RNS Number:1244T
Birse Group PLC
11 December 2003
Date: Embargoed until 7.00am 11th December 2003
Contact: Peter Watson, Chairman Telephone: 01302 768078
Martin Budden, Group Managing Director
Heather Craven, Group Finance Director
Birse Group plc
Peter Otero Telephone: 0207 831 3113
Financial Dynamics
BIRSE GROUP plc - INTERIM ANNOUNCEMENT SIX MONTHS ENDED 31/10/03
Financial Highlights:-
* Pre-tax profits increased to #1.8million (2002: pre-tax pre-exceptional profits #1.7million).
* Interim dividend maintained at 0.375p per share.
Operational Key Points:-
* Construction Division increases operating profits to #301,000 (2002:
#11,000). Strong performance from Civil Engineering offset by Build.
Process Engineering continues to progress successfully its turnaround with
return to profitability.
* Plant Hire maintains operating profit at #1.7million with crawler cranes
improving profits by over 40% largely offset by fall in piling performance.
The Cabin Company's sales to customers external to the Group increases to 36%
of total turnover (2002: 15%).
* Matters relating to the termination of one of Birse Build's larger contracts
for CIB Properties Limited, a Citibank Group company referred to adjudication
(#16million claim against Birse, #14million claim made by Birse). Half year
results reflect a no win no loss position. Birse advised that it has good
prospects of defending the claim. Decision expected in January 2004.
* Main markets remain steady with good prospects for advancement by the Civil
Engineering and Process businesses in the second half.
"The Group's main markets have remained steady. In these circumstances the Group has
achieved a solid first half performance and prospects for the second half remain
encouraging, assuming a satisfactory outcome in relation to the Citibank adjudication.
We therefore believe that further progress in the underlying performance of the business
will continue."
M Budden P G Watson
REPORT OF THE DIRECTORS
On the results for the six months ended 31 October 2003
Pre-tax profits of #1.8million compare with pre-tax pre-exceptional profits of
#1.7million for the corresponding period last year. This reflects a solid
effort and provides encouragement for the second half when the collective
performance of our more profitable subsidiaries is expected to advance.
The Construction Division's activities gave rise to an operating profit of
#301,000 (2002/2003: #11,000). Civil Engineering led the way with a profit of
#4.5million (2002/2003: #1.5million). Birse Process delivered its first
profitable result at #376,000 (2002/2003: loss of #247,000) since its turnaround
was initiated and Birse Build, as expected, suffered sizable losses at
#4.6million (2002/2003: loss of #1.3million). Plant Hire results were
maintained at #1.7million (2002/2003: #1.7million). The Group Centre costs of
#250,000 (2002/2003: cost of #240,000) reflect the final positioning of our Head
Office function within the Group's corporate structure.
The net interest credit of #26,000 (2002/2003: credit of #186,000) is indicative
of the positive liquidity position maintained by the Group in the period under
review.
Construction
Six months ended 31 October Year ended
2003 2002 30 April 2003
Turnover Operating Turnover Operating* Turnover Operating*
profit/(loss) profit/(loss) profit/(loss)
#'000 #'000 #'000 #'000 #'000 #'000
Civil Engineering 114,554 4,521 132,747 1,512 246,232 7,272
Building 62,213 (4,596) 104,704 (1,254) 195,602 (6,430)
Process Engineering 20,880 376 8,529 (247) 27,838 (352)
197,647 301 245,980 11 469,672 490
* Before exceptional operating items.
Although the Civil Engineering result compares favourably with the result
achieved in the corresponding period in the prior year the businesses comprising
that Division have to a degree had their performances held back by market
factors. In the case of Birse Rail it has suffered from the absence of
enhancement projects in the first half and has in the main had to rely upon work
arising from its framework arrangements. It has now commenced a number of
enhancement contracts which in the aggregate should make a material contribution
to results in the second half. The migration by the major spending Government
departments from existing procurement arrangements to the 'early contractor
involvement route' has delayed contract starts. With work now beginning to be
secured under these new initiatives prospects for the second half and thereafter
are positive particularly given the target cost/value added nature of these
contracts.
Similarly Birse Metro (our dedicated London Underground business) has suffered
from a lack of market opportunities since the private public partnerships took
over responsibility for the maintenance of large parts of the Underground
infrastructure. Given that these customers have only taken on these obligations
in the last six months a reduction in available workloads in this period was to
be expected. Prospects for the longer term therefore remain undiminished
provided that Birse Metro properly positions itself given the changing project
risk profiles now emerging in this growing sector.
In the 2002/2003 Annual Report we stated that despite the actions of management
and the more focused market approach adopted that Birse Build was expected to
continue to trade at a loss in 2003/2004 albeit at a lower level and that
recovery thereafter was still dependent upon an improvement in market
conditions. This remains our view. Since that time the management of that
company has concentrated on aligning its cost base with its target markets.
Turnover has been managed down to an annualized equivalent of around #120million
from #246million in 2001/2002 and staff numbers have decreased by approximately
two hundred over the same period. This reduction in scale has had to be
achieved whilst at the same time maintaining management and business
capabilities, critical to which is the retention of key staff.
To a certain extent similarities exist between Birse Build and Birse Process's
recent history. In the 2001 financial year Birse Process lost #9.5million. In
the period under review it has delivered a profit of #376,000, a successful
turnaround by any measure reflecting the maturing abilities of the management of
that business. With key customer capital and maintenance spending at high
levels and with the next water regulatory review likely to increase spending
this company and its management are well placed to continue making progress.
The number of contracts now the subject of litigation or equivalent proceedings
has reduced to one from two following the settlement by way of negotiation at
book value of one contract in the period. This leaves a further contract with
an aggregate value of #5.0million (2002/2003: two contracts with an aggregate
value of #6.2million) still the subject of due process. As described in Note 7
in respect of that contract recoverability of value remains uncertain.
Plant Hire
Six months ended 31 October Year ended
2003 2002 30 April 2003
Turnover Operating Turnover Operating Turnover Operating
profit profit profit
#'000 #'000 #'000 #'000 #'000 #'000
Crawler Cranes 2,339 874 1,647 608 3,797 1,364
Piling Equipment 284 61 422 208 883 388
Site Accommodation 2,398 773 2,431 887 4,692 1,815
5,021 1,708 4,500 1,703 9,372 3,567
The high demand for the heavier weight mechanical cranes experienced in the last
quarter of 2002/2003 has continued in the first half of the current year.
Demand for hydraulic cranes has also been solid. Whilst activity in the winter
quarter is expected to fall our traditional market measures are indicating that
in the last quarter of the year demand is likely to revert to that experienced
in the first half.
Demand for vibro hammers has been good with new purchases in this area
experiencing high utilization. However in overall terms, the piling sector
still awaits the expected surge of spend in the roads market before aggregate
demand will improve.
We continue with our policy of upgrading and rebalancing both our crawler crane
and piling fleets on a selective basis. Expenditure in the short term is likely
to focus on heavier hydraulic cranes. However, both the crawler crane and
piling markets are mature in nature and therefore growth is limited by way of
capital investment if prices are not to be driven down. We are, therefore,
reviewing how growth can be better achieved in what are regarded as profitable
sectors.
The Cabin Company, our site accommodation business, continues its penetration of
the external market with thirty six percent (2002/2003: fifteen percent) of its
turnover in the period with customers outside the Birse Group. This growth,
however, has been almost matched by a fall in internal Group demand, principally
from Birse Build, therefore in overall terms its profit performance compared
with the corresponding period last year is broadly static. This pattern
experienced in the first half is expected to continue into the second half.
Commercial Property
Six months ended 31 October Year ended
2003 2002 30 April 2003
Turnover Operating Turnover Operating Turnover Operating
profit profit profit
#'000 #'000 #'000 #'000 #'000 #'000
- - - - 7,953 3,025
Following the sale of our one remaining site, at Warrington, in 2002/2003
property development activities are no longer material to the Group.
Citibank Adjudication
In late November CIB Properties Limited, a Citibank Group company, referred to
adjudication matters relating to the termination of the contract for
construction services for its new data centre facility at Riverdale, Lewisham.
This is the contract that was referred to in the Group Managing Director's
Review and Review of Operations in the 2002/2003 Annual Report when it was
stated that:-
"A further note of caution is also appropriate in relation to the customer
termination of one of Birse Build's larger contracts which was awarded in 2000/
2001. Whilst we are in a formal dialogue with the customer concerned the
financial consequences emanating from that determination at this stage are best
estimates only. Until this matter is finally resolved there is therefore added
uncertainty over the short term performance of the Build business."
The adjudication will determine on an interim basis Citibank's claim for
approximately #16million and Birse's claim for approximately #14million. The
interim accounts have been prepared on the basis of a no win, no loss position.
Formal mediation procedures had only commenced in October of this year and were
progressing positively. As a result of the action by Citibank in deciding to
commence an adjudication we are now forced to participate in a process that is
uncertain. We will, however, be properly prepared and will pursue with
determined professionalism our defence in the adjudication process, which we are
advised has good prospects of success.
The adjudicator is timetabled to publish his decision in January 2004.
Dividend
An interim dividend of 0.375p per ordinary share (2002: 0.375p) will be paid on
5 May 2004 to shareholders on the register on 2 April 2004.
Outlook
At the year end we reported that the Group was in a good position to progress
further from the solid platform established over the last two years. The
Group's main markets have remained steady. In these circumstances the Group has
achieved a solid first half performance and prospects for the second half remain
encouraging, assuming a satisfactory outcome in relation to the Citibank
adjudication. We, therefore, believe that further progress in the underlying
performance of the business will continue.
CONSOLIDATED RESULTS
FOR THE 6 MONTHS ENDED 31 OCTOBER 2003
6 Months 6 Months Year
Ended Ended Ended
31.10.03 31.10.02 30.04.03
#'000 #'000 #'000
Note
Turnover 2 201,114 248,049 483,312
Operating profit before exceptional operating
item 2 1,759 1,474 6,603
Exceptional operating item 3 - (5,500) (5,500)
Operating profit/(loss) 2 1,759 (4,026) 1,103
Net interest 26 186 98
Profit/(loss) on ordinary activities before
taxation 2 1,785 (3,840) 1,201
Taxation 4 (357) 1,152 (230)
Profit/(loss) for the financial period 1,428 (2,688) 971
Dividends on equity shares 5 (721) (721) (1,924)
Transferred to/(withdrawn from) reserves 707 (3,409) (953)
Earnings/(loss) per ordinary share
- basic 6 0.7p (1.4)p 0.5p
- diluted 6 0.7p (1.4)p 0.5p
Before exceptional item - basic 6 0.7p 0.6p 2.5p
- diluted 6 0.7p 0.6p 2.5p
The above figures relate exclusively to continuing operations
CONSOLIDATED BALANCE SHEET
AS AT 31 OCTOBER 2003
As at As at As at
31.10.03 31.10.02 30.04.03
Note #'000 #'000 #'000
Fixed Assets
Tangible Assets 17,501 13,789 16,703
Current Assets
Property held for resale - 1,685 -
Stocks - 3,396 -
Debtors 7 123,187 142,209 134,736
Investments 8,102 4,673 5,121
Cash at bank and in hand 12,510 13,103 12,232
143,799 165,066 152,089
Creditors: Amounts falling due within one year
Bank loans and overdrafts (862) (600) (772)
Other creditors (140,823) (163,533) (149,440)
(141,685) (164,133) (150,212)
Net Current Assets 2,114 933 1,877
Total Assets less Current Liabilities 19,615 14,722 18,580
Creditors: Amounts falling due after more than
one year
Bank loans and overdrafts (1,611) (886) (1,172)
Other creditors (8,085) (6,526) (8,196)
(9,696) (7,412) (9,368)
Provisions for Liabilities and Charges - (554) -
Net Assets 9,919 6,756 9,212
Capital and Reserves
Called up share capital 19,239 19,239 19,239
Share premium account 93 93 93
Special reserve 308 308 308
Revaluation reserve 607 607 607
Profit and loss account (10,328) (13,491) (11,035)
Shareholders' Funds - equity interest 9,919 6,756 9,212
CONSOLIDATED CASH FLOW STATEMENT
For the 6 months ended 31 October 2003
6 Months 6 Months Year
Ended Ended Ended
31.10.03 31.10.02 30.04.03
#'000 #'000 #'000
Net cash inflow from operating activities 5,602 5,268 7,662
Returns on investments and servicing of finance 26 159 50
Taxation (57) 248 243
Capital expenditure and financial investment (5,428) (3,964) (5,898)
Dividends paid to equity shareholders (721) (721) (1,924)
Cash (outflow)/inflow before management of liquid
resources and financing (578) 990 133
Management of liquid resources (126) 416 333
Financing 462 850 1,284
(Decrease)/increase in cash in the period (242) 2,256 1,750
6 Months 6 Months Year
Ended Ended Ended
31.10.03 31.10.02 30.04.03
#'000 #'000 #'000
Reconciliation of operating profit/(loss) to net cash
inflow from operating activities
Operating profit/(loss) 1,759 (4,026) 1,103
Depreciation net of profit on disposal of fixed assets 1,255 1,037 1,742
(Increase)/decrease in stocks - (150) 3,246
Decrease in debtors 11,196 5,407 11,002
(Decrease)/increase in creditors (8,608) 3,000 (9,431)
Net cash inflow from operating activities 5,602 5,268 7,662
Analysis of net funds
Cash at bank on demand 11,990 12,738 12,232
Cash at bank on short term deposit 520 365 -
Cash at bank on deposit with terms in excess of seven
days 2,087 2,033 2,481
Debt due within one year (862) (600) (772)
Debt due after one year (1,611) (886) (1,172)
Finance leases (249) (340) (316)
Net funds at 31 October 2003 11,875 13,310 12,453
Reconciliation of cash flows to movements in net funds
Increase in cash in the period (242) 2,256 1,750
Cash inflow from financing (462) (850) (1,284)
Cash outflow/(inflow) from management of liquid
resources 126 (416) (333)
Movement in net funds in the period (578) 990 133
Net funds at 1 May 2003 12,453 12,320 12,320
Net funds at 31 October 2003 11,875 13,310 12,453
NOTES TO THE INTERIM ACCOUNTS
1. Preparation of Interim Accounts
The interim accounts, which relate exclusively to continuing operations, have
been prepared on the basis of the accounting policies set out in the Group's
statutory accounts for the year ended 30 April 2003.
The Group's auditors, Deloitte & Touche LLP, have carried out a review of the
interim accounts, which were approved by the Board of Directors on 11 December
2003, and their report is reproduced on page 15.
The financial information presented is unaudited and does not amount to full
statutory accounts within the meaning of the Companies Act 1985. Full accounts
for the year ended 30 April 2003 upon which Deloitte & Touche gave an
unqualified audit report, have been delivered to the Registrar of Companies and
a statement under section 237(2) of the Companies Act 1985 was not included.
2. Segment Information
6 Months 6 Months Year
Ended Ended Ended
31.10.03 31.10.02 30.04.03
#'000 #'000 #'000
Turnover
Contracting 197,647 245,980 469,672
Plant Hire 5,021 4,500 9,372
Commercial Property - - 7,953
Group Centre - - -
Intra-group (1,554) (2,431) (3,685)
201,114 248,049 483,312
Results
Contracting 301 11 490
Plant Hire 1,708 1,703 3,567
Commercial Property - - 3,025
Group Centre (250) (240) (479)
Operating profit before exceptional operating
item 1,759 1,474 6,603
Exceptional operating item - Contracting - (5,500) (5,500)
Operating profit/(loss) 1,759 (4,026) 1,103
Net interest 26 186 98
Profit/(loss) on ordinary activities before
taxation 1,785 (3,840) 1,201
From 1 May 2003 Group Centre includes certain central costs that
were previously recharged to operating companies. Consequently the comparative
figures have been adjusted as follows:-
6 Months Ended Year Ended
31.10.02 30.04.03
Results
Contracting 390 812
Plant Hire 111 203
Group Centre (501) (1,015)
- -
3. Exceptional Operating Item
6 Months 6 Months Year
Ended Ended Ended
31.10.03 31.10.02 30.04.03
#'000 #'000 #'000
Bad debt in respect of Leicester City plc and its
subsidiaries - (5,500) (5,500)
This bad debt was recognised in consequence of the insolvency of
Leicester City plc and its subsidiaries. The tax credit attributable to this
exceptional loss in the six months ended 31 October 2002 and the year ended 30
April 2003 was #1,650,000.
4. Taxation
The tax (charge)/credit for the period has been calculated by reference to the
projected rate for the full year.
5. Dividends on Equity Shares
An interim dividend of 0.375p per ordinary share (2002 : 0.375p) will be paid
on 5 May 2004 to shareholders on the register on 2 April 2004.
6. Earnings/(loss) per Ordinary Share
6 Months 6 Months Year
Ended Ended Ended
31.10.03 31.10.02 30.04.03
#'000 #'000 #'000
The calculation of earnings/(loss) per ordinary
share is based on:
Earnings/(loss) for basic and diluted earnings per
ordinary share calculation 1,428 (2,688) 971
Exceptional item - 5,500 5,500
Tax on exceptional item - (1,650) (1,650)
Earnings before exceptional item per ordinary
share calculation 1,428 1,162 4,821
Weighted average number of shares used in earnings
/(loss) per ordinary share calculation 192,390 192,390 192,390
Adjustment to reflect dilutive shares under option - - -
Weighted average number of shares in diluted
earning/(loss) per ordinary share calculation 192,390 192,390 192,390
7. Uncertainties
i. Relating to Amounts Recoverable on Contracts
Included in debtors is an aggregate value of #5.0million (31 October 2002:
#6.2million, 30 April 2003: #5.5million) attributable to contractual amounts
relating to one (31 October 2002 and 30 April 2003: two) contract which is the
subject of arbitration or equivalent proceedings.
In consequence of the losses suffered on contracts subject to litigation in
previous years the Directors have reconsidered the recoverability of the amounts
attributable to this and other old contracts. Whilst the Directors believe that
they are justified in concluding that these amounts will be realised, the
Directors acknowledge that there remains uncertainty. However, it is not
possible to quantify the effects.
ii. Adjudication
Effective on 21 November 2003 CIB Properties Limited, a Citibank Group company,
referred to adjudication matters relating to the contract for construction
services for its new data centre facility at Riverdale, Lewisham. The
adjudication will determine on an interim basis Citibank's claim for
approximately #16million and Birse's claim for #14million. Adjudication is a
process that is uncertain.
The Board of Birse Group plc however has been advised that its defence has good
prospects of success.
These interim accounts have been prepared on the basis that neither a material
award against nor a material award in favour of Birse will arise.
Independent review report to Birse Group plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 October 2003 which comprises the profit and loss
account, the balance sheet, the cash flow statement and related notes 1 to 7.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Uncertainties relating to amounts recoverable on contracts and contract in
adjudication
In arriving at our review conclusion we have considered the accuracy of
disclosures made in Note 7 to the financial information concerning uncertainties
relating to amounts recoverable on contracts and adjudication. In view of the
significance of these uncertainties, we consider they should be brought to your
attention. Our review conclusion is not qualified in either respect.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 October 2003.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Leeds
11 December 2003
This interim report will be posted to shareholders and copies will be made
available to the public from: The Secretary, Birse Group plc, Humber Road,
Barton on Humber, North Lincolnshire, DN18 5BW.
This information is provided by RNS
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