TIDMMSS
RNS Number : 6557C
Managed Support Services PLC
10 March 2011
FOR IMMEDIATE RELEASE
10 March 2011
Managed Support Services plc
("MSS" or the "Group")
Year End Update
INTEGRATION AND RATIONALISATION
The Board is pleased to confirm that the recent acquisition of
Environmental Control Services ("ECS") on 29 September 2010 has
performed fully in line with expectations, both in terms of cash
generation and profitability.
ECS has for many years enjoyed an enviable reputation for the
quality of its engineering services.
Accordingly, the Board has decided to merge all the Group's
operations based in the South of England with ECS in order that
these combined activities can be managed by the ECS team. The
rationalised unit will become the Southern unit of MSS Building
Services, comprising a number of previous acquisitions.
The process of integration will be completed by 1 April 2011,
including the rationalisation of operations, management structures
and consolidation onto the Group's IT platform, Nucleus, which is
specifically configured for the specialist Mechanical and
Engineering and Building Services market.
The integration of these units will, however, incur exceptional
costs of approximately GBP350,000, largely non cash, primarily
relating to provisions to reduce the increased Work in Progress in
the units to be integrated and redundancies.. These actions will
generate cost savings.
The UK Managing Director operationally responsible for the
relevant units is leaving the Group and will not be replaced.
The other acquisition made in the current year, MSS Health &
Safety (formerly Data Sound Limited) has also performed well since
acquisition, with particularly strong cash conversion in excess of
100 per cent. of operating profit. This relocated unit is now based
in central London, has a high level of recurring revenues and will
benefit from recently appointed, professional management. The unit
is expected to enjoy revenue growth from the forthcoming release of
the Compleye software product.
TRADING
In common with other competitors, the Group experienced very
weak trading in December and January, notwithstanding that these
months traditionally generate low activity. This was exacerbated by
some contract losses in the smaller, regional accounts. February
has seen some recovery in activity which the Board expects will
continue in March. However, it is now clear that the Group's
overall result for the year, before exceptional items, will be
below market expectations, despite current run rates.
Full year turnover for the current year is expected to be
approximately GBP26-GBP27 million. The annualised run rate of
current monthly sales and the visibility of customer revenues
confirm the Board's expectations that turnover for the year shortly
to commence on 1 April 2011, will be between GBP35-GBP37 million.
The majority of the turnover increase reflects the full year
consolidation of ECS. The Board currently anticipates that EBITDA
for the year to 31 March 2012 will be some 20% below current market
forecasts as a result.
The Board expects operating margins to remain broadly stable for
the forthcoming year but the Group has relatively high operational
gearing and therefore the Board believes that operating profit is
more sensitive to sales levels, rather than small margin
movements.
To deliver a satisfactory return for the forthcoming year,
further cost reductions are being undertaken and management
efficiencies improved, following the departure of the UK Managing
Director.
BALANCE SHEET
The Group entered the year with low levels of Net Working
Capital ("NWC"), defined as the amount by which trade debtors
exceed short term trade creditors. This reflected turnover for the
prior year of only GBP15.3 million. Inevitably, given the increased
activity levels, the Group's investment in NWC has increased
materially and is currently some GBP3 million, of which
approximately only GBP1.2 million arose from the consolidation of
acquisitions.
Debtor days remain stable at approximately 56-60 days, but the
Board believes it is prudent to target trade creditor levels at or
below 40 days. Historically, creditor days at MSS have been managed
to a much higher level with the average creditor period for
purchases to 31 March 2010 being 71 days. The Board regards it as
essential, in order to maintain margin and service levels to meet
supplier payments promptly. This policy will also increase NWC.
The Group continues to enjoy excellent support from its bankers,
Lloyds Bank plc with facilities that are capable of expansion as
turnover rises, subject to the appropriate limits.
The Board will continue to invest in the supply chain as
appropriate. As a result, core year end indebtedness is expected to
be in the range of GBP2.5 - 3 million, reflecting continued
creditor reduction during a period of growing turnover.
PROPOSED ISSUE OF CONVERTIBLE LOAN NOTES
The Board is keen to have continued flexibility in respect of
working capital and the ability, when appropriate, to consider
small acquisitions in order to exploit fully the operational base
and enjoy the economies of scale arising from small
acquisitions.
As a result, the Board is therefore proposing to issue
Convertible Loan Notes with an initial nominal value of up to
GBP500,000 ("Loan Notes"), in respect of which the Board has
received investor support. The Directors propose to subscribe for
no less than GBP130,000 of the Loan Notes. The Loan Notes will be
issued subject to shareholder approval at a forthcoming General
Meeting ("GM") which is expected to be held on 31 March. The
resolutions to be proposed at the GM will include the appropriate
authorities for the issue of the Loan Notes.
Details of the principal terms of the Loan Notes will be set out
in the circular to be published and made available to shareholders
shortly.
In summary, it is currently proposed that the Loan Notes will
pay interest on the principal amount at 7 per cent. per annum
payable half yearly. The appropriate conversion premium for the
Loan Notes will be agreed in the near future and full details
supplied to shareholders.
It is proposed that Loan Note holders will be entitled to
require redemption of half their holding on 1 April 2013 or 1 April
2014.
In the event that the Loan Notes have not been converted or
redeemed prior to 31 January 2015, the company will redeem the Loan
Notes at par on that date.
The Board has received indicative interest from potential
subscribers for the Loan Notes which would indicate a conversion
price such that the conversion of the Loan Notes will not require
the issue of more than approximately 5 per cent. of the currently
issued ordinary share capital of 209,802,191 ordinary shares.
OUTLOOK
Despite poor recent trading and the need to deliver management
change and improved internal disciplines, the Board believes that
further strengthening of the balance sheet, the rationalisation of
the Southern activities and the customer prospects across the Group
will deliver improved profitability.
A great deal has been achieved in the current year. The Group
should now enjoy the benefits of an effective IT platform, lower
fixed costs, and growing customer revenues. The Board believes
these attributes will continue to make MSS an attractive trade
partner for customers as the Board looks to grow revenues
substantially in the future.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Managed Support
Services plc:
Simon Beart, 07710 444370 01483 735703
Chief Executive
Piers Wilson,
Finance
Director
Cenkos
Securities plc:
Nick Wells / 020
Stephen Keys 7397
8900
Buchanan
Communications:
Richard Darby / 020
Helen Chan 7466
5000
Merchant
Securities:
Graeme Cull / 020
Simon Clements 7382
0933
Notes to editors
Managed Support Services plc is a leading supplier of
Environmental Compliance and technical Building Services. The Group
provides a broad range of Environmental Compliance services and
HVAC building maintenance services for commercial properties. MSS
operates in a range of diverse markets with customers managing or
owning commercial property, hotels and retail buildings. Further
information is obtainable from www.mssplc.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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