28th Mar 2019 07:00
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).
NMCN PLC
FINAL RESULTS
nmcn PLC ("the Company" or "the Group" or "nmcn"), a leading engineering and construction company, delivering major water, built environment and critical national infrastructure projects across the UK, announces its final results for the year ended 31 December 2018.
Highlights from the results:-
|
| Previouslyreported | As restated |
| Year ended | Year ended | Year ended |
| 31-Dec | 31-Dec | 31-Dec |
| 2018 | 2017 | 2017 |
| £'000 | £'000 | £'000 |
|
|
|
|
Revenue | 340,450 | 291,770 | 302,310 |
|
|
|
|
Profit before tax | 6,028 | 1,004 | 9,113 |
|
|
|
|
Profit before tax and non-recurring items | 7,893 | 8,296 | 10,556 |
|
|
|
|
Earnings per share | 47.66p | 7.31p | 71.22p |
|
|
|
|
Earnings per share before non-recurring items | 62.57p | 65.33p | 82.71p |
|
|
|
|
Cash balance | 33,353 | 17,006 | 17,006 |
|
|
|
|
Interim dividend per share | 6.0p | 3.0p | 3.0p |
Final dividend per share (proposed) | 12.0p | 3.0p | 3.0p |
Total dividend per share | 18.0p | 6.0p | 6.0p |
For further information:-
John Homer, Chief Executive - 01623 515008
Daniel Taylor, Chief Financial Officer - 01623 515008
Financial Highlights
· Profit before tax increased to £6.03 million, from £1.00 million as previously reported in the 2017 Annual Report and Accounts.
· Revenue increased to £340.45 million.
· Profit before tax and non-recurring items totalled £7.89 million; solid progress across all business units with the exception of Telecoms.
· Secured workload for 2019 stands at circa £320 million, 7% ahead of last year's opening position; representing just over 90% of anticipated revenue for 2019
· Increased total dividend proposed to 18.0p (2017: 6.0p), increase of 300%
· Cash position further strengthened with year-end balance of £33.35 million (increase of £16.35 million).
John Homer - Chief Executive - Commented:
These results demonstrate further advancement against the targets in our strategic plan. They mark the achievement of a respectable milestone on headline key performance measures and provide a solid platform for further progress.
Our performance on cash management is particularly pleasing, with a strong year-end balance and net cash throughout the year. The strength of our ongoing operations allows us to continue to exercise rigour in the work that we chose to take on.
There are positive signs of continued opportunities for us to grow in our chosen market sectors. Our forward order book is just over 90% of anticipated revenue for the year ahead with a healthy pipeline of future opportunities available.
The future trading prospects look positive as we continue to progress our strategic plan. Our people remain the overarching differentiator and the driver for continued success. We will maintain our investment in the development of our talent pool.
OUR OPERATING AND FINANCIAL REVIEW
Overview of 2018
The Group has continued to make good progress this year and has delivered an acceptable quality of earnings within difficult market conditions for construction generally. It has also largely resolved all legacy contract disputes and has continued to strengthen its balance sheet position. Further investment has been made in adherence of governance controls to manage risk, and into the development of our people to meet the increasing demands of our customers for a high-quality service.
The Group is well positioned to take advantage of the increase in infrastructure spending plans that prevail, with a cautious view on the continuing Brexit uncertainty for the wider UK economy. The net return on revenues is encouraging, but has been impacted by the poor margins achieved in our Telecoms business unit, due to an ongoing framework with its principal customer, which is due to expire in April 2019.
The continuing profitability, cash generation and enhanced secured workload for 2019 are further significant positives which give the Board confidence for the Group's future.
Group structure
Our operational activities are divided into two operating segments, Water and Built Environment ("Our segments"). These segments are clearly defined, based on the differing services they provide to the distinct clients that they serve.
The operating segments are serviced by five business units. Each business unit has a clear, focused offering to the customers that they serve. These business units have the skills and experience to meet the needs of our customers and work effectively in these markets. This allows them to provide expert contribution and innovation to achieve added value to the work streams.
Group financial performance
|
| Previouslyreported | As restated |
| Year ended | Year ended | Year ended |
| 31-Dec | 31-Dec | 31-Dec |
| 2018 | 2017 | 2017 |
| £'000 | £'000 | £'000 |
|
|
|
|
Revenue | 340,450 | 291,770 | 302,310 |
|
|
|
|
Profit before tax | 6,028 | 1,004 | 9,113 |
|
|
|
|
Profit before tax and non-recurring items | 7,893 | 8,296 | 10,556 |
|
|
|
|
Earnings per share | 47.66p | 7.31p | 71.22p |
|
|
|
|
Earnings per share before non-recurring items | 62.57p | 65.33p | 82.71p |
|
|
|
|
Cash balance | 33,353 | 17,006 | 17,006 |
|
|
|
|
Interim dividend per share | 6.0p | 3.0p | 3.0p |
Final dividend per share (proposed) | 12.0p | 3.0p | 3.0p |
Total dividend per share | 18.0p | 6.0p | 6.0p |
Profit before tax for the year totalled £6.03 million compared to £1.00 million reported in the 2017 Annual Report and Accounts. Whilst the Group has implemented IFRS 15 Revenue from Contracts with Customers ("IFRS 15") using the full retrospective method, the restatement does not change overall shareholder value but re-allocates revenue and profitability to different accounting periods, the effect of which has increased profits for 2017 as losses (mainly associated with the legacy contracts) have been allocated to earlier years. Profit before tax and non-recurring items for the year ended 31 December 2018 amounted to £7.89 million compared to £10.56 million for 2017 as restated. Solid progress has been achieved across most business units and sectors. The Telecoms business incurred greater losses, however, and future business with its principal customer is under review. Results overall for the year were marginally better than the Board's expectations. Profit before tax amounted to £6.03 million (2017 restated: £9.11 million).
Water Segment
|
| As restated |
|
|
| Year ended31 Dec 2018 | Year ended31 Dec 2017 | Year on yearmovement | Year on yearmovement |
| £'000 | £'000 | £'000 | % |
|
|
|
|
|
Revenue | 244,580 | 170,498 | 74,082 |
43.5% |
|
|
|
|
|
Operating profit | 8,071 | 6,630 | 1,441 | 21.7% |
|
|
|
|
|
Operating profit margin | 3.3% | 3.9% |
| (0.6%) |
|
|
|
|
|
Secured workload | 211,319 | 209,742 | 1,577 | 0.8% |
Before non-recurring items as defined
The growth in revenue within the Water segment has been significant in the year and is up 43.5% on last year, an increase of £74.08 million as restated. The growth principally reflects our focus on delivering exceptional customer service and has been achieved through new framework awards, an increase in major infrastructure works, and the ongoing performance on our Asset Management Period ("AMP") 6 Frameworks, especially during the later years of an AMP cycle.
The operating profit of £8.07 million is a significant increase on last year, albeit operating margins were slightly lower as a result of investments for future years. The operating profit performance was above our anticipated strategic plans for the current financial year, being a year of transition between AMP cycles, and is extremely encouraging given the increased efficiencies required by our customers year on year in the Water industry.
There has been further investment in organisational capability during 2018, to maintain our competitive advantage and to ensure that we are best placed to deliver on the new major frameworks we have been awarded and expect to be awarded for 2019/20 and beyond. This investment has temporarily reduced the operating margins. The continued investment in our people and their development, to ensure the sustainability of the business, means the segment is cautiously optimistic for 2019. The secured workload for construction in 2019 is slightly ahead of the position in 2018, however there remains uncertainty in quarter 4 2019 and quarter 1 2020, in relation to visibility of workload due to the AMP transition period.
Built Environment
|
| As restated |
|
|
| Year ended31 Dec 2018 | Year ended31 Dec 2017 | Year on yearmovement | Year on yearmovement |
| £'000 | £'000 | £'000 | % |
|
|
|
|
|
Revenue | 95,870 | 131,812 | (35,943) |
(27.3%) |
|
|
|
|
|
Operating (loss) / profit | (95) | 4,113 | (4,208) | (102.3%) |
|
|
|
|
|
Operating profit margin | (0.1%) | 3.1% |
| (3.2%) |
|
|
|
|
|
Secured workload | 108,952 | 89,293 | 19,659 |
22.0% |
Before non-recurring items as defined
The Built Environment segment has suffered a reduction in revenue in the year of circa 27.3% to £95.87 million, which has created a marginal operating loss. As reported at the half year, the Telecoms business unit continued to be loss-making on the back of reduced levels of activity and difficulties on a term framework for our principal customer. A loss of £2.80 million was generated on lower revenues, when compare to a profit of £0.24 million in 2017 as restated. Excluding Telecoms, operating profit within the Built Environment segment was £2.71 million (2017 restated: £3.87 million), on significantly reduced revenue.
A restructure of the business unit to improve operating performance and align the business to the reduced levels of expenditure has been implemented and we are now seeing encouraging signs for 2019.
The Construction and Highways business units have continued to perform strongly in challenging market sectors, where delays from our customers due to the uncertainty surrounding Brexit has undoubtedly had an impact.
The Business segment has an order book for construction in 2019 of circa £109 million, an increase of 22% on the position last year. This coupled with a rigorous approach to contract selection and the rectification planned and forecast for the Telecoms business unit gives the board confidence for 2019 and beyond.
Non-recurring items
The non-recurring items in 2018 are in relation to the following items and amounted to £1.87 million (2017: £1.44 million) in total before tax. These items have been identified as items that are not attributed to the ongoing trading of the Group and are explained in the following paragraphs accordingly. The profit before non-recurring items is deemed by the Board to be an alternative performance measure ("APM"). The Group has used this APM to aid comparability of its performance and position between periods.
Legacy Contract costs (see below) accounted for £0.51 million of non-recurring costs in the period (2017: £1.44 million).
A specific provision was required in the year at a cost of £0.37 million (2017: £Nil), for an insolvent development customer. This does not give rise to an expected credit loss provision against trade receivables due to the unusual nature and requirements of the transaction. The Board is satisfied with the robust credit and collection controls in place across the business, which continue to be strengthened.
During the period, the Group rectified significant defective work of £0.47 million (2017: £Nil) as a result of a substandard product, provided by an aggregate supplier. This situation is unique and recovery is being progressed, however given the material nature of the amount being sought from the supplier a contingent asset has not been recognised in line with applicable accounting standards. This has led the Board to classify this item as non-recurring. Any recovery in future years will be treated in the same way.
During the year a non-recurring 'true-up' of the Directors' Performance Share Plan (PSP) expense, in relation to previous periods but impacting the current year, was recognised at £0.52 million (2017: £Nil). The true-up relates to the Remuneration Committee agreeing to exclude both positive and negative impacts from provisions in respect of the litigation related to the one remaining legacy contract across the three-year performance period. With the adjustments to exclude such provisions, the maximum targets were exceeded and the plan is expected to vest in full.
Legacy Contract
Legacy contracts are construction contracts entered into at the height of the recession, before 31 December 2013, and which carried a higher than normal contractual and commercial risk. These contracts have negatively impacted the Group's income statement in 2013 and subsequent years. Only one legacy contract now remains to be resolved.
The Group has been pursuing claims with the client for sums greater than the carrying value and will continue to do so until it is resolved. The Directors have sought to make the estimate as precise as possible by reflecting the views of independent quantum and legal experts who were appointed by the Directors for their ability, qualifications and experience in this field.
The independent quantum and legal experts, in conjunction with management, considered a number of factors when making their assessment, such as contractual terms, work performed, claims for variations, submissions for extensions of time, claims for loss and expense and expected time frames in which settlement is likely.
Whilst the Directors are making every effort to seek a swift resolution to the matter, they are committed to achieving the best possible result for the Group. The ultimate settlement of this matter may take in excess of twelve months to achieve.
Cash and working capital
It is very pleasing to report that actions taken to drive better cash management throughout the Group have led to a much improved cash balance of £33.35 million (2017: £17.01 million). In particular, improved disciplines around cash collection and upfront agreements on contractual terms have meant that despite a 12.6% increase in revenue the average credit period taken by customers has reduced to 28 days (2017: 32 days). The outflow of cash from the increased revenue amounted to £7.19 million (2017 restated: £11.87 million) across trade and other receivables. The average credit period taken on credit purchases has also reduced to 38 days (2017: 43 days) due to shorter terms being offered to maintain the best supply chain and achieve the most commercial pricing. The inflow of cash of £19.67 million (2017 restated: £10.73 million) is due to the increase in trade and other payables to £93.14 million (2017 restated: £73.47 million). This increase is due to timing of year end payments processed and also due to the increase in revenue and cash collection in the fourth quarter. Due to higher revenues this also impacted higher cost accruals, other taxes and social security and contract liabilities balances.
The Group ensures it has a sustainable working capital mix to support our growth across all contracts and segments and has re-secured its banking facilities in early 2019 to allow us to do this. We are also targeting further reductions to creditor payment terms to allow our supply chain to grow sustainably with us.
Any excess cash that is being generated by the business units is currently under strategic review. nmcn Investments continues to look for opportunistic ways of generating higher returns, in particular through high quality bespoke residential housing developments where our expertise can be utilised to greater effect. This investment stream is managed through a strict level of governance and Board oversight.
As a result of the Group's growth the net investment during the year on property, plant and equipment increased to £3.26 million (2017: £2.90 million), in line with the Group's strategy to purchase equipment where possible, rather than expense through operating leases. Following this investment in capital assets the closing net book value of non-current assets stood at £19.92 million (2017 restated: £18.17 million), which positions the Group to deliver its targeted growth through 2019 and beyond.
The non-cash charge for share-based payment expense of £1.07 million (2017: £Nil) has added to the operating cash generation. This was an additional expense in the year through the statement of comprehensive income, and the same amount has been credited directly to equity in line with applicable accounting standards, increasing the Group's reserves.
Taxation
The current tax charge of £1.19 million (2017 restated: £1.88 million) relates to tax on profits at 19% in addition to a reduction in the deferred tax rate applicable to taxable temporary differences. All trading group companies will be paying tax for 2019 and beyond as quarterly payments on account.
Dividend
Due to the strong performance of the Group during the year, the increase in cash reserves balanced with the need to restore the balance sheet after the impact of the legacy contracts over a sustained period, and a positive outlook for 2019, the Board is proposing to increase the final dividend to 12.0p (2017: 3.0p), taking the total dividend for the year to 18.0p (2017: 6.0p). The total dividend is covered 3.30 times (2017: 1.22 times).
Restatements
During the year, the Group implemented IFRS 15 and has restated its 2017 results using the full retrospective approach.
The Group made two further restatements to the 2017 financial statements which were both in relation to reclassifications only. The restatements have not impacted the total comprehensive income for the previous year or the total equity of the Group.
The Company reclassified an asset that was jointly owned from within contract assets to property, plant and equipment due to the long-term nature of the asset concerned. The net book value, and hence total adjustment at 31 December 2017 was £1.05 million. The Company also reclassified items between contract assets and accruals, increasing both by £3.69 million to better reflect the nature and timing of the transactions involved. The restatements combined also increased revenue and the related costs by £2.43 million.
Details of the restatements are set out in note 2.
Outlook
The UK construction industry is struggling to keep up with the demand to maintain the existing infrastructure and the need for investment to support future economic growth. The Group has established positions in these markets and is well situated to take advantage of the potential for further growth as well as the challenges faced by many high profile troubled competitors in the industry.
The Group is anticipating an inflationary growth rate in revenue for 2019 as it is a year of transition for the AMP frameworks in the water industry. The Group is currently prudently forecasting to achieve a progressive net return on revenues of circa 2% for 2019.
With just over 90% of our anticipated 2019 revenue having already been secured, and the expectation that the remainder will be determined from known frameworks or negotiated tenders, the Board in cautiously optimistic regarding the future quality of earnings increasing. The Board does remain cautious over any impact from Brexit and any impact from the AMP transition on the Group's major client's workload in the fourth quarter 2019 and first quarter of 2020. That said, we remain confident in the outlook for the Group and expect the positive progress achieved to continue into 2019 and beyond.
Group Statement of Comprehensive Income
| 2018 £'000 | 2018 £'000 | 2018 £'000 | 2017 £'000 | 2017 £'000 | 2017 £'000 |
| Total before non-recurring items | Non-recurring items Note 2.5 | Total | Total before non-recurring items | Non-recurring items Note 2.5 | Total |
|
|
|
| Restated |
|
|
Revenue | 340,450 | - | 340,450 | 302,310 | - | 302,310 |
Other operating income | 1,277 | - | 1,277 | 451 | - | 451 |
| 341,727 | - | 341,727 | 302,761 | - | 302,761 |
Share of profit of joint ventures | - | - | - | - | - | - |
Raw materials and consumables | (48,930) | - | (48,930) | (46,587) | - | (46,587) |
Other direct charges | (195,740) | (1,865) | (197,605) | (167,019) | (1,443) | (168,462) |
Employee costs | (78,633) | - | (78,633) | (69,486) | - | (69,486) |
Depreciation of property, plant and equipment | (4,166) | - | (4,166) | (3,599) | - | (3,599) |
Other operating charges | (6,282) | - | (6,282) | (5,327) | - | (5,327) |
Operating profit | 7,976 | (1,865) | 6,111 | 10,743 | (1,443) | 9,300 |
Finance income | 31 | - | 31 | - | - | - |
Finance costs | (114) | - | (114) | (187) | - | (187) |
Profit before tax | 7,893 | (1,865) | 6,028 | 10,556 | (1,443) | 9,113 |
Tax | (1,542) | 351 | (1,191) | (2,161) | 277 | (1,884) |
Profit and total comprehensive income for the year | 6,351 | (1,514) | 4,837 | 8,395 | (1,166) | 7,229 |
Attributable to: |
|
|
|
|
|
|
Equity holders of the Parent | 6,351 |
| 4,837 | 8,395 |
| 7,229 |
Profit per share - basic | 62.57p |
| 47.66p | 82.71p |
| 71.22p |
Profit per share - fully diluted | 59.29p |
| 45.16p | 82.71p |
| 71.22p |
Statements of changes in equity
Group | Share Capital £'000 | Merger Reserve £'000 | Share Based Payment Reserve £'000 | Capital Redemption Reserve £'000 | Retained Earnings £'000 | Total £'000 |
Balance at 31 December 2016 as previously reported | 1,015 | 455 | - | 20 | 11,209 | 12,699 |
Adjustment on adoption of IFRS 15 (Note 2) | - | - | - | - | (6,487) | (6,487) |
Balance at 1 January 2017 as restated | 1,015 | 455 | - | 20 | 4,722 | 6,212 |
Profit and total comprehensive income for the year as restated | - | - | - | - | 7,229 | 7,229 |
Dividends paid | - | - | - | - | (608) | (608) |
Balance at 31 December 2017 | 1,015 | 455 | - | 20 | 11,343 | 12,833 |
Profit and total comprehensive income for the year | - | - | - | - | 4,837 | 4,837 |
Share based payment expense | - | - | 1,069 | - | - | 1,069 |
Share based payment expense - deferred tax | - | - | 381 | - | - | 381 |
Dividends paid | - | - | - | - | (914) | (914) |
Balance at 31 December 2018 | 1,015 | 455 | 1,450 | 20 | 15,266 | 18,206 |
Company | Share Capital £'000 | Merger Reserve £'000 | Share Based Payment Reserve £'000 | Capital Redemption Reserve £'000 | Retained Earnings £'000 | Total £'000 |
Balance at 31 December 2016 as previously reported | 1,015 | 455 | - | 20 | 8,039 | 9,529 |
Adjustment on adoption of IFRS 15 (Note 2) | - | - | - | - | (6,439) | (6,439) |
Balance at 1 January 2017 as restated | 1,015 | 455 | - | 20 | 1,600 | 3,090 |
Profit and total comprehensive income for the year as restated | - | - | - | - | 6,687 | 6,687 |
Dividends paid | - | - | - | - | (608) | (608) |
Balance at 31 December 2017 | 1,015 | 455 | - | 20 | 7,679 | 9,169 |
Profit and total comprehensive income for the year | - | - | - | - | 4,249 | 4,249 |
Share based payment expense | - | - | 1,069 | - | - | 1,069 |
Share based payment expense - deferred tax | - | - | 381 | - | - | 381 |
Dividends paid | - | - | - | - | (914) | (914) |
Balance at 31 December 2018 | 1,015 | 455 | 1,450 | 20 | 11,014 | 13,954 |
Balance sheets as at 31 December 2018
| Group | Company | ||
| 2018 £'000 | 2017 £'000 | 2018 £'000 | 2017 £'000 |
Assets |
| Restated |
| Restated |
Non-current assets |
|
|
|
|
Property, plant and equipment | 19,918 | 18,174 | 19,918 | 18,173 |
Investments in subsidiaries | - | - | 2,437 | 2,437 |
Investments in joint ventures | - | - | 200 | - |
Deferred tax asset | 893 | 1,223 | 786 | 1,222 |
| 20,811 | 19,397 | 23,341 | 21,832 |
Current assets |
|
|
|
|
Inventories | 1,791 | 1,820 | 1,287 | 1,387 |
Trade and other receivables | 60,814 | 53,627 | 51,488 | 45,902 |
Cash and cash equivalents | 33,353 | 17,006 | 31,358 | 16,355 |
| 95,958 | 72,453 | 84,133 | 63,644 |
Total assets | 116,769 | 91,850 | 107,474 | 85,476 |
Equity and liabilities |
|
|
|
|
Capital and reserves attributable to equity holders of the Parent |
|
|
|
|
Share capital | 1,015 | 1,015 | 1,015 | 1,015 |
Share based payment reserve | 1,450 | - | 1,450 | - |
Merger reserve | 455 | 455 | 455 | 455 |
Capital redemption reserve | 20 | 20 | 20 | 20 |
Retained earnings | 15,266 | 11,343 | 11,014 | 7,679 |
Total equity | 18,206 | 12,833 | 13,954 | 9,169 |
|
|
|
|
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Obligations under finance leases | 2,329 | 2,514 | 2,329 | 2,514 |
Provisions | 350 | 404 | 350 | 404 |
| 2,679 | 2,918 | 2,679 | 2,918 |
Current liabilities |
|
|
|
|
Trade and other payables | 93,140 | 73,471 | 88,219 | 70,938 |
Current income tax payable | 157 | 177 | 35 | - |
Obligations under finance leases | 2,587 | 2,451 | 2,587 | 2,451 |
| 95,884 | 76,099 | 90,841 | 73,389 |
Total liabilities | 98,563 | 79,017 | 93,520 | 76,307 |
Total equity and liabilities | 116,769 | 91,850 | 107,474 | 85,476 |
Statement of cash flows for the year ended 31 December 2018
| Group | Company | ||
| 2018 £'000 | 2017 £'000 | 2018 £'000 | 2017 £'000 |
Cash flows from operating activities |
| Restated |
| Restated |
|
|
|
|
|
Operating profit | 6,111 | 9,300 | 4,849 | 8,239 |
Adjustment for: |
|
|
|
|
Depreciation of property, plant and equipment | 4,166 | 3,599 | 4,165 | 3,590 |
Gain on disposal of property, plant and equipment | (574) | (448) | (574) | (448) |
Share based payment expense | 1,069 | - | 1,069 | - |
Operating cash flows before movement in working capital | 10,772 | 12,451 | 9,509 | 11,381 |
Decrease in inventories | 29 | 245 | 100 | 157 |
Increase in receivables | (7,187) | (11,866) | (5,586) | (10,933) |
(Decrease) / increase in reinstatement provision | (54) | 10 | (54) | 10 |
Increase in payables | 19,669 | 10,732 | 17,281 | 10,639 |
Cash generated from operations | 23,229 | 11,572 | 21,250 | 11,254 |
Income tax (paid) / received | (500) | (91) | (87) | 17 |
Net cash generated from operations | 22,729 | 11,481 | 21,163 | 11,271 |
Cash flows from investing activities |
|
|
|
|
Purchase of property, plant and equipment | (3,263) | (2,897) | (3,263) | (2,897) |
Proceeds on disposal of property, plant and equipment | 930 | 580 | 930 | 580 |
Investment in joint ventures | - | - | (200) | - |
Interest received | 31 | - | 31 | - |
Interest paid | (4) | (79) | (4) | (79) |
Dividends received from subsidiaries | - | - | 422 | 350 |
Net cash used in investing activities | (2,306) | (2,396) | (2,084) | (2,046) |
Cash flows from financing activities |
|
|
|
|
Equity dividends paid | (914) | (608) | (914) | (608) |
Repayment of obligations under finance leases | (3,052) | (2,768) | (3,052) | (2,768) |
Interest payable under finance leases | (110) | (108) | (110) | (108) |
Net cash used in financing activities | (4,076) | (3,484) | (4,076) | (3,484) |
Net increase in cash and cash equivalents | 16,347 | 5,601 | 15,003 | 5,741 |
Cash and cash equivalents at 1 January | 17,006 | 11,405 | 16,355 | 10,614 |
Cash and cash equivalents at 31 December | 33,353 | 17,006 | 31,358 | 16,355 |
Cash and cash equivalents comprise funds held at the bank which are immediately accessible.
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| The condensed Group financial statements for the year ended 31 December 2018 included in this report do not constitute the Group's statutory accounts for the year ended 31 December 2018 but are derived from those accounts. The auditor has reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| While the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| The condensed Group financial statements have been prepared on a basis consistent with that adopted in the previous year's published financial statements and in accordance with IFRSs, with the exception of the change of accounting policy and other restatements described in note 2 below. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| The Group expects to publish statutory financial statements for the year ended 31 December 2018 that comply with both IFRSs as adopted for use in the European Union and IFRSs as compliant with the Companies Act 2006 and Article 4 of the EU IAS Regulations based on the information presented in this announcement. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| The condensed financial statements were approved by the Board on 27 March 2019. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Audited statutory accounts for the year ended 31 December 2017 have been delivered to the registrar of companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
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2. | Change of Accounting Policy and Other Restatements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Except as described below, the accounting policies adopted in the preparation of the condensed Group financial statements for the year ended 31 December 2018 are consistent with the policies applied by the Group in its consolidated financial statements as at, and for the year ended 31 December 2017.
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2.1 | IFRS 15 Revenue from Contracts with Customers | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018.
IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. It replaces the separate models for goods, services and construction contracts previously included in IAS 11 Construction Contracts and IAS 18 Revenue. The effect of initially applying IFRS 15 is mostly attributed to the recognition criteria for variable income, which arises principally from variations in contract work, claims and incentive payments. Variable income is subject to a revenue constraint such that revenue may only be recognised to the extent that it is highly probable that a significant reversal in the amount of revenue recognised will not occur in future. Under IAS 11 an amount was included in contract revenue to the extent that it was probable that it would result in revenue, which required a lower level of certainty than under IFRS 15. As a result, revenue may be recognised later under IFRS 15 than under IAS 11.
The Group has applied IFRS 15 retrospectively using the practical expedient in paragraph C5(c) of IFRS 15, under which the Group does not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Group expects to recognise that amount as revenue for all reporting periods presented before 1 January 2018. The impact of the restatement on the prior year's results is shown in note 2.4.
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2.2 | IFRS 9 Financial Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Group has adopted IFRS 9 Financial Instruments from 1 January 2018.
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement and specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. The most significant area of change which could potentially have an effect on the Group's reported results is the "expected credit loss" model, under which an allowance for credit losses is calculated by considering the cash shortfalls that would be incurred in various default scenarios and multiplying the shortfalls by the probability of each scenario occurring.
Based on an assessment of historic credit losses on the Group's financial assets and the likelihood of the occurrence of future credit losses on existing financial assets, the Directors consider that there are no further material impairment losses to be recognised against the Group's financial assets.
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2.3 | Other restatements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| During the year, the Group made two further restatements to the 2017 financial statements which were both in relation to reclassifications only. The restatements have not impacted the total comprehensive income for the previous year or the total equity of the Group.
The Company reclassified an asset that was jointly owned from within contract assets to property, plant and equipment due to the long-term nature of the asset concerned. The net book value, and hence total adjustment at the 31 December 2017 was £1.05 million. The Company also reclassified items between contract assets and accruals, increasing both by £3.69 million to better reflect the nature and timing of the transactions involved. The restatements combined also increased revenue and the related costs by £2.43 million. The impact of the restatement on the prior year's results is shown in note 2.4.
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2.4 | Impact of restatements on the financial statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The following tables summarise the impact of adopting IFRS 15 on the Group's financial statements, as described in note 2.1, and the prior year restatements described in note 2.3. References to the specific changes to which those adjustments relate are presented in the table headings as required.
Impact on the Group statement of comprehensive income
Impact on the Group balance sheet
Impact on the Group statement of cash flows
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2.5 | Non-recurring items
The non-recurring items have been identified as such as they are not attributed to the ongoing trading of the Group and are explained in the following paragraphs accordingly. The profit before non-recurring items is deemed by the Board to be an alternative performance measure (APM). The Group has used this APM to aid comparability of its performance and position between periods.
The non-recurring items in 2018 are in relation to the following items and amounted to £1.87 million (2017: £1.44 million) in total before tax. Legacy Contract contracts accounted for £0.51 million of non-recurring costs in the period (2017: £1.44 million).
A specific provision was required in the year at a cost of £0.37 million (2017: £Nil), for an insolvent development customer. This does not give rise to an expected credit loss provision against trade receivables due to the unusual nature and requirements of the transaction. The Board is satisfied with the robust credit and collection controls in place across the business, which continue to be strengthened.
During the period, the Group rectified significant defective work of £0.47 million (2017: £Nil) as a result of a substandard product, provided by an aggregate supplier. This situation is unique and recovery is being progressed, however given the material nature of the amount being sought from the supplier a contingent asset has not been recognised in line with applicable accounting standards. This has led the Board to classify this item as non-recurring. Any recovery in future years will be treated in the same way.
During the year a non-recurring 'true-up' of the Directors' Performance Share Plan (PSP) cost expense, in relation to previous periods but impacting the current year, was recognised at £0.52 million (2017: £Nil). The true-up relates to the Remuneration Committee agreeing to exclude both positive and negative impacts from provisions in respect of the litigation related to the one remaining legacy contract across the three-year performance period. With the adjustments to exclude such provisions, the maximum targets were exceeded and the plan is expected to vest in full.
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3. | Segment reporting |
| The operating segment reporting format has been changed this year to align with the Group's current management and internal reporting structure.
The Group conducts business through two operating segments, Built Environment and Water. The Built Environment segment includes Construction, Power, Highways and Telecoms which were separately reported last year.
Further details of the operating segments activities is provided in our operational and financial review. |
Segment revenue and profit
Year ended 31 December 2018
| Built Environment £'000 | Water £'000 | Total before non-recurring items £'000 | Non-recurring items £'000 | Total |
Revenue |
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External sales | 95,870 | 244,580 | 340,450 | - | 340,450 |
Result before corporate expenses | 7,649 | 20,857 | 28,506 | (1,865) | 26,641 |
Corporate expenses | (7,744) | (12,786) | (20,530) | - | (20,530) |
Operating profit/(loss) | (95) | 8,071 | 7,976 | (1,865) | 6,111 |
Finance income |
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| 31 | - | 31 |
Finance costs |
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| (114) | - | (114) |
Profit before tax |
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| 7,893 | (1,865) | 6,028 |
Tax |
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| (1,542) | 351 | (1,191) |
Profit for the year |
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| 6,351 | (1,514) | 4,837 |
Year ended 31 December 2017
| Built Environment £'000 | Water £'000 | Total before non-recurring items £'000 | Non-recurring items £'000 | Total |
Revenue | Restated | Restated | Restated | Restated | Restated |
External sales | 131,812 | 170,498 | 302,310 | - | 302,310 |
Result before corporate expenses | 10,095 | 15,314 | 25,409 | (1,443) | 23,966 |
Corporate expenses | (5,982) | (8,684) | (14,666) | - | (14,666) |
Operating profit/(loss) | 4,113 | 6,630 | 10,743 | (1,443) | 9,300 |
Finance income |
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| - | - | - |
Finance costs |
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| (187) | - | (187) |
Profit before tax |
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| 10,556 | (1,443) | 9,113 |
Tax |
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| (2,161) | 277 | (1,884) |
Profit for the year |
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| 8,395 | (1,166) | 7,229 |
Segment assets
| 2018 £'000 | Restated 2017 £'000 |
Built Environment | 52,199 | 49,070 |
Water | 64,570 | 42,780 |
Total segment assets and consolidated total assets | 116,769 | 91,850 |
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Other segment information
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| Depreciation and amortisation | Additions to non-current assets | ||
| 2018 £'000 | 2017 £'000 | 2018 £'000 | 2017 £'000 |
Built Environment | 1,467 | 1,634 | 2,213 | 3,549 |
Water | 2,699 | 1,965 | 4,053 | 3,111 |
Total | 4,166 | 3,599 | 6,266 | 6,660 |
| There were no impairment losses recognised in respect of property, plant and equipment. All of the above relates to continuing operations and arose in the United Kingdom. Segment liabilities are not presented as they are not managed on a segment by segment basis. The results of each segment are not materially affected by seasonality. | |||
4. |
Information about major customer Revenue of approximately £172,523,000 (2017: £118,872,000) was derived from a single external customer within the Water segment. No other customer accounted for more than 10% of revenues.
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5. | Earnings per share | |||
| Basic earnings per share and diluted earnings per share are calculated on the profit attributable to equity holders of the parent of £4,837,000 (2017 restated: £7,229,000). The weighted average of 10,150,000 (2017: 10,150,000) shares in issue during the year is used for the basic earnings per share calculation only. For the diluted earnings per share calculation, the share awards granted under the performance share plan are considered to be contingently issuable shares that could potentially dilute basic earnings per share in the future and are included in the calculation. Although the decision has not been formally approved by the Remuneration Committee, it is anticipated that the performance share plan will issue shares on an after tax basis, therefore issuing 53% of the 1,059,752 awards that are expected to vest. Accordingly an additional 561,669 shares have been used to calculate fully diluted earnings per share (2017: Nil). | |||
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6. | Taxation | |||
| The provision for deferred tax is calculated based on the tax rates enacted or substantially enacted at the balance sheet date. The tax charge in the year arises from the taxable profits generated and the reversal of the deferred tax asset from previous years' trading losses. There are no unrecognised trading losses carried forward (2017: £nil).
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Group's future current tax charge accordingly. The deferred tax asset at 31 December 2018 has been calculated based on these rates. | |||
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7. | Dividends | |||
| Amounts recognised as distributions to equity holders in the year: | |||
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| 2018 |
| 2017 |
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| £'000 |
| £'000 |
| Final dividend for the year ended 31 December 2017 of 3p (2016: 3p) per share | 305 |
| 303 |
| Interim dividend for the year ended 31 December 2018 of 6p (2017: 3p) per share | 609 |
| 305 |
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| 914 |
| 608 |
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| The Directors recommend a final dividend of 12p per share for the year ended 31 December 2018 (2017: 3p). Subject to approval at the Company's Annual General Meeting, the final dividend of 12.0p per share will be paid on 24 May 2019. The ex-dividend date is 2 May 2019 and the record date for the final dividend is 3 May 2019. | |||
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8. | Related parties and joint arrangements | |||
| The Group's related parties are key management personnel who are the executive directors, non-executive directors and business unit managers. The only transactions with these individuals comprise remuneration under service contracts. | |||
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| Additionally, the Group has the following interests in joint operations and joint ventures;
Joint operations
Ambergate Working Alliance - (Construction of reinforced concrete covered storage reservoir, Ambergate UK) 50% interest in a joint operation with Laing O'Rourke Imtech.
BAMNomenca - (Water projects for South East Water) 50% interest in a joint operation with Bam Nuttall Limited.
BNM Alliance - (Construction of Elan Valley Aqueduct scheme and Newark Sewer Strategy scheme) 50% interest in a joint operation with Barhale Limited.
The ASP Batch Joint Venture - (Waste Water Major Projects, Coventry UK) 33% interest in a joint operation with Mott MacDonald Bentley Limited and Costain Limited.
DNM Alliance - (Water Projects for Severn Trent Water) 50% interest in a joint operation with Doosan Enpure Limited.
All joint operation activities are strategic to the Group and its Water operating segment.
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| The condensed Group financial statements for the year ended 31 December 2018 incorporate the following relating to the joint operations: | |||
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| Year ended | Year ended |
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| 31 December 2018 | 31 December 2017 |
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| £'000 | £'000 |
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| Restated |
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| Revenue | 74,293 | 45,840 |
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| Expenses | 74,010 | 43,679 |
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| Assets | 3,603 | 3,082 |
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| Liabilities | 16,599 | 3,082 |
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Joint ventures
E&P Enderleigh Ltd - (Development of residential property)
50% interest in a joint venture with Earl & Pelham Ltd
BENMC Alliance (Roundhills) Ltd - (Development of residential property)
50% interest in a joint venture with Brooklyn Ellis Ltd
Springfield ECO Ltd - (Development of residential property)
50% interest in a joint venture with Stagfield Group Ltd
During the year ended 31 December 2018 the Company provided services to its joint ventures as follows:
| Construction and financing services | Amounts due from joint ventures | ||
| 2018 £'000 | 2017 £'000 | 2018 £'000 | 2017 £'000 |
E&P Enderleigh Ltd | 2,537 | - | 3,056 | - |
BENMC Alliance (Roundhills) Ltd | 785 | - | 1,414 | - |
Springfield ECO Ltd | 665 | - | 4,344 | - |
Total | 3,987 | - | 8,814 | - |
9. | Share capital |
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| 2018 |
| 2017 | |||
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| £'000 |
| £'000 | |||
| Allotted, issued and fully paid: |
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| 10,150,000 (2015 - 10,150,000) ordinary shares of 10p | 1,015 |
| 1,015 | |||
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10. | Contingent liabilities | ||||||
| Aviva Insurance Limited, Lloyds Bank PLC, and HCC International Insurance Company Plc have given Performance Bonds to a value of £8,883,000 (2017: £6,010,000) on the Group's behalf. These bonds have been made with recourse to the Group.
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11. | The Annual Report and Accounts for the year ended 31 December 2018 will be despatched to shareholders on or around 23 April 2019 and will be available on the Company's website - www.nmcn.com. | ||||||
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12. | The Annual General Meeting will be held on Thursday 16 May 2019 at 12.00 noon at the Group's Head Office at Nunn Close, The County Estate, Huthwaite, Sutton-in-Ashfield, Nottinghamshire NG17 2HW. | ||||||
Related Shares:
NMCN.L