Final Results

Pochin's PLC

("Pochin" or "the group")

Preliminary Results for the year ending 31 May 2013

Pochin's PLC (PCH.L), the construction and property group, announces its preliminary results for the year ending 31 May 2013.

Chairman's statement

The group result for the year ended 31 May 2013 shows a loss after tax of £7.1m (2012: £3.3m) which includes a £0.2m loss (2012: £2.0m loss) arising from discontinued activities. There was an operating profit of £2.4m (2012: £2.0m) before adverse property revaluations and impairments of investments and inventories, which in total amounted to £8.2m (2012: £2.7m). The directors do not recommend the payment of a final dividend.

The revaluations and impairments referred to above reflect the ongoing weakness in the regional property market, particularly in the retail and office sectors. They also incorporate a reduction in the carrying value of the group's only remaining significant joint venture. By contrast, certain of the group's land assets have increased in value by £3.4m, although their classification as inventories prevents this from being reflected in the accounts.

During 2012 the UK construction industry suffered a fall of over 8% in total new (non housing) work, and the decline was steeper in the North West region. The region's commercial property market experienced continuing weakness with yields widening for all but prime real estate. Bank finance remained restricted generally to investments with long unexpired lease periods. It is therefore good to be able to report some improvement nationally in the third quarter of the current calendar year, with the industrial sector in particular seeing increased levels of activity. The Government's claimed determination to rebalance the economy, in terms of both activity and geography, is to be welcomed, and the group has made a successful application to the Regional Growth Fund.

Given the context of the region in which it primarily operates, the construction division performed creditably during the year under review with turnover increased from £68.4m to £73.7m. Contracts for work outside the region contributed significantly as the division sought to mitigate lower local activity, albeit at some cost to margins. It is striking to note that, nonetheless, almost two-thirds of the division's turnover was repeat business, which validates the Pochin claim to deliver good, reliable service to its clients.

The further deterioration in the group's property values is disappointing, with the secondary offices in the portfolio being particularly affected in the year. Overall the investment portfolio maintained high levels of occupancy at 91.5%, a modest fall from the previous exceptional achievement. There was successful development activity during the year, including the completion of an office building for TATA Chemicals Europe Limited in Northwich, Cheshire. The current year has seen the start of the construction of the Altrincham Hospital scheme for Central Manchester University Hospital NHS Foundation Trust. The division continues to seek such non-speculative development opportunities to supplement the rental income from the investment portfolio.

Encouragement can be drawn from the positive outcome of the revaluation of certain land assets which, as noted above, cannot be reflected in the group accounts. It is a recognition, in part, of the underlying strength of Midpoint 18, the group's Middlewich estate close to Junction 18 of the M6 motorway, which is the proposed location for the recently announced rural business hub, to be known as "Cheshire Fresh". Midpoint 18 is well located for motorway dependent logistics development which is currently the subject of heightened demand, partly resulting from the burgeoning "click and collect" internet based retailing market.

Since the year end, the group has disposed of its interest in the assets and business of Keele Park Developments Limited and has discharged its associated guarantee obligations within the previously reported provision. The carrying value of the only remaining significant joint venture, at Deeside, has been reduced to reflect the recently undertaken valuation. Despite this, the joint venture's complicated development proposals have considerable potential were they to gain the necessary local and regional authorities' support.

The group now employs 158 people (2012: 266) following the disposal of the concrete pumping business in July 2012. The cost cutting which accompanied that business leaving the group, together with the additional pressure on the construction division resulting from major projects out of its local region, have combined to make increased demands on all employees. Their efforts in these circumstances, and in the continuing difficult trading conditions, are greatly appreciated. While all costs remain under regular review, the central overhead is now at a minimum level consistent with the obligations of a listed public company.

The group's level of indebtedness fell during the year and further progress has been made since the year end. Bank facilities were renewed in October 2012 with The Royal Bank of Scotland plc, the group's principal banker, and with Nationwide Building Society in July this year. Despite the falls in asset values determined by the recent property revaluations, the overall loan to value ratio remains relatively modest and in accordance with covenant obligations.

In recent years the group has endured unrelentingly tough conditions in its markets, with consequential painful outcomes for both employees and shareholders. Though considerably reduced in size, having taken radical measures to extract itself from loss making activities and damaging joint ventures, the group is now in a position to take advantage of the improved sentiment which is emerging in its remaining areas of activity.

Richard Fildes

Chairman

26 September 2013

Enquiries:

Pochin's PLC

John Moss, Chief Executive 01606 833 333

Nigel Rawlings, Finance Director 01606 833 333

Charles Stanley Securities

Russell Cook/Carl Holmes 020 7149 6476

Business review

Group overview

The decision made last year to streamline the group into two core operating divisions has been vindicated by delivering consistent performance, enabling the business to be more competitive and minimising the risk to its stakeholders. The decision to maintain core skills and capabilities has also paid dividends, allowing the group to continue to provide the high level of service and added value to all clients and stakeholders, a reputation for which it is well recognised and rightly proud. The high level of repeat business in the construction business (64%) has been achieved by maintaining the Pochin values of quality, safety and sustainability, in addition to delivering a first class product.

This strategy has proven successful despite the continued downturn in the wider property and construction markets, with group turnover increasing from £71.6m to £78.0m (excluding the concrete pumping business sold in July 2012) whilst reducing overheads. Activity in the property division improved due chiefly to the sale of non-income producing assets, delivering improved revenues of £6.5m (2012: £4.9m). Construction also delivered improved revenues of £73.7m (2012: £68.4m).

The two core divisions of construction and property are now set up to react quickly and independently to rapidly changing market conditions, but can work together to deliver an integrated product in order to meet client needs.

As part of the declared group strategy to reduce the risk associated with joint venture commitments, the Keele Park Developments Limited joint venture has been exited since the year end and full control has been taken of the Hawarden Business Park Limited joint venture. This leaves only the Pochin Goodman (Northern Gateway) Limited joint venture at Deeside, which has no external debt and therefore the risk is controlled.

As always, the values and principles of the business can only be upheld through the loyalty and dedication of our staff who remain the key asset to the business. The group recognises the contribution made by its employees through what continue to be difficult trading conditions and is grateful for all their efforts. The number of employees is now 158 (2012: 266), reflecting the sale of the concrete pumping business in July 2012.

The UK construction industry statistics showed a drop of 8.1% in total new (non-housing) work in 2012 and this trend is set to continue into 2013, with a further drop forecast of 3%. Beyond that, most forecasters are predicting only a modest return to growth. The forecasts for the North West region are not as positive as those for the whole of the UK, reflecting the widely publicised North-South divide. The decision has therefore been made to continue to work outside the preferred North West and North Wales areas for known and valued clients and it is worth noting that during the year the construction division has generated 50% of its revenue from work undertaken in London, Edinburgh and the Midlands.

There was an underlying operating profit before tax from continuing activities of £2.4m (2012: £2.0m) on revenues of £78.0m (2012: £71.6m), as detailed in the table below. Unfortunately, the performance of the property division has suffered as a result of falling valuations in its investment portfolio. Whilst yields on primary stock have held firm, secondary stock yields have risen. It is this deterioration in secondary property values that has generated reduced valuations in the property portfolio and has resulted in a declared loss before tax from continuing operations of £6.7m (2012: £1.1m loss).

Divisional review

Construction

After a relatively slow start to the year, the performance of the division improved rapidly as large student accommodation refurbishment schemes in Nottingham and Leeds were executed over the summer months. Thereafter, a steady workload avoided peaks and troughs in performance and the careful management of key resources avoided the need to employ staff with no return between contracts. The Edinburgh student accommodation scheme for 770 apartments was the anchor project in the year, generating turnover of £22m. It is noticeable that large schemes of this nature are becoming harder to identify and secure, but through good client relationships the division has won several schemes in the £10m - £15m turnover range that have secured the majority of its forecast turnover in the current financial year. These include a £10m project for a hotel refurbishment and extension in Nantwich, Cheshire, a £14m student accommodation scheme and a £12m residential refurbishment scheme in Liverpool, and a project for Christies Hospital in Manchester.

One disappointment to note in this year's trading has been the number of failures within the supply chain, affecting the profit margin on some contracts. Whilst there are robust systems in place to check the credit status of subcontractors and suppliers, these have not always been capable of anticipating or identifying the problems experienced in the supply chain. It is only through diligent management and long established relationships across the wider supply chain that the effect of such failures has been limited. In a similar vein, a limited number of clients have defaulted on their payments, requiring more careful analysis of a client's status during the tendering process.

Despite these setbacks and in a shrinking market, the division broke even (2012: £0.4m profit).

With public (non-housing) work in the construction industry down 21% over the year, the policy to maintain close relationships with the private sector has paid dividends, with over 80% of work coming from private sector clients. With the predicted upturn in public sector spending being concentrated on infrastructure and support for housing projects, it is recognised that private sector funding will continue to dominate in the short term. To this end, the division has worked hard to achieve a balanced portfolio of private sector work, including projects across the leisure, commercial, industrial, residential, health and education sectors. In the meantime, relationships with public sector clients and the track record of delivery are being maintained. The heavy bias towards residential in the year is due to the large turnover from the student accommodation schemes, most notably at Edinburgh.

Regional fortunes have varied in the construction industry over the year, with one of the hardest hit areas being the North of England. To maintain revenue and margins, the division has continued to pursue work for known clients away from its traditional home territory. The volume of these contacts has been limited intentionally to one third of annual turnover in order to minimise overexposure and to ensure sufficient staff are available to travel to these locations and uphold the Pochin values.

Whilst the need to deliver small projects for regular clients is still recognised, it was decided during the year to close Special Projects as an entity and deliver these smaller projects through general operations. This has delivered savings through improved sharing of resources and yet has still provided continuity for clients that require both small and large projects.

The Pochin values that go beyond just doing a good job continue to provide a focus on safety, sustainability, corporate social responsibility and, most of all, staff wellbeing. It is therefore pleasing to note that once more these efforts have been recognised with the following achievements secured during the year:

· a RoSPA Gold Award for Safety and a Gold Medal in recognition of five consecutive annual gold awards;

· advancing from Standard to Bronze accreditation with Investors in People;

· a gold Considerate Constructors "National Site Award Winner" at Buxton;

· placed in the top 10% of Considerate Constructors in the country; and

· completion of two contracts to "excellent" BREEAM standards and five contracts to "very good" BREEAM standards.

Property

Throughout the year, secondary property values continued to weaken in the North West where the market remains poor. Development opportunities were similarly weak, although there were some promising signs of recovery in the industrial sector in the latter part of the year. With this backdrop, a cautious strategy has been maintained and the focus has remained on the reduction of debt through the selective disposal of non-income producing assets.

Disposals in the year included a further tranche of land to Bloor Homes Limited at Ellesmere, Shropshire and another contracted to Persimmon Homes Limited at the same location. The strategy to sell residential property at Trinity Court, Holyhead and at Cockshutt and Whitchurch in Shropshire has continued, with these sites being actively marketed. Planning permission for residential use has also been secured for a total of 83 units at Stanley Pottery, Burslem, allowing for the marketing of this site to commence.

Two major initiatives are underway at Midpoint 18 in Middlewich, one for the construction of the Middlewich bypass and the other to create a rural business hub, branded as "Cheshire Fresh". With regard to the first, Regional Growth Funding of £4.1m has been secured and other opportunities for funding are now being explored, with a view to opening up development opportunities at the southern end of the site. The second is an exciting scheme to bring together two local auctioneers and agents, to create a rural business hub that would then support other retail and agriculture related businesses. Efforts are currently being made to secure planning permission and raise funds to deliver this project.

In the year, the office development for TATA Chemicals Europe at Northwich was completed and it is hoped future work will be secured on the same site. Work also started on the Altrincham Hospital scheme for Central Manchester University Hospital NHS Foundation Trust, with the construction division acting as the main contractor. This £9m project demonstrates the benefits of working jointly across the group in order to maximise value and quality for clients. Other schemes are being reviewed, but only where an end user has been secured.

Underlying these development initiatives, a solid investment portfolio with 91.5% occupancy levels has been maintained through good property management.

Property valuation

At the year end, a full independent valuation of the group's property held as premises, investments and inventories was undertaken by Knight Frank. Properties held as inventories were marked down by £2.2m and a deficit arose on revaluation of premises and investment properties of £4.5m. This reduction was partly offset by an excess over book value of £3.4m in the value of certain land assets, however, because these are held as inventory items their revaluation cannot be reflected in the accounts. Property valuations have been impacted adversely by a number of factors most of which arose in the year ended 31 May 2013, including a single occupier vacating the Emperor Court office building in Crewe and a weak local office market, the impact of short term leases, rent free periods and stepped rents generally, planning delays at the Stanley Pottery site and the Enterprise Zone created in Anglesey, which is in competition with the group's Bryn Cegin site near Bangor.

Joint ventures

After the year end, the group disposed of its interest in the assets and business of Keele Park Developments Limited and discharged its associated guarantee obligations in line with the previously reported provision of £1.2m. This leaves only one remaining significant joint venture of value on the group balance sheet, namely Pochin Goodman (Northern Gateway) Limited. The property held in this joint venture was independently valued by Jones Lang Lasalle at the year end, resulting in an impairment of value of £1.5m in the carrying value of the group's interest in the joint venture.

Balance sheet

The impact of the above on the group balance sheet is shown below:

If the land assets referred to above were to be shown on the balance sheet at their fair value rather than at their historical cost, then the net assets would increase by £3.4m to £15.9m at 31 May 2013.

Long term payables include the liability for defined benefit pension scheme obligations amounting to £2.2m (2012: £3.0m), which is calculated in accordance with IFRS.

Earnings per share and dividends

Basic and diluted earnings per share was -35.2p (2012: -16.0p). Basic and diluted earnings per share from continuing activities was -34.0p (2012: - 6.3p).

No final dividend is proposed resulting in a nil dividend for the year (2012: nil).

Cash flow and borrowings

Net debt reduced in the year as indicated below:

At 31 May 2013 total group borrowings were £25.8m (2012: £28.4m) and cash held on deposit was £1.8m (2012: £1.8m), resulting in a net debt position of £24.0m (2012: £26.6m).

Going concern

During the year, the group's borrowing facilities with its principal banker, The Royal Bank of Scotland plc, (RBS) were renewed until October 2014 and facilities with Nationwide Building Society (NBS) were renewed until March 2018.

The new facilities comprise investment loans of £17.9m (RBS) and £1.2m (NBS), an asset disposal loan of £4.4m (previously £5.4m and reduced on repayments since the year end to £2.75m) and an overdraft/multi-option facility of £4.1m (temporarily increased to £6.6m until December 2013). The loan agreement with RBS required the company, inter alia, to ensure that the net assets of the group did not fall below £19m at any time. As a result of the investment property revaluation deficit and fair value adjustments to inventories and investments, net assets did fall below this figure as at 31 May 2013. Subsequent to the year end, RBS has agreed that the net asset covenant test is amended to £12m. The board is comfortable that the covenant tests, as amended with the principal banker's agreement, will be complied with going forward. These facilities are secured against the group's assets.

Treasury and financing risk

The group continues to fund its operations through the use of cash, loans and various liquid resources such as debtors and trade creditors. Treasury management is performed by the finance department through implementation of the group's treasury policy, which is the responsibility of the finance committee. This remit includes development of relationships with principal funders, management of interest rates and liquidity risk. The finance committee is responsible to the main board.

The group has no fixed interest rate borrowings and reviews the need to hedge against interest rate movements continually. There are currently no swap arrangements fixing LIBOR exposure. This allows the group to benefit across all of its facilities from the continued low floating rate of LIBOR, which in part, compensates for the higher commercial rates being charged by the banks and is appropriate given the relatively short term nature of the group's debt.

There remain no external loans relating to joint venture entities, to which the group has exposure. As a consequence, the group regularly reviews the risk of exposure to interest rate movements with its partners and, where appropriate, hedges against that risk on a project by project basis.

The group continues to have minimal exposure to foreign currency exchange risk and accordingly does not require a policy to hedge such exposure.

Pensions

The defined benefit (DB) pension scheme obligations are shown in the group balance sheet and movement during the year is reflected in the statement of comprehensive income. The actuarial surplus arising in the year, calculated in accordance with IAS19, is reported as £0.7m (2012: £2.2m deficit). Unlike the triennial valuation, IAS19 requires the scheme liabilities to be valued on the basis of corporate bond yields as at 31 May 2013 with the scheme assets being taken at market value.

Total contributions paid during the year to the DB scheme recovery plan were £0.1m (2012: £0.1m). Payments to the defined contribution scheme for existing employees were £0.3m (2012: £0.3m).

Financial reporting

The consolidated financial statements have been produced in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. There have been no changes to the IFRS requirements this year that have a material impact on the group results.

John Moss Nigel Rawlings

Chief Executive Finance Director

26 September 2013

Consolidated income statement

For the year ended 31 May 2013

Consolidated statement of comprehensive income

For the year ended 31 May 2013

Consolidated statement of changes in equity

For the year ended 31 May 2013

Consolidated balance sheet

As at 31 May 2013

Consolidated cash flow statement

For the year ended 31 May 2013

Notes to the preliminary results

1 Basis of preparation

The preliminary announcement is prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. This announcement does not itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of this preliminary announcement have remained unchanged from those set out in the 2012 annual report. They are also consistent with those in the full financial statements which have yet to be published.

The Board of Directors approved the preliminary announcement on 26 September 2013.

The financial information set out in this preliminary announcement does not constitute the group's financial statements for the years ended 31 May 2013 and 2012. The financial information for the year ended 31 May 2012 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The statutory annual accounts for the year ended 31 May 2013, upon which an unqualified audit opinion has been given and which did not contain a statement under sections 498 (2) and 498 (3) of the Companies Act 2006, will be sent to the Registrar of Companies following the Company's annual general meeting.

Going concern

The directors continued to take steps during the year to settle the group's exposure to a significant parent company guarantee arrangement with a joint venture party and subsequent to the year end this exposure has been discharged in full at a cost in line with the previously taken provision of £1.2m.

During the year, and following the disposal of Pochin Concrete Pumping Limited, the group successfully renegotiated its borrowing facilities with RBS to October 2014 and the board are comfortable that covenant tests, as amended with the group's principal bankers agreement, will be complied with going forward.

As part of the refinancing process, the directors prepared a business plan together with forecasts to May 2015. These forecasts take account of reasonable changes in trading performance, the satisfaction of remaining parent company guarantee arrangements and other potential liabilities and show that the group should be able to operate within the level of its revised facilities.On this basis and after making enquires, the directors have a reasonable expectation that the group and company has adequate resources to continue in operational existence for the foreseeable future, develop its property portfolio and advance its agreed business plan. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

2 Segmental information

Operating segments have been determined based on the reports regularly reviewed by the group board and which are used to make strategic and operational decisions. The group board, excluding non-executive directors, is considered to be the CODM and reviews the segments based on the nature of the services provided.

The group is organised into two operating business segments based on the different services provided by each division: Construction and Property development and investment. The concrete pumping segment was previously classified as discontinued.

As operations are carried out entirely within the UK, there is no further consideration of information on geographical areas in determining the groups operating segments. The measurement policies used for segment reporting reflect those used for internal reporting and for the group's financial statements. Inter-segmental pricing is done on an arms length open market basis.

Within the construction segment, external sales of £21,888,000 (31%) arise from customer A, that individually account for more than 10 per cent of the entity's revenues. This one customer is also considered to be a major customer.

Within the construction segment, external sales of £28,360,000 (43%) arise from customer A £6,900,000 (10%), customer B £7,800,000 (12%) and customer C £13,660,000 (21%) that individually account for more than 10 per cent of the entity's revenues.

3 Disposal group classified as held for sale

Pochin Concrete Pumping Limited has been treated as a discontinued operation and the business was sold as a going concern on 31 July 2012. The results of this operation are summarised below:

All below amounts are attributable to owners of the parent.

Included within the profit on remeasurement and cost of disposal above are impairments amounting to £nil (2012: £671,000).

4 (Losses)/earnings per share

The calculation of earnings per share (basic and diluted) is based on group loss after taxation and non-controlling interest of £7,163,000 (2012: £3,262,000) and the 20,800,000 ordinary shares of 25p in issue at 31 May 2013 and 31 May 2012. The number of shares used in the calculation has been reduced at 31 May 2013 for the 440,500 (2012: 440,500) shares held in the Employee Share Trust. The assumed conversion of dilutive options has no impact on the earnings per share because their conversion would reduce the loss per share from continuing operations and so diluted earnings per share is equal to basic earnings per share.

Dividends paid in the year

No dividends were paid during the year (2012: nil). The directors are not proposing a final dividend in respect of the financial year ending 31 May 2013.

5 Post balance sheet event

Since the year end, Pochin's PLC has acquired controlling interests in joint venture companies Hawarden Business Park Limited and Keele Park Developments Limited. Subsequently, Keele Park Developments Limited has been put in voluntary liquidation.

Since the year end, Pochin's PLC discharged its joint venture guarantee obligations in respect of Keele Park Developments Limited at a cost in line with the previously taken provision of £1.2m.

Since the year end, Pochin's PLC has received £2,600,000 in dividends from subsidiary companies.

6 Annual general meeting

The Annual General Meeting will be held at Mere Golf and Country Club (Riley Room), Chester Road, Mere, Knutsford, Cheshire WA16 6LJ on Thursday, 31 October 2013 at 10.30 am. The full annual report will be posted to shareholders on or before 9 October 2013. Copies will be available from the Company's website (www.pochins.plc.uk).