MCHL Mouchel Group

 

TIDMMCHL 
 
RNS Number : 6939N 
Mouchel Group plc 
16 June 2010 
 

 
 
16 June 2010 
 
 
                                Mouchel Group plc 
                          Interim Management Statement 
 
 
 
Mouchel Group plc ("Mouchel" or the "Group"), the consulting and business 
services group, today provides its Interim Management Statement covering the 
period to 15 June 2010, ahead of its year-end trading update which is expected 
to be issued at the beginning of August 2010. 
 
Overview and outlook 
 
Until the start of the new fiscal year, and in many cases right up to the 
outcome of the general election in mid-May, we continued to experience 
relatively strong demand across most areas of the business, in part as a result 
of the last government's programme of spending under the fiscal stimulus. Whilst 
this remains the case in many areas, demand for the Group's services, as we 
anticipated, has been affected by the measures taken by the new government to 
address the budget deficit and by the similar actions of some local authority 
clients. The timing and the impact of these measures have been particularly 
noticeable in the more discretionary areas of expenditure, for example in 
highways scheme workload and in schools capital programmes. 
 
Our reliance on long-term contracts and relationships, focused on the delivery 
of essential services and the maintenance of vital infrastructure, means that 
our core business is being sustained.  We remain confident about the medium and 
long-term, particularly given the pressure that will remain on the public sector 
to find new ways to deliver services more efficiently. A number of local 
authorities are now looking to outsource services to the private sector for the 
first time and indeed, we expect opportunities to increase further once things 
start to settle down after the summer and as organisations move beyond 
short-term cost-cutting.  The new government has already made it clear that it 
expects the private sector to play a greater role in public service delivery and 
that there will be an increase in outsourcing opportunities. Mouchel's existing 
portfolio of contracts; our track record; our strong, established relationships; 
and our excellent win rate when competing for new tenders means that we are 
well-placed to capitalise on this trend. 
 
However, given these recent developments and the continued uncertainty ahead of 
the budget and the spending review, we have taken a number of steps to reduce 
the Group's cost base in recent months. We have now embarked on a further and 
more comprehensive exercise to take cost out of the business in the immediate 
short-term. The objective is to ensure that we have the right organisational 
structure, staffing levels and office portfolio going forward. These moves have 
been facilitated by the significant investment we have made in new systems over 
the last eighteen months. The payback from this restructuring exercise will be 
in the first full year from August 2010. 
 
Although the short-term outlook is difficult, the Group's underlying performance 
for the current year to the end of July will be in line with the Board's 
expectations, excluding any one-off costs of restructuring.  We remain confident 
about the Group's long-term prospects. 
 
Financial position 
 
We have continued to take action to improve the Group's financial position and 
gearing.  We anticipate that year-end net debt will be in line with our previous 
expectations and we are successfully delivering the improvements which we have 
targeted. We have reduced working capital and capital expenditure. The programme 
to secure procurement savings is progressing well, and is expected to bring 
savings of GBP2-3 million in the next full year. We have also successfully put 
in place new third party bonding facilities at no extra cost, which will further 
improve the overall headroom in our main banking facilities.  We are operating 
comfortably within our banking covenants and remain confident that this will 
continue to be the case going forward. 
 
In the Middle East, we have been encouraged by the recent announcement from 
Nakheel that certified amounts will now be settled 40% in cash and 60% by way of 
a five-year interest-bearing bond.  Other amounts will take longer to recover 
but the process continues and also includes other clients in the region. Our 
cash flow forecasts still include very little for collection of Dubai contract 
receivables, most of which have now either been impaired or are likely to form 
part of the planned sale of the Middle East business. 
 
In the first half, having considered the possibility of asset disposals to 
reduce the Group's borrowing levels, we initiated the sale of the business in 
the Middle East.  We have extended this programme and now expect the sale to be 
concluded in the first half of the next financial year.  In the meantime, 
although trading conditions in Abu Dhabi remain difficult, performance has 
stabilised following recent project wins, together with continued business 
rationalisation. 
 
We have decided not to proceed with any other asset sales, including our 
utilities division.  We are at the low point of the regulatory cycle and have 
positioned the water business well for the future under new management and as a 
result of significant successes in the AMP5 bidding round. 
 
Divisional performance 
 
Government Services 
 
In Government Services, we have continued to make good progress in improving the 
performance and profitability of existing contracts.  We are also seeing 
positive results from the work that we have put into the development of our 
major partnerships, with growing prospects for broadening relationships in 
Milton Keynes, Middlesbrough, Bath & North East Somerset, Rochdale and Oldham, 
as well as the progress already made in Lincolnshire. 
 
We are in the final stages of two significant long-term BPO tenders. Yesterday 
we were awarded preferred bidder status on the first of these, a ten-year 
incremental partnership with Bournemouth Borough Council. We will announce 
further details of this major contract in the next few weeks, as this 
appointment is still subject to formal Council approval. In addition, there are 
several substantial outsourcing deals already in the early stages of procurement 
which we expect to enter the pipeline in the coming months. 
 
In Management Consulting, we have improved our performance in a difficult market 
and are on course to deliver a modest net operating margin as expected, albeit 
on reduced sales.  Our contract with the Department of Health, establishing and 
running the Centre for Workforce Intelligence, has started well and is about to 
enter the staff transfer and mobilisation phase.  After some delay the 
significant Business Process Re-engineering contract is now underway with the 
Department of Municipal Affairs in Abu Dhabi, building on the successful 
projects that are already underway in the emirate. 
 
Highways 
 
The Highways business has again performed well during the period, although we 
have seen some commissions being delayed or, in some cases, cancelled.  We will 
not now benefit from the initial contribution to profit towards the end of the 
year from the Westminster parking management contract. We are pursuing the 
Council for damages and hence cannot make further comment at this stage. 
 
We are still experiencing a significant level of bidding in Highways.  The most 
significant development in the period has been in Western Australia, where we 
have been nominated as preferred proponent for the first of the maintenance 
management contracts in the Perth Metro area, initially for a five-year term but 
with the potential for unlimited extension, which we will undertake in joint 
venture with our local partner Downer. We remain hopeful with our tender for the 
second maintenance area and we are currently preparing our tender for the third 
area, having withdrawn from the fourth to concentrate on and increase our 
chances of success in the other areas. 
 
Regulated Industries 
 
We have secured a significant number of commissions under AMP5, the new 
regulatory period which started in April this year.  These include long-term 
contracts with the Thames, Severn Trent, Wessex, South West, Yorkshire and 
Scottish Water companies. The most significant success during the period was the 
reappointment by United Utilities of the KMI+ joint venture, where we are in 
partnership with Kier Construction, Murphy Group and Interserve Project 
Services, for a further five-year period. 
 
We have already secured more contracts than in AMP4, and we expect to secure 
further appointments.  However, the start of many contracts has been slower than 
anticipated and we expect the volume of work to be more back-end loaded than in 
previous regulatory periods, particularly in the light of the current economic 
environment. 
 
Aside from AMP5-related contracts, we are still continuing to bid a number of 
opportunities, the most significant of which is in support of Siemens for the 
Thames Water outsourced meter reading commission where a decision is now 
expected in August. 
 
Order book and pipeline 
 
The Group's prospects continue to be underpinned by a strong order book and 
bidding pipeline, which at 31 May 2010 stood at GBP1.9 billion and GBP2.0 
billion respectively, compared with GBP2.0 billion and GBP2.3 billion 
respectively at the half year.  There is in addition currently a further GBP1.5 
billion of prospective tenders outside the pipeline which we are tracking. 
 
It is because of this backdrop, together with our overall market position, that 
we remain confident in the long-term prospects for the Group. 
 
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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