29th May 2008 12:50
North Midland Construction plc
AGM Statement
29 May 2008
At the AGM to be held at 12.00 noon today, Robert Moyle, Chairman, will make the following statement:
We are delighted to be able to welcome you today to our new office building, which has been designed and constructed by North Midland Building to the highest environmental standards. It provides essential extra space and improved working conditions for the staff, which will lead to greater levels of efficiency. More importantly, however, it delivers a statement to our clients and reinforces the North Midland brand. The markets, in which the Group is involved, are changing and increasingly price is ceasing to be the sole criteria upon which our tenders are adjudicated. Health & Safety and Environmental performance, Supply Chain management, quality of systems and value engineering are just some of the key performance indicators that the company is now judged upon.
It is pleasing to report that this financial year has started satisfactorily with a Group profit before tax of £969,000 on a revenue of £54.5m. These figures compare with £1,112,000 and £52.7m respectively for the comparable first quarter of last year. The previous year started particularly well with North Midland Building delivering a very strong result and it was later in the year that the problems surfaced. Therefore, whilst the first quarter's results are slightly behind those of 2007, there are no loss-making contracts of the scale of last year currently being undertaken to impact so dramatically upon the year end result.
To provide a better insight of the Group picture, a breakdown of the performance and prospects of the individual divisions and subsidiaries now follows.
The economic climate has deteriorated quite seriously and many projects requiring external finance have either been deferred or cancelled. This situation is affecting North Midland Building in particular and there is a requirement in the near future in this company to secure revenue. The first quarter has delivered a profit of £67,000 on a revenue of £7.6m, a decline of £424,000 in comparison to last year. The company has developed a first class reputation and major schemes are currently being undertaken for Moto at Wetherby, a motorway service station, and a mixed residential retail conversion in Skipton for Novo Homes. Last year proved exceptional for the company and a comparable performance will not be forthcoming this year.
Conversely, Nomenca, the M & E subsidiary, has produced a profit of £304,000 on a revenue of £11.5m, an increase of 13.1% and 29.7% respectively over last year. The company has consolidated its presence in Scotland, particularly in the construction and installation of chemical dosing rigs. The markets Nomenca is involved in remain robust and it is particularly gratifying to be able to report that a major £3m contract has been secured for Thames Water at Beckton and a minor works framework for United Utilities in the North West within the last month. On the basis of the current order book and future prospects, the company should deliver a very satisfactory result for the full year.
Civil Engineering continues to be the largest single element within the Group and last year proved to be particularly difficult with two problematical contracts that seriously affected profitability. Whilst fundamentally complete from a construction perspective, the financial position on both contracts has yet to be resolved. A perspective on the outturn was taken in last year's results and subsequent developments have not caused that position to be re-evaluated. For the first quarter a profit of £291,000 on a revenue of £20m was delivered, compared with £169,000 and £22.1m respectively last year. The forward workload is satisfactory, but opportunities outside the water sector are becoming scarce, due to the poor economic climate currently prevailing. The joint venture with Biwater to deliver the Minworth project, at a value of circa £100m, for Severn Trent Water, continues to perform very successfully and this is particularly gratifying as it is a testament to the division's capability to deliver large civil engineering projects. To provide a dedicated bespoke service to its major client, Severn Trent Water, the relevant resources of the division have been combined with those of Nomenca under the stewardship of an Executive Director and a Design Director. We are confident that this approach is the way forward and will act as a blueprint for the future.
The Utilities division experienced a loss-making year last year, due to one heavily loss-making contract and a general downturn in volumes on the BT contracts for Telent. After re-organisation and cost-cutting, the division has returned to profitability with a return of £161,000 on a revenue of £10.4m for the first quarter. Difficulties continue with the BT contract in East Anglia, due to low volumes, but this will be terminated on 1 July. The major scheme for Fibrespeed to provide a 270km broadband link to business parks in North Wales is now progressing satisfactorily after a slow start due to reasons beyond our control and will provide valuable revenue within this financial year. The division has, like Nomenca, established a worthwhile presence in Scotland for both Virgin Media and Atkins Telecom, and whilst the scale is currently modest, it will provide a useful springboard for future expansion.
The Highways division has budgeted for a record year and has secured a current workload of £10.5m, compared with a target of £17m. For the first quarter the division delivered a profit of £146,000 on a revenue of £5m, an increase of 32.7% and 47.1% respectively over the comparable period last year. Recent awards include £1.5m of high quality paving in Leeds and the division is currently engaged on the Moto contract with North Midland Building. This template is being employed to bid for further schemes and provides clients with a "one-stop shop" similar to that provided by the Civil Engineering division and Nomenca.
Corporate Social Responsibility is an area of key development for the Group and is being closely monitored by several major clients. The Charity Committee has already made several awards to predominantly local charities and sponsored organizations as diverse as the Bristol University Cricket and Mansfield under 15 Rugby teams. Four members of the Highways division, running as a team, successfully completed the Melbourne Fun Run, a distance of 12.5km, to raise funds for various Rotary charities. Our corporate sponsorship of Nottinghamshire Wildlife Group continues and assistance has been provided to Hoton Parish Council, in the form of labour and machines, in the restoration of their playing fields.
In an increasingly competitive environment, year on year improvement, not just financially, but particularly in the key areas of Health & Safety and Environmental performance is essential. Stringent targets have been established this year to reduce the accident rate, the target being zero, alongwith the Group's carbon footprint. Concentration particularly being centred upon reduced fuel consumption and waste. It is particularly pleasing to be able to report that the accident rate for the first quarter of 2008 has fallen to twenty seven from a comparable figure of fifty one for 2007, a reduction of 47%. These statistics include for 1 No. sub-contractor RIDDOR and 1 No. dangerous occurrence, compared with 2 No. RIDDORS respectively. The culture is improving and this is being engendered by several initiatives, most particularly the annual safety week, which incorporates suppliers and sub-contractors, and last year was attended by high level representatives from the HSE.
Fuel is one of the largest single elements of the Group's cost profile and rapidly increasing in price, as we are well aware of. Technology in the form of tracker systems and speed regulations in the vehicles are being utilized and mileages closely monitored. Advances have also been achieved in the reduction of construction waste and increased recycling, most notably plasterboard. All the relevant data is included in the Annual Environmental Report, which is sent to you as shareholders.
The success of a business such as this is in the quality of its workforce and in this respect the Group is particularly well blessed. Moreover, if the Group is to expand at its target rate of 10% per annum, there is a need to both develop internally, and recruit externally, the required calibre of employee. A company apprenticeship scheme was established in 2007 and twelve apprentices have successfully completed their first year. Ten apprentices, alongwith two apprentice mechanics, are being recruited for the current year and it is wonderful to report that we have been inundated with applications. The Group is also currently sponsoring seven undergraduates through their university education. This undertaking has proved to be very successful in the past. To nurture and develop the existing workforce 339 No. of training days were undertaken in the first quarter and succession plans are being developed. The total amount of days lost due to sickness and general absence has also been reduced.
Whilst on the subject of human issues, I should like to record my thanks to Trevor Kayes, who retired this month after 31 years loyal service to the Group, initially as Chief Engineer and latterly as a Main Board Director. Our wishes for a long and happy retirement are extended to him.
The dramatic fall in the share price is obviously of great concern to your Board, but unfortunately only mirrors the performance of the construction sector. A recent analysis shows that many of our competitors have faired worse. Shareholder value is of a paramount importance and the maintenance of an acceptable yield is high on the Board's agenda.
As you are probably aware, North Midland Building and the Civil Engineering division were included in a group of 112 No. companies in the construction industry being investigated by the Office of Fair Trading. Three allegations have been made, 2 No. against North Midland Building, and 1 No. against the Civil Engineering division, 3 No. have been dropped. As stated in the recent interim report, these allegations will be vigorously defended.
There has been significant recent consolidation in the sector, with several medium sized competitors being taken over by larger groups. The Group has grown significantly in the recent years on the back of organic growth and planned geographical expansion. Indeed, it is now a truly national contractor and the view is that the rationalization of the sector is beneficial, as it will provide further opportunities and tenders of a larger notational value. The remaining overall Group workload for 2008 stands at £103m and for 2009 £41m, and whilst there has been a downturn, tender opportunities remain at a reasonable level. This, coupled with the financial results from the first quarter's trading, gives your Board confidence that a result in excess of last year will be achieved.
R MOYLE
CHAIRMAN
NORTH MIDLAND CONSTRUCTION
29 MAY 2008
Contacts:
North Midland Construction plc 01623 515 008
Robert Moyle, Chairman
Mike Garratt, Finance Director
Brewin Dolphin Investment Banking
Andrew Emmott 0845 270 8610
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