28th May 2009 13:00
North Midland Construction plc
28 May 2009
AGM Statement
At the AGM held at 12.00 noon today, Robert Moyle, Chairman, provided the following update on trading:
Unsurprisingly, the economic situation is having a major impact on the construction sector and the industry workload is at an all-time low. However, it is pleasing to be able to report that the Group has delivered a profit of £420,000 before tax in the first quarter, on a revenue of £35.7 million. These figures compare with £969,000 and £50.5 million for the comparable quarter last year. The year started slowly with very low volumes, but the profit declared in 2008 included an exceptional item of £300,000, so a more appropriate comparison would be a decline of 37.2% and 29.3% in profit and revenue respectively.
As has been the previous custom, a detailed breakdown of the performance and prospects of the individual divisions and subsidiaries will provide a greater insight into the overall Group picture. As you are aware, the parent company is sub-divided into three operating divisions, which are civil engineering, highways and utilities.
The civil engineering division has experienced an unprecedented downturn in revenue in the first quarter due to deferred expenditure by the water companies, a major sector for the division, and the postponement of several other non-water selected projects. A loss of £191,000 was incurred on a revenue of £13.4 million, compared with the 2008 figures of £291,000 profit and £20 million revenue. Workload currently stands at 52% of budget, but orders are only booked once secured. An estimated £10 million of water related orders are currently being negotiated under the framework agreements and should be delivered during the current financial year. The joint venture with Biwater to deliver the Minworth project, at a value of circa £100million, for Severn Trent Water, continues to perform very successfully and the "turn of the flow" was achieved recently. As the project draws to a conclusion, greater visibility of the eventual outturn is possible and there is cautious optimism that a satisfactory boost to profitability may be forthcoming before the financial year end. The highlight of the year so far was the combined resources of the division and the Nomenca subsidiary, incorporated into a single entity to deliver the Severn Trent Water AMP4 programme, being successful in their bid for the AMP5 programme, as previously reported, and this will provide a large foundation for future growth, as the framework is of a potential ten year duration. The water industry is vital to the success of the division, but it is still active across a broad range of disciplines, including rail, power and waste. It is these areas that have been the most affected by the credit crunch and the market is currently extremely competitive. The results for the previous two years have been affected by two problematic contracts and their lack of resolution, which has proved extremely cash negative. Progress to resolution is being made, albeit slowly, and some payments have been forthcoming. Developments to date, however, have not caused a revision of the perspective adopted in the 2008 accounts. Although the division has reported a loss-making first quarter, the year's forecast is positive.
The highways division has delivered a first quarter profit of £52,000 on a revenue of £2.9 million, a decline of 64.4% and 42.0% respectively for the comparable period of 2008. Current secured workload stands at £10.3 million, which is 55.7% of the year's budget. Public sector tender opportunities remain at reasonable levels and confidence is high that further orders will be forthcoming in the near future. Successful geographical expansion into the West Midlands and the North West has been pursued and several high profile contracts have been completed, most notably bridges on the M1 widening project and high quality paving schemes in Leeds City Centre.
The utilities division has been particularly successful in securing framework contracts for a wide range of telecommunications providers and operators, and this has provided an element of insulation against the downturn. For the first quarter the division produced a profit of £357,000 on a revenue of £8.4 million, compared with 2008 figures of £161,000 and £10.4 million respectively. Volumes were particularly low during the period, but there are some signs now of a recovery to more traditional levels. The Fibrespeed project in North Wales has almost been successfully completed, with two business parks still remaining to be connected, due to planning difficulties. This scheme has provided a high level of revenue during its construction and, fortunately, will be replaced by the recently obtained South Yorkshire Digital contract valued at £31.0 million, with a contract duration of 30 months. This project is due to commence in June of this year.
The now wholly owned subsidiary North Midland Building Limited, continues to be the Group member most deeply damaged by the continuing "credit crunch". The lack of available finance and declining asset values has impacted dramatically upon the building sector, with the residential element virtually coming to a standstill. The company has experienced this first hand on the Skipton project that it is currently engaged upon. Phase I, which was residential, has successfully been completed and Phase 2, combining retail and commercial space, had commenced when the developer's bank withdrew funding. It is hoped that the situation is only temporary and that construction may recommence in July. Profit for the first quarter was £50,000 on a revenue of £1.1 million, compared with £67,000 on £7.6 million for 2008. Projects in hand have a total value of £25 million, although not all of that workload will be constructed during the current year. They include two fire stations, works within the City Hospital in Nottingham and the construction of one of the largest private houses to be commissioned in this country in the last few years. The demise of private sector funding has led the company to concentrate on the public sector and regulated companies within the private sector.
Nomenca has delivered a first quarter profit of £152,000 on a revenue of £9.9 million. The comparative figures for the previous year being £304,000 and £11.5 million respectively. The company has a significant presence within the water industry and similarly to the civil engineering division suffered in the first quarter due to deferred expenditure by the water companies. The current order book stands at £21.7 million and the subsidiary is well represented with frameworks not just within the water industry, but organizations such as the Environment Agency, Anchor Housing and British Waterways. Further orders will be forthcoming from both the water companies and these other sources during the year. The divisional office structure enables Nomenca to have a truly national presence and the company recently acquired the design operation of Imerys, based in Cornwall. This will particularly strengthen the company's capability in material handling. The manufacture and installation of chemical dosing rigs is also undertaken and this is the main driver of business in Scotland. Nomenca, during the year, has also concluded an arrangement to install the ultra violet equipment of Trojan, a Canadian company, within the UK.
The Group target is to grow the business organically at the rate of 10% per annum. In the present economic climate, that is not going to happen and, therefore, a thorough review of the structure of the business has been undertaken to implement cost-cutting measures. It is always very sad to implement a redundancy programme, but one has been instigated to reduce overheads by 12.5%. A similar programme of headcount reduction has been undertaken with the site staff and operatives.
The requirement to win business and expand the client base is of paramount importance. Increasingly, clients are becoming more exacting in their pre-qualification questionnaires and analysis of systems and procedures. It is very pleasing, therefore, to be able to report further progress in Corporate Social Responsibility. Health and Safety is of paramount importance and the number of accidents, whilst at the same level of the previous year, showed a significant decline in severity and more importantly the number of Riddors in the first quarter declined from two to one over the comparable period in 2008. Both the Group and Nomenca, individually, have been the recipients of ROSPA Gold Awards for Health & Safety performance and the Minworth site secured a Sector Commendation. The Health Surveillance programme introduced last year is also paying dividends by identifying potential problem areas, such as vibration white finger, thus enabling appropriate risk management.
The measurement and reduction in the Group's carbon footprint is top of the list of environmental key performance indicators for this year. Great strides have been made in the reduction of waste, the use of recycled materials and reduced fuel consumption. Zero environmental incidents in the first quarter, is an excellent achievement. The workforce has really embraced the cultural change of personal responsibility that has been engendered and the overall improved performance is demonstrative of this. This message is also being mirrored within the supply chain and zero sub-contractor Riddors for the first quarter is a major step forward.
The Group has always adopted a long term perspective and the key to sustained growth is the quality of the workforce. In this area, the Group is well blessed and the decision, to build for the future, was made to maintain the apprentice scheme and the university sponsorship scheme. The talent that is emerging through these initiatives is impressive. The continuing development of the existing workforce is essential, so that each individual maximises their potential, and 446 No. training days have been undertaken in the first quarter, compared with 339 No. in 2008. HR initiatives to maintain the decline in absenteeism and days off due to sickness continue to pay dividends.
Share prices in the construction sector declined dramatically in 2008, and it was small consolation to note in a report undertaken by Contract Journal, that your company's share was the second best performer in the sector in 2008. The price has recovered since that nadir, and shareholder value and the maintenance of an acceptable yield are major items on the Board's agenda. In the Board's opinion, the market will remain extremely difficult into 2010, with particular problems being experienced by the sector in the areas of credit insurance and bonding facilities. The Group has successfully renewed its banking facilities and has sufficient working capital for its current requirements. Two new bondsmen have also been enlisted. Group budgets for 2009 are challenging but your Board believes that they are achievable. In the longer term, confidence is high that the blend of clients and frameworks, coupled with a strong reputation for delivery to both time and budget will enable the Group to attain its growth targets and emerge strongly from this recession.
Enquiries:
North Midland Construction plc 01623 515008
Robert Moyle, Chairman
Mike Garratt, Finance Director
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