TIDMMRN
RNS Number : 4331A
Morson Group PLC
30 March 2012
Morson Group PLC
("Morson" or "the Group")
Audited preliminary results for the year ended 31 December
2011
Morson (AIM: MRN.L) the UK's leading provider of technical
contracting personnel to the aerospace and defence, nuclear and
power, rail and other technical industries, is pleased to announce
its preliminary results for the year ended 31 December 2011.
Financial Highlights
Solid trading performance in a competitive market place aided by
the breadth of our offering:
-- Group revenues exceed GBP0.5 billion, up 11.0% to GBP507.9 million (2010: GBP457.6 million)
-- Group net fee income (gross profit) up 10.9% to GBP38.9 million (2010: GBP35.1 million)
-- Adjusted profit before tax* down 12.4% to GBP7.1 million (2010: GBP8.1 million)
-- Profit before tax down 38.9% to GBP5.7 million (2010: GBP9.4 million)
-- Adjusted basic earnings per share* down 12.7% to 12.27 pence (2010: 14.06 pence)
-- Basic earnings per share down 36.2% to 10.01 pence (2010: 15.69 pence)
-- Net debt at year end up 43.7% to GBP33.3 million (2010: GBP23.2 million)
Business Highlights
-- Average contractor numbers engaged up 700 to 10,900
-- Strength in core markets
-- Excellent client retention rate
-- Continued expansion and investment for the future:
o Aberdeen recruitment office and Bristol design centre
opened
o Growing niche areas of IT, Oil & Gas and
Telecommunications
* Before amortisation of GBP866,000 (2010: GBP620,000),
exceptional gain on acquisition of businesses GBPnil (2010:
GBP1,249,000), exceptional restructuring costs GBP110,000 (2010:
GBP404,000) and fair value loss regarding the derivative financial
instruments GBP391,000 (2010: gain GBP1,063,000).
Commenting on the outlook Gerry Mason, Non Executive Chairman,
said:
"The Board's view is that the current year will again be
challenging. We expect our core markets to remain solid but margin
pressures to continue. We have several key contract renewals and
extensions that fall due in 2012 and will be focussed on achieving
these, developing service capabilities and expertise and planning
for the longer term growth of the business.
Aerospace, particularly on the civil side, is performing well
and remains the largest business sector for us. Rail has recently
seen government support for further future rail improvement
programmes. We expect nuclear power to become a key contributor to
the UK's energy needs and that there will be an increasing resource
requirement in the near future entailing not just new nuclear
stations but also the site support facility, control environment
and the upgrading work needed on the UK power transmission grid and
infrastructure."
For further information please contact:
Morson Group plc 0161 707 1516
Ged Mason, Chief Executive Officer
Paul Gilmour, Group Financial Director
WH Ireland Ltd.
Adrian Hadden, Nick Field 0207 220 1666
Buchanan 020 7466 5000
Diane Stewart, James Strong, Carrie Clement
CHAIRMAN'S STATEMENT
INTRODUCTION
In a challenging year, it is pleasing to be able to report
further growth in revenues and Net Fee Income, albeit there has
been considerable pressure on operating margins and hence profits
are at a lower level. Compared with 2010, Revenue exceeded GBP0.5
billion, increasing by 11.0% to GBP507.9 million and Net Fee Income
increased 10.9% to GBP38.9 million. Adjusted profit before tax (see
derivation in table in Business Review below) decreased by 12.4% to
GBP7.1 million, reflecting continued pricing pressure, ongoing
investments in new areas and a reduced contribution from Morson
Projects, our engineering consultancy division. Profit before tax
decreased by 38.9% to GBP5.7 million.
At an operational level, our core markets have held up well,
particularly in aerospace, marine and defence. All material
contracts which were up for renewal during the year were won and
the Group continued to grow the numbers of contractors placed and
to expand our offering both in the UK and overseas.
The year 2011 has been one in which much of the business
community has experienced continuing challenges with financial
constraint and economic uncertainty and we have seen this impact
business confidence, strategy, investment and performance in some
areas of our client base. As a leading provider of talent and
services, across sectors, to many of the UK's largest engineering
businesses the Group is in a strong position but this inevitably
impacted our performance with some areas of our business being
affected more than others.
Morson has had to be cognizant of the impact of the trading
environment in each of our areas of activity and has planned and
managed the business in 2011 to deal with market conditions. During
the year, we concentrated on delivering increased market share
whilst investing in niche areas that should deliver returns in the
future.
The Group has also faced notable challenges during the year and
addressed a need for change and investment within our engineering
consultancy division Morson Projects including welcoming a new
Managing Director and Finance Director. This is a key aspect of
developing the Group's future relationships and capabilities.
The Group balance sheet remains strong. The increased levels of
revenues and expansion into new markets have increased the working
capital requirements of the business during the year. This and the
GBP4.0 million acquisition of the non-controlling minority stake in
Morson Wynnwith have contributed to increased net debt levels to
GBP33.3 million (2010: GBP23.2 million) at 31 December 2011. This
remains well within facility limits.
RESULTS
Key financial and business highlights include:
Financial Highlights
Solid trading performance in a competitive market place aided by
the breadth of our offering:
-- Group revenues exceed GBP0.5 billion, up 11.0% to GBP507.9 million (2010: GBP457.6 million)
-- Group net fee income (gross profit) up 10.9% to GBP38.9 million (2010: GBP35.1 million)
-- Adjusted profit before tax* down 12.4% to GBP7.1 million (2010: GBP8.1 million)
-- Profit before tax down 38.9% to GBP5.7 million (2010: GBP9.4 million)
-- Adjusted basic earnings per share* down 12.7% to 12.27 pence (2010: 14.06 pence)
-- Basic earnings per share down 36.2% to 10.01 pence (2010: 15.69 pence)
-- Net debt at year end up 43.7% to GBP33.3 million (2010: GBP23.2 million)
Business Highlights
-- Average contractor numbers engaged up 700 to 10,900
-- Strength in core markets
-- Excellent client retention rate:
-- Continued expansion and investment for the future:
o Aberdeen recruitment office and Bristol design centre
opened
o Growing niche areas of IT, Oil & Gas and
Telecommunications
* Before amortisation of GBP866,000 (2010: GBP620,000),
exceptional gain on acquisition of businesses GBPnil (2010:
GBP1,249,000), exceptional restructuring costs GBP110,000 (2010:
GBP404,000) and fair value loss regarding the derivative financial
instruments GBP391,000 (2010: gain GBP1,063,000).
STRATEGY
The markets in which we operate are competitive. We
differentiate our service on the basis of quality, excelling at
what we do and providing efficient, cost saving solutions for our
clients. We are not complacent and constantly innovate and develop
our services to retain these long standing relationships.
Within recruitment many of our sectors are mature and with high
volumes generate low margin returns, but run efficiently. The Group
has sought to maintain these core strengths and position Morson for
organic growth as market conditions improve. This has included
ongoing investment in our business systems, operations and sales
development teams.
Contemporaneously the Group has also invested in chosen
developing markets that offer increased opportunities for return
and growth. This includes activity with clients in overseas
locations both through subsidiary operations and via our
established UK offices. It has also included seeking to increase
our permanent recruitment activity and whilst this area has
developed at a slower pace than anticipated, in 2012 we will
refocus resource to niche skillsets where we feel demand is higher.
Whilst these developing initiatives will require investment in
terms of cost and working capital the Board believe they will form
an increasingly important part of Group activities in the years to
come.
Whilst 2011 was a difficult year for Morson Projects, in recent
years it has delivered good revenues and grown our capability and
skillsets across several exciting emerging engineering markets. It
is also, of course, an internal Group client for our recruitment
activity. We have high quality clients, both in the UK and
overseas, involved in cutting-edge, innovative engineering projects
and have a wealth of design skills to call on. We wish to increase
the returns we achieve on this business and have initiated review,
change and internal goals and aspirations to achieve this.
EMPLOYEES
Our staff continue to work hard and display great loyalty and
commitment to what we do at Morson. As we enter our 43rd year in
business and see many staff with 10 and 20 years of service, and
even second generations joining us, it is a great testament to them
and the business culture and environment in which we all work. I am
pleased on behalf of the Board to pass on our appreciation and
sincere gratitude to them all.
DIVIDEND
In December 2011 the Board took the decision that a final
dividend for the year ended 31 December 2011 would not be proposed.
As we set out at that time, investments in the business and
maintenance of core business and client relationships is key and we
are mindful of the need to manage cash resources appropriately. As
we have previously announced, the Board will not be reviewing its
decision to suspend dividend payments until the time of the
publication of the interim 2012 results, which is expected to be in
September 2012. However, shareholders should be aware that, for the
reasons we have set out, there can be no guarantee that any
dividend will be paid in respect of the current financial year.
OUTLOOK
The Board firmly believes that engineering talent will be in
demand in the global economy in the years to come and that the UK
has a role to play in that market. Our highly qualified engineers,
designers and technical staff are respected throughout the world
market and Morson intends to play a pivotal role in supplying this
talent, expanding our footprint overseas and constantly improving
our delivery and expertise. Clearly as we have several large key
contract renewals and extensions that fall due in 2012 this will
also be a major focus.
We expect our core markets to remain solid in the coming year.
Aerospace, particularly on the civil side, is performing well and
remains the largest business sector for us. Rail has recently seen
government support for further future rail improvement programmes.
We expect nuclear power to become a key contributor to the UK's
energy needs and that there will be an increasing resource
requirement in the near future entailing not just new nuclear
stations but also the site support facility, control environment
and the upgrading work needed on the UK power transmission grid and
infrastructure.
Importantly, all of Morson's core areas have underlying
maintenance requirements that have a very long term future
engineering need. Coupled with this, our investments into new areas
and improving our returns on design consultancy should enhance our
performance.
Your Board's view is that the current year will again be
challenging. We will plan for the longer term growth and
development of Morson to maintain our reputation, standards and
market share and to continue to deliver expert and flexible
solutions and services to our clients.
GERRY MASON
NON EXECUTIVE CHAIRMAN
BUSINESS REVIEW
OVERVIEW: PERFORMANCE, MARKETS AND POSITION
The 2011 financial year has been a challenging one. The markets
in which we operate have seen intense competition and through the
year the varying levels of confidence, due to wider economic
uncertainty, within our client base have affected demand. Our
market position and framework agreements are core strengths that
have maintained solid and sustained business streams over many
years and these have enabled the Group to deliver growth in
difficult markets.
During the year, we balanced the need to cut costs with a
controlled and proportionate programme of investment and change
within the business. This aims to develop new lines of activity,
raise operational expertise and change and enhance systems and
structure. We feel this will deliver opportunities and returns in
the future. A series of key performance indicators are presented
later in this review. For 2011 we returned adjusted pre-tax profits
of GBP7.1 million (2010: GBP8.1 million) maintaining significant
profit levels in difficult trading conditions.
Our core focus is the provision of temporary staffing solutions
to the UK recruitment market with market leading positions in key
sectors. This accounts for 91% of Group revenues. We are seeking to
expand our offering into overseas markets, permanent recruitment,
other related engineering and technical recruitment sectors and of
course design consultancy.
Within Morson Projects, we have achieved revenue of GBP45.2
million, an increase of 20.7% over 2010. However, here we have also
experienced the most difficult trading with segment operating
profit down 72.3% to GBP0.5 million (2010: GBP1.7 million). There
have been several technically demanding projects that have seen
some cost overruns and scope change negotiation. However, these are
not expected to impact the coming year to the same extent and
represent increases in technical knowledge and capability gained by
working through change and challenge with our clients on new
concept design work and structural materials. This has been
complemented with other investment in this business. We have
improved our technical software offerings and reviewed and
instigated a change in our office network with an opening of a
design centre in Bristol. Again we feel this will deliver
opportunities and returns in the future.
Activity with overseas clients is an area the Group is seeking
to grow, both through an overseas network of offices and
contracting directly from our UK base. This applies both to
recruitment and design consultancy. Across the Group revenues
generated from non-UK activity amounted to GBP39.4 million (2010:
GBP24.0 million). Whilst the development of overseas operations
requires cost and working capital input, the Board believes it to
be a key part of achieving future earnings growth.
We feel it is important to remain known as a specialist
engineering and technical service provider. Our brand is well
known, both to clients and the engineering and skilled technical
professional community. Sectors within which the Group operates
include Rail, Power, Aerospace, Defence, Nuclear, Telecommunication
("Telecoms"), Marine, Oil & Gas and Automotive. We work in 40
locations across the UK (being 27 stand alone branches and 13
offices co-located at client sites), and internationally through a
strategic network of 7 overseas offices in Italy, Germany, South
Africa, Serbia, Brazil, Colombia and Australia. Changes this year
are new additions of Aberdeen, Johannesburg and a new Bristol
combined site.
SECTOR REVIEW
RECRUITMENT SERVICES
Temporary and permanent recruitment activity contributes 91.1%
(2010: 91.8%) of Group sales and 84.7% (2010: 81.1%) of NFI. This
represents a 10.1% growth in net revenue (revenue to third parties)
to GBP462.7 million (2010: GBP420.2 million) and a gross margin
increase to 7.1% (2010: 6.8%) delivering gross profits of GBP32.9
million (2010: GBP28.5 million) (segment gross margins are based on
net revenue). Adjusted operating profit for this segment was up
2.7% to GBP9.1 million (2010: GBP8.9 million).
Aerospace, Marine and Defence
This remains our largest sector, accounting for approximately
42% of Group revenue. It has again delivered a good performance,
benefiting from core substantial agreements with Xchanging (re BAE
Systems), Airbus/EADS, Thales, Babcock, GKN, Bombardier, QuEST
Global and Finmeccanica Group. Importantly Morson's strength in
this sector is its capability which spans both military and civil
aircraft programme development.
As we had indicated prior to and through 2011, the Government's
defence spending review in late October 2010 had an immediate
impact on activity at several BAE Systems' military aircraft sites.
Accordingly our activity through this contract was reduced.
However, we have done well in other defence areas including marine
and maintenance and service of fixed wing and helicopter fleets to
offset such losses. Our presence in this area is still very
substantial and our clients' core ongoing requirements all require
manpower support. Activity in Marine, a target area for the Group,
has grown and our market share increased through teams working at
Rosyth, Barrow, Glasgow, Bristol, Portsmouth and Plymouth.
Contractors are engaged on ongoing fleet maintenance, new design
and build of Queen Elizabeth class of aircraft carriers and the
Successor submarine programme.
The civil aerospace market continues to focus on new "green"
technologies to deliver savings on fuel via weight reduction.
Improvements in design are key and working with new materials
creates change which drives design need. Often this activity is as
investment in engineering research and development, to deliver new
variant planes and structures in a very competitive field. Morson
understands client requirements and has extensive experience of
providing these often scarce skills for the enhancement and
modification of existing and conceptual aircraft and engine
programmes. Key areas of growth in this sector have been in both
passenger and executive jet development including Bombardier
Learjet and C Series, Airbus A350, Airbus A320 NEO (New Engine
Option). Airbus Military products have also seen growth including
A400M & Tanker projects.
Several new opportunities have also been identified including
increasing our support to existing customers in overseas locations,
for example EADS in Europe, Finmeccanica in Italy and Bombardier in
Canada.
Nuclear Energy and Process
This sector has broadly had a steady year following the
termination of the Magnox contract in June 2010. Since then all
core clients have been maintained, with some new accounts won.
During the year we added URENCO as a key new client and anticipate
growing this account in 2012. We and our clients look forward to
new-build and then decommissioning programmes. We remain involved
in the Magnox sites de-commissioning programmes via our preferred
supplier list ("PSL") status with a number of appointed contractor
consortiums.
Whilst the UK nuclear new build programme has moved forward,
progress has been slower than might have been anticipated.
Contracts have now been let for the first site infrastructure and
preparation works and this is yet another indicator that this
activity could commence in earnest in the coming few years. Morson
was heavily involved with the last station to be built within the
UK and is looking forward to these projects gathering momentum. We
have good relationships with client organisations who will be
involved with these projects and are well placed to aim for
preferred supplier status with these as they develop, for example
EDF.
Morson supports many businesses in this area and has the
capacity and knowledge to contract across the supply chain for a
site, i.e. to the "tier one/two/three" suppliers, as demand shifts,
supplying the wide-ranging skills needed through different stages
of a project from "cradle to grave". Morson has been established
within the power and nuclear community for over 30 years and
remains geographically very well placed, with our branch network in
close proximity to all "new build" planned sites, to take advantage
of the emerging energy markets.
We believe UK energy demand will impel investments to be made in
power infrastructure and believe as a country we should be pushing
forward with this to enhance energy security for our future. This
would create demand for our business and the expertise we have. We
feel the ancillary site services and connections to the electricity
distribution grid of all the emerging new energy sources will place
significant skills resourcing pressure, rising demand for highly
trained personnel and also a need for the engineering consultancy
services we can provide through Morson Projects. The timescales for
implementation of these projects remains in the hands of the
government and regulatory bodies, though we feel this must be
accelerated soon.
On an ongoing basis Morson is involved with asset care and
maintenance of existing power stations and their current output.
After new power sources come online there will be both
decommissioning work and of course the maintenance of those new
power sources. Morson can play a significant role in the resourcing
and delivery of engineering talent through all these lifecycles
which are very long term engineering projects central to "UK
PLC".
Rail and Transport
Morson has a long term involvement in this sector having first
provided expertise some 20 years ago to both the London Underground
and the national overground networks. The Group now has a variety
of clients in this area and supplies a wide range of skillsets and
resource solutions. These attributes have helped our activity to
remain broadly steady in 2011.
We did experience restraint in spending during the year with
some existing framework contracts delivering lower volume than in
prior periods. We feel this is a reflection of reorganisation and
government spending policy within both Network Rail ("NWR") and
Transport for London ("TfL").
TfL remains a core client for us and white collar engineering
skills are predominant and are generally longer term assignments.
Within the underground network these are complemented by our
ability to supply flexible, specialist hands on skills of track
workforces, safety critical resource and other track maintenance
and renewal skills. We anticipate trading in this area to remain
steady and Cross Rail programmes to support activity levels. We
also add a note of caution that the Olympics and Paralympic Games
might well cause a hiatus of activity over several summer months
which could decrease revenues during that time.
With regard to the overground network, spending at NWR has been
at relatively low levels. However, the ongoing Cross Rail project
is providing an opportunity for us to supply contractors to
businesses assisting TfL and NWR. The recent UK Government
announcement in respect of the new high speed rail links ("HS2") is
a promising and welcome development. This GBP33 billion project has
an initial phase from London to Birmingham that is set to be
operational by 2026. There is then a further "Y-shaped" phase with
extention arms to Manchester and Leeds that is subject to a
consultation in 2014.
Other recruitment markets
As well as these core sectors and service offerings the Group
has notable presence in several other market sectors. These
include:
-- Oil and Gas, largely UK and servicing downstream (non-exploration/extraction) clients;
-- IT systems and software, complementary services to existing clients;
-- Increased presence within selected permanent disciplines; and
-- Telecommunications activity, both in the UK and overseas.
Our overseas office in South Africa has commenced trading during
the year and aims to move into profit in the coming year. In Brazil
we have moved to a minority ownership of that operation, with a
known and knowledgeable partner in order to seek expansion of the
client base and wider opportunities in the South and Central
American region.
Technical engineering expertise touches on very many areas of
business and we will continue to monitor and evaluate existing and
new target markets to provide diverse future income streams and
margin enhancing business.
PROVISION OF ENGINEERING DESIGN CONSULTANCY AND MANAGEMENT
Morson Projects shares many of the clients of the Recruitment
business within the Aerospace and Power sectors. In 2011 it
contributed 8.9% (2010: 8.2%) of Group revenue and 15.3% (2010:
18.9%) of Net Fee Income. The past year has been a challenging one
for the company and whilst we have seen a pleasing 20.7% growth in
net revenue to GBP45.2 million (2010: GBP37.5 million) difficult
trading and some technically demanding projects have meant gross
margin has reduced to 13.2% (2010: 17.7%) delivering NFI of GBP6.0
million (2010: GBP6.6 million). This has flowed down to
contributions at operating profit levels of GBP0.5 million (2010:
GBP1.7 million).
Within Morson Projects, Aerospace is the major sector which
accounts for approximately 60% of activity and it is within this
division that the larger projects are undertaken. These have proved
very challenging on a commercial and technical level and margin and
profitability has been affected.
The two main contracts in 2011 were work on the Bombardier
Learjet 85 and also for GE Aviation in connection with the Airbus
A350 and work in these areas continues into 2012.
The work for Bombardier involved significant design using new
composite materials and has moved forward the knowledge base and
capabilities of the company in this area. The main design contract
has now been delivered and additional contracts for work have been
won. The work on the A350 involves trailing edge wing design, with
a weight reduction focus, to improve fuel efficiency in new variant
planes. The contract here remains in progress and we anticipate
this will be largely complete by the time the Group reports interim
results for 2012.
Also within Aerospace design, the company has looked at its
delivery and geographic presence and during the year invested in a
new design centre at Filton near Bristol and the Birmingham
presence will be scaled down. Work in other areas continues with
contracts being undertaken for several "first tier" clients who
support the major manufacturers.
Morson Projects Industrial and Nuclear Division has had a better
year. Here we have seen steady flow of work and increasing
activity. We have engineering expertise that can be applied across
various power delivery markets and in linking the energy generated
to the UK national delivery grid. We feel we are well placed to
benefit from what we believe will be a necessary government-led
drive and long term strategic investment programme to support the
anticipated future UK energy demand. Within industrial markets we
can provide expert and flexible design resource as companies look
to drive efficiency in process and keep apace with the latest
global advances in engineering. We believe there will be a strong
market for this consultative supporting engineering expertise as
clients outsource non-core tasks. Our customers here include,
amongst others, framework agreements and contracts with Sellafield,
Alstom, Areva, Siemens and Pilkingtons.
OUTLOOK
The challenges faced throughout 2011 look set to continue into
the coming year. Government procurement and spending plans,
together with wider economic uncertainty clearly flow through
client demand to Morson. We are conscious of these issues and have
sought to position the Group, maintaining market share and with
increased capability, both to take advantage of an upturn and to be
resilient in times of recession.
Within recruitment, several key contracts, amounting to
approximately one third of Group revenues are due for renewal or
extension in the coming months. These are normal course of business
events and we are currently confident of our position. Across our
recruitment business we are taking steps to protect our margins and
maintain or expand our service offering and sector coverage. With
regard to design consultancy, project completion and delivery
coupled with improvements in margin are key targets to deliver
improved profitability.
There are significant medium to longer term opportunities for
the Group with HS2 and other major rail infrastructure improvement
works, Aircraft carriers, weight-driven civil Aerospace projects
and of course nuclear and energy delivery amongst many other
projects. Engineers are a sought after global resource and we look
forward to, and are proud to be part of, the delivery of the future
infrastructure and technology programmes that will ensue. We have
experienced management, have attracted additional staff to support
our goals and approach the future and meeting these challenges with
confidence.
FINANCIAL REVIEW
Some Key Performance Indicators are displayed in the table set
out below.
KEY PERFORMANCE INDICATORS 2011 2010 Variance Variance
GBP'000 GBP'000 GBP'000 %
----------------------------------------------------------- --------- ----------- ----------- ---------
Revenue 507,904 457,639 50,265 +11.0
Net Fee Income 38,910 35,095 3,815 +10.9
Adjusted operating profit (see below) 8,033 9,215 (1,182) -12.8
Adjusted profit before tax (see below) 7,107 8,113 (1,006) -12.4
Conversion ratio (adjusted operating profit to NFI) 20.6% 26.3% (5.7%) -21.4
Adjusted operating profit margin 1.6% 2.0% (0.4%) -21.5
Interest cover being ratio of adjusted operating profit (see
below) to other finance costs 8.7 8.4 0.3 +3.3
Dividend cover measured against adjusted basic earnings per
share (see note 10) 6.1 2.3 3.8 +161.7
Net debt 33,344 23,196 10,148 +43.7
Average net debt during the year 30,921 22,796 8,125 +35.6
--------------------------------------------------------------- --------- -----------
Number Number Number %
----------------------------------------------------------- --------- ----------- ----------- ---------
Average contractor numbers (not in '000) 10,900 10,200 700 +6.9
--------------------------------------------------------------- --------- ----------- ----------- ---------
DERIVATION OF KEY PERFORMANCE INDICATORS FROM CONSOLIDATED 2011 2010
INCOME STATEMENT GBP'000 GBP'000
----------------------------------------------------------- --------- -----------
Operating profit 7,057 9,440
Add: amortisation of intangible assets 866 620
Less: exceptional net gain on acquisition of business - (1,249)
Add: exceptional restructuring costs 110 404
--------------------------------------------------------------- --------- -----------
ADJUSTED OPERATING PROFIT 8,033 9,215
--------------------------------------------------------------- --------- -----------
Profit before tax 5,740 9,401
Add/(less): fair value loss/(gain) on financial instrument 391 (1,063)
Add: amortisation of intangible assets 866 620
Less: exceptional net gain on acquisition of business - (1,249)
Add: exceptional restructuring costs 110 404
ADJUSTED PROFIT BEFORE TAX 7,107 8,113
--------------------------------------------------------------- --------- -----------
DERIVATION OF KEY PERFORMANCE INDICATORS FROM NOTES TO THE
CONSOLIDATED INCOME STATEMENT REGARDING 2011 2010 Variance Variance
SEGMENTAL REPORTING GBP'000 GBP'000 GBP'000 %
--------- ----------- ----------- ---------
Morson International/ Morson Wynnwith:
temporary and permanent recruitment services
Operating profit 8,141 9,101 (960) -10.5
Add: amortisation of intangible assets 866 620 246 +39.7
Less: exceptional net gain on acquisition of businesses - (1,249) 1,249 -100.0
Add: exceptional restructuring costs 110 404 (294) -72.8
ADJUSTED SEGMENTAL OPERATING PROFIT 9,117 8,876 241 +2.7
--------------------------------------------------------------- --------- ----------- ----------- ---------
Morson Projects: engineering design consultancy and
management
SEGMENTAL OPERATING PROFIT 472 1,707 (1,235) -72.3
--------------------------------------------------------------- --------- ----------- ----------- ---------
FINANCIAL OVERVIEW
The context of these results is within a difficult core UK
market. Resilience in continuity and volumes of activity is good.
UK recruitment on the temporary side has been very solid but higher
margin permanent recruitment and design activity has been more
challenging. Adjusted profit before tax of GBP7.1 million has
decreased compared to 2010 but remains substantial. Throughout this
period we have sought to improve market share which carries forward
as opportunity for the future. Competition is fierce, as is client
emphasis on cost control and unsurprisingly margins have been
difficult to maintain in all areas, so overall to maintain margins
is an achievement. The overheads and cost structure of the Group
have increased notably with the acquisitions in 2010 and with
additional provisions for doubtful debt of GBP0.6 million, as well
as investments in staff for permanent recruitment and new and
emerging offices. This remains in close focus and the organic
investments in this area continued into 2012, closely monitored for
effectiveness.
REVENUE AND NET FEE INCOME ("NFI")
Group revenue increased by 11.0% to GBP507.9 million (2010:
GBP457.6 million). This was achieved across a sector and key client
base broadly similar to the prior year. Recruitment activity saw
revenues rise by 10.1% from GBP420.2 million to GBP462.7 million
and Engineering design consultancy saw a substantial rise of 20.7%
from GBP37.5 million to GBP45.2 million.
Group NFI (gross profit) generated from these revenues was up
10.9% to GBP38.9 million (2010: GBP35.1 million). The split of NFI
across temporary and permanent recruitment and engineering design
consultancy was GBP31.6 million, GBP1.3 million and GBP6.0 million
respectively (2010: GBP27.4 million, GBP1.1 million and GBP6.6
million).
Turning to percentage gross margin at Group level this was
steady at 7.7% (2010: 7.7%) and across operating segments there was
an improved margin in temporary and permanent recruitment of 7.1%
(2010: 6.8%) and a reduced position for engineering design
consultancy and management of 13.2% (2010: 17.7%). Whilst the
margin achieved by design consultancy was disappointing, the
resilience of the recruitment segment flows from the stability of
the core framework agreements assisted by increased newer business
streams.
OPERATING PROFIT AND NFI CONVERSION
Group adjusted operating profit decreased by GBP1.2 million to
GBP8.0 million (2010: GBP9.2 million). Importantly, looking at
business segments, within recruitment activity it rose from GBP8.9
million to GBP9.1 million, however within engineering design
consultancy and management Morson Projects saw a fall from GBP1.7
million to GBP0.5 million. Group shared costs in 2011 were GBP1.6
million (2010: GBP1.4 million). Operating profit decreased by
GBP2.4 million to GBP7.1 million.
Translation of the NFI earned to operating profit is a measure
of the efficiency of operation and overhead base of the Group. This
can be expressed as a "Conversion Ratio", measured as the ratio of
adjusted operating profit before amortisation and exceptional items
to NFI (as shown in the table above). At Group level this year this
is 20.6% (2010: 26.3%) reflecting the challenging year. Morson aims
to increase this as our markets improve. Looking at conversion
ratios at segmental performance level design consultancy saw a
reduction from 25.8% to 7.9% and recruitment activity from 31.2% to
27.7%. Conversion ratio is also of course affected by the ongoing
controlled investments into newer niche areas that might bring
higher returns in the future.
EXCEPTIONAL ITEMS
In 2011 there is an exceptional charge of GBP0.1 million
recognised for the final restructuring steps within the Morson
Wynnwith business following its acquisition in 2010. There were two
exceptional items identified in 2010. Firstly there was an
exceptional gain of GBP1.2 million realised on assessment of the
fair value of the acquisitions. Secondly GBP0.4 million was charged
in respect of the acquisition and integration of the Acetech and
Wynnwith businesses.
FINANCE COSTS
Finance costs incurred in the consolidated income statement
include two key elements.
Firstly a finance charge of GBP0.9 million (2010: GBP1.1
million), being the costs incurred on borrowings through a function
of both bank base rates and the financial instrument (as described
below) connected to these. With average net debt during 2011 of
GBP30.9 million (2010: GBP22.8 million) this gives a blended cost
of finance of 3.0% (2010: 4.8%).
The Group's core confidential invoice discounting facility and
revolving credit facility are calculated respectively on bank base
rates and LIBOR plus an agreed margin and there is also an
overdraft facility. These flexible facilities allow the Group to
borrow only what it needs and thus the Group's interest cost is
commensurate with the working capital needs of the business.
Secondly, there is a charge of GBP0.4 million (2010: gain of
GBP1.1 million) recognised in the consolidated income statement
relating to the fair value movement of the derivative financial
instruments entered into to protect the Group against high interest
rates. The credit to the 2010 (and 2009) accounts reflected the
movement in the fair value of the derivative financial instrument
in operation at that time over those years following a large
negative fair value of that instrument having been recognised in
the 2008 Report caused due to the drop in base rates over that
time. Interest payable under the instruments is paid quarterly in
arrears dependent on the actual base rate during that period. Thus
the charge in 2011 reflected actual determined interest (included
in the recognised finance cost above) together with the non-cash
fair value movement as the term of the instruments unwound.
At 31 December 2011 two interest base rate swap instruments
existed, each for GBP5.0 million and for a period of three years
commencing on 1 April 2011. One is at a rate of 2.03% and one at
1.94%. This is an area that is kept under review by the Board. At
31 December 2010 no financial instruments to protect against base
interest rate movements were in place.
Interest cover, being the ratio of adjusted operating profit to
other finance costs, increased to 8.7 times (2010: 8.4 times).
PROFIT BEFORE TAX
Adjusted profit before tax has fallen by 12.4% to GBP7.1 million
(2010: GBP8.1 million). The adjusting items are set out in the
table above. The Board consider that the measure of adjusted profit
before tax gives a meaningful and informative comparator against
the prior year's performance. Actual profit before tax after these
matters was GBP5.7 million (2010: GBP9.4 million). The tables above
provide a reconciliation of the adjusted operating profit and
adjusted profit before tax back to the statutory figures per the
consolidated income statement.
TAX
The Group's effective rate of tax for the year was 20.6% (2010:
19.9%), lower than the standard rate of tax of 26.5% (2010: lower
than standard rate of 28%). The key factors impacting this
underlying charge for the Group which tends to decrease the tax
rate are certain costs that qualify as research and development
expenditure eligible for tax relief. However, offsetting this
somewhat is the absence of tax relief on certain amortisation
costs, withholding tax adjustments on some overseas contracts and
certain disallowable business expenses that tend to increase the
tax rate for the Group.
EARNINGS PER SHARE
Basic earnings per share decreased to 10.01 pence (2010: 15.69
pence), a fall of 36.2%. Adjusted earnings per share (before
amortisation of intangible assets, exceptional items and fair value
movement of the derivative financial instrument) as calculated in
note 10 was down by 12.7% to 12.27 pence (2010: 14.06 pence).
Share options have been granted during the year.
DIVIDEND
The Board has not recommended that any final dividend be paid
(2010: 4.0 pence). An interim dividend of 2.0 pence per share
(2010: 2.0 pence) was paid on 28 October 2011, making a total
dividend of 2.0 pence per share (2010: 6.0 pence) for the year. The
total dividend is covered 5.1 times (2010: 2.8 times) by current
year earnings.
CASH FLOW AND FINANCING
Working capital needs of the Group are most affected by
temporary recruitment segment activity due to its nature, where
payments to contractors are usually weekly and cash receipts from
clients are per commercial terms that can range from 14 to 90 days.
As a result of these factors, all else being equal, growth
necessarily causes the absorption of cash. The converse may also be
said to be true, thus the slowing of growth experienced by this
business would benefit the working capital position. All these
areas need careful management and may very well be impacted by
changes in material key client contract terms.
This impacts total borrowings net of cash and cash equivalents
("Net Debt") but other factors also apply such as acquisitions,
investments in organic growth areas, taxation, dividends and
capital expenditure.
During 2011 we have seen a rise in average Net Debt levels with
average borrowings over 2011 of GBP30.9 million (2010: GBP22.8
million) and the final month of the year i.e. December 2011 having
average borrowing levels of GBP37.1 million (December 2010: GBP32.1
million). We feel looking at average levels gives a better measure
of true borrowings as fluctuations day to day can be material. Some
key impacting factors include:
-- the consideration paid of GBP4.0 million for the
non-controlling minority interest in Morson Wynnwith;
-- increased activity on overseas business, particularly within
telecommunications, that has typically much longer credit
terms;
-- increased revenues generally across the Group;
-- some changes in client credit terms on new or renewed agreements; and
-- investments made to support organic growth within the
business, for example new offices in Aberdeen and Bristol and a
larger permanent recruitment team.
Through 2011, working capital increased by GBP7.8 million (2010:
increased by GBP4.6 million), reflecting these factors. Cash
collection patterns through the year were broadly consistent with
prior periods for UK recruitment, though extended for overseas
activity and design consultancy. Overall an indicative calculation
counting revenue plus closing rate VAT back into trade and other
receivables gives debt turn at the year end of 56 days (2010: 57
days)
Tax paid during the year was GBP2.0 million (2010: GBP1.9
million) reflecting reduced adjusted profit before tax, adjustment
for prior periods, allowable research and development expenditure
and increased taxes on overseas income. Capital expenditure was
down by GBP1.0 million to GBP1.3 million (2010: GBP2.3 million
gross of grant income received of GBP0.5 million and GBP0.4 million
of opening accruals for Head Office property improvements and
fixtures and fittings valued but not billed at 31 December
2009).
Our financing facilities have remained unchanged throughout the
year.
The core facility is an invoice discounting facility that can
grow with the business as it expands and is secured on our largely
blue chip debtor book. The Directors believe this type of facility
is entirely consistent with that used by companies providing
similar services and is one that suits the Group's business model
very well. Costs are on a bank base rate plus margin basis and the
facility has been extended to 31 March 2014. The current capacity
of the facility is GBP50 million and affords the Group significant
headroom. The Group also has a revolving credit facility of GBP5
million, extended and in place until 31 October 2013 and at year
end this was not utilised (2010: not utilised). Finally the Group
also has a GBP1 million overdraft facility. Consideration of the
going concern basis is provided in note 1 to the financial
statements.
On 11 February 2011 the Group completed the acquisition of all
of the 49% non-controlling interest in Morson Wynnwith making it a
100% owned subsidiary. The consideration was GBP4.0 million and
this was financed via the revolving credit facility and repaid from
operating cashflow.
BALANCE SHEET
Group net assets at 31 December 2011 were GBP60.1 million (2010:
GBP62.0 million). This decrease principally reflects the drop of
GBP4.0 million due to the acquisition of the non-controlling
minority interest described above plus the collective GBP2.1
million addition through retained profits after dividends and share
based payment movements. Net Debt at the 2011 year end was GBP33.3
million (2010: GBP23.2 million).
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2011
2011 2010
Note GBP'000 GBP'000
------------------------------------------- ----- ---------- ----------
CONTINUING OPERATIONS
Revenue 2 507,904 457,639
Cost of sales (468,994) (422,544)
------------------------------------------- ----- ---------- ----------
GROSS PROFIT 38,910 35,095
Administrative expenses:
- amortisation of intangible fixed
assets (866) (620)
-exceptional items:
- net gain on acquisition of businesses - 1,249
- restructuring costs 3 (110) (404)
- other administrative expenses (30,877) (25,880)
------------------------------------------- ----- ---------- ----------
OPERATING PROFIT 2 7,057 9,440
Finance costs:
- fair value movements on derivative
financial instruments (391) 1,063
- other finance costs 4 (926) (1,102)
------------------------------------------- ----- ---------- ----------
PROFIT BEFORE TAXATION 5,740 9,401
Taxation 5 (1,185) (1,870)
------------------------------------------- ----- ---------- ----------
NET PROFIT FOR THE YEAR 3 4,555 7,531
------------------------------------------- ----- ---------- ----------
Attributable to:
Equity holders of the parent 4,450 6,985
Non-controlling interests 105 546
------------------------------------------- ----- ---------- ----------
4,555 7,531
------------------------------------------- ----- ---------- ----------
EARNINGS PER SHARE
From continuing operations
Basic (pence) 10 10.01 15.69
Diluted (pence) 10 9.80 15.42
------------------------------------------- ----- ---------- ----------
All activity has arisen from continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2011
2011 2010
GBP'000 GBP'000
----------------------------------------- -------- --------
PROFIT FOR THE YEAR 4,555 7,531
Other comprehensive income:
- exchange differences on translation
of foreign operations 5 28
----------------------------------------- -------- --------
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,560 7,559
----------------------------------------- -------- --------
Attributable to:
Equity holders of the parent 4,455 7,013
Non-controlling interests 105 546
----------------------------------------- -------- --------
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,560 7,559
----------------------------------------- -------- --------
CONSOLIDATED BALANCE SHEET
At 31 December 2011
2011 2010
Note GBP'000 GBP'000
------------------------------------ -------- --------- ---------
NON-CURRENT ASSETS
Goodwill 33,513 33,513
Other intangible assets 1,784 2,650
Property, plant and equipment 4,092 3,753
Deferred tax asset 246 -
------------------------------------ -------- --------- ---------
39,635 39,916
------------------------------------ -------- --------- ---------
CURRENT ASSETS
Trade and other receivables 93,448 85,939
Cash and cash equivalents 7 2,636 1,701
------------------------------------ -------- --------- ---------
96,084 87,640
------------------------------------ -------- --------- ---------
TOTAL ASSETS 135,719 127,556
------------------------------------ -------- --------- ---------
CURRENT LIABILITIES
Trade and other payables (38,985) (39,648)
Current tax liabilities (258) (602)
Obligations under finance leases (57) (37)
Bank overdrafts 8 (35,923) (24,897)
Derivative financial instruments (391) -
------------------------------------ -------- --------- ---------
(75,614) (65,184)
------------------------------------ -------- --------- ---------
NET CURRENT ASSETS 20,470 22,456
------------------------------------ -------- --------- ---------
NON-CURRENT LIABILITIES
Deferred tax liabilities - (333)
- (333)
------------------------------------ -------- --------- ---------
TOTAL LIABILITIES (75,614) (65,517)
------------------------------------ -------- --------- ---------
NET ASSETS 60,105 62,039
------------------------------------ -------- --------- ---------
EQUITY
Issued capital 9 2,267 2,267
Share premium account 9 37,607 37,607
Retained earnings 9 20,912 22,443
Other reserves 9 (914) (928)
------------------------------------ -------- --------- ---------
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT 59,872 61,389
Non-controlling interest 233 650
------------------------------------ -------- --------- ---------
TOTAL EQUITY 60,105 62,039
------------------------------------ -------- --------- ---------
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2011
2011 2010
Note GBP'000 GBP'000
-------------------------------------------- ----- --------- ---------
NET CASH (outflow)/ INFLOW FROM OPERATING
ACTIVITIES 13 (1,440) 2,541
-------------------------------------------- ----- --------- ---------
INVESTING ACTIVITIES
Grant income received - 479
Proceeds on disposal of property,
plant and equipment 38 68
Purchases of property, plant and equipment (1,260) (2,307)
Acquisition of businesses - (10,104)
Acquisition of a non-controlling interest 11 (4,025) -
Disposal of a subsidiary undertaking
including cash balances 12 (716) -
-------------------------------------------- ----- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,963) (11,864)
-------------------------------------------- ----- --------- ---------
FINANCING ACTIVITIES
Dividends paid (2,668) (2,671)
Purchase of own shares - (262)
Repayments of obligations under finance
leases (26) (24)
-------------------------------------------- ----- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (2,694) (2,957)
-------------------------------------------- ----- --------- ---------
NET decrease IN CASH AND CASH EQUIVALENTS (10,097) (12,280)
Effects of foreign exchange rate changes 6 18
-------------------------------------------- ----- --------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 7 (23,196) (10,934)
-------------------------------------------- ----- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
YEAR 7 (33,287) (23,196)
-------------------------------------------- ----- --------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2011
Share Share Retained Translation Own Non-controlling Total
premium
capital account earnings reserve shares Total interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ---------- --------- --------- ------------ -------- -------- ---------------- --------
At 1 January
2010 2,267 37,607 18,087 - (694) 57,267 104 57,371
Profit for
the year - - 6,985 - - 6,985 546 7,531
Dividends
paid - - (2,671) - - (2,671) - (2,671)
Share-based
payments - - 42 - - 42 - 42
Purchase
of own shares - - - - (262) (262) - (262)
Exchange
differences
on translating
the net assets
of foreign
operations - - - 28 - 28 - 28
At 1 January
2011 2,267 37,607 22,443 28 (956) 61,389 650 62,039
Profit for
the year - - 4,450 - - 4,450 105 4,555
Dividends
paid - - (2,668) - - (2,668) - (2,668)
Share-based
payments - - 199 - - 199 - 199
Exercise
of share
options - - (37) - 37 - - -
Acquisition
of a non-controlling
interest - - (3,503) - - (3,503) (522) (4,025)
Disposal
of a subsidiary
undertaking - - 28 (28) - - - -
Exchange
differences
on translating
the net assets
of foreign
operations - - - 5 - 5 - 5
AT 31 DECEMBER
2011 2,267 37,607 20,912 5 (919) 59,872 233 60,105
------------------------ ------ --------- --------- ------------ -------- -------- ---------------- --------
1) GENERAL INFORMATION
Morson Group PLC is a company incorporated in the United Kingdom
under the Companies Act. The address of the registered office is
Adamson House, Centenary Way, Salford, Manchester M50 1RD. The
nature of the Group's operations and its principal activities are
set out in note 2 and in the Business Review.
This preliminary announcement is presented in Pounds Sterling
because that is the currency of the primary economic environment in
which the Group operates.
The financial information has been based on the Company's
financial statements which are prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted for
use in the EU. Whilst the
financial information contained in this preliminary announcement
has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
(IFRS), this announcement
does not itself contain sufficient information to comply with
IFRS. The Company expects to publish full financial statements that
comply with IFRS in April 2012. The financial information has been
prepared under the same accounting policies as the 2010 financial
statements..
The financial information for the year ended 31 December 2010 is
derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors reported on
those accounts: their report was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a
statement under s498(2) or (3) of the Companies Act 2006.
BASIS OF ACCOUNTING
The financial statements will be prepared in accordance with
IFRS as adopted by the European Union.
The financial statements will be prepared on the historical cost
basis, except for the revaluation of certain financial instruments.
The financial statements will be prepared in accordance with
accounting policies previously published in the Company's 2010
annual report and accounts.
GOING CONCERN
The Directors are required to satisfy themselves as to whether
the financial statements of the Group should be prepared on a going
concern basis. As part of the ongoing duties and activities of the
Board there is continual assessment of the Group's financial and
commercial performance. This review considers business risks and
uncertainties that exist and takes account of how wider economic
circumstances can impact these, including due consideration and
assessment of potentially adverse and testing situations. The Board
looks forward and appropriate forecasts of financial performance
and assessment of future business opportunities and challenges are
regularly made. The Directors have also considered the financial
support required for these anticipated income streams and note that
the Group's current financing arrangements run until 31 March 2014
for its invoice discounting facility and until 31 October 2013 for
its revolving credit facility.
Having properly considered the matter the Directors conclude
that they are satisfied that this preliminary announcement should
be prepared on a going concern basis.
2) BUSINESS AND GEOGRAPHICAL SEGMENTS
BUSINESS SEGMENTS
The two reported operating segments in this note are reported as
the provision of temporary and permanent recruitment services and
the provision of engineering design consultancy and management.
These operating segments are consistent with the reporting
regularly provided to the Board of Directors. It is these reports
which the Directors use to review the Group's operating results,
assess performance and make decisions about resource
allocation.
The Group's business is described in sectors for the purposes of
the Business Review. This is to enable readers of the Annual Report
and Accounts to gain a better understanding of the breadth of our
service offering as well as allowing an informed and helpful
comparison to other organisations also operating in our markets.
The database of candidates held by the Group to supply to these
sectors is a combined one, encompassing a wide diversity of skills
and talent, and whilst it has some sector specific requirements, is
in essence provided in the same manner across all sectors.
Performance and analysis of activity by these sectors is not a key
management measure, nor is it reported regularly to the Board of
Directors and the business is not managed or divided internally by
these sectors. The key information used to manage the business is
by activity type, i.e. the provision of temporary and permanent
recruitment services and the provision of engineering design
consultancy and management.
Provision of Provision of
temporary engineering
and permanent design
consultancy
recruitment and management Total
services
------------------- ---------------- ---------------
2011 2010 2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ------------- --------- ----------- ---------- ----------- -----------
Gross revenue 480,739 434,142 46,392 37,599 527,131 471,741
Inter-segment sales (18,061) (13,969) (1,166) (133) (19,227) (14,102)
-------------------------------------------------- ------------- --------- ----------- ---------- ----------- -----------
Revenue to third
parties 462,678 420,173 45,226 37,466 507,904 457,639
-------------------------------------------------- ------------- --------- ----------- ---------- ----------- -----------
Segmental gross profit 32,942 28,468 5,968 6,627 38,910 35,095
Administrative expenses:
- amortisation of
intangible assets (866) (620) - - (866) (620)
- exceptional items:
* net gain on acquisition of businesses - 1,249 - - - 1,249
* restructuring costs (110) (404) - - (110) (404)
- other administrative
expenses (23,825) (19,592) (5,496) (4,920) (29,321) (24,512)
- shared costs (1,556) (1,368)
-------------------------------------------------- ------------- --------- ----------- ---------- ----------- -----------
Segment result 8,141 9,101 472 1,707 7,057 9,440
Finance charge (net) (792) (1,086) (63) (21) (855) (1,107)
Shared finance (charge)/
income (net of shared
finance costs) - - - - (462) 1,068
-------------------------------------------------- ------------- --------- ----------- ---------- ----------- -----------
Segment result after
finance charges 7,349 8,015 409 1,686 5,740 9,401
Taxation (1,185) (1,870)
----------- -----------
PROFIT AFTER TAXATION 4,555 7,531
----------- -----------
Capital additions 429 695 831 704 1,260 1,399
Depreciation and
amortisation 1,337 1,072 418 377 1,755 1,449
-------------------------------------------------- ------------- --------- ----------- ---------- ----------- -----------
NET ASSETS
Segment assets excluding
amounts
due from other Group
companies 109,770 106,260 24,865 20,372 134,635 126,632
Unallocated corporate
assets 1,084 924
----------- -----------
Consolidated total
assets 135,719 127,556
----------- -----------
Segment liabilities
excluding amounts
due to other Group
companies (63,978) (58,227) (10,332) (6,548) (74,310) (64,775)
------------- --------- ----------- ----------
Unallocated corporate
liabilities (1,304) (742)
----------- -----------
Consolidated total
liabilities (75,614) (65,517)
----------- -----------
Consolidated net
assets 60,105 62,039
----------- -----------
The centre of operations for all services delivered to clients
is the UK. The Directors consider that the Group does not generate
material profits from overseas operations and therefore no
geographical segmental information is presented.
Inter-segment sales are charged at prevailing market prices.
Within the engineering design consultancy and management segment
there exists some provision of temporary recruitment services,
however this is entirely related to the provision of engineering
design consultancy and management.
Segment profit is measured as those income streams and costs
which are directly attributable to the segment in question. Segment
assets and liabilities are those held within the segment in
question with the exception of goodwill, which is allocated to
business segments.
Unallocated corporate assets and liabilities consist of
receivables and payables in Morson Holdings Limited and Morson
Group PLC.
Included in revenues arising from the provision of temporary and
permanent recruitment services are revenues of GBP65,389,000 (2010:
GBP63,155,000) which arose from sales to the Group's largest
customer.
3) PROFIT FOR THE YEAR
2011 2010
GBP'000 GBP'000
----------------------------------------------- --------- -----------
Profit for the year has been arrived at after
charging/(crediting):
Depreciation of property, plant and equipment 889 829
Foreign exchange losses/ (gains) 321 (264)
(Profit)/ loss on disposal of fixed assets (10) 31
Amortisation of intangible assets 866 620
48,211 34,556
Staff costs
Exceptional items: - (1,249)
- net gain on acquisition of businesses
- restructuring costs 110 404
Movement in allowance for doubtful debts 562 1,135
----------------------------------------------- --------- -----------
During the year ended 31 December 2011 restructuring costs of
GBP110,000 have been incurred following the further integration of
the Wynnwith business. These redundancy costs were over and above
those provided at 31 December 2010 and were not committed at that
date.
During the year ended 31 December 2010 restructuring costs of
GBP404,000 were incurred following the acquisition and integration
of the Wynnwith and Acetech businesses. This included a liability
recognised for redundancy costs committed to at the balance sheet
date.
During the year ended 31 December 2010 a net gain of
GBP1,249,000 was recognised following the acquisition of the
Wynnwith and Acetech businesses.
4) FINANCE COSTS
Fair value movements on the derivative financial instrument have
been disclosed on the face of the consolidated income
statement.
2011 2010
GBP'000 GBP'000
-------------------------------------------- ---------------- ---------
Interest on bank overdrafts and loans 804 296
Interest paid in respect of the derivative
financial instrument 114 780
Other financing charges payable 6 22
Interest on obligations under finance
leases 2 4
-------------------------------------------- ---------------- ---------
Total other finance costs 926 1,102
-------------------------------------------- ---------------- ---------
No gains or losses have been recognised on financial liabilities
measured at amortised cost.
5) TAXation
2011 2010
GBP'000 GBP'000
--------------------------------------------------------------------------------- ------------ ------------
Current tax - current year 1,509 1,501
- adjustments in respect of prior years 255 (45)
Deferred tax - current year (153) 343
- prior year (426) 71
-------------------------------------------------------------------------------- ------------ ------------
1,185 1,870
--------------------------------------------------------------------------------- ------------ ------------
Corporation tax is calculated at 26.5% (2010: 28.0%) of the
estimated assessable profit for the year.
Taxation for other jurisdictions is calculated at the rate
prevailing in the respective jurisdiction.
The charge for the year can be reconciled to the profit as per
the income statement as follows:
2011 2010
GBP'000 GBP'000
------------------------------------------------ -------- --------
Profit before taxation 5,740 9,401
------------------------------------------------ -------- --------
Tax at the UK corporation tax rate of 26.5%
(2010: 28.0%) 1,521 2,632
Expenses not deductible for tax purposes 288 9
Income not taxable (90) (230)
Tax effect of higher rates of tax on overseas
income 550 123
Effect of research and development tax credits (892) (615)
Utilisation of losses (25) (65)
Adjustments to tax charge in respect of prior
periods (171) 26
Other 4 (10)
------------------------------------------------ -------- --------
Tax expense for the year 1,185 1,870
------------------------------------------------ -------- --------
6) DIVIDENDS
2011 2010
GBP'000 GBP'000
------------------------------------------------- -------- --------
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 December
2010 of 4.0 pence per ordinary share (year
ended 31 December 2009: 4.0 pence) 1,779 1,783
Interim dividend for the year ended 31 December
2011 of 2.0 pence per ordinary share (year
ended 31 December 2010: 2.0 pence) 889 888
------------------------------------------------- -------- --------
2,668 2,671
------------------------------------------------- -------- --------
No final dividend is proposed for the year
ended 31 December 2011 (2010: 4.0 pence per
ordinary share) - 1,779
------------------------------------------------- -------- --------
7) CASH AND CASH EQUIVALENTS
2011 2010
GBP'000 GBP'000
--------------------------------------- --------- ---------
Cash and cash equivalents 2,636 1,701
Bank overdrafts (35,923) (24,897)
--------------------------------------- --------- ---------
Cash and cash equivalents in the cash
flow statement (33,287) (23,196)
--------------------------------------- --------- ---------
8) BORROWINGS
2011 2010
GBP'000 GBP'000
------------------------------------------ -------- --------
SECURED BORROWING AT AMORTISED COST
Bank overdrafts 35,923 24,897
The borrowings are repayable as follows:
- on demand or within one year 35,923 24,897
------------------------------------------ -------- --------
2011 2010
% %
------------------------------------------ ----- -----
The weighted average interest rates paid
were as follows:
- bank overdrafts 2.38 1.50
- bank loans 2.86 1.79
------------------------------------------ ----- -----
All borrowings are in Pounds Sterling and are arranged at
floating rates, thus exposing the Group to cash flow interest rate
risk.
The Directors consider that the carrying value of borrowings
approximates to their fair value.
The other principal features of the Group's borrowings are as
follows:
(i) bank overdrafts are repayable on demand. Overdrafts of
GBP35,923,000 (2010: GBP24,897,000) have been secured on the trade
debtors of the Group. The average effective interest rate on bank
overdrafts approximates 2.38% (2010: 1.50%) per annum; and
(ii) bank loans represent a revolving credit facility whereby
the Group may borrow up to GBP5 million subject to satisfaction of
the requirements of the facility. The interest rate of the loan is
set at 1.25% above LIBOR lending rate. Subject to the conditions of
the facility the loan may be used for both working capital and
acquisitions. The period of the loan is set by interest periods at
the end of which the Group may repay all, part of or borrow more up
to the ceiling. The loan has been utilised in the current year but
there were no borrowings at the balance sheet date.
At 31 December 2011, the Group had available GBP14,952,000
(2010: GBP22,694,000) of undrawn committed borrowing facilities in
respect of which all conditions precedent had been met.
9) ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Share
Share premium Retained Translation Own
capital account earnings reserve shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- --------- ------------ -------- --------
At 1 January 2010 2,267 37,607 18,087 - (694) 57,267
Profit for the year - - 6,985 - - 6,985
Dividends paid - - (2,671) - - (2,671)
Share-based payments - - 42 - - 42
Purchase of own shares - - - - (262) (262)
Exchange differences
on translating the
net assets of foreign
operations - - - 28 - 28
---------------------------------- -------- -------- --------- ------------ -------- --------
At 1 January 2011 2,267 37,607 22,443 28 (956) 61,389
Profit for the year - - 4,450 - - 4,450
Dividends paid - - (2,668) - - (2,668)
Share-based payments - - 199 - - 199
Exercise of share
options - - (37) - 37 -
Acquisition of a non-controlling
interest - - (3,503) - - (3,503)
Disposal of a subsidiary
undertaking - - 28 (28) - -
Exchange differences
on translating the
net assets of foreign
operations - - - 5 - 5
---------------------------------- -------- -------- --------- ------------ -------- --------
AT 31 DECEMBER 2011 2,267 37,607 20,912 5 (919) 59,872
---------------------------------- -------- -------- --------- ------------ -------- --------
10) EARNINGS PER SHARE
The calculation of EPS is based on the following data and
numbers of shares:
2011 2010
GBP'000 GBP'000
------------------------------------------------- ----------- -----------
Profit for the year used for the calculation
of basic earnings per share 4,450 6,985
Amortisation of intangible assets 866 569
Exceptional Items:
- net gain on acquisition of businesses* - (625)
- restructuring costs* 110 244
Fair value movements on derivative financial
instruments 391 (1,063)
Tax effect of adjustments* (362) 149
------------------------------------------------- ----------- -----------
Earnings for the purposes of adjusted earnings
per share 5,455 6,259
------------------------------------------------- ----------- -----------
2011 2010
Number Number
------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purposes of basic earnings per share 44,468,969 44,520,191
Effect of potentially dilutive ordinary shares:
- share options 918,696 794,207
------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 45,387,665 45,314,398
------------------------------------------------- ----------- -----------
Earnings per share: Pence Pence
- basic 10.01 15.69
- diluted 9.80 15.42
Adjusted earnings per share:
- basic 12.27 14.06
- diluted 12.02 13.81
------------------------------------------------- ----------- -----------
*These exceptional items have taken account of the share due to
non-controlling interests.
The adjusted earnings per share has been calculated on the basis
of continuing operations before amortisation of intangible assets,
the exceptional items and the fair value movement of the derivative
financial instrument, net of tax. The Directors consider that the
adjusted earnings per share calculation gives a better
understanding of the Group's earnings per share.
11) acquisition of a NON-Controlling interest
On 11 February 2011 Morson Group PLC acquired the remaining
issued shares in Morson Wynnwith Limited for a cash consideration
of GBP4,005,000 and stamp duty of GBP20,000, taking its
shareholding to 100%. The difference between the fair value of the
consideration and the carrying amount of the non-controlling
interests is shown as a negative movement in the equity of Morson
Group PLC.
12) disposal of a subsidiary
On 31 October 2011 Morson Group PLC disposed of its interest in
Morson do Brasil Ltda to CPIM Europe Limited, a newly incorporated
entity in which Morson Group PLC holds a 19% stake and which is
accounted for as an associate.
The Directors have assessed the criteria for considering Morson
do Brasil Ltda a discontinued operation as defined in IFRS 5, and
have concluded that this does not represent a separate major line
of business and is therefore not a discontinued operation.
The loss recognised within other administrative expenses as a
result of this disposal is GBP160,000.
The net assets of Morson do Brasil Ltda at the 31 October 2011
were as follows:
2011
GBP'000
Property, plant and equipment 4
Financial assets 3,039
Cash and cash equivalents 716
Current tax liabilities (114)
Financial liabilities (3,469)
--------
176
Loss on disposal (160)
--------
Total consideration 16
========
Satisfied by:
Deferred consideration 16
--------
16
========
13) NOTES TO THE CASH FLOW STATEMENT
RECONCILIATION OF OPERATING PROFIT TO NET CASH FROM
OPERATIONS
2011 2010
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Operating profit 7,057 9,440
Adjustments for:
Exceptional net gain on acquisition of businesses - (1,249)
Exceptional restructuring costs 110 404
Loss on disposal of a subsidiary (see note 160 -
12)
Depreciation of property, plant and equipment 889 829
Amortisation of intangible assets 866 620
Share-based payment expense 199 42
(Gain)/ loss on disposal of property, plant
and equipment (10) 31
--------------------------------------------------- -------- --------
Operating cash flows before movements in working
capital 9,271 10,117
Decrease/ (increase) in inventories 119 (1,830)
Increase in receivables (8,402) (4,930)
Increase in payables 492 2,187
--------------------------------------------------- -------- --------
Cash generated by operations 1,480 5,544
Income taxes paid (1,994) (1,901)
Interest paid (926) (1,102)
--------------------------------------------------- -------- --------
Net cash (used in)/ generated from operating
activities (1,440) 2,541
--------------------------------------------------- -------- --------
14) COPIES OF THE ANNUAL REPORT AND ACCOUNTS
The Group's report and accounts for the year ended 31 December
2011 are expected to be posted to shareholders on 17 April 2012 and
will also be available from the Company's head office at Adamson
House, Centenary Way, Salford, M50 1RD and will be available for
download from its website at: www.morson.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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