TIDMNMD
RNS Number : 0509E
North Midland Construction PLC
24 May 2012
North Midland Construction PLC (the "Group")
ANNUAL GENERAL MEETING STATEMENT
At the Annual General Meeting being held at 12.00 noon today,
Robert Moyle, Chairman, will provide the following update on
trading:
On the 18th May an Interim Management Statement was issued
reporting a first quarter profit before tax that was reduced by 44%
to GBP0.35 million on revenues which have declined by 8.6% to GBP44
million compared to the comparable first quarter last year.
The UK economy experienced negative growth in the first quarter
with decline in construction output of 4.8% being a major
contribution. The Group was similarly affected by delayed
commencements on secured projects and a reluctance to commit to
expenditure, even on existing frameworks, by private clients and
the public sector. Overall market conditions remain extremely
competitive and uncertain, with significant contrasts prevailing
across the different sectors of the construction industry. It is
anomalous that in some divisions of the Group recruitment and
expansion is taking place and in others restructuring and
downsizing. Obviously, where skill sets are transferable within the
Group that is taking place. One of the strengths of this Group,
which is currently holding it in good stead, is its varied client
base and broad spread of capability across the whole construction
sector.
The consolidated results for the last financial year were
severely reduced by the poor performance of the Building
subsidiary, with significant overruns, both in terms of programme
and cost, experienced on the major project. Obviously, the
situation within the Building subsidiary could not be allowed to
continue and the subsidiary has been merged into the Civil
Engineering division under new management. This consolidation is
now complete and has delivered a reduction in overhead cost, but
also sadly some redundancies have been inevitable. More positively,
the division is now profitable and has delivered a profit for the
quarter of GBP139,000 on a revenue of GBP17.1 million. Major
projects are underway at Pedigree Petfoods in Melton Mowbray,
valued at GBP6.3 million and at Sleaford for the construction of an
Energy Recovery Plant, utilising straw and woodchip, valued at
GBP9.6 million. Frameworks for EDF at Cottam Power Station, the NHS
in Nottingham and for Western Power Distribution have recently been
secured and these will provide valuable base revenue. The building
market is particularly difficult, but the division has secured
orders to a value of GBP6.4 million in the last week, including a
first order from BP in Hull.
The Highways division experienced a very slow first quarter with
potential orders, predominantly from the public sector, not
forthcoming and with restricted expenditure on their existing
frameworks. Profitability consequently declined by 46.7% to
GBP40,000 on revenue reduced by 17.1% to GBP2.8 million. The
situation has eased recently and the current 2012 order book stands
at GBP13.5 million, compared with a budget target of GBP21 million.
In spite of public sector cutbacks, the division has continued to
be successful in winning contracts most particularly on public
realm schemes, where a particular expertise and reputation has been
developed. Contracts have recently been awarded by Sheffield City
Council, Solihull Metropolitan Borough Council and Bath & North
East Somerset Council. The division is currently engaged on schemes
for Liverpool University, Leeds City Council and Bridgend County
Borough Council, alongside six existing frameworks for authorities,
including Liverpool City Council.
The telecommunications sector is predominantly served by term
contracts for the major companies. The Utilities division is well
represented with the majority of these companies, but expenditure
in the first quarter has been severely curtailed. Consequently,
revenue has dropped by 58.3% to GBP4.2 million, resulting in a
first quarter loss of GBP94,000. The GBP30 million South Yorkshire
Digital Region contract is virtually concluded and although new
clients such as Electricity North West and Energetics have been
secured, overall the sector is experiencing a large cutback in
expenditure. A restructuring of the division has been instigated to
align the scale of the business to this reduction in expenditure.
Agreement has been reached with Carillion/Telent last week to
expand the division's existing operations on the BT National
contract into Yorkshire and the North West. This expansion will
deliver increased revenues of circa GBP2.5 million per annum and
will be effected immediately.
The NMCNomenca division was established to undertake the Severn
Trent Water AMP5 framework and it has proved to be extremely
successful. Profitability exceeded budget last year and the current
year has started well with GBP39 million worth of orders, out of a
budget total of GBP48.5 million already received. The division has
a 25% share of the E5 consortium, which was formed to undertake a
circa GBP200 million collection of major projects for Severn Trent,
which fell out of the scope of the original AMP5 frameworks. The
division is currently engaged on the re-construction of the Stoke
Bardolph works in Nottingham. It is early in the programme, but the
projected outturn results for the consortium look encouraging. The
division has also secured a contract for Canadian company Ostara,
to construct a struvite removal plant at Slough for Thames Water.
This will be the first plant of this type in Europe.
The Nomenca subsidiary has developed an enviable reputation,
particularly in the water industry, for quality delivery and high
level engineering innovation. The company is currently engaged on
fifteen different framework contracts for eight individual water
companies throughout the country. Other non-water frameworks have
been secured with British Waterways, the Environment Agency and
National Grid. The manufacture and installation of chemical dosing
rigs and specialist steel fabrication have provided additional
revenue streams. Expansion of these ventures has continued with
frameworks being secured with Yorkshire Water and Scottish Water
for chemical dosing only. The escalation in water industry
expenditure, as the AMP5 programme progresses, is benefiting
Nomenca and profitability has increased in the first period by 4.3%
to GBP266,000, on revenue which increased by 28.9% at GBP19.8
million. Budgeted revenue for 2012 is GBP65 million and currently,
including its share of NMCNomenca's revenue, GBP55 million of that
total has been secured. Prospects for the Nomenca subsidiary are
promising and the forecast for this financial year will be
achieved.
The Group has been particularly successful in the water industry
with the growth of Nomenca and the success of the NMCNomenca
business model being testament to this. Representation across a
range of companies, encompassing a wide geographical spread is
good. However, your Board is of the opinion that there is
considerable scope for growth within the water sector and intends
to pursue these opportunities in AMP6. To achieve this, an
integrated water division, which is to be an expanded NMCNomenca,
is required combining design, civil engineering and mechanical and
electrical capabilities. To facilitate this, it has been decided,
subject to Shareholder's approval to allot new ordinary shares, as
explained below, to purchase the 16.67% minority interest in
Nomenca held by the two Executive Directors, namely Andy Langman
and Andy Culshaw. The reason for the purchase is to allow the
management to concentrate undividely on the success of the
consolidated business and negate the need to proportion and
repatriate profits emanating from previous Nomenca controlled
frameworks, now transferred into NMCNomenca, back into the
subsidiary, whilst it still contains a minority interest. Nomenca
Limited will remain as a distinct entity within the Group engaged
upon non-water framework and product business, with all their
existing water framework business being transferred into the
NMCNomenca division.
The intention is to effect this purchase by utilising a
combination of cash and shares in the parent company. This will
require the issue of new shares, which will require Shareholder
approval at an Extraordinary General Meeting. A circular will be
sent to Shareholders in due course.
The current economic climate remains extremely uncertain with
stagnant growth and ongoing problems in the euro zone creating
uncertainty in the markets and a reluctance of the banks to lend,
particularly to the property sector, where they are already heavily
exposed. This coupled with public sector cutbacks has contributed
to reduced tender opportunities and extremely tight margins across
the whole construction sector, but is most prevalent in building.
The Group has currently secured 39 No. frameworks and whilst these
provide circa 50% of revenue, most require year on year efficiency
savings. These efficiencies are being delivered by providing
innovative solutions both in construction and design, improved
programming and enhanced supply chain performance. The E5
consortium, previously referred to, has established a central
purchasing function and all partners are benefiting from this
combined capability.
The quality and endeavour of its employees drives company
performance and this is particularly relevant in a non high
technology business as construction. The development and retention
of these employees is therefore critical, particularly in an
organisation such as this, where 50% of revenue is executed by its
own workforce. In spite of the difficult economic climate,
investment for the future is essential. Hence, both the
apprenticeship and graduate intake schemes have been maintained,
with currently 26 No. young people engaged on a variety of full
time apprenticeships in roles from electricians to general
construction. The development of existing employees is also of
paramount importance and 54 No. are currently engaged on the Group
leadership and management development programme. 728 No. training
days were undertaken in the first quarter.
Significant progress has again been made in human resource
performance with days lost to sickness and absence being 34% and
14% of the national average, respectively. The Employee Stability
Index at 80% is exceptional. Construction has traditionally been a
predominantly a white male domain and significant progress has been
made increasing diversity within the Group.
Health & Safety is of paramount importance within the Group
and the "Just Culture" initiative continues to drive improvements
in both awareness and behaviour, both in the case of direct
employees and the supply chain. Overall, Health & Safety
performance continues to improve with new initiatives and
improvements regularly being introduced. The Group continues to
outperform the industry average. The continued strong reporting of
hazards has assisted in incident reduction. The Group has won seven
ROSPA Gold Awards for Health & Safety Performance, including
two Gold Medal Awards during the last year. Gold Medal Awards are
given to those organisations achieving a Gold Award for five
consecutive years, which is an exceptional achievement.
Environmental performance has continued to advance and the Group
was the recipient of four nationally accredited awards for
environmental performance last year. The highlight being the Gold
Green Apple Award to the Utilities division for exceptional
performance on the SYDR project. Sustainability and reduction in
energy consumption are very high on the agenda and great progress
has been made not only in the area of the Group's own operations,
but also in the provision of innovative design and delivery
solutions for clients. Great strides have been made in the
measurement and consideration of the impact of the Group's
operations and it is very gratifying to be able to report a
reduction in the carbon footprint of 7.4% to 5,842 tonnes last year
and a reduction of waste to landfill by over 30%.
The Group takes its Corporate Social Responsibilities very
seriously and, either as a member of "Business in the Community" or
under its own initiative, has been engaged in various projects to
assist the wider community. All Shareholders have been forwarded a
copy of the CSR report for 2011 and it details a variety of
projects undertaken by the various divisions of the Group. The 2012
target is for each division to undertake three projects to promote
the interest of the community. It is wonderful to note how many
employees are engaged on raising money for charitable causes in
myriad ways. The Group Charity Committee also distributes money,
allocated to it yearly by the PLC Board, to deserving causes of its
choice.
In recessionary times tight control of cash and cost are of
prime importance. Increased efficiency and safe delivery of a high
quality is required and the Group is constantly striving for
improved performance. A demanding set of Key Performance Indicators
have been established and this year's are detailed at the back of
the CSR report. The Group cash position remains strong in spite of
the increasingly onerous contractual conditions prevailing. The
Group has only been overdrawn for a maximum of two week's duration
this calendar year. Adequate bank facilities have recently been
renewed.
The current secured workload that should be constructed this
financial year stands at GBP140 million and further orders will be
forthcoming from the existing frameworks. Market conditions remain
extremely competitive and tender opportunities limited and heavily
oversubscribed. However, the consolidated Group revenue budget of
GBP181 million should be attainable. Margins remain under extreme
pressure, but the Board remains of the opinion that the forecast
for this financial year is achievable.
Finally, may I take this opportunity to thank all the
Shareholders for their continued confidence and support for the
Group during these challenging times.
Contacts:-
North Midland Construction PLC 01623 515008
Robert Moyle, Chairman
Mike Garratt, Finance Director
N + 1 Brewin 0113 2410126
Richard Lindley
This information is provided by RNS
The company news service from the London Stock Exchange
END
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