TIDMNMD
RNS Number : 4471F
North Midland Construction PLC
23 May 2013
North Midland Construction PLC ("the Group")
23 May 2013
Results of AGM
The Group is pleased to announce that all that all resolutions
were duly passed at the Group's Annual General Meeting held earlier
today.
At the Annual General Meeting the Group's Chairman, Robert
Moyle, made the following statement:
"On 17 May an Interim Management Statement was issued reporting
a first quarter loss before tax of GBP105,000 on a revenue which
has increased by 3% to GBP45.2 million over the comparable first
quarter last year.
The UK construction sector continued to contract in the first
quarter of the year and this, coupled with significant losses
sustained within the Building & Civil Engineering division and
poor weather, severely affected the first quarter performance. The
results also include an exceptional charge of GBP183,000 incurred
during the quarter removing processed material from the recycling
facility to site. The cost of this operation is non-recoverable
until a later date.
The Building & Civil Engineering division has had an
exceptionally poor first quarter, generating a loss of GBP482,000
on a revenue of GBP9.82 million. Significant losses were incurred
on two major projects, where delays have contributed to cost
overruns. Revenue was below budget and margin reduced and whilst
the remaining projects overall remained profitable, insufficient
profit was generated to cover the overhead costs. One of the
projects concerned was substantially complete in the first quarter
and the other will be completed by the middle of this financial
year.
The division is operating in a very difficult market, beset by
very tight margins and the reluctance of clients to settle
outstanding accounts within an appropriate timescale. Hence, cash
flow is constrained. A thorough review of the business has been
undertaken and large building projects with an unacceptable level
of risk will not be pursued in the future. A further reorganization
of the division to reduce both overhead and operational costs is
underway.
On a more positive note new clients are being secured, most
particularly after the recent demise of some of our competitors,
and the existing frameworks are proving profitable at site
level.
Due to impending senior management retirements and a requirement
to reduce the overall cost base, the Highways and Utilities
divisions have been merged from the commencement of this year.
Geoff Poyzer, formerly the Operations Director of the Highways
division, has been appointed the new Managing Director. Geoff has
been with the Group for 24 years and has great experience of both
Highways and Utilities work.
Revenue was depressed in the first quarter, due to delayed
starts on certain highway schemes and reduced volumes on the
utility frameworks. The division suffered a loss of GBP158,000 on a
revenue of GBP7.61 million. The management, however, have
confidence that this situation can be reversed.
The division has recently been successful in winning the Project
Maximus framework for Vodafone, which is a design and construct
contract and will generate a good revenue stream once the
construction phase commences. Vodafone have recently taken over
Cable & Wireless Worldwide and have renewed the "Business as
Usual" framework that was formerly with CWW for a further three
years. Construction of a new road with a value of GBP4.8 million
for Blackburn with Darwen Borough Council has also recently been
won. The Highways side of the business still needs to secure circa
GBP8 million of revenue to achieve this year's budget, whereas the
Utility side has good visibility of achieving its target, provided
that expenditure on its existing frameworks is maintained.
Bob Sherlock has decided to retire from the healm of the
Highways division in July after 25 years service. Bob and Geoff
Poyzer have been instrumental in building the division up from
small beginnings to become a force in the highways market and
develop a major expertise in public realm schemes. Bob has always
been a "safe pair of hands". We all wish him a long, happy and well
earned retirement.
From the commencement of this financial year the NMCNomenca
division will be reporting as a stand alone division, where
previously its results were incorporated into those of Nomenca and
the B & CE division. Therefore, comparisons with the first
quarter of last year are inappropriate. The division has made a
solid start, delivering a profit of GBP0.43 million on a revenue of
GBP17.59 million. Orders are now forthcoming from the recently
awarded Southern Area for Severn Trent Water and the current
frameworks for Anglian Water of both Nomenca and B & CE have
recently been incorporated into NMCNomenca. This will result in a
significant growth in revenue for the full year and the current
level of orders received to date to be undertaken this financial
year is GBP56 million. The creation of a truly integrated water
division offering a full turnkey capability of design, construction
and mechanical and electrical installation is now well
underway.
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 Water, which fell outside of the scope of
the original AMP5 frameworks. The project overall is currently 50%
complete and the projected outturn results look encouraging.
NMCNomenca continues to operate very successfully and deliver a
high quality product to its clients. The water companies are
currently formulating their procurement strategies for the imminent
AMP6 programme and the success of NMCNomenca and the quality of the
service and the product that it has to offer will lead to enhanced
opportunities going forward.
The Nomenca subsidiary has started the year well and the result
produced is solely as a result of its own activities with no profit
or revenue being repatriated from NMCNomenca, as was the previous
case until the commencement of this financial year. A first quarter
profit of GBP105,000 has been delivered on a revenue of GBP10.2
million. Nomenca is currently engaged on 32 No. frameworks,
including those for both steel fabrication and the manufacture of
chemical dosing equipment. It is this concentration on repeat
business that is generating the growth in the company and secured
orders for this year currently stand at GBP30 million, compared
with a budget revenue of GBP48 million. The prospects are
promising, as Nomenca builds on its enviable reputation within the
water industry, and the forecast for this financial year should be
achieved. AMP6 will provide Nomenca further opportunities to expand
its presence within the UK water industry.
Considerable re-organisation has been undertaken with the
amalgamation of the Building subsidiary and the Civil Engineering
division last year and the merger of the Utilities and Highways
divisions this year. This has achieved a reduction in both
operating costs and overheads. However, the UK construction
industry has now been in decline for more than two years and the
sector is still contracting. This has lead to wafer thin margins
and some evidence of "suicidal bidding". Several of our competitors
have already issued profit warnings this year. The Group's strength
is its varied client base and broad spread of capability across the
whole construction sector, with a strong presence in the water
industry, which still has prospects for growth. The first quarter's
results, coupled with deterioration of the industry, necessitate
further reductions in the cost base. Further restructuring has
already commenced and, sadly, this will involve redundancies in
some areas of the Group. Anomalously, there is still a need to
recruit further within the water business and employee transfers
are being effected, where appropriate.
The temptation in times of recession is to cut employee
recruitment and training costs to a bare minimum. However,
investment in the future is essential and a significant proportion
of the training budget is driven by legislative requirements. It is
an over used phrase, but the strength of this business is its
people and that resource requires investment, development and
retention. Hence, both the apprenticeship and graduate intake
schemes have been maintained with currently 21 No. young people
engaged on a variety of full time apprenticeships. 660 No. training
days were undertaken in the first quarter.
I was contacted recently by a shareholder who had been in
receipt of the latest accounts and CSR report. He enquired as to
whether such a comprehensive document, as the CSR report, is really
necessary in these constrained times. My response was that tender
opportunities are currently scarce and that the pre-qualification
process is becoming increasingly onerous with more and more
exhaustive information having to be provided. The CSR report
details this information, which as a necessity has to be collated,
and presents it in a format that potential clients find
particularly attractive. Tenders are awarded on the basis of
quality and price, and the quality scores we achieve are invariably
high. In fact, two recent contract awards have been secured where
we did not submit the cheapest price, but the high standard of the
quality submission won the day.
The report also illustrates the progress being sustained in
environmental and human resource performance and this has been
maintained in the first quarter. Fifteen key objectives to be
achieved by 2015 have been designated and they are documented in
the report.
Health and Safety is of paramount importance and the Group's
performance is closely monitored by its clients. The Group
continues to outperform the industry average and there was a
decline in the Accident Frequency rate last year. This has been
maintained this year. The challenge is to improve the supply chain
performance and assist it to attain parity of performance with the
Group's own workforce. Several new initiatives have been instigated
to achieve this.
The maintenance of cash flow is becoming increasingly difficult
with extended payment terms being encountered and prevarication
tactics being increasingly employed by clients, most particularly
in the private sector. The exception to this being the water
companies. The resolution of contractual claims, amicably and in a
prompt timescale, is becoming increasingly difficult. The Group is,
therefore, having to resort to other forms of contractual
resolution. This comes with a cost, which is not totally
recoverable, even if there is a successful outcome. It also
prolongs the period of final account resolution. Increasingly, the
employment of external advisors and litigation are becoming the
only routes to being paid.
The squeeze on margins is having a material effect on our supply
chain and in many cases it is really struggling. To ensure certain
sub contractors' survival, detrimental payment terms to the Group
are having to be agreed. This again has a detrimental effect on
cash flow.
On a positive note, however, the cash position has been
maintained and the Group has recently renegotiated adequate banking
facilities.
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. The market continues to
shrink and remains extremely competitive, but significant tender
opportunities are still being received and the consolidated Group
revenue budget of GBP170 million should be attainable.
Notwithstanding the unknown outcome of the two major Building &
Civil Engineering contracts previously referred to, trading for the
full year remains in line with management expectations.
As I stated earlier, the strength of a construction company is
the quality of its people and that resource constantly needs
replenishing. In March Doug Bleakley, a founder member of Nomenca,
decided to retire from the Board and he has been replaced by Andy
Langman, who has been the Managing Director of Nomenca for several
years. In September, Mike Garratt has expressed his wish to hang up
his calculator and retire from the Board also. He always intended
to retire at sixty, but I managed to persuade him to stay longer.
Mike has been Finance Director for thirty years and has given his
all for this Group. He has been a key factor in the growth of the
Group and has always brought a sound and commercial perspective to
the business. I have always viewed Mike and my relationship as more
of a partnership and it has worked extremely well for a long
time.
Mike's skill and experience will be sorely missed, but we have
persuaded Dan Taylor, who we were acquainted with, to join us as
Mike's replacement. Dan, who is 31 years of age, was formerly at
PKF and latterly employed in industry. Dan is highly capable and
perceptive and we all wish him every success in his new role.
Finally, your Board is fully aware that the current economic
situation is having a material effect on the Group's performance
and, hence, shareholder value and return. We are striving to
maintain our stated strategy of organic growth, but it is proving
particularly difficult. One major contract has had a significant
impact on the last two years' results and without it the return
would be very different, but that is with the benefit of hindsight.
Therefore, finally, may I take this opportunity to thank all the
shareholders for their continued support for the Group during these
challenging times and all employees for their continued
endeavour."
Contacts:-
North Midland Construction PLC 01623 515 008
Robert Moyle, Chairman
Mike Garratt, Finance Director
N + 1 Singer 0113 388 4789
Richard Lindley
This information is provided by RNS
The company news service from the London Stock Exchange
END
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