Preliminary Results

8th Apr 2009 14:12



NORTH MIDLAND CONSTRUCTION PLC

2008 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 2008.

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

	Year ended 31 December 2008 £'000	Year ended 31 December 2007 £'000
Revenue Profit before tax Profit for the year Earnings per share Dividends	202,215 2,875 2,034 18.65P 8.5p	211,294 3,120 2,192 16.54p 8.5p

Revenue and profits slightly reduced

Significantly reduced result from North Midland Building, due to economic climate

Utilities Division returns to profit

Severn Trent AMP5 Framework secured

£100 million workload being carried forward into the New Year

Proposed final dividend of 6.0p (2007 : 6.0p)

For further information:-

Robert Moyle, Chairman

North Midland Construction PLC - 01623 518812

Chairman's Statement

The results produced, in a particularly difficult economic climate, whilst below those of the preceding year are in excess of forecasts. Revenue declined by 4.3% to £202.2 million and profit before tax by 7.9% to £2.87 million. However I am pleased to report that earnings per share have increased by 12.7% to 18.65p as a result of the purchase of the minority interest in North Midland Building Limited. Profitability  was affected by three bad debts, which were incurred during the year, but it is heartening to note that all divisions and subsidiaries operated profitably, albeit at reduced levels, during the year.

The civil engineering division experienced a difficult year, with margins under pressure and tender opportunities being in decline, due to the general downturn in economic activity. Revenue declined to £79.5 million and profitability was £0.88 million before finance costs and tax. However, the division is participating in several framework contracts, most particularly in the water sector, and this to some extent provides an element of insulation against the vagaries of the market. Contractual resolution of two problematical contracts undertaken in 2007 at Halifax and Fiddlers Ferry still remains outstanding. Progress has been made, but not concluded, and the predicted outturn accounted for previously remains unaltered, although all operational costs incurred during the year have been absorbed in the 2008 results. The major project at Minworth, being undertaken in a joint venture with Biwater Treatment Limited, for Severn Trent Water, continues to be very successful and flows were turned on recently, which was a major milestone. The division, in partnership with Nomenca, has recently secured the AMP5 framework for Severn Trent Water, for infrastructure and non-infrastructure work, at an estimated value of £70 million per annum, commencing April 2010. The contract duration is for ten years, with a performance review after 5 years and annually thereafter.

The highways division experienced a difficult year, with profitability being reduced to £0.14 million because of one loss-making contract and a general tightening of margins. On a positive note, revenue increased by 6.6% to £13.4 million as a result of greater market penetration in existing areas and successful geographical expansion. Contracts of a higher notational value have been won and a healthy workload is currently in place.

The utilities division returned to profitability for the year, delivering a profit of £0.4 million on a revenue of £38.1 million. The division is fortunate to have secured several framework contracts in the telecommunications sector for major blue chip clients and whilst volumes may fluctuate considerably, these provide a base revenue and a high proportion of overhead recovery. The Fibrespeed project in North Wales, a major contract for the division, was successfully launched in November 2007 and predominantly completed during the year. The division has tendered for a significant volume of work and is cautiously optimistic about the outcome.

The "credit crunch" and the rapidity of its impact on the whole property sector severely damaged the building subsidiary, North Midland Building Limited. The cancellation and deferment of schemes, coupled with the almost collapse of the residential sector, caused revenue to fall by 21.3% to £29.5 million and profitability to £0.75 million. The receivership of two developers also resulted in bad debts of £367,000, due to the loss of retention monies on two completed projects. However, new clients were secured during the year, with the most notable being the successful construction of a motorway service area for Moto at Wetherby. Market conditions remain difficult, however the company has recently obtained orders to the value of £18 million.

Nomenca, the mechanical and electrical subsidiary, delivered a satisfactory result, with revenue climbing by 31.9% to £41.7 million, but with profitability declining by 13.4% to £1.16 million, partially due to the bad debt of £91,000, incurred by the receivership of Wrekin Construction, for whom the company had undertaken work on the railways. As with the civil engineering division, the subsidiary is involved in several frameworks, most particularly in the water sector, and these have provided valuable repeat business at a time of declining workloads in general industry. The successful expansion into Scotland has continued and further breakthroughs have been made with Thames Water and in the South West. The water divisions of both Nomenca and the civils division have been combined into a single entity, in the first instance to serve Severn Trent Water. This combined capability is key to the strategy for future expansion within the water sector. The successful, recent, bid for the Severn Trent water AMP5 programme is testament to this.

The maintenance of healthy cash flow, in these credit restricted times, is of paramount importance. The net cash outflow during the year was £6 million and was largely due to the purchase of the minority interest in North Midland Building and the imposition of more varied and onerous payment conditions. The Group has always operated within its facilities and these facilities have recently been successfully renewed. The situation showed improvement in the second half of the year and has continued into the current financial year.

It is particularly gratifying to be able to report on yet another year's improvement in Health and Safety performance. Great efforts have been expended in cultural change and they continue to deliver dividends. In the whole area of corporate social responsibility, great strides have been taken and it is a credit to the enthusiasm and commitment of both the workforce and the supply chain to embrace the targets and deliver the required initiatives.

The current share price and its impact on shareholder value is obviously of major concern for your Board, who take marginal comfort from the fact that in a recent publication the company was the second best performer in the construction sector in 2008. The state of the economy is of major concern and is impacting on the entire construction sector, with the building sector being the most significantly affected. A full review has been undertaken and cost reduction measures have been implemented across all divisions and subsidiaries. However, the Group has underpinned its growth over the last few years on securing framework contracts, at which it continues to be very successful. The secured workload for 2009 is £100 million and this gives your Board confidence in its forecasts for 2009. In spite of the challenging economic climate, your Board is keen to maintain the yield and, therefore, recommend a final dividend of 6.0p, making a total of 8.5p for the year.

R Moyle

Chairman

Consolidated income statement for the year ended 31 December 2008

	Year ended 31 December 2008 £'000		Year ended 31 December 2007 £'000
Revenue	202,215		211,294
Operating profit Finance costs	3,335 (460)		3,301 (181)
Profit before tax Tax	2,875 (841)		3,120 (928)
Profit for the year	2,034		2,192
Attributed to: Minority interest Equity holders of the Parent	206 1,828		571 1,621
Earnings per share	18.65p		16.54p
Amount of actual final dividend on ordinary shares proposed to the Shareholders on the register at the close of business on 1 May 2009, which will be paid on 29 May 2009.	6.00p		6.00p

The calculation of earnings per share is based on 9,800,000 shares (2007 : 9,800,000) being the number of shares in issue throughout the period and on a profit of £1,828,000 (2007 : £1,621,000).

Consolidated statement of changes in equity

							Year ended
	Year ended 31 December 2008						31 December 2007
	Total attributable to equity holders of the Parent £’000		Minority interest   £’000		Total equity   £’000		Total equity
Balance at 31 December 2007	17,810		1,259		19,069		17,935
Profit for the year	1,828		206		2,034		2,192
Dividends paid	(833)		(180)		(1,013)		(1,058)
Purchase of Minority Interest	-		(631)		(631)		-
Balance at 31 December 2008	18,805		654		19,459		19,069
The total attributable to equity holders of the Parent is the aggregate of share capital, capital redemption reserve and retained earnings. Share capital of £980,000 and capital redemption reserve of £20,000 have not changed during the year ended 31 December 2008.

  Consolidated balance sheet as at 31 December 2008

	2008 £'000		2007 £'000
Assets Non-current assets Property, plant and equipment Goodwill	11,014 1,267		11,135 106
	12,281		11,241
Current assets Inventories Construction contracts Trade and other receivables Cash and cash equivalents	1,481 9,841 48,656 -		1,714 9,850 44,532 2,501
	59,978		58,597
Total Assets	72,259		69,838
Equity and liabilities Capital and reserves attributable to equity holders of the Parent Share capital Capital redemption reserve Retained earnings	980 20 17,805		980 20 16,810
	18,805		17,810
Minority interest	654		1,259
Total equity	19,459		19,069
Liabilities Non-current liabilities Obligations under finance leases - Due after one year Provisions Deferred tax	785 496 65		1,041 429 110
	1,346		1,580
Current liabilities Trade and other payables Current income tax payable Obligations under finance leases -  Due within one year Bank overdraft	45,972 900 1,018 3,564		47,061 895 1,233 -
	51,454		49,189
Total liabilities	52,800		50,769
Total equity and liabilities	72,259		69,838

  Consolidated cash flow for the year ended 31 December 2008

	2008 £'000		2007 £'000
Cash flows from operating activities
Operating profit Adjustments for: Depreciation of property, plant & equipment (Gain) on disposal of property, plant & equipment Increase/(decrease) in reinstatement reserve	3,335 1,860 (144) 67		3,301 1,695 (108) (32)
Operating cash flows before movement in working capital Decrease/(increase) in inventories Decrease/(increase) in construction contracts (Increase) in receivables (Decrease)/increase in payables	5,118 233 9 (4,124) (1,089)		4,856 (668) (2,841) (11,687) 10,062
Cash generated from/(used in)/operations Income tax paid Interest Paid	147 (881) (460)		(278) (963) (181)
Net cash used in operating activities	(1,194)		(1,422)
Cash flows from investing activities
Purchase of property, plant & equipment Proceeds on disposal of property, plant & equipment Purchase of minority	(997) 202 (1,792)		(2,509) 120 -
Net cash used in investing activities	(2,587)		(2,389)
Cash flows from financing activities
Equity dividends paid Dividends paid to minority interests Repayment of obligations under finance leases	(833) (180) (1,271)		(833) (225) (1,282)
Net cash used in financing activities	(2,284)		(2,340)
Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January 2008	(6,065) 2,501		(6,151) 8,652
(Bank overdrafts)/cash and cash equivalents at 31 December 2008	(3,564)		2,501

 

1.	Basis of preparation
	The condensed Group financial statements for the year ended 31 December 2008 included in this report have been prepared in accordance with International Financial Reporting Standards and are presented in sterling.
	The accounting policies used in arriving at the preliminary figures are consistent with those which will be published in the full financial statements and which were set out in the Group’s Annual Report and Accounts for 2007.
	The abridged financial information presented is based on the full financial statements of the Group for the year ended 31 December 2008, on which the auditors have given an unqualified report.
	The condensed Group financial statements were approved for issue by the Board on 8 April 2009. The full year figures for 2008 included in this report do not constitute statutory accounts for the purposes of Section 240 of the Companies Act 1985. The financial statements for the year ended 31 December 2008 include the early adoption of IFRS8 operating segments as detailed in note 2.
2.	Segment reporting
	The business segment reporting format reflects the Group’s management and internal reporting structure.   Business segments The Group is comprised of the following business segments:-   - ‘PLC’ - comprising civil engineering, highways and special projects and utilities divisions - Building - construction of commercial and residential property - Nomenca - mechanical and electrical engineering products and services   Segment revenue and profit

Year Ended 31 December 2008
	Civil Engineering			Highways			Utilities		Building		Nomenca		Total
	£’000			£’000			£’000		£’000		£’000		£’000
Revenue
External sales	79,536			13,421			38,121		29,451		41,686		202,215
Result before Corporate expenses	3,598			955			1,395		2,142		3,579		11,669
Corporate expenses	(2,716)			(816)			(989)		(1,395)		(2,418)		(8,334)
Operating profit	882			139			406		747		1,161		3,335
Finance costs													(460)
Profit before tax													2,875
Tax													(841)
Profit for the year													2,034
Year Ended 31 December 2007
	Civil Engineering				Highways		Utilities		Building		Nomenca		Total
	£’000				£’000		£’000		£’000		£’000		£’000
Revenue
External sales	97,570				12,581		32,101		37,436		31,606		211,294
Result before Corporate expenses	2,759				1,088		(1,052)		5,199		3,219		11,213
Corporate expenses	(2,486)				(667)		(919)		(1,954)		(1,886)		(7,912)
Operating profit/(loss)	273				421		(1,971)		3,245		1,333		3,301
Finance costs													(181)
Profit before tax													3,120
Tax													(928)
Profit for the year													2,192

 

Segment assets
					2008			2007
					£’000			£’000
Civil engineering					30,564			34,793
Highways					5,292			4,169
Utilities					13,601			10,671
					49,457			49,633
Building					8,220			8,020
Nomenca					14,582			12,185
Total segment assets and consolidated total assets					72,259			69,838
For the purpose of monitoring segment performance and allocating resources between segments, the Group’s Chief Executive monitors the tangible and financial assets attributable to each segment. Goodwill has been allocated to reportable segments to which it relates. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by individual reportable segments.
Other segment information
	Depreciation and				Additions to
	amortisation				non-current assets
	2008		2007		2008				2007
	£’000		£’000		£’000				£’000
Civil engineering	1,101		1,131		1,040				2,996
Highways	190		136		180				359
Utilities	490		347		464				919
Building	53		57		12				34
Nomenca	26		24		101				-
	1,860		1,695		1,797				4,308
There were no impairment losses recognised in respect of property, plant and equipment or goodwill.
All of the above relates to continuing operations and arose in the United Kingdom.
Information about major customer
Revenues of approximately £53,100,000 (2007 : £43,500,000) were derived from a single external customer. These revenues are attributable to the Civil Engineering and Nomenca segments.

 

3.	Earnings per share
	The basic and diluted earnings per share are the same and have been calculated on profits of £1,828,000 (2007 : £1,621,000) and 9,800,000 shares in issue.
4.	Taxation
	In respect of the year ended 31 December 2008, corporation tax has been provided at 28.5% (2007 : 30%) of the profit.
5.	Dividends
	Amounts recognised as distributions to equity holders in the year:-
		2008		2007
		£’000		£’000
	Final dividend for the year ended 31 December 2007 of 6p (2006 : 6p) per share	588		588
	Interim dividend for the year ended 31 December 2008 of 2.5p (2007 : 2.5p) per share	245		245
		833		833
	The directors propose a final dividend of 6p per share (2007 : 6p per share), total £588,000 (2007 : £588,000). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

  

6.	Goodwill
	At the Extraordinary General Meeting held on 29 May 2008 an ordinary resolution to purchase the 15% minority interest in the subsidiary North Midland Building Limited for £1,792,000 inclusive of costs was approved.
	The purchase price, together with related costs, over the fair value of assets acquired, gave rise to goodwill of £1,161,000. All consideration and related costs were satisfied in cash.
	An impairment review of the goodwill figure has been carried out in the light of past performance and forecast future performance. Based on this review, the directors consider that no provision for impairment is necessary.
7.	Related parties and joint operations
	The Group’s related parties are key management personnel who are the executive directors, non-executive directors and divisional managers.
	Additionally, the Group has a 50% interest in a joint operation with Biwater Treatment Limited.
	The condensed Group financial statements for the year ended 31 December 2008 incorporate the following relating to the joint operation:-
		Year ended		Year ended
		31 December 2008		31 December 2007
	Revenue	28,141		11,038
	Expenses	26,215		10,300
	Assets	5,631		1,093
	Liabilities	5,631		1,093
8.	Contingent liabilities
	Euler Hermes Guarantee plc have given Performance Bonds to a value of £7,323,798 (2007 : £5,263,911) on the Group’s behalf. These bonds have been made with recourse to the Group.
	The Office of Fair Trading (OFT) has concluded its initial investigation into the construction industry and the Group is on their list of 112 companies under further investigation. Three outstanding allegations remain against the Group. A hearing was attended with the OFT in July 2008. The Group strongly refutes these allegations and the outcome is still pending.
9.	The Annual Report and Accounts for the year ended 31 December 2008 will be despatched to shareholders on 30 April 2009 and will be available on the Company’s website – www.northmid.co.uk.
10.	The Annual General Meeting will be held on Thursday 28 May 2009 at 12.00 noon at the Group’s Head Office at Nunn Close, The County Estate, Huthwaite, Sutton-in-Ashfield, Nottinghamshire NG17 2HW.

ENDFR EADLPEEDNEFE

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