Interim results for the six months ended 31 December 2008

Following the announcement on 9 February 2009 of the disposal of the UK and Jersey Investment Management Consulting business and the classification of the whole business unit as discontinued ("IMC"), Morse will now be structured as four independent business units:

Infrastructure Services & Technology – UK
Infrastructure Services & Technology – Spain
Infrastructure Services & Technology – Ireland
Business Applications Services

As it enters the next phase of the restructuring and turnaround, Morse announces the appointment of Mike Phillips as Chief Executive Officer with effect from today. The four remaining business units will report into the Chief Executive Officer. As a result of this appointment, a search has commenced for a Group Finance Director. Upon this appointment Kevin Loosemore will revert to non executive Chairman.

Financial Highlights -

Statutory results

Revenue £114.4 million (2008: £123.8 million)
Operating loss £17.3 million (2008: profit £6.4 million)
Loss before tax £17.7 million (2008 restated: profit £6.2 million)
Basic loss per share 13.5p (2008 restated: earnings per share 3.4p)
Exceptional items of £20.0 million (2008: £Nil) comprising restructuring charges of £6.2 million and Goodwill Impairment of £13.8 million

Continuing operations

Revenue £107.5 million (2008: £114.7 million)
Operating profit before exceptional items and trading balance releases £1.0 million (2008: £1.5 million)
Operating margin percentage before exceptional items and trading balance releases 1.0% (2008: 1.3%)
Trading balance releases of £1.7 million (2008: £3.6 million) in the period
Operating profit before exceptional items £2.7 million (2008: £5.1 million)
Operating margin percentage before exceptional items 2.5% (2008: 4.4%)
Profit before tax before exceptional items £2.2 million (2008 restated: £4.8 million)
Exceptional restructuring charge in the period of £5.4 million (2008: £Nil), cash costs of £4.1 million
Net cash at 31 December 2008 of £3.8 million (2008: £11.4 million)
Cash at period end of £5.9 million (2008: £11.4 million)
Customer specific financing of £2.1 million (2008: £nil)
Adjusted basic loss per share before exceptional items and trading balance releases of 0.2p (2008 restated: Earnings per share 0.7p)
The distributable reserves position means that no interim dividend can be declared (2008: 1.3p per share). Board will review options to enable possible future dividend declarations which may include a capital reduction process

Operational highlights

Banking facilities with Royal Bank of Scotland plc reviewed and confirmed at £10 million multi currency Revolving Credit Facility and £2.5 million multi currency overdraft
Covenants amended to take account of ongoing restructuring

Infrastructure Services and Technology - UK

Good progress made on restructuring the overhead cost base of the division
Clearly defined sales proposition identified and launched
Morse in Education performed below expectations resulting in a review of the business
- South Tyneside and Gateshead (STaG) ‘Building Schools for the Future’ (BSF) project will now be managed as a stand alone project reporting into the Managing Director of the Division
- Sales and management team of the division have been made redundant, additional restructuring charge of £0.1 million in the second half of the financial year

Infrastructure Services and Technology – Europe

Irish and Spanish economies have been hard hit by the global economic slow down
Businesses operating around break even
Inherently good businesses with committed management teams
Review of structure of Spanish business will lead to further restructuring charge in second half of the financial year of between £1.5 million and £1.7 million

Business Applications Services

Focus on three niche areas:
- Diagonal – SAP implementation and support services
- Xayce – Business Change and Transformation Consultancy
- Portals and Collaboration
Settlement reached for one of the fixed price contract disputes utilising £0.3 million of a £1.0 million project and bad debt provision set up at 30 June 2008. Good progress made on resolving the other fixed price projects. Provision of £0.7 million against problem project remains at 31 December 2008.

Discontinued operations

On 9 February 2009 Morse announced that it had exchanged contracts on the sale of the UK and Jersey Investment Management Consulting business, formerly known as CSTIM for a maximum consideration of £1.7 million
Completion of sale conditional upon the conclusion of TUPE transfers of staff
Goodwill Impairment charge of £13.8 million taken at the half year
Options being considered for the remaining businesses
IMC classified as discontinued for the purposes of these interims statements

Review of the business structure completed

Simplified structure and re-focused resources to:

Allow the individual business units to concentrate on their core competencies
Improve profitability
Improve operational management

Cost reduction programme

Total restructuring costs of £6.2 million taken in the period of which £4.6 million is cash restructuring (see note 3)
Full year charge will be between £8.0 million and £8.5 million as a result of further cost reduction opportunities
Anticipate recouping restructuring costs in less than one year.

Dividends

The sale of the CSTIM business will result in a write down of the fixed asset investments in Morse plc that will mean there are insufficient distributable reserves for Morse plc to declare an interim dividend
In light of the global economic situation a review of the carrying values of all fixed asset investments and intercompany balances in the Morse plc company balance sheet is likely to lead to a further significant write down in the value of those assets
The Board is undertaking work to determine the amount of the write downs
Once this work is finalised the Board will review the options to enable declaration of future dividends that may include a capital reduction process
An update on this process will be provided to shareholders in due course

Interest on Tax on open HMRC enquiries – Prior Year Adjustment

The comparative results for the six months ended 31 December 2007 and the year ended 30 June 2008 have been restated to reflect an accrual for interest on UK corporation tax exposures which had not been recognised previously in those results. Further details of this restatement are included in note 1 to this Interim Results statement.

Commenting on the results, Kevin Loosemore, Executive Chairman of Morse plc, said:

"The period under review has seen significant change in Morse as a business. The revised operational structure makes the products and services we offer clear to our shareholders, clients, suppliers and staff. Our UK based businesses have made significant improvements in their cost base whilst the European based businesses, particularly Spain, have further restructuring to do.

Whilst we expected the market for IT services and technology to remain difficult, we did not fully anticipate the extent to which the credit crunch would impact businesses globally. This means that we have to continue to remain vigilant on costs whilst keeping the businesses focused on their new propositions. However, we still anticipate that changes to Morse's operating model and focus, together with its ongoing strong client relationships, will deliver improved underlying profitability and cash generation in the current year and into the future."

Contacts:

Morse plc Tel: 020 8380 8000
Kevin Loosemore, Executive Chairman
Mike Phillips, Chief Executive Officer

Financial Dynamics Tel: 020 7831 3113
Giles Sanderson/Haya Chelhot/Hazel Stevenson

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