MCHL Mouchel Group

 

TIDMMCHL 
 
RNS Number : 0963U 
Mouchel Group plc 
18 June 2009 
 

 
 
 
 
18 June 2009 
 
 
 
 
 
 
Mouchel Group plc 
Interim Management Statement 
 
 
 
 
 
 
Mouchel Group plc, the consulting and business services group, today provides 
its Interim Management Statement covering the period to 31 May 2009, ahead of 
its pre-close trading statement which is expected to be issued at the beginning 
of August 2009. 
 
 
Trading performance 
 
 
Since we reported the half year results on 31 March 2009, the Group's 
performance has increasingly been affected by the previously reported challenges 
in rail and in the Middle East.  Our Management Consulting business has also 
been further affected by a reduction in demand for consulting services 
generally, as well as by the costs associated with targeting new opportunities 
and investing in developing our major local authority partnerships, the benefits 
from which have been slower to materialise than previously anticipated. 
 
 
We continue to take measures to ensure that we have the right cost base for the 
Group going forward. This too has impacted financial performance in the short 
term but will ensure that we are in a strong position to deliver organic growth 
in underlying trading. 
 
 
As a result, the Group's performance for the current year will be below our 
previous expectations. The position in rail and in the Middle East will also 
impact next year. However, we anticipate that this will be broadly offset by the 
cost savings secured this year and by organic growth in the Group's ongoing 
businesses, such that performance for the Group as a whole in 2009/10 will be 
broadly unchanged from the current year. 
 
 
In spite of this, and notwithstanding general economic pressures, demand for the 
Group's services in our core markets remains generally good. We have 
strengthened our bidding capability and have secured some important new wins. We 
have also benefited from increased activity in a number of our existing 
commissions. We continue to have a healthy order book and bidding pipeline. Our 
order book still stands at close to GBP2 billion and we have made good progress 
in positioning ourselves for work currently being bid. 
 
 
Government Services 
 
 
We are excited by the many prospects that exist in support of the agenda to 
transform local authority services, improve efficiency and reduce costs. 
 
 
At the start of the period, we secured a further four-year extension to our 
strategic partnership contract with Lincolnshire County Council. We are 
currently providing additional support to the Council in developing and 
delivering its 'new ways of working' strategy and we are also in discussion to 
provide a wide range of support and additional services, including IT managed 
services, adult social care, BSF advice and service transformation. 
 
 
Discussions are also progressing with Middlesbrough Council about a five-year 
extension to our existing contract, which expires in 2011, and we expect a 
decision on this later in the year. 
 
 
Mouchel has now been short-listed as one of two for a ten-year, bundled services 
partnership contract with North East Lincolnshire Council which will focus on 
urban regeneration and economic development, as well as providing property, 
planning and transport services. We are also in discussion with the Council 
about change management and support to its economic wellbeing initiative.  A 
number of other local authorities are currently 'soft market testing' similar 
commissions and we continue to target these opportunities. 
 
 
Our property business has won a number of new commissions during the period, 
including property design and maintenance management services for Kent County 
Council and support to the London Borough of Ealing with its Decent Homes 
initiative. We continue to strengthen our presence in the 'Blue Light' sector 
and have recently secured commissions with Gwent Police and Dyfed Powys Police 
to deliver strategic asset management and estates work. Also, our pensions 
administration team in Middlesbrough has just been awarded a three-year 
extension to its contract with Cleveland Police Authority. 
 
 
In the BSF area, we are continuing to focus on client-side advisory work, 
particularly in the management, property, ICT and education consultancy areas. 
Also, we are hopeful that project development will commence soon on the second 
phase of our ten-year BSF programme in Hackney, where we are currently assisting 
the client with education transformation and survey work ahead of the next 
phase. Work on the first phase is successfully nearing completion.  Our 
relationship with the borough continues to develop as we have now been appointed 
as a framework contractor for estates and valuation services in Hackney, on top 
of our existing role as one of the housing management service providers to 
Hackney Homes. 
 
 
Our Management Consulting practice within Government Services has continued to 
support major cost reduction and transformation programmes in our partnerships 
with the councils in Lincoln, Middlesbrough and Oldham. Discussions continue 
around providing similar support to the council in Rochdale and we remain 
confident that we will secure additional back office services in Oldham as part 
of the second phase of that contract.  This consulting activity will position 
the Group for continued and significant growth of these partnerships and we 
expect this trend to continue elsewhere. 
 
 
Elsewhere in Management Consulting, we have recently been awarded a two-year 
extension to our systems engineering contract providing configuration management 
support to Lockheed Martin. We have won further City Academy commissions and 
have secured another extension to our National Healthy Schools contract.  Our IT 
consultants are supporting both Staffordshire County Council and the London 
Probation Service with their SAP upgrade and implementation programmes 
respectively. 
 
 
Our work as part of the CSC Alliance has continued, delivering the National 
Programme for IT across the North, Midlands and the East of England and we are 
well placed to deliver further business change services in support of the 
Connecting for Health initiative for the Department of Health. 
 
 
Although we have won and commenced work on some important commissions during the 
period, we are seeing continuing evidence of reduced demand for consulting 
services within Management Consulting. This, and the investment in supporting 
the expansion and development of the business elsewhere in the Group has 
adversely impacted the near term profitability of the consulting business since 
the half year.  As a result, we have recently taken steps to reorganise the 
business in order to improve performance. 
 
 
Regulated Industries 
 
 
In Regulated Industries, the last four months have been a period of mixed 
fortunes.  We have continued to face challenges in rail in the UK and as a 
result of the slowdown in demand in Dubai - these have been partly offset by 
generally strong demand elsewhere in the Middle East and increased workload and 
tendering activity in the water sector ahead of the move from AMP4 to AMP5. 
 
 
We have previously announced our intention to cease low margin civil engineering 
support to Network Rail's resignalling programme. Our exit from this part of the 
market will be marked by the impending conclusion of our involvement in the 
Colchester to Clacton resignalling project. 
 
 
Our other principal area of activity in rail has been structures examination and 
inspection work for Network Rail, where we have learned recently that we were 
unsuccessful with our tender to secure a position on the client's Civil 
Engineering Framework Agreement. As a result, we have taken the decision to 
substantially exit the rail sector as a whole.  This will result in a 
significant impairment of goodwill and other intangible assets in the Group's 
full year accounts, as well as some other exceptional costs, principally staff 
redundancies and property-related provisions. 
 
 
In the Middle East, we continue to be impacted by the adverse economic 
conditions in Dubai, as a result of which we have continued to see a marked 
slowdown in activity levels and the timing of the collection of receivables 
compared to earlier years. We are making progress in agreeing payment terms and 
recovering sums due. However, we do expect to make some allowance for the 
recovery of outstanding amounts as well as other exceptional staff and 
property-related costs associated with the significantly reduced activity levels 
in the region. 
 
 
On the upside, we are seeing strong demand for our services elsewhere in the 
Middle East. In Abu Dhabi, we have recently been appointed preferred bidder for 
a major business process re-engineering opportunity for the Department of 
Municipal Affairs.  We have also been short-listed, as part of a consortium, for 
a major highways commission in Abu Dhabi which, if it proceeds, will be the 
first roads PFI project in the United Arab Emirates. In Kuwait, we have just 
learned that we have been successful in our tender for the design and 
supervision of part of the new north-south highway. 
 
 
In water, the AMP5 bidding round continues and we are targeting opportunities 
with United Utilities, Yorkshire Water, Thames Water and Severn Trent Water. 
Most significantly, we are seeking to extend our existing commission with United 
Utilities, which we currently hold in joint venture with Kier, Murphy and 
Interserve. Similarly, we also expect to extend the current arrangement for 
Yorkshire Water, in joint venture with Costain. 
 
 
Highways 
 
 
In Highways, we are continuing to see generally buoyant conditions and strong 
demand for our services, partly fuelled by funds earmarked under the 
Government's Fiscal Stimulus initiative and directed both towards the Highways 
Agency's Managed Motorways programme and maintenance management contracts. In 
addition, we are currently experiencing significantly increased levels of 
bidding activity. 
 
 
We have now been short listed for the Highways Agency maintenance management 
commissions in Area 13 (Cumbria) and Area 1 (South West). Bid documents for both 
were received in May with tender return dates later this Summer and contract 
award around the end of the calendar year. We are currently incumbent on both 
commissions and are optimistic of a favourable outcome. 
 
 
We are also currently targeting highways, traffic and transport planning 
opportunities in the local authority marketplace. Most significantly, this 
includes the Lincolnshire County Council highways professional services 
commission where, again, we are strongly placed given our existing relationship 
with the client and extensive involvement in other areas. 
 
 
Our move into parking and traffic management is beginning to gain real momentum. 
Following our initial success in the London Borough of Hillingdon, we have now 
been appointed preferred bidder for the Group's second parking services contract 
in the London Borough of Newham, the Olympic Borough - this is a five-year 
contract, potentially extendable to ten years. We are currently bidding for 
similar contracts elsewhere in London, in the London Borough of Wandsworth, and 
are targeting similar opportunities in the City of Westminster and the London 
Boroughs of Enfield, Camden, Bexley and Brent. 
 
 
In the Managed Motorways area, we are working on the project management, 
detailed design, contract administration and site supervision for the first and 
second phase of the Birmingham Box hard shoulder running programme.  We have 
also commenced project management, option assessment and outline design for the 
third phase of the Birmingham programme and on parts of the M4 and M3. 
 
 
On a broader level, we will be undertaking the feasibility and safety studies, 
to be followed by the detailed design and project management, for the 'through 
junction running' pilot study on the M42. This is strategically very important, 
because, if successful, it will lead the way for the uninterrupted use of the 
hard shoulder as an active running lane elsewhere in the UK. 
 
 
We have recently been successful in bidding and securing the technical advisor 
role to the London Borough of Hounslow for its proposed highways maintenance PFI 
scheme. We are also assessing which of the forthcoming non-client side PFI 
project delivery roles to target and what partnering arrangements we would need 
to put in place to do so. 
 
 
Order book and pipeline 
 
 
The Group's prospects continue to be underpinned by a strong order book and 
bidding pipeline, which at 31 May 2009 stood at GBP1.9 billion and GBP1.7 
billion respectively, compared with GBP2.0 billion and GBP1.9 billion 
respectively at the half year. The strength of the order book means that we will 
start next year with around 75% order cover and the pipeline continues to 
reflect the significant opportunities facing all three of our businesses. 
 
 
Financial position 
 
 
Notwithstanding the significant increase in our working capital requirements, 
principally in the Middle East, the Group's overall financial position remains 
healthy.During the period, the Group's credit facilities were amended and 
restated, increasing the total facilities from GBP185 million to GBP190 million, 
the larger part of which remains in place until the second half of 2012, 
effectively giving the Group certainty of funding for the next three years. 
 
 
Excluding rail and the Middle East, cash performance generally remains good, 
although the increased working capital requirement in the United Arab Emirates 
is having a continuing impact on the Group's interest charge. 
 
 
Pensions 
 
 
At 31 January 2009, the Group's total pension deficit under IAS 19 was GBP67.2 
million.  Recent market conditions mean that this is likely to have increased in 
the intervening period and that this will continue to be the case at the year 
end. 
 
 
From a funding point of view, the last actuarial valuations of the Group's 
various defined benefit schemes were undertaken at 31 March 2007, following 
which funding targets and related recovery plans were agreed with the relevant 
trustees. The next valuations will now take place at 31 March 2010. 
 
 
Another consequence of current market conditions is the potential impact on the 
interest component of the Group's overall pension expense. This is a non-cash, 
non-trading item which can fluctuate significantly, depending on market 
conditions. The charge for 2009/10 will be dependent upon prevailing market 
conditions at the start of the next financial year. 
 
 
Senior appointments 
 
 
As previously announced, Bo Lerenius succeeded Richard Benton as Chairman, with 
effect from 1 May 2009. Bo was originally appointed as a Non-Executive Director 
of Mouchel on 30 January 2009, having previously been Group Chief Executive of 
Stena Line and of Associated British Ports. He is currently also a Non-Executive 
Director at G4S Plc, Land Securities Group Plc and Thomas Cook Group Plc. 
 
 
 
 
Outlook 
 
 
Although general economic conditions remain challenging, and the Group's 
performance for the current year and 2009/10 is now expected to be below our 
previous expectations, our focus on the UK public sector and on the provision of 
essential services and the management of vital infrastructure means that the 
demand for our services remains generally buoyant, as evidenced by our 
continuing strong order book and bidding pipeline.  The increasing pressure that 
will be placed on government spending from 2010 offers both a threat and an 
opportunity for the Group, but we expect our enhanced capability in business 
change, transformation and efficiency, together with our portfolio of long-term 
relationships, to leave us well placed to weather the current recession. We 
remain confident about our long term prospects. 
 
 
 
 
 
 
For further information please contact: 
 
 
 
 
Mouchel Group plc 
Richard Cuthbert, Chief Executive  ) 01483 731731 
Kevin Young, Group Finance Director    ) 
 
 
 
 
Finsbury 
Mike Smith  ) 020 7251 3801 
Charles Watenphul                      ) 
 
 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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