Half-year Report

Management Resource Solutions PLC

Half Year Report

Period Ended

31 December 2017

Company number: 8046513

Officers and advisers

Directors

John Zorbas Chairman

Paul Brenton Chief Executive Officer

Timothy Jones Finance Director

Nigel Burton Non-Executive Director

Company secretary

Timothy Jones

Registered number

8046513

Registered office

Reading Bridge House, George Street, Reading, Berkshire, RG1 8LS

United Kingdom

Australian office

2/2 Market Street, Newcastle, NSW 2300, Australia

Nominated adviser and joint broker

Northland Capital Partners Limited, 60 Gresham Street, London, EC2V 7BB,

United Kingdom

Joint broker

Peterhouse Corporate Finance Limited, 15-17 Eldon Street, London, EC2M 7LD,

United Kingdom

Auditors

James Cowper Kreston, Reading Bridge House, George Street, Reading, Berkshire, RG1 8LSUnited Kingdom

Solicitors as to English Law

Memery Crystal LLP, 44 Southampton Buildings, London, WC2A 1AP,

United Kingdom

Solicitors as to Australian Law

McCullough Robertson, 66 Eagle Street, Brisbane, QLD 4000, Australia

Share registry

Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA,

United Kingdom

Websites

www.mrsplc.info 

www.mrsplc.net

www.bph.net.au

www.mrssg.net

Chief Executive Officer's Statement

Dear Shareholders,

Financial Results for the half year ended 31 December 2017

All references to dollars or $ relate to Australian dollars, the Group's presentational currency.

The results for the half year ended 31 December 2017 ('1H18' or 'half year'), of a net profit after tax of $2.5m (1H17: net loss after tax $4.0m) on revenue of $33.6m (1H17: $20.6m), reflect the significant restructuring that has been executed within the MRS Group and the strength of the Bachmann Plant Hire ("BPH") and MRS Services Group ("MRSSG") businesses.

As a result, there is a significant step change in the 1H18 results compared to 1H17 as illustrated in the table below.

As detailed in the FY17 Annual Report, the continuing operations of the MRS Group (being the holding companies and the two operations, BPH and MRSSG) have significantly changed from what was presented in the 1H17 half year report. The focus has changed from oil, gas and construction industries to a strong presence in plant hire and civil earthworks around Ipswich in Southern Queensland (BPH) and coal industry support services in the Hunter Valley of New South Wales (MRSSG).

Bachmann Plant Hire

BPH is based in Ipswich, approximately 40km west of Brisbane, and specialises in bulk earthworks for the civil construction industry. BPH provides plant and solutions both with and without operators (known as 'wet' and 'dry' hire respectively).

The Ipswich Economic Development Plan 2016 to 2031, enacted by the Queensland Government, is an ambitious plan to attract 292,000 people to 20 employment and population growth areas in the vicinity of Ipswich, resulting in an additional 120,000 jobs. More than 500 new residential dwellings are required to be completed every month to achieve the plan, resulting in the fastest growing residential growth corridor in Australia.

BPH has a 50-year history and an experienced workforce of long term employees and is perfectly located to exploit these opportunities. Most contracts are based on bulk earthworks within a small, well defined area of a residential or commercial sub-division to a final level finish of +/- 50mm. Although operations can be hampered by excessive rainfall, overall BPH operates in a relatively low risk contracting environment. Whilst contracts are generally relatively short (2 to 6 months in length), there is a steady pipeline of work to complete.

1H18 contribution by BPH to the MRS Group, was a net profit after tax of $1.8m (1H17 NPAT $0.9m) on revenue of $10.4m (1H17 Revenue $11.5m). Even though during 1H18 BPH operated at close to full utilisation of its plant & equipment there was a shift in the composition of the revenues, 1H18 saw more "wet hire" utilisation of equipment compared to 1H17, and "wet hire" utilisation has a lower revenue base (and cost base) than contract revenue.

MRS Services Group

MRSSG is strategically located in the heart of the coal mining region of the Hunter Valley in New South Wales, approximately 125km north west of the coal exporting port of Newcastle and about 240km north of Sydney. Some 90% of revenues are derived from blue chip miners including Yancoal, Rio Tinto, BHP and Glencore. Demand for high quality coal (with high energy content and low ash and pollutants) from the Hunter Valley remains strong and is expected to grow, in particular for export to China and East Asia where over 1,000 new high energy low emissions (HELE) ultra-supercritical coal fired power stations are planned or under construction.

The majority of MRSSG's work in the Hunter Valley is low risk, derived from providing skilled trade labour at hourly rates. The automotive, fabrication and mine rehabilitation businesses are based on longer-term contracts in well-established work relationships and well understood risk profiles.

Initially after acquisition, the business suffered from a lack of working capital, an excessive cost base and a lack of commercial and financial discipline, with the first 6 months of operating the MRSSG assets proving particularly challenging (which is reflected in the 1H17 results). However, the quality of the work provided by MRSSG, and strong demand for the services provided by MRSSG, have enabled management to grow revenues. A continuing programme of rationalisation, relocation and reductions in both overheads and operating costs has been implemented, resulting in the MRSSG business being profitable.

1H18 contribution by MRSSG was a net profit after tax of A$1.9m (1H17 net loss after tax ($1.8m)) on revenue of A$23.1m (1H17 Revenue $9.1m). Note that in 1H17 MRSSG only operated for 3 months (1 October 16 to 31 December 16, and this loss includes approximately $1.0m of one-off costs including relocation, finance, and redundancy).

MRS Group

Property, Plant & Equipment

During the 6 months to 31 December 2017, both MRS operations have invested approximately $2.4m in total, in existing and additional plant and equipment, and all of this has been funded through free cash flow.

Borrowings

There are 3 core debt facilities utilised by the MRS Group

1) Debtor Finance

2) Commercial Bills

3) Equipment Finance

1) Debtor Finance: BPH has a $2.6m facility and MRSSG has a $6.0m facility. The drawn down balance of both operations fluctuates on a weekly basis depending on the invoicing cycle and the receipts from customers.

2) Commercial Bills: The current commercial bills were established with the restructure of the company in February 2017. The initial balance in February 2017 being $4.3m, the balance at 31 December 2017 is $2.8m. These commercial bills will be fully repaid by early in 2020.

3) Equipment Finance: BPH was acquired in February 2016 partially with a 48 month $4.2m equipment finance facility, MRSSG was also acquired in October 2016 partially with a 48 month $4.2m equipment finance facility. During FY17 the rent to buy agreement within BPH was recognised on the balance sheet, increasing both the PP&E and debt by $3.6m. There are 25 repayments remaining at 31 December 2017.

Overall, the Group's borrowings net of cash reduced by $1.5 million between June and December 2017.

MRS Outlook

The markets which BPH and MRSSG service continue to be the strongest they have been in years. BPH is currently working at full capacity and has a strong pipeline of work to complete. MRSSG is experiencing strong demand, with revenues now averaging close to $4.0m per month.

The Hunter Valley thermal coal price has been strong and stable providing confidence for the coal mines to commit to repairs and maintenance and Yancoal has recently completed the acquisition of the Rio Tinto assets in the Hunter Valley.

Both BPH and MRSSG were run as separate operations with little interaction or utilisation of shared services and group purchasing during the financial years 2015-16 ('FY16') and 2016-17 ('FY17'). During late FY17 and 2017-18 ('FY18') the new board prioritised significant cost cutting and restructuring, and has restructured the senior management, which now includes Group Human Resources, Group Asset Management, Group Procurement and Group Financial Management. Further changes include the recent recruitment of a General Manager - Civil and Earthworks, as part of succession planning at BPH.

The cost cutting, and restructuring continues as well as the drive to grow revenues., The board is committed to focusing on earnings growth and shareholder value for the remainder of FY18 and beyond. 

1H18, first half expectations of profit after tax and earnings per share exceeding $2.2m and 0.8p respectively, have been exceeded, with 1H18 NPAT $2.5m and EPS of 0.83p, whilst for the full year FY18 earnings per share of not less than 2.0p are in prospect.

Further progress is anticipated in 2018-19 as debt continues to be repaid from the strong operational cash-flows generated by the major changes which are now taking effect.

On behalf of the board, I'd like to thank all employees for their continued commitment to working safely and to all stakeholders of MRS including employees, customers, suppliers, funders and shareholders for maintaining their support for the Company.

Paul Brenton

Chief Executive Officer

Consolidated Statement of profit and loss and other comprehensive income

for the period ended 31 December 2017

Consolidated Balance Sheet

at 31 December 2017

Consolidated Statement of Changes in Equity

for the period ended 31 December 2017

Consolidated Statement of Cash Flow

for the period ended 31 December 2017

Notes to the consolidated financial statements for the period ended 31 December 2017

1. Accounting policies

Basis of preparation

The condensed consolidated unaudited six months ended 31 December 2017 financial information set out in this report is based on the financial statements of Management Resource Solutions plc ("MRS") and its controlled entities (the "Group").

The condensed financial information should be read in conjunction with the annual financial statements for the year ended 30 June 2017, which were prepared in accordance with International Financial Reporting Standards. The financial statements for the Group for the six months ended 31 December 2017 were approved and authorised for issue by the Board on 27 February 2018.

These financial statements have been prepared in accordance with the accounting policies that are expected to be applied in the Report and Accounts of the Group for the year ending 30 June 2018 and are consistent with International Financial Reporting Standards adopted for use in the European Union.

The financial information for the six months ended 31 December 2017 (and 31 December 2016) is unaudited and does not constitute the Company's statutory financial statements for those periods. The comparative financial information for the full year ended 30 June 2017 has been derived from the statutory financial statements for that period. The statutory accounts for the year ended 30 June 2017 have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified.

The financial information is presented in Australian Dollars and all values are rounded to the nearest thousand dollars ($'000) except where otherwise indicated.

Going concern

The financial statements have been prepared on the going concern basis as, in the opinion of the Directors, at the time of approving the financial statements, there is a reasonable expectation that the Group will continue in operational existence for the foreseeable future.

Basis of consolidation

Where the Group has control over an investee, it is classified as a subsidiary. The Group controls an investee if all three of the following elements are present: power over an investee, exposure to variable returns from the investee, and the ability of the investor to use its power of affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Discontinued operations

Discontinued operations represent cash generating units that have been placed into voluntary administration and ceased operating. The post-tax profit or loss of the discontinued operation is presented as a single line on the face of the consolidated income statement. The presentation of discontinued operations within prior periods is restated to reflect consistent classification of discontinued operations across all periods presented.

Prior period adjustments

The completion of the 30 June 2017 audit identified a number of errors in the disclaimed 30 June 2016 annual report and unaudited half year report ended 31 December 2016. These errors were corrected in the 30 June 2017 annual report. There were no changes to the 31 December 2016 results as previously communicated.

Goods and Services Tax (GST), Value Added Tax (VAT) and equivalent taxes

Revenues, expenses and assets are recognised net of the amount of GST and VAT, except where the amount of GST or VAT incurred is not recoverable.

2. Earnings / (loss) per share

Earnings / (loss) per share is calculated on the reported profit for the period of $2,524,440 and on 176,442,657 ordinary shares, being the weighted average number of shares in issue throughout the period ended 31 December 2017.

For diluted earnings per share, the weighted average number of ordinary shares in issue has been adjusted to assume conversion of all dilutive potential ordinary shares. The Company has two classes of dilutive potential ordinary shares, being share options granted to directors and employees and warrants to subscribe for ordinary shares.

3. Subsequent Events

No subsequent events to note.

4. Interim Statement

Copies of this Interim report for the six months ended 31 December 2017 will be available on the company's website www.mrsplc.net