

In response to the harsher environment we have undertaken comprehensive measures to reduce our cost base, which included reducing headcount by 14% (to 3,488) from the level at January 2010. Further reviews continue at a local level to ensure resources are matched to immediate client workloads. We nevertheless continue to invest in business development and client relationships in order to secure future opportunities.

In this period we mobilised the new Area 1 and Area 13 MAC contracts as part of EnterpriseMouchel (our 50/50 JV with Enterprise). Our TranServ JV (our 30/70 JV with Balfour Beatty) has secured extensions to our North West Scotland Operating Company contract to May 2012 and a further extension to our City of Westminster contract to September 2014 is being negotiated. The operating group has been awarded contract extensions by Shropshire CC (to March 2013), Wiltshire CC (to May 2012), LB Southwark (to April 2012), LB Hillingdon (to July 2013) and by the Highways Agency for its Project Support Framework (to April 2011). The A11 Thetford Bypass scheme, which we won with Birse, has now been given the go-ahead and we shall be mobilising this contract in April 2011.

Highway authorities have responded to uncertainty and funding constraints by deferring investment decisions, cutting back discretionary expenditure and reducing the priority of improvement projects. Nevertheless we have continued to work closely with the HA to develop and implement technical and operational solutions for Managed Motorways and have undertaken studies for Transport for Scotland to support its network improvement initiatives.

Mouchel has established a strong presence in Western Australia through DownerMouchel, our 40/60 JV with Australian-based contractor Downer. DownerMouchel has achieved 100% bid success rate with three Integrated Services Arrangements (ISA) contracts, which are long-term managed services arrangements for the management and maintenance of more than 40% of Western Australia's strategic road network. We started service delivery for the southern part of the Perth Metropolitan region ISA network in November 2010, with the northern part starting in February 2011; started service delivery for the Mid West & Gascoyne ISA contract on 14 March 2011; and were appointed as preferred proponent for the Kimberley ISA, with service delivery due to start on 1 July 2011.

Our success in all three tenders means that our short-term focus is on the mobilisation of each of the ISA contracts and establishing sustained strong performance, before pursuing a number of opportunities in Australia and New Zealand.

We continue to maintain a close dialogue with our major clients, where we have leading market positions, ready to respond when they have clarity around the timing and level of their spending decisions. In spite of the difficult backdrop there is still considerable opportunity and bidding activity. We expect our skills, particularly in enforcement, congestion management and traffic information to still be required in circumstances where capital and maintenance expenditure remains under pressure and creative means of minimising cost are required.

Regulated Industries

Revenue from Regulated Industries for the period was £41.5m, down 12% on the previous year, leading to a sharp reduction in operating margins and with underlying operating profit at £0.4m (2010: £2.5m). The Water business fell into loss in the first six months as our AMP 5 business ramped up more slowly than expected, despite a 10% increase in revenue. Engineering and Environment workloads fell by about 30%, principally as a result of the reduced activity of our Highways business, and also reported a loss. Our business in the Rail sector, from which we substantially withdrew in 2009/10, saw a 40% reduction in revenues as a number of contracts were completed. Energy and Insurance however showed an improved performance. The Middle East also saw a reduction in revenue compared with the first half of 2009/10, but returned to profit on a reduced cost base.

In response to lower demand for our consultants we have reduced our headcount by 13% over the last 12 months to 1,643 at January 2011.

In our Water business during the first half of the financial year there has been an increase in workload through each of our AMP5 water company frameworks, particularly Severn Trent, United Utilities, Thames Water and Scottish Water but also with Wessex, Northumbria and Cambridge water companies.

In the Middle East, following the collapse of the Dubai property market in 2009 and the subsequent major downsizing of our activities in the region, the past six months have seen our business stabilise. In Abu Dhabi we have successfully completed the infrastructure design on Khalifa Port Industrial Zone in Abu Dhabi and have started the design and supervision for the 900-hectare Emirati Neighbourhood for the new Abu Dhabi Government Capital District.  The Group has agreed heads of terms with an investment partner in respect of our Middle East operations and we expect to conclude this transaction as part of our debt reduction initiative.

Our prospects in the short term revolve around the continuing ramp up in the AMP5 programme where our framework contracts provide us with orders of over £140m to be delivered by 2015.

Financial Review

Order Book and Pipeline

The Group's order book stood at £1.6bn at the end of January 2011 (compared with £2.0bn at the same point last year). Whilst lower than in previous periods, this still provides substantial visibility of the Group's future revenues and continues to be a strength of the Group. The reduction in the order book resulted from reduced tendering opportunities, cut backs in existing client spending plans and a lower win rate on new tenders. The public speculation surrounding the Group from the end of November 2010, arising from our refinancing activity and subsequently the possible takeover of the Group, had particular impact on our attempts to secure tenders with new clients during the last two months of the period and continued into the second half.

The pipeline of tenders and contract extensions was valued at £2.0bn at the end of January 2011 (compared with £2.3bn 12 months previously). Again, the impact of the trading environment is reflected in this figure and the decline on previous years. However, this fall masks a still significant list of opportunities where the Group is short-listed to bid for contracts in each of the local authority outsourcing, highways and water sectors.

In addition, the Group is tracking prospects valued at £1.7bn, most if not all of which are expected to come to market in the next 12 months or so and where we are well positioned to secure a short-listing, should we decide to pursue them. These include several long-term highway maintenance contracts and tenders for local authority "long and large" BPO contracts and partnerships - we are aware of a dozen councils now in the early stages of commissioning private sector support for such service delivery.  The uncertainty referred to above has impacted on the speed with which these opportunities are coming to market. However, with the finalisation of the public sector 2011/12 budget setting round, we now expect progress to quicken as authorities begin to focus on the challenges that they face in 2012/13 and beyond.

Net Finance Costs

Net finance costs (before exceptional items) for the first half of the year were £4.8m (2010: £4.6m). These costs remain adversely affected by the interest rate swap contracts that were entered into in previous periods.

Taxation

The tax rate for the six months ended 31 January 2011 reflected estimated tax rate for the full year of 22.8% (31 January 2010: 25.8%). The estimated rate for the full year reflects the benefit of additional reliefs, partly offset by the normal level of disallowable expenditure.

 

The Group received net taxation refunds of £3.2m (2010: £4m) arising from agreement of prior years' taxation computations and claims of relevant taxation reliefs. No significant payments of tax are anticipated in the second half of the current financial year.

Exceptional items

The Group incurred exceptional costs of £5.6m (2010: £18.5m) in the first half of the year. Major items included an exceptional profit of £1.5m in respect of an amount provided against previously, £3.5m in respect of unamortised loan issue costs and costs incurred in addressing the potential for covenant breaches in the previous bank facility, and £3.2m (2010: £3.5m)  regarding the amortisation of intangible assets.

Earnings per share

Overall the Group reported adjusted earnings per share (as defined in note 8 to the accounts) of 2.6p (2010: 9.9p) Basic earnings per share showed a loss of 1.1p (2010: loss 1.9p).

Cashflow and net bank debt position

At 31 January 2011, the Group had net bank borrowings of £96.9m - an increase of £13.5m from 31 July 2010. Net bank borrowings compared favourably with £115.7m reported at 31 January 2010.

 

Average net bank borrowings in the first half of the financial year were approximately £111m (2010: £124m). This compares to average net bank borrowings in the second half of the last financial year of £113m.

 

Cash generated from operations before exceptional items amounted to £4.0m (2010: £9.8m) and reflected the tougher trading environment and lower profitability this year. The Group generated a cash conversion rate of 45% (2010: 50%) on operating profit before exceptional items. Cash conversion rates for the full year have historically been significantly higher than those at the half year.

 

A significant item explaining cash outflow in the first half relates to the net cash costs of exceptional items which amounted to £11.7m (2010: £7.0m). These costs arose principally from the restructuring provision charges in the results for the year ended 31 July 2010, but where the cash (principally in respect of redundancy payments) was paid out in the first half of the current year.

 

Working capital ratios are running at similar levels to the first half of last year. Our ratios are behind that achieved at July 2010 and this remains an area of focus.

 

Capital expenditure in the first half of the current year (in total at £1.3m compared to £7.4m in the previous year) was lower as the investment in the roll out of the SAP system was completed last year. In addition, there were no dividend payments in the first half of the year (2010: £4.3m) as no final dividend was declared for the last financial year.

 

On 27 January 2011, we announced that with the strong support of our lending banks we had successfully refinanced the Group's principal banking facilities, providing total facilities of £170m extending to March 2014.  As part of our plans to pay down some of this debt, the Group has commenced work on the disposal of certain non-core businesses. In addition, we are continuing to pursue recovery of amounts outstanding from Dubai World companies in the Middle East. The client has appointed specialist claims consultants and we have completed resubmission of all documentation to support the recovery of outstanding payments.

 

As noted above, the Group has also increased its focus on cash generation and the management of working capital, and we are seeking to exploit the information available from our new SAP systems to better manage our working capital.

Pensions

The Group deficit on its defined benefit pension schemes, stated before tax and calculated under IAS 19, is £35.2m as at 31 January 2011 (£65.8m as at 31 January 2010, £53.1m as at 31 July 2010). The principal drivers of the improved position in the past six months relate to the out-performance of the assets invested in the fund (£16.6m) along with the continuing special contributions to the scheme of £3.9m (2010: £4.1m) in respect of the agreed deficit reduction programme. The Group anticipates that its pensions deficit will be reduced by a further £7m-£8m in the second half of the year as a result of the change from RPI to CPI indexation arrangements.

 

With effect from January 2011, the Group has closed the defined benefit pension schemes to future accrual for all non-public sector employees. We have also amended the contribution levels from an age-related scheme to one based on employee grades, such that overall employer contribution costs are expected to be lower than in the past.

 

The Group has appointed external advisors to consider whether any further steps are available to mitigate the risks relating to its retirement benefit obligations.

Outlook

The Board continues to expect to report results for the year ending 31 July 2011 broadly in line with its earlier expectations. We anticipate that the current trading environment will remain challenging in the short term. As a result, our focus remains firmly on supporting existing clients in helping them to achieve their objectives while managing our own cost base and cash resources tightly. As previously noted, trading performance is expected to be weighted to the second half.

 

The full year outcome remains dependent on the Company delivering a number of key initiatives and continuing to win work in those parts of the business where there has traditionally been less visibility and where the Government's deficit reduction programme continues to result in delayed or reduced spending decisions in our public sector customer base.

 

Whilst we are not yet experiencing improved trading conditions and remain cautious in the short term, the Group will benefit from the full year effect of cost savings in 2011/12.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties facing the Group are those described on pages 38 to 39 of the Group's Annual Report and Financial Statements for the year ended 31 July 2010 as updated by the comments below.

The Group's Annual Report and Financial Statements for the year ended 31 July 2010 were prepared on a going concern basis and noted that its forecasts showed expected covenant breaches but that it expected to be able to complete a refinancing prior to the announcement of these results. As previously reported a refinancing was completed in January 2011 and current forecasts show that covenants under the new facility will be met although there remains uncertainty as to how demand from our public sector clients will develop during the rest of the year.

In recent months there has been civil unrest in certain jurisdictions in the Middle East. The Group does have counterparty exposures in some Middle Eastern countries as noted in the commentary in the Management Consulting and Regulated Industries segments. As at the date of this report the Group is not aware of any conditions which suggest that its performance for the year may be materially impacted by disruption in any of the territories in which it operates but the degree of potential risk has increased.

The directors expect that the Group's trading performance will continue to be weighted to the second half.

RESPONSIBILITY STATEMENT

The names and functions of the directors of Mouchel plc are as listed in the Group's Annual Report for 2010. A list of current directors is maintained on the Group website: www.mouchel.com 

The directors confirm to the best of their knowledge:

a)   the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union; and

b)   the interim management report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR 4.2.7R of the Disclosure and Transparency Rules of the Financial Services Authority (DTR); and

c)   the interim management report includes a fair review of the information required by D.T.R 4.2.8R; and

d)   there has been no material related party transaction in the first six months of the financial year, nor has there been any material change to the related party transactions described in the last Annual Report.

By order of the Board

 

 

Richard Cuthbert                                    David Tilston

Chief Executive                                      Group Finance Director

 

Consolidated income statement (unaudited)

For the six months ended 31 January 2011

 


Notes

Results
before
exceptional
items
6 Months to
31/01/2011
£000

Exceptional
items1
6 Months to
31/01/2011
£000

Total
6 Months to
31/01/2011
£000

       Results
before
exceptional
items
6 Months to
31/01/20102
£000

Exceptional
items1
6 Months to
31/01/20102
£000

Total
6 Months to
31/01/20102
£000

Continuing operations:








Revenue

2

270,271

 -

270,271

312,446

 -

312,446

Cost of sales


(225,767)

 -

(225,767)

(254,434)

 -

(254,434)

Gross profit


44,504

 -

44,504

58,012

 -

58,012

Administrative expenses


(35,626)

(2,141)

(37,767)

(38,360)

(18,492)

(56,852)

Operating profit/(loss)

2

8,878

(2,141)

6,737

19,652

(18,492)

1,160

Finance income

4

727

                -  

727

565

 -

565

Finance costs

4,3

(5,497)

(3,500)

(8,997)

(5,185)

 -

(5,185)

Profit/(loss) before tax


4,108

(5,641)

(1,533)

15,032

(18,492)

(3,460)

Taxation

6

(1,165)

1,433

268

(3,881)

5,178

1,297

Profit/(loss) for the period


2,943

(4,208)

(1,265)

11,151

(13,314)

(2,163)









Basic and diluted loss per share

8



(1.1)p



(1.9)p

 

 

Consolidated statement of comprehensive income (unaudited)

For the six months ended 31 January 2011



Notes

6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

Loss for the period



(1,265)

(2,163)






Differences on exchange



(15)

928

Changes in fair value of cash flow hedges (interest rate swaps)



2,137

(2,439)

Actuarial gain/(loss) on pension scheme valuations


15

13,990

(9,618)

Deferred tax on actuarial movement in pension scheme valuations


15

(3,777)

2,693

Other comprehensive income for the period



12,335

(8,436)

Comprehensive income/(loss) for the period



11,070

(10,599)

 

1 See note 3. 

2 The figures given for the six months ended 31 January 2010 are extracted from the unaudited 2010 Interim Report for the Group.

Consolidated income statement (audited)

For the year ended 31 July 2010

 



Notes

Results
before
exceptional
items
12 Months to
31/07/20102
£000

Exceptional
items1
12 Months to
31/07/20102
£000

Total
12 Months to
31/07/20102
£000

Continuing operations:






Revenue


2

632,616

 -

632,616

Cost of sales



(522,227)

 -

(522,227)

Gross profit



110,389

 -

110,389

Administrative expenses



(69,205)

(45,229)

(114,434)

Operating profit/(loss)


2

41,184

(45,229)

(4,045)

Finance income



235

 -

235

Finance costs



(10,918)

 -

(10,918)

Profit/(loss) before tax



30,501

(45,229)

(14,728)

Taxation


6

(9,284)

10,552

1,268

Profit/(loss) for the year



21,217

(34,677)

(13,460)







Basic and diluted loss per share


8



 (12.1)p

 

 

Consolidated statement of comprehensive income (audited)

For the year ended 31 July 2010

 





12 Months to
31/07/2010
£000

Loss for the year




(13,460)






Differences on exchange




1,037

Changes in fair value of cash flow hedges (interest rate swaps)




(3,367)

Actuarial loss on pension scheme valuations




(689)

Deferred tax on actuarial movement in pension scheme valuations




186

Other comprehensive income for the year




(2,833)

Comprehensive income/(loss) for the year




(16,293)

 

1 See note 3. 

2 The figures given for the year ended 31 July 2010 are extracted from the audited 2010 Annual Report for the Group.

 

Consolidated balance sheet (unaudited)

As at 31 January 2011

 



Notes

31/01/2011
£000

31/01/20101
£000

31/07/20101
£000

ASSETS






Non-current assets






Goodwill



109,717

109,717

109,717

Other intangible assets



54,825

64,458

60,096

Property, plant and equipment



14,824

18,380

16,913

Deferred tax assets



20,879

32,921

26,524




200,245

225,476

213,250







Current Assets






Trade and other receivables


9

138,284

171,188

141,061

Cash and cash equivalents


14

56,875

38,023

45,376




195,159

209,211

186,437

LIABILITIES






Current liabilities






Borrowings


11

(306)

(1,116)

(736)

Trade and other payables


10

(112,057)

(115,056)

(118,463)

Current tax liabilities



(14,412)

(13,322)

(12,253)

Retirement benefit obligations


15

(719)

(759)

(719)




(127,494)

(130,253)

(132,171)







Net current assets



67,665

78,958

54,266







Non-current liabilities






Borrowings


11

(149,490)

(150,557)

(125,978)

Trade and other payables



(137)

(1,577)

(157)

Derivative financial Instruments


11

(5,592)

(6,801)

(7,729)

Provisions


12

(15,367)

(16,045)

(28,983)

Deferred tax liabilities



(7,477)

(11,336)

(8,347)

Retirement benefit obligations


15

(34,447)

(65,071)

(52,342)




(212,510)

(251,387)

(223,536)







Net assets



55,400

53,047

43,980







EQUITY






Share capital



280

280

280

Share premium



27,853

27,853

27,853

Other reserves



13,078

11,729

10,943

Retained earnings



14,189

13,185

4,904

Total equity



55,400

53,047

43,980

 

 

The notes form an integral part of the condensed interim consolidated financial information.

1 The figures given for the six months ended 31 January 2010 are extracted from the unaudited 2010 Interim Report for the Group and the figures given for the year ended 31 July 2010 are extracted from the audited 2010 Annual Report for the Group.

 

Consolidated cash flow statement (unaudited)

For the six months ended 31 January 2011

 



Notes

31/01/2011
£000

31/01/20101
£000

31/07/20101
£000

Cash flows from operating activities






Cash generated from operations before exceptional items


13

3,973

9,778

70,514

Exceptional receipt



1,800

 -

 -

Exceptional costs



(13,489)

(6,969)

(17,580)

Cash (used in)/generated from operations 


13

(7,716)

2,809

52,934

Interest element of finance lease payments



(5)

(15)

(24)

Interest element of other loan repayments



(21)

(63)

(105)

Taxation refunded



3,157

3,958

2,144

Net cash (used in)/generated from operating activities



(4,585)

6,689

54,949







Cash flows from investing activities






Purchase of property, plant and equipment



(690)

(684)

(2,083)

Purchase of intangible assets - software and assets in the course of construction



(562)

(6,750)

(8,529)

Special contributions to defined benefit pension schemes



(3,905)

(4,075)

(7,915)

Interest received



167

565

235

Finance costs paid



                 -

(3,999)

 -

Net cash used in investing activities



(4,990)

(14,943)

(18,292)







Cash flows from financing activities






Sale of own shares by employee share trusts



12

 -

36

Dividends paid to shareholders


7

 -

(4,272)

(6,770)

Loan facility drawn down/(repaid), net of loan issue costs



25,000

 -

(26,103)

Other loan payments



(534)

(588)

(1,171)

Loan to related party



                     -

(1,302)

(191)

Finance lease principal payments



(82)

(65)

(153)

Finance costs paid



(3,346)

 -

(9,455)

Net cash generated/(used in) financing activities



21,050

(6,227)

(43,807)







Effects of exchange rate changes



24

78

100







Net increase/(decrease) in cash and cash equivalents



11,499

(14,403)

(7,050)

Cash and cash equivalents at 1 August



45,376

52,426

52,426

Cash and cash equivalents at 31 January and 31 July


14

56,875

38,023

45,376

1 The figures given for the six months ended 31 January 2010 are extracted from the unaudited 2010 Interim Report for the Group and the figures given for the year ended 31 July 2010 are extracted from the audited 2010 Annual Report for the Group.

Consolidated statement of changes in equity (unaudited)

As at 31 January 2011

 




Share
Capital
£000

Share
Premium
£000

Other
Reserves
£000

Retained
Earnings
£000


Total
£000

Balance as 1 August 2009


280

27,853

13,214

25,864

67,211









Comprehensive income







Loss for the period


 -

 -

 -

(2,163)

(2,163)

Other comprehensive income







Actuarial loss on pension scheme valuations


 -

 -

 -

(9,618)

(9,618)

Deferred tax on pension scheme valuations


 -

 -

 -

2,693

2,693

Changes in fair value of derivatives designated as cash flow hedges

 -

 -

(2,439)

 -

(2,439)

Currency translation differences


 -

 -

928

 -

928

Total other comprehensive income


 -

 -

(1,511)

(6,925)

(8,436)

Total comprehensive income


 -

 -

(1,511)

(9,088)

(10,599)

Transactions with owners







Employee share option schemes:








- sale of own shares by employee share trusts


 -

 -

26

 -

26

Tax relief on shares issued to employees


 -

 -

 -

(26)

(26)

Share based payments


 -

 -

 -

707

707

Dividends


 -

 -

 -

(4,272)

(4,272)

Balance as 31 January 2010


280

27,853

11,729

13,185

53,047









Balance as 1 August 2010


280

27,853

10,943

4,904

43,980









Comprehensive income







Loss for the period


 -

 -

 -

(1,265)

(1,265)

Other comprehensive income







Actuarial gain on pension scheme valuations


 -

 -

 -

13,990

13,990

Deferred tax on pension scheme valuations


 -

 -

 -

(3,777)

(3,777)

Changes in fair value of derivatives designated as cash flow hedges

 -

 -

2,137

 -

2,137

Currency translation differences


 -

 -

(15)

 -

(15)

Total other comprehensive income


 -

 -

2,122

10,213

12,335

Total comprehensive income


 -

 -

2,122

8,948

11,070

Transactions with owners







Employee share option schemes:








- sale of own shares by employee share trusts


 -

 -

13

 -

13

Loss on sale of own shares held in employee share trusts


 -

 -

 -

(13)

(13)

Share based payments


 -

 -

 -

350

350

Dividends


 -

 -

 -

    -  

     -  

Balance as 31 January 2011


280

27,853

13,078

14,189

55,400

 

 

Included in other reserves are accumulated translation and ESOP reserves.

 

 

Notes to the condensed interim consolidated financial information (unaudited)

For the six months ended 31 January 2011

 

 

1              Basis of preparation

This condensed interim consolidated financial information, which is unaudited for the six months ended 31 January 2011, has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority.  It has also been prepared in accordance with the accounting policies the Group expects to adopt in its 2011 Annual Report and unless stated are consistent with those adopted in the consolidated financial statements for the year ended 31 July 2010. These accounting policies are based on the EU-adopted International Financial Reporting Standards (IFRS's) and International Financial Reporting Interpretations Committee (IFRIC) interpretations that the Group expects to be applicable at that time. The IFRS and IFRIC interpretations that will be applicable at 31 July 2011, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing this interim financial information.

This condensed interim consolidated financial information is not audited and does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006.  Comparative figures for the year ended 31 July 2010 have been extracted from the Group Report and Accounts, on which the auditors gave an unqualified opinion, which included an emphasis of matter regarding going concern in respect of material uncertainty as the Group was renegotiating its banking facilities and did not include a statement under section 498 of the Companies Act 2006 (as per note 11 the Group completed its refinancing on 26 January 2011).  The Group Report and Accounts for the year ended 31 July 2010 have been filed with the Registrar of Companies. 

This condensed interim financial information for the six months ended 31 January 2011 has been prepared in accordance with IAS 34, 'Interim financial reporting', as adopted by the European Union. Taxes on income in interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The interim financial information has been prepared under the historical cost convention except for the following items: land and buildings are valued at deemed cost and share based payments, cash flow hedges and retirement benefit obligations are fair valued.

 

New accounting standards and amendments

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year ended 31 July 2011, but do not have a material impact on the group's results:

·      IAS 32 (amendment), 'Financial instruments: Presentation'

·      IFRIC 19, 'Extinguishing financial liabilities with equity instruments'

·      IFRS 2 (amendment), 'Share-based payment' - Group cash-settled share-based payment transactions.

 

2              Segmental analysis

 

The chief operating decision-maker has been identified as the Executive Directors. The Executive Directors review the group's internal reporting in order to assess performance and allocate resources. The Group has determined the operating segments based on these reports.

The Executive Directors assess the performance of the operating segments based on a measure of adjusted earnings before interest, tax and amortisation ('Underlying operating profit'). This measurement basis also excludes exceptional items from the operating segments, such as restructuring costs and impairments when the impairment is the result of an isolated, non-recurring event. Interest income and finance costs are not included in the result for each operating segment.

Analysis of results by business segment is as follows:

6 months to 31 January 2011


Highways
£000

Government
and Business
Services
£000

Management
Consulting
£000

Regulated
Industries
£000

Total
Group
£000

Revenue

96,265

105,137

27,342

41,527

270,271







Underlying operating profit

1,725

4,516

2,199

438

8,878

Restructuring costs and asset impairment charges

               -

 - 

                 -

1,500

1,500

Amortisation of intangible assets arising from business combinations

(1,067)

(668)

(1,266)

(223)

(3,224)

Segment operating profit/(loss)

658

3,848

933

1,715

7,154

Other Group exceptionals





(417)

Operating loss





6,737

Finance income





727

Finance costs (including exceptional)





(8,997)

Loss before tax





(1,533)

Taxation





268

Loss for the year





(1,265)







Asset by segment






Goodwill and other intangibles

31,390

61,005

54,777

17,370

164,542

Trade receivables and unbilled revenue

37,753

31,349

27,962

19,727

116,791

Other segment assets

8,466

5,722

20,701

1,428

36,317

Unallocated assets:






 - deferred tax asset





20,879

 - cash





56,875

 - other unallocated assets





                -

Total assets





395,404







Liabilities by segment






Trade payables - current

(8,126)

(7,504)

(4,193)

(3,644)

(23,467)

Other segment liabilities

(20,989)

(42,876)

(3,304)

(33,797)

(100,966)

Unallocated liabilities:






 - borrowings





(149,796)

 - current tax liabilities





(14,412)

 - deferred tax liabilities





(7,477)

 - retirement benefit obligations





(35,166)

 - financial instruments





(5,592)

 - other unallocated liabilities





(3,128)

Total liabilities





(340,004)

Total net assets





55,400

 

6 months to 31 January 2010


Highways
£000

Government
and Business
Services
£000

Management
Consulting
£000

Regulated
Industries
£000

Total
Group
£000







Revenue

123,626

111,319

30,521

46,980

312,446







Underlying operating profit/(loss)

9,661

7,542

(43)

2,492

19,652

Restructuring costs and asset impairment charges

 -

 -

 -

(14,961)

(14,961)

Amortisation of intangible assets arising from
business combinations

(1,066)

(669)

(1,515)

(281)

(3,531)

Operating profit/(loss)

8,595

6,873

(1,558)

(12,750)

1,160

Finance income





565

Finance costs





(5,185)

Loss before tax





(3,460)

Taxation





1,297

Loss for the year





(2,163)







Asset by segment






Goodwill and other intangibles

36,161

61,807

57,499

18,708

174,175

Trade receivables and unbilled revenue

53,466

36,462

41,441

16,256

147,625

Other segment assets

7,044

6,769

26,391

1,739

41,943

Unallocated assets:






 - deferred tax asset





32,921

 - cash





38,023

 - other unallocated assets





                 -

Total assets





434,687







Liabilities by segment






Trade payables - current

(9,440)

(9,578)

(5,749)

(9,228)

(33,995)

Other segment liabilities

(18,288)

(37,349)

(4,074)

(34,857)

(94,568)

Unallocated liabilities:






 - borrowings





(151,673)

 - current tax liabilities





(13,322)

 - deferred tax liabilities





(11,336)

 - retirement benefit obligations





(65,830)

 - financial instruments





(6,801)

 - other unallocated liabilities





(4,115)

Total liabilities





(381,640)

Total net assets





53,047

 

12 months to 31 July 2010


Highways
£000

Government
and Business
Services
£000

Management
Consulting
£000

Regulated
Industries
£000

Total
Group
£000

Revenue

254,567

231,271

59,139

87,639

632,616







Underlying operating profit

19,422

15,021

3,847

2,894

41,184

Restructuring costs and asset impairment charges

(7,268)

(8,194)

(3,648)

(17,390)

(36,500)

Amortisation of intangible assets arising from business combinations

(2,132)

(1,337)

(2,823)

(504)

(6,796)

Segment operating profit/(loss)

10,022

5,490

(2,624)

(15,000)

(2,112)

Other Group exceptionals





(1,933)

Operating loss





(4,045)

Finance income





235

Finance costs





(10,918)

Loss before tax





(14,728)

Taxation





1,268

Loss for the year





(13,460)







Asset by segment






Goodwill and other intangibles

34,740

61,159

56,191

17,723

169,813

Trade receivables and unbilled revenue

40,966

29,316

9,766

33,132

113,180

Other segment assets

6,706

25,403

1,906

5,915

39,930

Unallocated assets:






 - deferred tax asset





26,524

 - cash





45,376

 - other unallocated assets





4,864

Total assets





399,687







Liabilities by segment






Trade payables - current

(13,797)

(21,091)

(6,530)

(6,196)

(47,614)

Other segment liabilities

(20,869)

(38,681)

(3,798)

(33,479)

(96,827)

Unallocated liabilities:






 - borrowings





(126,714)

 - current tax liabilities





(12,253)

 - deferred tax liabilities





(8,347)

 - retirement benefit obligations





(53,061)

 - financial instruments





(7,729)

 - other unallocated liabilities





(3,162)

Total liabilities





(355,707)

Total net assets





43,980

 

Geographical analysis

 

The table belowrepresents revenue by geographical origin (the analysis by geographical destination is not materially different to that by origin).  The analysis in the table below is based on the location of the customer, which is not materially different from the location where the order was received.


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

United Kingdom

         252,202

301,782

612,055

Middle East

           15,756

9,415

19,192

Ireland and other overseas

             2,313

1,249

1,369

Total revenue

270,271

312,446

632,616

 

The Middle East revenue for the period to 31 January 2011 includes £8.3m relating to business process re-engineering for the municipalities in Abu Dhabi which is included within the Management Consulting business segment with the balance being included in Regulated Industries.

The Ireland and other overseas revenue includes £1.6m in respect of the Highways business in Australia for the period to 31 January 2011.

3              Exceptional items


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Restructuring costs and asset impairment charges in the Middle East1

                 -

(14,961)

(15,164)

Restructuring costs and asset impairment charges in Management Consulting2

                 -

                 -

(3,648)

Restructuring costs and asset impairment charges in Government and Business Services2

                 -

                 -

(8,194)

Restructuring costs and asset impairment charges in Highways2

                 -

                 -

(7,268)

Restructuring costs and asset impairment charges in Regulated Industries2

                 -

                 -

(2,226)

Recovery of prior year's exceptional charges in Regulated Industries6

1,500

                 -

                 -

Restructuring costs in group functions2,7

(417)

                 -

(1,266)

Bid defence costs3

                 -

                 -

(667)

Amortisation of intangible assets arising from business combinations4

(3,224)

(3,531)

(6,796)

Finance costs5

(3,500)

                 -

                 -

Total exceptional items

(5,641)

(18,492)

(45,229)

 

1 The economic slow down in Dubai resulted in the decision in 2010 to close our Dubai operations, following our significant presence reduction in 2009.  As a result, the Group incurred restructuring charges of £nil (31 January 2010: £5.0m; 31 July 2010: £5.2m) mainly in respect of redundancies and surplus property provisions. The Group also recorded asset impairment charges in the period of £nil (31 January 2010: £10.0m; 31 July 2010: £10.0m) to reduce the value of contract receivables to the amounts the Group believes it should be able to collect.

2 Restructuring costs and asset impairment charges were incurred in 2010, to ensure that we have the right organisation structure, staffing levels and office portfolio. 

3 Costs incurred as a result of the VT Group plc's unsolicited approach for Mouchel in December 2009.  Costs will be incurred in the second half of 2011 associated with the unsolicited approaches from Costain, Interserv and others.

4 The Group does not consider the amortisation of intangible assets arising from business combinations to be part of the underlying business performance and therefore treats them as exceptional costs.

5 Finance costs includes the write off of unamortised loan issue costs in respect of the old facility (£2.2m) and additional costs incurred in addressing potential covenant breaches (£1.3m) highlighted in the 31 July 2010 Annual Report and Accounts.

 

6 Recovery of amounts provided during the year ended 31 July 2009 and subsequently paid in the year to 31 July 2010 and the period to 31 January 2011.

7 Further restructuring costs associated with streamlining the business in the first half of 2011 with additional sums anticipated in the second half.

 

The tax effect of the exceptional items above is a credit of £1,433,000 (31 January 2010: £5,178,000; 31 July 2010: £10,552,000) in the Consolidated Income Statement. 

 

4              Finance income/(costs)

 



6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Interest income

167

122

235

Net interest receivable on retirement benefit obligations (note 15)

560

443

                 -

Interest receivable

727

565

235

Interest expense:





 - interest payable on bank facilities

(21)

(51)

(100)


 - interest payable on finance leases

(5)

(15)

(24)


 - interest payable on other loans

(21)

(63)

(105)


 - interest payable on revolving credit facilities

(2,845)

(2,745)

(5,500)


 - amounts payable on interest rate hedges (note 11)

(1,848)

(1,952)

(3,949)


 - interest payable on bonds

(120)

(139)

(274)


 - net interest payable on retirement benefit obligations (note 15)

                 -

(465)

(140)

Amortisation of loan issue costs

(637)

                 -

(1,071)

Less interest capitalised on intangible assets

                 -

245

245



(5,497)

(5,185)

(10,918)

Exceptional finance costs relating to previous facility (see note 3)

(3,500)

                 -

                 -

Finance costs

(8,997)

(5,185)

(10,918)

Net finance costs

(8,270)

(4,620)

(10,683)

 

Amortisation of loan issue costs for the six months to 31 January 2010 of £435,000 was included in administrative costs.

 

Unamortised loan issue costs at 31 January 2011 in respect of the revised bank facilities are disclosed in note 11.

 

5              Employees and directors

 

Staff costs during the period were as follows:

 






6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Wages and salaries




119,430

155,893

309,312

Social security costs




10,629

11,813

23,347

Other pension costs




7,720

8,219

15,959

Share-based payments




350

613

(204)






138,129

176,538

348,414

 

The figures for the six months to 31 January 2011 exclude redundancy and other exit costs which have been charged against the provision brought forward. (note 12)

 

The number of people (including Executive Directors and temporary staff) employed at the period-end was as follows:

 



Highways

Government and Business Services

Management Consulting

Regulated Industries

Group Functions

Total



No.

No.

No.

No.

No.

No.

Total staff - January 2011

           3,488

           4,023

              358

           1,643

              222

                 9,734









Total staff - January 2010

           4,055

           4,176

              456

           1,896

              234

           10,817

 

6              Taxation

 

The tax charge for the six months ended 31 January 2011 reflects the estimated tax rate, pre exceptional items, for the full year of 22.8% (31 January 2010: 25.8%). The estimated rate for the full year reflects the benefit of additional relief, utilisation of trading losses where deferred tax assets were not created, partly offset by the normal level of disallowable expenditure.

Deferred tax balances have been calculated at the current prevailing tax rate of 27% as the proposed reduction to the main rate of corporation tax by 1% per annum to 26% announced in the budget in March 2011 had not been enacted at 31 January 2011. The overall effect of the further proposed changes from 26% to 23% by 1 April 2014, if these applied to the net deferred tax balance at 31 January 2011, would be to reduce the net deferred tax asset by approximately £2m.

 

7              Dividends

 

Amounts recognisedas distributions to ordinary shareholders in the period:


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Final paid in respect of the previous year: nil (2010: 3.85p)

-

4,326

4,326

Interim paid in respect of the financial year ended 31 July 2010: 2.25p

-

 -

2,528

Less: dividend waived by the employee share ownership trusts

-

(54)

(84)

Total dividends paid

-

4,272

6,770

 

                                              

The Directors are not proposing an interim dividend for the period to 31 January 2011 and as outlined in the Chairman's statement in the Annual Report and Accounts to 31 July 2010 do not plan to resume dividend payments until there is evidence of a sustained increase in demand for our services and consequent improvement in performance.  In addition, there are also restrictions contained within the new banking facilities, as disclosed in note 11 that have to be met before dividends can be paid.

 

 

8              (Loss)/earnings per share


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Basic and diluted loss per share

(1.1)p

(1.9)p

(12.1)p

Adjusted earnings per share

2.6 p

9.9 p

18.9 p

 

 


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Loss for the year

(1,265)

(2,163)

(13,460)

Loss for basic and diluted earnings per share

(1,265)

(2,163)

(13,460)

Adjustments:




- other exceptional costs (net of taxation)

1,855

10,772

29,716

- amortisation of intangible assets arising from business combinations (net
  of taxation)

2,353

2,542

4,961

Earnings for adjusted earnings per share

2,943

11,151

21,217

 

 


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Weighted average number of ordinary shares

111,443

111,433

111,400

Dilutive share options

 -

 -

 -

Dilutive Save As You Earn schemes

 -

 -

 -

Diluted weighted average number of ordinary shares

111,443

111,433

111,400





Weighted average number of ordinary shares

111,443

111,433

111,400

Average number of shares held by the employee share trusts

1,215

1,405

1,361

Share options matured in respect of executive option schemes

(289)

(468)

(392)

Adjusted weighted average number of ordinary shares

112,369

112,370

112,369

 

 

(Loss)/basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares during the period.

(Loss)/diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive share options in issue and shares under Save As You Earn Schemes. The share price used to calculate diluted earnings per share is based on a weighted average price of 111.36p (31 January 2010: 211.44p; 31 July 2010: 196.31p).  Potential ordinary shares are not treated as dilutive when their conversion would increase earnings per share or decrease loss per share from continuing operations.   

Adjusted earnings per share is calculated after adding back shares held by the employee share trusts to the weighted average number of shares. Earnings are adjusted to exclude exceptional items (net of taxation). The Directors believe that this additional measure provides a better indicator of the underlying trends in the business.

 

9              Trade and other receivables

 


31/01/2011
£000

31/01/2010
£000

31/07/2010
£000

Trade receivables

71,625

94,585

74,361

Unbilled revenue

79,056

86,339

76,177

Impairment provision

(33,890)

(33,299)

(34,010)

Trade receivables and unbilled revenue

116,791

147,625

116,528

Other receivables

6,028

4,853

8,539

Prepayments and accrued income

15,465

18,710

15,994


138,284

171,188

141,061

 

10            Trade and other payables

 


31/01/2011
£000

31/01/2010
£000

31/07/2010£000
 Restated

Trade payables

23,467

18,049

34,075

Other taxes and social security payable

12,728

13,351

14,819

Finance lease liability

45

161

127

Other payables

7,170

13,448

8,916

Accruals and deferred income

68,647

70,047

60,526


112,057

115,056

118,463

 

The 31 July 2010 comparative has been restated to move £13.5m of customer advances from trade payables to deferred income.

 

11            Borrowings

 

At 31 July 2010, the Group had credit facilities totalling £180 million with the Royal Bank of Scotland, Lloyds TSB and Barclays.  Of the £180 million, £115 million was in the form of revolving credit facilities, which were to reduce by £10 million in March 2011 and 2012, with the remaining balances of £30 million expiring on 1 August 2012, and £65 million expiring on 31 October 2012.  The balance of £65 million was in the form of a term loan which also fell due for repayment on 31 October 2012. 

Also drawn against the facility were bonds and guarantees as detailed in note 16.  Interest under this facility was charged at LIBOR plus a margin. The margin ranged from 0.65% to 3.65% adjusted according to the ratio of net borrowings to earnings before interest, taxation, depreciation and amortisation.

 

On 26 January 2011 the Group signed new medium-term banking facilities with its existing relationship banks. The key terms of the new facilities are: total facilities of £170m extending to 31 March 2014; interest margin above LIBOR on the facility of 3.1% - 4.0% dependent on ratios; two repayments each of £7.5m on 31 July 2012 and 31 July 2013; in the event that an additional voluntary repayment of £30m has not been made before 31 May 2012, an increase in margin of 2% and the issue of warrants at that time over 5% of the issued share capital of the Company at an issue price of the lower of 75p per share and 80% of the share price at that time; and a restriction on resuming dividend payments until the voluntary repayment of £30m has been made.

 

The financial covenants applying to the new facility and as defined therein are: the ratio of net debt (including bonds) to EBITDA; the ratio of EBITDA to net interest payable; and debt service coverage (the ratio of free cash flow to interest and principal repayments) Covenants are tested on a quarterly basis.

 

As at 31 January 2011 amounts totalling £153.7m had been drawn down. Also drawn against the facility are bonds and guarantees of £15.5m and hence the facilities were virtually fully drawn at 31 January 2011.

 

Loans are repayable as follows:

 


31/01/2011
£000

31/01/2010
£000

31/07/2010
£000

Obligations due within one year

306

1,116

736

Obligations due between one and two years

7,500

7,163

103

Obligations due between two and five years

146,240

146,882

128,740

Total loans due

154,046

155,161

129,579

Loan issue costs incurred

(4,250)

(4,527)

(4,540)

Amortisation of loan issue costs

                 -

1,039

1,675

Total borrowings

149,796

151,673

126,714

Add: Non bank borrowings and issue costs

3,944

2,067

2,026

Deduct: Cash and cash equivalents net of bank overdrafts (note 14)

(56,875)

(38,023)

(45,376)

Net bank borrowings

96,865

115,717

83,364

 

At 31 July 2010, there were unamortised arrangement fees from the previous facilities of £2.87m of which £0.64m was amortised during the period to 31 January 2011, as disclosed in note 4, with the balance being charged as an exceptional item, as disclosed in note 3.

 

Loan issue costs of £4.25m associated with the new banking facility have been capitalised and are being amortised over the life of the loan. This cost was accrued for at 31 January 2011 and paid on 2 February 2011.

 

The Group has entered into agreements to partially hedge against the interest rate risk on the revolving credit facilities above. The fixed interest rate hedges vary from 3.76% to 5.36% against the floating LIBOR rate. The expiry date of these hedges is between 17 December 2010 and 31 October 2012. At 31 January 2011, the total fair value of derivatives designated as cash flow hedges was a liability of £5.59m (31 January 2010: £6.8m; 31 July 2010: £7.73m). The whole movement in the fair value is recorded in the consolidated statement of changes in equity as the hedges are considered highly effective.  

 

The Group did not breach any of its banking facilities covenants during the half year to 31 January 2011.

 

At 31 July 2010, there were two secured loans totalling £0.8m (31 January 2010 £1.4m) which are payable in instalments. The first loan on which interest was charged at 6.84% was repaid in December 2010 and the second loan on which interest is charged at 7.44% finishes in October 2011. The balance outstanding at 31 January 2011 on the second loan was £0.3m.

 

12            Provisions

 




31/01/2011
£000

31/01/2010
£000

31/07/2010
£000

Restructuring provisions



5,144

4,335

17,268

Insurance/caims provisions



3,484

3,206

3,600

Dilapidation provisions



2,991

3,662

3,310

Onerous contract provisions



3,748

4,842

4,805

Balance at the end of the period



15,367

16,045

28,983

 


Restructuring provisions
£000

Insurance/ claims provisions
£000

Dilapidation provisions
£000

Onerous contract provisions
£000

Total
£000

At 1 August 2010

17,268

3,600

3,310

4,805

28,983

Amounts provided for during the period

   -  

460

282

       -  

742

Amounts released to the income statement

 -  

(28)

(127)

    -  

(155)

Amounts utilised during the period

(12,124)

(548)

(474)

(1,057)

(14,203)

At 31 January 2011

5,144

3,484

2,991

3,748

15,367

 

 

13            Cash (used in)/generated from operations




6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Loss for the period before taxation


(1,533)

(3,460)

(14,728)

Adjustments for:






- Depreciation


2,758

3,435

6,558


- Gross loss on disposal of property, plant and equipment



25


- Amortisation of intangible assets

- arising from business combinations

3,224

3,531

6,796



- software and other acquired intangibles

2,599

2,033

4,866


- Share based payments cost/(credit) (excluding tax)

350

613

(204)


- Other exceptional costs


2,417

14,961

38,433


- Interest receivable


(727)

(565)

(235)


- Finance costs


5,497

5,185

10,918


- Other non-cash movement


      -  

(2,700)

 -

Changes in working capital






- Decrease in trade and other receivables including unbilled revenue
  (before exceptional impairment charges)

2,423

2,259

34,199


- Decrease in trade and other payables and provisions

(13,035)

(15,514)

(16,114)

Cash generated from operations before exceptional items

3,973

9,778

70,514

Exceptional receipt


1,800

       -  

       -  

Exceptional costs


(13,489)

(6,969)

(17,580)

Cash (used in)/generated from operations 

(7,716)

2,809

52,934

 

14            Cash and cash equivalents



31/01/2011
£000

31/01/2010
£000

31/07/2010
£000

Cash and cash equivalents

56,875

38,023

45,376

 

Of the above cash balances £15.93m is restricted by virtue of it being held within our joint ventures and captive insurance company (31 January 2010: £24.88m; 31 July 2010: £23.27m).

 

15            Retirement benefit obligations

The Group operates several occupational pension schemes for its employees. These schemes are a combination of defined benefit, defined contribution and third party defined benefit schemes. 

a              Schemes accounted for on a defined contribution basis

Cash contributions to the Group's defined contribution schemes are recognised as pension costs in the Consolidated Income Statement and no asset or liability is shown on the balance sheet. 

Some employees who transferred to the Group under the Transfer of Undertakings (Protection of Employment) Regulations (1981) as amended (TUPE) remain members of their previous schemes, which are pre-funded, defined benefit schemes.  Where under the terms of the contracts, the defined benefit liability remains with the relevant council, the Group accounts for these schemes as defined contribution schemes. Cash contributions are recognisedas pension costs and no asset or liability is shown on the balance sheet.

With effect from 1 January 2011 the Group amended its level of employer contributions such that there will be an overall reduction in employer contributions to the defined benefit schemes

b              Schemes accounted for on a defined benefit basis

The Mouchel Business Services Limited Pension Scheme (MBS), the Mouchel Superannuation Fund (MSF) and the Mouchel Staff Pension Scheme (MSPS) are funded defined benefit schemes and are disclosed as Group schemes in the tables below.  In addition, MBS has admitted body status in the Teesside pre-funded defined benefit scheme as employees of MBS who were previously employed by the local council remain members of the Teesside Pension Fund. The assets and liabilities of this scheme are identified under retirement benefit obligations on the balance sheet and disclosed as third party schemes below.

Movements in the present value of the defined benefit obligation are as follows:



Group
schemes
£000

Third party
schemes
£000

 
Total
£000

Retirement benefit obligation at 1 August 2010

(49,025)

(4,036)

(53,061)

Service cost


(2,258)

(607)

(2,865)

Net interest income


91

469

560

Company contributions

5,538

672

6,210

Actuarial gain on pension scheme valuations

13,315

675

13,990

Retirement benefit obligation at 31 January 2011

(32,339)

(2,827)

(35,166)






Current liability


(719)

         -  

(719)

Non-current liability


(31,620)

(2,827)

(34,447)

Total liability in the balance sheet as above

(32,339)

(2,827)

(35,166)

 

The amounts recognised in the income statement are as follows:



6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Current service cost - included in cost of sales

2,605

3,085

5,880

Current service cost - included in administrative expenses

260

340

574

Total current service cost

2,865

3,425

6,454

Interest cost


9,887

9,827

19,900

Expected return on plan assets

(10,447)

(9,805)

(19,760)

Net finance (income)/cost

(560)

22

140

Total recognised in the income statement

2,305

3,447

6,594

 



Group
schemes
31/01/2011
£000

Third party
schemes
31/01/2011
£000

 
Total
31/01/2011
£000

Actual return less expected return on pension scheme assets

14,037

2,589

16,626

Effect of changes in assumptions on the present value of scheme liabilities

(722)

(1,914)

(2,636)

Actuarial gain on pension scheme valuations

13,315

675

13,990

Deferred tax on movement in scheme deficit

(3,595)

(182)

(3,777)

Total recognised in the statement of comprehensive income

9,720

493

10,213

 

For the three principal defined benefit schemes that the Group is responsible for, the future liabilities for benefits are provided for by the accumulation of assets held externally to the Group in separate, trustee administered funds. The cost of these schemes is determined in accordance with the advice of independent, professionally qualified actuaries on the basis of formal actuarial valuations using the projected unit credit method. In line with normal business practice these valuations are undertaken on a triennial basis.

All schemes are closed to new entrants except for employees transferring to the Group under TUPE, where the Group is required to provide benefits which are broadly comparable to those provided under the Local Government Pension Scheme or another defined benefit scheme provided by the transferring employer. The Group schemes were closed to future accrual of benefit on 31 December 2010 for all non-public sector members with these members being offered entry to the Group's defined contribution scheme from 1 January 2011.

Given the membership of the schemes, under the projected unit credit method, the current service cost would be expected to increase as the members of the scheme approach retirement. 

The date of the last full actuarial valuations for each of the schemes was March 2007. The actuarial valuations at 31 March 2010 are currently underway and these will be completed by June 2011.

The key assumptions used in valuing the retirement benefit obligation at the end of the period were:



31/01/2011
%

31/01/2010
%

31/07/2010
%

Discount rate


5.7/5.7

5.5/5.5

5.4/5.4

Expected rate of increase in pensionable salaries

3.4/3.4

3.2/2.9

2.6/3.0

Expected rate of increase in pension in payments

3.2/3.4

3.2/3.1

2.3/3.0

Expected rate of price inflations (RPI)

3.4/3.4

3.2/3.2

3.0/3.0

Note: data for Group schemes is given first, followed by data for third party schemes










31/012011
Years

31/01/2010
Years

31/07/2010
Years

Life expectancy at age 65:




Current pensioners:

male

87.1/87.2

87.1/87.2

87.1/87.2


female

90.0/90.1

90.0/90.1

90.0/90.1

Future pensioners:

male

88.1/88.1

88.1/88.1

88.1/88.1


female

90.9/90.9

90.9/90.9

90.9/90.9

Note: data for Group schemes is given first, followed by data for third party schemes



 

The Government has announced that it plans to increase future pensions in line with the Consumer Price Index (CPI) rather than the Retail Price Index (RPI). The assumptions at 31 January 2011 do not reflect this change which would reduce the retirement benefit obligations.

 

The expected return for the scheme assets in the year is that at 31 July 2010:





%

Equities and diversified growth funds



7.9/8.3

Bonds, gilts and cash



4.4/2.7

Property




6.5/6.5

Note: data for Group schemes is given first, followed by data for third party schemes



 

16            Contingent liabilities

Contingent liabilities at 31 January 2011 in respect of guarantees and indemnities in the normal course of business totalled £15.25m (31 January 2010: £22.97m; 31 July 2010: £21.52m).

In addition, bank overdrafts of subsidiaries were guaranteed at 31 January 2011 up to £0.25m (31 January 2010: £5.93m; 31 July 2010: £0.26m); the amount overdrawn at that time being £nil (31 January 2010: £nil; 31 July 2010: £nil).

The Company and several of its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary course of business.  Provisions are maintained by the Group having regard to the size and nature of the claims and the Group's best estimate of the likely settlement.  The Directors do not believe that the outcome of these proceedings, actions and claims, either individually or in aggregate, will have a materially adverse affect upon the Group's financial position. 

17            Post balance sheet events

 

There have been no significant post balance sheet events.

 

18            Related party transactions

 

The following transactions were undertaken with the joint venture entities to which the Group is party:

 


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Sales to joint ventures

9,201

12,045

20,925

Purchases from joint venture

643

988

821

Net amount due to the Group at the period end

5,323

5,551

5,493

 

Loans to related parties:


6 Months to
31/01/2011
£000

6 Months to
31/01/2010
£000

12 Months to
31/07/2010
£000

Balance at 1 August

1,194

1,003

1,003

Loans advanced during the period

4,705

1,326

2,893

Loan repayments received

(25)

(25)

(2,703)

Interest charged on loans

 -

1

1

Balance at the end of the period

5,874

2,305

1,194

 

The loans to related parties are to joint venture companies.

The Group made contributions (including deficit funding) of £6,210,000 to the defined benefit pension schemes during the period (31 January 2010: £7,522,000; 31 July 2010: £14,509,000).

Compensation paid to key management of the Group was £1,190,000 for the six months (31 January 2010: £1,102,000; 31 July 2010: £2,382,000).

 

Independent review report to Mouchel Group plc

 

Introduction

 

We have been engaged by the company to review the condensed interim consolidated financial information in the half-yearly financial report for the six months ended 31 January 2011, which comprises theconsolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated cash flow statement, consolidated statement of changes in equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 January 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

 

PricewaterhouseCoopers LLP
Chartered Accountants
28 March 2011
London

Notes

a) The maintenance and integrity of the Mouchel Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

 


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