Final Results

NORTH MIDLAND CONSTRUCTION PLC

2011 PRELIMINARY RESULTS

North Midland Construction PLC ("the Company") the UK provider of civil engineering, building, mechanical and electrical services to public and private organisations, announces preliminary results for the year ended 31 December 2011.

Highlights from the results and the Chairman's Statement:-

·; Revenue increased by 1.6% to £167.2 million.

·; Loss before tax £0.78 million.

·; The appeal against the Office of Fair Trading fine and costs were successful, which resulted in  an exceptional profit of £1.25 million.

·; The E5 Joint Venture with three other framework contractors has commenced on the £200 million Severn Trent Water major capital schemes programme.

·; Building subsidiary incurred large losses due to problems on three projects, which has also resulted in the write off of goodwill of £1.26 million.

·; Restructuring of the Building subsidiary has taken place with its incorporation into the Civil Engineering division under new management.

·; Cash inflow of £0.3 million during year.

·; Secured workload for 2012 at £125 million.

·; The Group has numerous long term framework agreements in place.

·; Proposed final dividend of 3.0p (2010 - 6.0p) giving a full year dividend of 5.50p (2010 - 8.50p).

For further information:-

Robert Moyle, Chairman - 01623 518812

Michael Garratt, Finance Director - 01623 518816

Chairman's Statement

As highlighted in our trading update on 23 February 2012, serious problems experienced within the building subsidiary has caused a Group loss of £0.78 million (2010: £3.71 million profit) before tax on revenue increased by 1.6% to £167.2million. Due to the poor performance of the building subsidiary, the Board has reviewed the value of goodwill which had a carrying value of £1.26 million, and has determined to provide in full against this amount. This is a one-off non cash accounting adjustment, which cancels out the exceptional profit of £1.25 million as a result of the reduction in the OFT fine and reimbursement of a proportion of the legal costs of the defence.

In spite of the difficult economic climate, progress was made in other sections of the Group divisions and a breakdown is provided below.

Civil Engineering

Outside of the secured water industry frameworks, the prevailing economic climate led to reduced tendering opportunities and high sales costs, which rendered a poor return, due to either the cancellation or deferment of a number of projects. Hence, revenue declined by 31% to £35.3 million and operating profits by 16.7% to £1.63 million. The results incorporate those of the sub division NMCNomenca, which delivered an enhanced performance over the previous year. NMCNomenca is also an equal partner, with the three other framework contractors, in the E5 consortium formed to undertake a £200 million major projects programme for Severn Trent Water. This is in addition to the existing framework. This company has recently commenced work on the reconstruction of Stoke Bardolph WTW. Progress has been made in the expansion of NMCNomenca outside of Severn Trent Water and it is the intention to use NMCNomenca as the foundation for a national water business, as confidence is high that the business model and core capability is particularly attractive to the water industry. The division is also heavily engaged in the power, waste and rail sectors, but margins remain extremely competitive.

In response to the difficult conditions currently being experienced and the problems within the building subsidiary, a restructuring has been instigated both to improve performance and reduce cost. The building subsidiary and the civil engineering division have been incorporated into one entity, namely the "Building and Civil Engineering" division, under the managing directorship of Mark Blakeway, an existing Main Board Director. NMCNomenca has become a stand alone division. Both of these initiatives were effective from 1 January 2012. The building subsidiary and civil engineering division, outside of the water industry, were complementary in many ways and confidence is high that these management and structural changes will deliver improved performance. As a testament to this, the division has recently been successful in securing a £6.3 million contract for Pedigree Petfoods, part of the Mars Group, in Melton Mowbray.

Highways

The division has delivered an exceptional performance, with revenue increasing by 39.6% to £18.8 million and operating profits by 285% to £0.83 million, in spite of major cutbacks within the public sector. Consolidation of the previous geographical expansion has taken place, most notably in the North West, and a particular expertise in public realm contracts has been established, with the latest secured scheme being a £2.2 million contract in Bridgend. Further success has been achieved in expanding the portfolio of frameworks, which now currently stands at seven.

Utilities

During the year the scale of the South Yorkshire Digital contract was reduced and this combined with the loss of the Virgin Media term contract mid-year reduced revenue by 20.0% to £32.2 million. Revenue primarily emanates from several fixed price term contracts for clients such as British Telecom, Cable & Wireless, Geo and K.Com. Price erosion, as some of these contracts reach the end of their duration, coupled with large increases in the price of fuel, has resulted in operating profits declining by 59% to £0.6 million. Work in progress, also, remains at a high level, due to payment terms being linked to a series of large milestones on particular contracts.

The replacement of the Virgin Media contract was of paramount importance in the short term and the division has been successful in obtaining new clients such as Energetics and Electricity North West. Term contracts for both BT and K.Com have been renewed in the last month.

Building

The building subsidiary has had a very difficult year, delivering an escalated loss on the previous year of £4.8 million, on revenues that were down by 24.2% to £16.7 million. Losses have primarily emanated from major delays and cost overruns on the most significant project being undertaken and major reverses on two other completed projects. A further review of the major project has revealed that the completion date has further extended into the second half of 2012, with subsequent increased anticipated cost overruns of £1.5 million, which have been provided for in the 2011 results. A significant claim for the losses incurred on this contract is currently being pursued.

Of all the sectors within the construction industry, building has been the most heavily affected by the current economic climate. Credit conditions are very tight and developers, for whom the subsidiary has a proven track record, are finding it extremely difficult to generate new projects. The market remains extremely competitive and the supply chain is finding survival extremely difficult, which has had a material effect on this company's business, particularly where the supply chain is either nominated or a specialist. Insufficient workload was secured during the year to contribute to full overhead recovery and this necessitated management change and cost reduction. As outlined above, the building subsidiary has been merged into the civil engineering division under a new management structure and with a reduction in overhead. This restructuring will enable the new division to operate effectively and profitably in what remains an extremely difficult market.

Nomenca

The mechanical and electrical subsidiary has been the beneficiary of increased expenditure by the water companies as the AMP5 programme is well underway. Revenue increased by 70.7% to a record £64.2 million, with profitability climbing 36.8% to £1.03 million. The company has secured seventeen water company frameworks throughout the country and services these, alongside other clients, through its network of regional offices established throughout the country. The expansion of the chemical dosing capability, with manufacturing undertaken in Warrington, has continued. Nomenca has now secured five frameworks for the manufacture and installation of chemical dosing rigs with different water companies.

Confidence is high that both Nomenca and NMCNomenca will be beneficiaries of the increased expenditure under AMP5.

Non Financial Performance

In an increasingly competitive environment, it is essential that non-financial performance attains the highest level, as it is evaluated by potential clients in pre-qualification submissions. It is, therefore, very gratifying to report that the Group was the recipient of a British Safety Council 4 star award during the year and that all divisions and subsidiaries achieved the ROSPA gold standard. In total 9 No. health and safety awards and 3 No. environmental awards were received during the year. The overall accident rate continues to be considerably below the national average. Total C02 emissions reduced by 10.3% to 1,013 tonnes on a revenue increased by 1.6%. Several CSR projects in the community were also undertaken during the year and details of these, alongwith other CSR data, are contained in this year's report. Construction remains a people business and the development and retention of a skilled and motivated workforce is essential. We have, therefore, maintained our training expenditure and the graduate and apprenticeship programmes. 2,148 training days were undertaken during the year equating to an average of 2.19 days per employee.

Financing

The Group's credit facilities remain adequate for the foreseeable future and there was a small cash improvement during the year. Cash at the year end stands at £9.23 million, an improvement of 3.6%.

Outlook

The secured order book for the current financial year is circa £125 million. The Board is confident that the restructuring and cost reduction measures that have been implemented will contribute to a return to growth. However, due to the poor results in the building subsidiary, the Board feels that it is necessary to recommend a reduction in the final dividend to 3.0 pence per share, making a total of 5.5 pence for the year.

Group statement of comprehensive income for the year ended 31 December 2011

The calculation of earnings per share is based on 9,800,000 shares (2010 : 9,800,000) being the number of shares in issue throughout the period and on a loss attributable to the equity shareholders of the parent of £757,000 (2010 : profit £2,518,000).

Group statement of changes in equity

Group balance sheet as at 31 December 2011

Group statement of cash flows for the year ended 31 December 2011