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Annual revenues were up by +4.8% from 436.6 million Pounds in 2009 to 457.6 million Pounds in 2010 at Morson Group Plc (MRN:LSE), the provider of technical engineering personnel and project design solutions.
Preliminary results for the year ended 31 December 2010 show that acquisitions contributed 51.0 million Pounds (2009: nil) impacting wholly the temporary and permanent recruitment segment.
Net revenues excluding acquisitions in this segment were therefore down from 401.8 million Pounds to 369.2 million Pounds, a fall of -32.6 million Pounds or -8.1%, of which management estimate some 20.5 million Pounds is directly attributable to the loss of two contracts (Magnox and TfL Trackforce). Morson Projects had net revenue of 37.5 million Pounds up +7.6% on the preceding year (34.8 million Pounds).
Group Net Fee Income (NFI), or gross profit, has increased to 35.1 million Pounds (2009: 34.8 million Pounds), a rise of +0.9%. The split of NFI across temporary and permanent recruitment and engineering design consultancy was 27.4 million Pounds, 1.1 million Pounds and 6.6 million Pounds respectively (2009: 27.3 million Pounds, 0.8 million Pounds and 6.7 million Pounds).
The group therefore saw a decrease in its percentage gross margin to 7.7% (2009: 8.0%). Split by operating segments this reflects reduced margins in temporary and permanent recruitment at 6.8% (2009: 7.0%). Within this segment Morson Wynnwith achieved gross margin of 8.3% and the Morson International business saw a decline in gross margins to 6.6% (2009: 7.0%). There was also a reduced position for engineering design consultancy and management to 17.7% (2009: 19.3%).
For recruitment the reduced margin was driven by a difficult and competitive market resulting in a mix of margin pressure on new and existing business, loss of the more profitable Trackforce contract and less recruitment activity in some areas where replacement contractors attract higher margins. Morson Projects also traded through a difficult period and some larger contracts caused a lower mix of margins achieved.
Compared to 2009, adjusted operating profit decreased by 3.1 million Pounds to 9.2 million Pounds (2009: 12.3 million Pounds), a fall of -25.2% on the comparable year. Considering this by business segment shows recruitment activity falling from 11.4 million Pounds to 8.9 million Pounds, noting this comprises Morson International's contribution as Morson Wynnwith was at break-even levels in this period, and in engineering design consultancy and management Morson Projects has also experienced falls with adjusted operating profit down from 2.3 million Pounds to 1.7 million Pounds.
Adjusted operating margins before amortisation and exceptional items for the group, which are calculated after shared group costs of 1.4 million Pounds (2009: 1.4 million Pounds), were 2.0% (2009: 2.8%). This is a reflection of gross margin erosion, difficult trading conditions and includes increased establishment costs through the move into a new Head Office and the costs of aligning some areas of the group's overhead to reduced levels of activity.
The 'Conversion Ratio' is measured as the ratio of adjusted operating profit before amortisation and exceptional items to NFI. For the Group this year this measure is 26.3% (2009: 35.4%). The Board feels that whilst this is a reasonable result in a difficult market and in line with or above many other recruitment businesses, Morson should aim to improve this when our market improves.
A key contributory factor here is the Morson Wynnwith business, which when acquired was loss making and excluding this activity from the measure would mean an underlying conversion ratio of 29.2%. The group's business model can deliver high volume services in an efficient manner across a wide offering of engineering technical resource and services to our clients from a nationwide network of offices which is required to achieve consistently high Conversion Ratios.
There are two exceptional items identified in 2010. Firstly there is an exceptional gain of 1.2 million Pounds realised on assessment of the fair value of the acquisitions. Secondly 400,000 Pounds is charged in respect of the acquisition and integration of the Acetech and Wynnwith businesses. Exceptional charges in 2009 of 400,000 Pounds related to costs associated with the move into new Head Office premises, comprising a charge of 271,000 Pounds resulting from accelerated depreciation charge on fixed assets at the group's vacated properties along with other costs directly related to the move of 163,000 Pounds.
With the difficult trading environment, lost contracts and margin erosion, adjusted profit before tax has fallen by -24.9% to 8.1 million Pounds (2009: 10.8 million Pounds). Actual profit before tax was 9.4 million Pounds (2009: 9.7 million Pounds), a fall of -300,000 Pounds or -2.9%.
During the period Morson acquired the trade and assets of Acetech Personnel Limited and the trade and assets of Wynnwith Group Limited.
Acetech was the acquisition of the business and assets of Babcock International Group Plc's 'in-house' provider of temporary skilled trades within UK Marine, Defence and Rail divisions. Morson had and maintains an established position with Babcock as one of their largest suppliers of technical skills, in particularly within Nuclear.
Morson also acquired, via a controlling stake in a joint venture company, Morson Wynnwith Limited, the business and assets of Wynnwith Group Limited that had passed into administration. The price negotiated was lower than the subsequently assessed accounting fair value of the assets acquired. Wynnwith was a long-standing competitor which had long-term contracts operating in predominantly Aerospace and Defence markets. In February 2011 Morson announced the acquisition of the remaining minority stake for a consideration of 4.0 million Pounds, bringing the business entirely within the group.
Gerry Mason, Non-Executive Chairman, commented "our order book for managed vendor opportunities in 2011 and 2012 remains strong. Morson has a market leading position in the UK within the Aerospace, Nuclear and Rail markets and we continue to look into expanding into other complementary areas with a particular focus on overseas markets and permanent business."
"Whilst we expect trading through 2011 to remain challenging, these qualities position the group well to increase its market share as the economy recovers. In due course there is significant opportunity to see growth in these areas and this, coupled with new customer gains, will further strengthen our enviable client portfolio."
"Our strategy for 2011 is to focus on our core strengths, develop new sectors and revenue streams and select new geographic locations that will put the group in a strong position through these unique and uncertain market conditions. We are capitalising on our strong brand image and competitive advantages and will continue to leverage our unique client base."
"The board views Morson's prospects for the coming year with confidence."
In early trading Morson Group's shares were up by +1.45% to 105 Pence.