7th Dec 2007 17:01
Worthington Nicholls Group plc07 December 2007 Worthington Nicholls Group Plc ("Worthington Nicholls" or the " Company") Current Trading Update 7 December 2007 INTRODUCTION In the announcement dated 15 October 2007 (the "Trading Update"), the Companydisclosed inter alia, proposed write-downs to net assets of £6.5 million as at31 March 2007. These proposed write-downs were disclosed following theDirectors' own review and took into account a draft report dated 12 October 2007prepared by KPMG as independent advisers who had been asked to conduct a reviewof certain asset categories in the balance sheet of the principal tradingcompany as at 31 March 2007. On 21 November 2007, Simon Beart, William Good and Rodney Mann (the "New Board"), were appointed to the Board. The Company's shares were suspended fromtrading on AIM on 3 December 2007. The New Board has reviewed the write-downs, and believes that additionaldisclosures to the Trading Update are required. In addition, following furtherwork, by both KPMG and the New Board, further provisions and write-downs arebelieved necessary. This announcement sets out the New Board's current estimate of the write-downsthat it anticipates will be required. The New Board is not anticipating thatfurther material write-downs, other than as disclosed in this announcement, willbe required. WRITE DOWNS / PROVISIONS Initial provisions included in the Trading Update figure of £6.5 million asannounced on 15 October 2007 were as follows: As at 31 March 2007 £'000s Matched costs* 3,100Trade debtors and retentions 760Specific contract issue 699Unallocated accrued income 500Stock and WIP 776Debit notes not recovered 300Other 365 Total 6,500 * Matched costs was the name given by the Company to expenditure carried forwardto be matched against future revenue. This expenditure should have beenexpensed. The scope of the independent review commissioned from KPMG was limited toconsideration of some of the principal assets in the balance sheet ofWorthington Nicholls Group Plc and a brief review of the Woods Holdings WilmslowLimited (and its subsidiaries) ("Woods") which was acquired by the Group in May2007. The scope of the independent review did not cover the rest of the Group. After further review the New Board currently estimates that adjustments ofaggregate £15.9 million will be required to reduce the net assets as reported inthe management accounts as at 30 September 2007. These adjustments are statedbefore taking into account impairment of goodwill and taxation matters: Estimated adjustments required to the September 2007 Management Accounts 31 March 07 30 September 07 Total Per 15 Oct 2007 Management Accounts* Provisions announcement £'000s £'000s £'000s Matched costs 3,100 3,100Trade debtors and Retentions 760 3,000 3,760Specific contract issue 699 699Unallocated accrued income 500 2,700 3,200Stock and WIP 776 200 976Debit notes not recovered 300 300Other items 365 800 1,165Fixed Assets 800 800Other Prepayments 400 400Loss making contracts 1,500 1,500 _____ _____ ______Total 6,500 9,400 15,900 * Further work will be carried out to determine the allocation of theseadjustments between the different accounting periods. PREVIOUS YEARS' TRADING The accounting adjustments outlined above include amounts to be allocated inrespect of prior-year accounting periods. The amount of matched costs included in debtors was £0.7 million at 1 October2005 and £3.1 million at 30 September 2007. The New Board will not carryforward any element of matched costs relating to pre-contract expenditure. In addition, across the Group, debtors over 90 days currently amount to £2million and unpaid retentions are currently being written off which have beentaken to profit in at least the last two accounting periods to 30 September2007. YEAR ENDED 30 SEPTEMBER 2007 In the Trading Update the previous Board stated that "prior to the effects ofthe write offs referred to above (£6.5million as disclosed in the TradingUpdate) the Board believes that the Group will report results that arematerially in line with its statement of 17 August 2007", being a break-evenresult. This indication of break-even trading was stated as prior to the effects of thewrite-offs then disclosed. A significant element of these write-offs relate totrading issues in the year ended 30 September 2007, including unallocatedaccrued income of £500,000 and an increase in matched costs in the year ofapproximately £715,000, as detailed above. This result also included apre-acquisition, exceptional profit of approximately £476,000 generated by aproperty sale in respect of a recently-acquired subsidiary. CARRYING VALUE OF INVESTMENTS As a result of work conducted by both KPMG and the New Board, and on the basisof the Group's current trading, the New Board believes that the carrying valueof the Group's trading subsidiaries, per the management accounts as at 30September 2007, which is in excess of approximately £45 million, is likely to besignificantly overstated. An impairment review, audited by Deloitte, will be conducted and the appropriateadjustments will be disclosed in the Report and Accounts of the Group for theyear ended 30 September 2007. Forensic Investigation KPMG has examined some but not all of the circumstances surrounding the need forprovisions and write-downs across the Group. KPMG has drawn the New Board'sattention to various accounting matters including, inter alia, the accountingfor matched costs and accrued income in Worthington Nicholls Group Plc and theavailable support for some of the reported numbers. The Company is takingfurther professional advice, to establish, inter alia the implications relatingto the accounting matters referred to above. Management The former Chief Executive, Mark Worthington, has been dismissed. Alastair Stoddart, until recently the acting Executive Chairman, has resigned. Rodney Mann will, therefore, become Chairman. The New Board is expected tomake other senior management changes and replacements shortly. Advisers The Company will be appointing Deloitte as auditors in replacement for HWCA Ltdof Preston Lancashire and has appointed Osborne Clarke as group legal advisers. As stated previously, Cenkos Securities plc has been appointed as theCompany's Nominated Adviser in place of Blue Oar Securities plc. Year End The new Board believes that it is inappropriate for a business such as theWorthington Nicholls Group to have a 30 September year end requiring annualresults and update during the December/January period. Accordingly, it is proposed that the Group's year end and that of all itssubsidiaries be moved to 31 March. The Group will, therefore, publish auditedaccounts for the year ending 30 September 2007 and for the six month period to31 March 2008. CASH BALANCES The Group has net cash balances of approximately £10 million. This amount doesnot include a repayment mortgage of approximately £1.06 million in respect of aninvestment property held on the balance sheet at a value of approximately £1.5million, loan notes redeemable in May 2008 to the value of £675,000 and hirepurchase liabilities to the value of approximately £150,000. The New Board isnot aware of any further material indebtedness. The Board has reviewed the liabilities potentially payable under the earn outsrelating to previous acquisitions. These payments are currently not estimatedto exceed £3 million in aggregate and are expected to be satisfied in cash overthe next two years, subject to agreed profit targets being achieved. PROSPECTS AND FINANCIAL STATUS The New Board intends to adjust rapidly the fixed cost base where appropriate,generating immediate monthly cash savings. The changes to financial process andmanagement will take a period of time but these are challenges with which theNew Board is familiar. The group remains robustly financed with substantial cash balances and the NewBoard believes that the group is one of the larger and more experiencedcompetitors in its markets, with considerable engineering and technical skills. The Board does not expect service levels or engineering skills to be adverselyaffected as result of recent changes and the adjustment to the cost base. TheGroup will, therefore, continue to manage existing business for customers andcontinues to seek to win new business including bidding for at least two largenew contracts. Following this statement the New Board has requested that trading in itsordinary shares on AIM be restored. It is anticipated that trading in theCompany's shares will be resumed at 7:00 a.m. on 10 December 2007. For further information, please contact: Worthington Nicholls Group plcSimon Beart, Chief Executive07710 444370 Cenkos Securities plcNicholas Wells020 7397 8900 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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