Mountfield : Results for Year Ended 31 December 2016

RNS Number : 4749H Mountfield Group plc 08 June 2017

Mountfield Group Plc ("Mountfield", the "Group" or the "Company") FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

Mountfield, the AIM listed construction company is pleased to announce its Final Results for the year ended 31 December 2016 ("Final Results").

The Company also announces that its AGM will be held at 11:30 am on 30 June 2017 at the offices of DAC Beachcroft LLP at 100 Fetter Lane, London EC4A 1BN.

The Final Results and Notice of AGM have been posted to shareholders and will be posted to the Company's website on: www.mountfieldgroupplc.com .

Contacts: Mountfield Group Plc	07500 558 235
Peter Jay, Executive Chairman
WH Ireland Limited (Nominated adviser) Paul Shackleton	0207 220 1666

STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2016

CHAIRMAN'S REPORT

Key Features

• Group annual PBT rises by 150%.
• Connaught continues to strengthen its market position.
• MBG's profitability rises again from higher quality turnover and restructured, lower cost operation.
• Secured and potential business for both businesses indicates good prospects for 2017.

§ Turnover: £9.63m (2015: £13.033m)

§ Operating profit: £469,820 (2015: £203,895)

§ EBITDA: £483,336 (2015: £218,314)

§ PBT: £442,544 (2015: PBT £177,117)

• Earnings per share: 0.131p (2015: 0.046p)

  § Margin 19.2% (2015: 14.4%)

• Majority of remaining loan notes converted into unlisted non-voting shares without right to receive dividend.

That the strong increase in Group PBT to £442,544 (2015 - £177,117) was earned on a turnover reduced by over £3million demonstrates the success of the Mountfield Group Plc's ("Group") strategy for Mountfield Building Group Limited ("MBG") of concentrating on higher margin, lower risk work.

For Connaught Access Flooring Limited ("CAF"), the main feature of the year was the completion of its £5.8m contract for flooring at a new City HQ office building. As a result of the hiatus in the construction industry that followed the Referendum the signing and start of work on a new contract (announced on 7 March 2017 but negotiated over the previous year) was postponed until early this year and this resulted in income that the Board had expected CAF to earn in the latter part of 2016 being deferred to 2017.

These delayed starts are the principal reason for CAF's PBT in 2016 being £306,565 as against £467,428 in 2015.

CAF has become a market leader and one of the small number of companies able to compete for the largest raised access/commercial flooring market and is regularly asked to tender for new work in an increasingly active market. The Directors note the negotiations it is currently involved in and anticipate that it will show a strong performance in 2017.

The significantly rationalised MBG (including its subsidiary MBG Construction Limited) showed that it is on a sustainable and profitable path to recovery in 2016 and onwards.

The group balance sheet was strengthened by the conversion of £2.3m loan notes into unlisted founder shares which do not carry the right to vote or to receive a dividend.

Outlook

The outlook for CAF continues to be strong into 2017/18 and based on the demand for high quality, large commercial flooring contracts, its leading position in its market place and the proposed expansion of its business into the supply and installation of new products associated with CAF's core activities. The Board believes that the prospects for CAF will remain increasingly bright for a number of years.

The Board takes a similar view of MBG's prospects and notes the major change in its financial performance that followed from the reduction of its cost base and the change to a strategy of pursuing higher margin, lower risk contracts and is satisfied that both will perform strongly during 2017 and 2018

Peter Jay Executive Chairman 7 June 2017

CEO's REPORT

The Group Board currently comprises:

Peter Jay - Executive Chairman - in addition to being Group Chairman Peter also manages the Group's relationships with its nomad, brokers and professional advisers. Peter was formerly a corporate lawyer and a partner in DAC Beachcroft LLP. Andrew Collins - Group Chief Executive - Andy is responsible for managing the business of the Group and also that of its subsidiary, CAF, a specialist supplier and installer of flooring for commercial properties whose business and reputation he has developed significantly since appointment in 2004. Before joining the Group, Andy was a Divisional Financial Director at ISG Plc. Graham Read - Managing Director of MBG - Graham founded the business of MBG in 1986 and has had over 20 years' experience in the construction industry.

The Board is supported by Andy May, a partner in the firm of Barnes Roffe LLP. Andy attends meetings of the Group's Board in an advisory-only capacity and also assists the Board in overseeing the Group's accounting and finance functions.

The Board is also supported by Chris Adlam, a director of JDC Corporate Finance. Chris (who was appointed in February 2017) attends meetings of the Group's Board in an advisory-only capacity to provide advice on business finance and aspects of corporate finance.

Group Companies

The Group is comprised of two principal trading companies, MBG and CAF.

CAF is one of the leading suppliers and installers of raised access flooring systems to main contractors and corporate end users for office and data centre installations.

It has established itself as one of the few recognised specialists for the flooring elements of fitting out contracts in commercial office space for new build and refurbishment projects for corporate end users such as BP, HP, Linklaters, Merrill Lynch, Reed Smith, BBC, Standard Chartered Bank, Henderson Global, Lockton and Unilever.

The current demand for construction of high quality, high tech banking and office HQ buildings plays to CAF's strengths as it enables the Company to present its professionalism and credentials and compete on quality of service, expertise and experience, rather than simply on price.

MBG comprises the construction division of the Group and in addition to its extensive experience of undertaking work for the data centre

sector MBG also undertakes specialist construction work for end used clients in areas such as the conversion of office premises to residential units, property fabric repair and maintenance, property renovation, fit-out of office, retail and leisure premises and construction management services for clients including architectural practices.

In addition, MBG is retained to undertake building fabric repair and maintenance works on a nationwide basis for a large proportion of the property portfolio of a leading telecoms operator.

Finance

The Group is financed from the cash it generates from its operations, with the support of a bank overdraft facility of £250,000 and a term loan of £298,142.

The construction market

The Group continues to experience extremely strong levels of activity in terms of enquiries and tenders and the Board is confident as to the strength and sustainability of the current strong demand for services provided by the Group.

Group's strategy

The Board strategy is for the Group to become a highly profitable, mid-sized operation that provides specialist construction and flooring services in a number of diverse but related areas but with a particular focus on the fit-out sector. The Group's reputation has been built on its ability to undertake and to manage specialist construction services to a high level of quality and to deliver the completed project to the client on time. This will remain at the core of its strategy.

Principal risks

The principal risks and uncertainties facing the Group relate to:

Attraction and retention of key employees

The Group's future success is substantially dependent on the continued services and performance of its directors, senior management and other key personnel and its ability to continue to attract and retain highly skilled and qualified personnel.

The senior executive directors of the business all have significant shareholdings in the parent company and are all permanent employees. The other senior management and key personnel, most of whom have been with the Company for a long time, are participating in the Company's share option scheme which was introduced in 2012.

Economic downturn and other macroeconomic factors

The Group's success is substantially dependent on the general level of economic activity and economic conditions in the United Kingdom.

Many of the Group's contracts, including renewals or extensions of previous contracts, are awarded through competitive bidding processes. Any downturn in the economy, or any other macroeconomic factor, either in the UK or globally, may reduce the number of contracts coming up for bidding.

The competitive bidding processes present a number of additional risks, including the incurrence of substantial cost and managerial time to prepare bids and proposals for contracts that the Group may not ultimately win. The Group may face additional competition in the bidding process either from existing competitors or new market entrants.

The Company is seeking to mitigate its exposure to the sectors in which it currently operates by diversifying its client base and in particular expanding into closely aligned areas of activity. It is also seeking to diversify by modest investment in new businesses in the same sector.

Reliance on key customers and clients

The business of the Group is dependent upon the continuing contracts that it has, and relationships that it has developed, with certain customers.

Whilst signed contracts are in place with key customers, the successful completion and timing of contracted projects are not guaranteed and are susceptible to external factors outside of the control of the Group. Similarly, contracted projects may in some circumstances be susceptible to delays or variation by customers or be affected by unforeseen changes in circumstances relating to the market, technology, legislation, economic or other business factors. This may affect the cash flow and subsequent performance of the Group.

The Group works with a well-established client base and the performance of individual projects is monitored on at least a monthly basis by board members to identify any issues with specific projects.

Reliance on Subcontractors

The Group utilises subcontractors on a project-by-project basis to meet contractual obligations. Such projects will rely on the subcontractors performing their duties and obligations, not only in terms of timely delivery but also in terms of their performance obligations. Any such non-performance may result in time and cost over-runs on the Group's projects and reduce the value of its returns.

Subcontractors are vetted by senior management and normally engaged to work on closely defined and managed aspects of contracts. Most subcontractors have a long standing trading history with the Group.

Health and safety

The Group undertakes Construction activities, often working within difficult conditions and with heavy machinery which if improperly used could result in personal injury or in extreme cases, fatalities.

The Group takes the health and safety of its employees and clients very seriously and employs Health and Safety advisors on all significant contracts. It also has a firm of Health and Safety Advisors with whom it consults on a regular basis.

Key performance indicators

The Directors use a number of performance indicators which are used to manage the business but, as with most businesses the focus in the Statement of Comprehensive Income at the top level is on sales, margins, staff numbers and overheads compared to budget and the prior year. In the Statement of Financial Position the focus is on managing working capital. The key performance indicators are disclosed in the Strategic Report.

Financial instruments

Details of the Group's financial risk management objectives and policies are included in note 19 to the financial statements.

Andrew Collins

Chief Executive Officer 7 June 2017

DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2016

The directors present their annual report and audited financial statements for the year ended 31 December 2016.

Principal activities

The principal activities of the Group are the supply of fit-out services (and, in particular the supply and installation of flooring systems) to data centres, office, retail and other commercial premises and of specialist construction services including those related to property fabric repair and refurbishment.

Review of business

A detailed review of the development of the business is contained in the Chairman's and Chief Executive's Statement, which are included in the Strategic Report.

Results

The Group made a pre-tax operating profit from continuing operations of £442,544 (2015: 177,117) for the year ended 31 December 2016 on turnover of £9,634,979 (2015: £13,033,039).

At 31 December 2016 the Group had net assets of £4,707,504 (2015: £2,103,583).

Dividends

The Directors do not propose payment of any dividends for the year ended 31 December 2016.

Directors

The Directors who served during the year were:

P H Jay G J Read

A J Collins

A J Sainsbury (resigned 30 June 2016)

Charitable Donations

During the year the Group made charitable donations totalling £1,452 (2015: £1,520).

Substantial Shareholdings

So far as the Directors are aware the parties who are directly or indirectly interested in 3% or more of the nominal value of the company's share capital at 31 December 2016 are as follows:

Number of shares issued	% Ordinary share capital
Peter Jay	23,500,000	9.24%
Graham Read	83,520,000	32.85%
Andy Collins	32,300,000	12.70%