RNS Number:8740X
Birse Group PLC
26 January 2001
Friday 26 January 2001
BIRSE GROUP plc
INTERIM RESULTS
Birse Group plc, the UK construction group, today announces results for the
six months ended 31 October 2000.
These may be summarised as follows:
* Exceptional items totalling #24m relating to litigation, as previously
announced
* Pre-tax losses, before exceptional operating items, of #6.7 million,
(1999: profit of #2.1 million) mainly due to restructuring costs and loss
provisions in respect of Process Engineering business
* Strong construction order book; #386million at 31 December 2000 (1999: #
293million)
* Continued good progress at BPH Equipment and Birse Properties
* Dividend maintained at 0.375p per share
Commenting on the results, Chief Executive Peter Watson said:
"Birse today is all about partnership with its customers and it is therefore a
great sadness to all of us that the underlying potential of the Group has been
so badly restricted during the first half by historic disputes relating to old
contracts.
As foreshadowed, the Process Engineering Division had a tough first half but
we are confident that the investment we have made in rationalising and
restructuring it will deliver an improving performance going forward. Birse
Plant Hire continues to perform well and we will redouble our efforts in the
second half in respect of a number of promising opportunities to realise
maximum value from non-core property assets."
Contacts:
Birse Group plc 01652 633222
Peter Watson, Chief Executive
Martin Budden, Finance Director
Financial Dynamics 020 7831 3113
Tom Baldock
CHIEF EXECUTIVE'S STATEMENT
The results reported are dominated by exceptional operating items amounting in
the aggregate to #24 million. These losses accrue from the litigation
involving Birse Construction and relate to the Priory Meadow Shopping Centre,
Hastings and the Lower Rhymney Valley Relief Road projects. Both projects have
been the subject of earlier announcements made to the London Stock Exchange.
These two cases exemplify everything that was wrong with the Construction
Industry in the early to mid nineties and clearly illustrate why industry wide
attitude changes have been necessary and why we have been progressively moving
the business towards partnering and long term client and supplier
relationships.
Pre-tax losses, before exceptional operating items, of #6.7 million compare
with profits for the corresponding period last year of #2.1 million. These
results derive from losses of #7.8 million in the Construction business which
are mainly as a result of the previously announced restructuring and
rationalisation of its Process Engineering Division together with the closing
out of problem contracts inherited by the new management of that business. The
costs associated with the turnaround of that Division combined with loss
provisions in respect of three contracts in the Building Division mean that
the results reported by Birse Construction are adversely affected by factors
not present in previous periods which masks the progress that continues to be
made in improving the underlying quality of the company. Plant Hire results
continue to improve with profits increasing to #717,000 compared with #627,000
earned in the six months ended 31 October 1999. The Group's Commercial
Property activities increased profits to #793,000 (31 October 1999: #401,000).
The net interest charge for the period fell by #316,000 to #133,000. In line
with the trend established over the last five years average net borrowings
continue to fall. At 31 October 2000 the Group had a net cash position of #7.5
million including amounts held on deposit as investments (31 October 1999: #
5.7 million). The achievement of our stated objective to eliminate the net
interest charge is now in sight.
Exceptional Operating Items
#' million
Lower Rhymney Valley Relief Road 8
Priory Meadow Shopping Centre, Hastings 16
24
The Lower Rhymney Valley Relief Road contract was awarded to Birse
Construction at the commencement of the 1990's; the Hastings contract was
awarded in 1995. From the early days both contracts were characterised by
disputes over monies due under the contract. Despite extensive efforts and
initiatives those disputes were not resolved. As a result the Rhymney project
was referred to arbitration and the Hastings dispute to litigation in 1996 and
1998 respectively. With regard to the Rhymney arbitration on 12 July 2000 the
arbitrator published an award which dealt with all matters excluding interest
and finance and costs in the action. Birse Construction was awarded further
monies amounting in the aggregate to #0.5 million giving rise to the
exceptional loss set out above. Certain elements of that award have been
referred to Appeal, however, collectively they will not alter its substance.
Given these outstanding Appeal matters and the fact that the issues of
interest, finance and costs remain to be determined, I am restricted from
commenting beyond the facts outlined.
In contrast the Hastings litigation has been settled and subject to the
completion of certain modification works is now behind us. I am concerned by
the level at which we were obliged to settle the dispute and shall be
considering further how the need to settle in this way came about and what
lessons the Group can learn from the experience.
I re-emphasise that these disputes originated many years ago and that they
most definitely are not a feature of work secured in recent years.
Included in debtors as at 31 October 2000 is an aggregate value of #
15.6million attributable to seven old contracts which remain the subject of
arbitration or equivalent proceedings.
Construction
Six months ended 31 October Year ended
2000 1999 30 April 2000
Turnover Operating Turnover Operating Turnover Operating
(loss)/profit* (loss)/profit (loss)/profit
#'000 #'000 #'000 #'000 #'000 #'000
Civil 93,258 52 85,854 1,591 147,817 2,769
Engineering
Building 82,920 (1,903) 68,668 1,372 169,824 2,728
Process 14,205 (5,925) 21,765 (1,250) 45,535 (2,359)
Engineering
190,383 (7,776) 176,287 1,713 363,176 3,138
* Before exceptional operating items.
In my statement incorporated in the accounts for the year ended 30 April 2000
I warned that losses in the Process Engineering Division would continue into
the period under review. Following the appointment of John Ruane as Divisional
Managing Director at the end of the 1999/2000 financial year the following
actions have been put in place and by the end of the current financial year
the planned re-organisation of the business will be complete:-
i. a cut in overhead costs from an annual rate of around #4million to #
2million involving a reduction in staff numbers from 208 at the end of
April 2000 to 119. The related redundancy costs of #0.5million have been
charged in full in the figures shown above. All of this was achieved by 31
October 2000;
ii. a re-organisation of the technical engineering function whereby that
activity has been removed from sites and concentrated centrally thereby
allowing better use of expertise and ensuring that tighter technical and
commercial controls are exercised over the fundamental elements of the
contracting process;
iii. the introduction of an incentive scheme for the Division's Directors
whereby they have invested their own money in the business; and
iv. a restriction on contract selection to those projects where a track record
of technical and commercial performance is evident.
The results of the Building Division were depressed by losses on three
contracts amounting in the aggregate to #2.2million. These contracts, which
were awarded prior to the appointment of the current Divisional Board, are
largely complete and fully provided for; therefore these losses will not recur
in the second half. The Civil Engineering Division benefited from a strong
performance from Birse Rail which returned an operating profit for the period
of #771,000 on turnover of #16million. With increased levels of business
available in this sector and more opportunities expected in the Division's
established operating areas the foundations are in place for an improved
performance in the second half of the year.
The reorganisation of Birse Construction into three distinct operating
divisions is starting to bear fruit. A more focused customer approach is
evident in the present order book which at the end of December 2000 stood at #
386million (1999: #293million). The first phase of our director development
programme conducted by a leading UK Business School will shortly be finished.
The emphasis now is to concentrate exclusively on what the company is good at,
that is its core competencies so as to allow a step change in production and
cost efficiencies to take effect.
Plant Hire
Six months ended 31 October Year ended
2000 1999 30 April 2000
Turnover Operating Turnover Operating Turnover Operating
profit profit profit/(loss)
#'000 #'000 #'000 #'000 #'000 #'000
Crawler Cranes 1,911 517 1,793 455 3,399 699
Piling Equipment 556 200 508 120 1,061 299
Divisions Sold - - 2,104 52 2,869 (65)
2,467 717 4,405 627 7,329 933
Management's concentration upon its core competencies continues to be the main
driver behind the improvement in the results achieved. The aggregate return on
capital now exceeds 20%. The six new crawler cranes purchased in the period
(cost #1.2million) went on hire in August/September and further capital
expenditure for new piling equipment has been approved. Market demand remains
strong in each of BPH's operating sectors, therefore, prospects for further
improvements remain encouraging.
Commercial Property
Six months ended 31 October Year ended
2000 1999 30 April 2000
Turnover Operating Turnover Operating Turnover Operating
profit profit profit
#'000 #'000 #'000 #'000 #'000 #'000
1,696 793 1,177 401 1,177 1,023
During the period sales at Warrington of 2.9 acres were achieved for a
consideration of #1.14million which when combined with the #556,000 earned by
way of contingent consideration in respect of earlier completions gives rise
to the turnover reported, the entire proceeds of which were not received until
after the period end. Current interest in the site from a number of parties
should ensure a steady stream of future completions.
Dividend
An interim dividend of 0.375p per ordinary share (1999: 0.375p) will be paid
on 3 May 2001 to shareholders on the register on 6 April 2001.
Outlook
Key to the prospects of Birse Construction is the effectiveness of the actions
taken to turnaround its Process Engineering Division. Early indications are
positive. The completion of the loss making contracts referred to in relation
to the Building Division, the increased volume of rail and other favoured
opportunities in the Civil Engineering Division combined with the overall
strength of the company's order book should allow those businesses to improve
results in the second half. BPH will continue to concentrate upon its core
crawler crane and piling activities which should benefit further from the
capital expenditure made earlier in the year. The receipt of the proceeds from
the sales of land at Warrington (#1.696million) after the period end will make
a positive contribution to our objective of eliminating the net interest
charge and further improve liquidity. Prospects for further land sales in the
second half are very encouraging.
Consolidated Results
for the 6 months ended 31 October 2000
Note 6 Months 6 Months Year
Ended Ended Ended
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
Turnover 2 194,242 181,105 370,336
Operating (loss)/profit before exceptional
operating items 2 (6,522) 2,572 4,634
Exceptional operating items 3 (23,994) - -
Operating (loss)/profit (30,516) 2,572 4,634
Profit on disposal of businesses 4 - 300 77
(Loss)/ profit before interest (30,516) 2,872 4,711
Net interest (133) (449) (523)
(Loss)/ profit on ordinary activities before
taxation 2 (30,649) 2,423 4,188
Taxation 5 1,006 (600) (994)
(Loss)/ profit for the financial period (29,643) 1,823 3,194
Dividends on equity shares 6 (721) (721) (1,924)
(Withdrawn from)/ transferred to reserves (30,364) 1,102 1,270
(Loss)/earnings per ordinary share
- basic 7 (15.4)p 0.9p 1.7p
- diluted 7 (15.6)p 0.9p 1.7p
- before exceptional items
- basic 7 (2.9)p 0.8p 1.6p
- diluted 7 (3.0)p 0.8p 1.6p
The above figures relate exclusively to continuing operations.
Consolidated Balance Sheet
as at 31 October 2000
Note As at As at As at
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
Fixed Assets
Tangible Assets 12,127 14,249 11,598
Current Assets
Stocks 3,825 3,826 4,406
Debtors 8 128,131 144,413 147,517
Investments 3,663 - 2,586
Cash at bank and in hand 5,532 6,774 6,201
141,151 155,013 160,710
Creditors: Amounts falling due within one year
Bank loans and overdrafts (700) (534) -
Other creditors (144,596)(129,866) (134,514)
(145,296)(130,400) (134,514)
Net Current (Liabilities)/Assets (4,145) 24,613 26,196
Total Assets Less Current Liabilities 7,982 38,862 37,794
Creditors: Amounts falling due after more than
one year
Bank loans and overdrafts - (534) -
Other creditors (4,544) (4,344) (3,727)
(4,544) (4,878) (3,727)
Provisions for Liabilities and Charges - (350) (265)
Net Assets 3,438 33,634 33,802
Capital and Reserves
Called up share capital 19,239 19,239 19,239
Share premium account 93 93 93
Special reserve 308 308 308
Revaluation reserve 607 607 607
Profit and loss account (16,809) 13,387 13,555
Shareholders' Funds - equity interest 3,438 33,634 33,802
Consolidated Cash Flow Statement
for the 6 months ended 31 October 2000
6 months 6 months Year
Ended Ended Ended
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
Net cash inflow from operating activities 2,289 5,589 8,963
Returns on investments and servicing of finance (120) (522) (615)
Taxation (327) - (331)
Capital expenditure and financial investment (2,389) 4,368 3,719
Acquisitions and disposals - 2,119 3,920
Dividends paid to equity shareholders (722) (577) (1,539)
Cash (outflow)/inflow before management of
liquid resources and financing (1,269) 10,977 14,117
Management of liquid resources 3,536 (3,564) (4,883)
Financing 677 (8,059) (9,186)
Increase/ (decrease) in cash in the period 2,944 (646) 48
Consolidated Cash Flow Statement
for the 6 months ended 31 October 2000
6 months 6 months Year
Ended Ended Ended
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
Reconciliation of operating (loss)/profit to
net cash inflow from operating activities
Operating (loss)/profit (30,516) 2,572 4,634
Depreciation net of profit on disposal of fixed
assets 860 1,224 2,301
Loss on disposal of fixed asset investments - - 83
Decrease in stocks 581 589 9
Decrease/(increase) in debtors 19,386 (19,376) (22,330)
Increase in creditors 11,978 20,580 24,266
Net cash inflow from operating activities 2,289 5,589 8,963
Analysis of net funds
Cash at bank on demand 4,012 374 1,068
Cash at bank on short term deposit 1,520 6,400 5,133
Cash at bank on deposit with terms in excess
of seven days 2,663 - 2,586
Debt due within one year (700) (534) -
Debt due after one year - (534) -
Finance leases (115) (163) (138)
7,380 5,543 8,649
Reconciliation of cash flows to movements
in net funds/(debt)
Increase/(decrease) in cash in the period 2,944 (646) 48
Cash outflows from reduction in debt and
lease financing 523 8,059 9,186
Cash (inflow)/outflow from management of
liquid resources (3,536) 3,564 4,883
New finance leases and hire purchase contracts - - (34)
New loans (1,200) - -
Movement in net funds/(debt) in the period (1,269) 10,977 14,083
Net funds/(debt) at 1 May 2000 8,649 (5,434) (5,434)
Net funds at 31 October 2000 7,380 5,543 8,649
Notes to the Interim Accounts
1. Preparation of Interim Accounts
The interim accounts, which relate exclusively to continuing operations,
have been prepared on the basis of the accounting policies set out in the
Group's statutory accounts for the year ended 30 April 2000.
The Group's auditors, Deloitte & Touche, have carried out a review of the
interim accounts, which were approved by the Board of Directors on 26
January 2001, and their report is reproduced on page 14.
The financial information presented is unaudited and does not amount to
full statutory accounts within the meaning of the Companies Act 1985. Full
accounts for the year ended 30 April 2000, upon which Deloitte & Touche
gave an unqualified audit report, have been delivered to the Registrar of
Companies.
2. Segment Information
6 Months 6 Months Year
Ended Ended Ended
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
Turnover
Contracting 190,383 176,287 363,176
Plant Hire 2,467 4,405 7,329
Commercial Property 1,696 1,177 1,177
Intra-group (304) (764) (1,346)
194,242 181,105 370,336
Results
Contracting (7,776) 1,713 3,138
Plant Hire 717 627 933
Commercial Property 793 401 1,023
Group Centre (256) (169) (460)
(6,522) 2,572 4,634
Exceptional operating items - Contracting (23,994) - -
Operating (loss)/profit (30,516) 2,572 4,634
Profit on disposal of businesses - 300 77
(Loss)/profit before interest (30,516) 2,872 4,711
Net interest (133) (449) (523)
(Loss)/profit on ordinary activities
before taxation (30,649) 2,423 4,188
3. Exceptional Operating Items
Exceptional operating items comprise non-recoverable costs arising in
relation to the following projects in respect of which Birse Construction
Limited issued proceedings for the recovery of amounts due under the
respective contracts:-
6 Months 6 Months Year
Ended Ended Ended
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
Lower Rhymney Valley Relief Road 7,994 - -
Priory Meadow Shopping Centre, Hastings 16,000 - -
23,994 - -
In the case of the Rhymney contract the losses are in consequence of the
level of award made by the arbitrator and in the case of the Hastings
contract the losses arise as a direct result of the settlement made by the
parties.
No tax credit or deferred tax asset has been recognised in respect of
these losses.
4. Disposal of Businesses
On 31 October 1999 BPH Equipment Limited completed the sale of its
offshore equipment hire and diesel engine refurbishment division based at
Aberdeen. On 22 February 2000 it sold that part of its non-operated
activities represented by its fleet of wheel cleaning units. On 28 April
2000 it sold the remainder of its non-operated division along with its
site services operations. In aggregate the gross consideration of these
transactions was #4,390,000 and the amount of tax attributable to the
profit on disposal of #77,000 was #7,000.
5. Taxation
The tax credit for the period has been calculated by reference to the
projected rate for the full year and incorporates the maximum potential
recovery from the carry back of tax losses.
6. Dividends on Equity shares
An interim dividend of 0.375p per ordinary share (1999 - 0.375p) will be
paid on 3 May 2001 to shareholders on the register on 6 April 2001.
7. (Loss)/Earnings per Ordinary Share
6 Months 6 Months Year
Ended Ended Ended
31.10.00 31.10.99 30.4.00
#'000 #'000 #'000
The calculation of (loss)/earnings per
ordinary share is based on:
(Loss)/earnings for basic and diluted
(loss)/earnings per ordinary share (29,643) 1,823 3,194
calculation
Exceptional items 23,994 (300) (77)
Tax on exceptional items - 90 7
(Loss)/earnings before exceptional items
per ordinary share calculation (5,649) 1,613 3,124
Thousands Thousands Thousands
Weighted average number of shares used
in basic (loss)/earnings per ordinary share
calculations 192,390 192,390 192,390
Adjustment to reflect dilutive shares under
options (2,840) - -
Weighted average number of shares used
in diluted (loss)/earnings per ordinary share
calculation 189,550 192,390 192,390
8. Debtors; Uncertainty Relating to Amounts on Contracts
Included in debtors is an aggregate value of #15,643,000 attributable to
contractual amounts relating to seven contracts which are the subject of
arbitration or equivalent proceedings.
In consequence of the losses suffered on the Hastings and Rhymney
contracts (see Note 3) the Directors have re-considered the recoverability
of the amounts attributable to these and other old contracts. Whilst the
Directors believe that they are justified in concluding that these amounts
will be realised, the Directors acknowledge that there remains significant
uncertainty. However, it is not possible to quantify the effects.
Independent review report to Birse Group plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 7-13 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Listing
Rules of the UK Listing Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board. A review consists principally of
making enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed in
accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly, we do not express an audit opinion on
the financial information.
Uncertainty relating to amounts on contracts
In arriving at our review conclusion we have considered the accuracy of
disclosure made in Note 8 to the financial information concerning uncertainty
relating to amounts on contracts. In view of the significance of this
uncertainty, we consider it should be brought to your attention.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 October 2000.
Deloitte & Touche
Chartered Accountants
10-12 East Parade
Leeds
LS1 2AJ
26 January 2001
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