North Midland Construction PLC AGM Statement (6604Y)

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RNS Number : 6604Y

North Midland Construction PLC

19 May 2016

North Midland Construction PLC

19 May 2016

North Midland Construction PLC (the "Group")

AGM Statement

At the Annual General Meeting to be held today at noon, the Group's Chairman, Robert Moyle, will make a statement to shareholders, including the following on current trading:

"It is heartening to be able to report that the return to profitability last year has been maintained in the first quarter with the delivery of a Group profit of GBP234,000, compared with a loss of GBP125,000 for the same period last year. Revenue increased by 10.2% to GBP59.44 million.

Legacy contracts allied with the cost of professional services engaged in their resolution have proved extremely costly to the Group over the last two years. Senior management has also been heavily involved and consequently their time to concentrate on the mainstream on-going business has been restricted. Only one legacy contract still remains to be resolved, but it is unlikely that settlement will be achieved in this case in the immediate future.

Overall, there has been a general improvement in the construction market with greater opportunities being available and an increased expenditure on national infrastructure. The current Group order book for work to be executed in this financial year is circa GBP200 million. Further orders will emanate from the existing frameworks and therefore the forecasted revenue for the year will be achieved.

As in previous years, a detailed segmental analysis will provide a deeper understanding of the current Group performance and future prospects.

The Building division has implemented its strategy to concentrate operations within a fifty mile radius of Head Office, undertaking one major scheme in the value range of (GBP5 - GBP20 million) coupled with a variety of smaller schemes at the same time to spread the risk. The Small Works department is also continuing to expand. Profitability in the first quarter (Q1) increased to GBP137,000 (Q1 2015 GBP11,000) on a significantly increased revenue of GBP5.51 million (Q1 2015 GBP2.64 million). The GBP15.5 million student accommodation scheme in Leicester will be successfully completed for occupation this year and final negotiations are currently being undertaken for a replacement project of a similar value, to be commenced this year. The divisional outstanding order book for completion this year is currently GBP14.3 million and two new clients A S Watson and Care Fertility have recently been secured. On a sad note Peter Stuart, who has run the division successfully, has become seriously ill and we all wish him a speedy recovery. Nick Banks, who was previously with G F Tomlinson, has joined the Group and he is running the division in Peter's absence.

The performance of the Utilities division continues to be a major problem, although losses have been reduced to GBP496,000 (Q1 2015 GBP588,000), on revenue increased to GBP8.94 million (Q1 2015 GBP4.91 million). The first quarter result includes a loss of GBP134,000 incurred on remedial works, due to the financial demise of a member of the divisional supply chain. A complete restructure of the division is currently underway and contractual reviews of the existing contracts are currently being undertaken. Revenues are predominantly governed by the level of orders emanating from the existing frameworks and the outstanding order book for completion this financial year, based on historic levels of orders received is circa GBP18.0 million.

The Civil Engineering division, which reports to the senior management of NMC Nomenca, has returned to profitability and the prospects for the future are much brighter on the back of an enhanced order book and the resolution of legacy issues. The first quarter profit was only GBP10,000 (Q1 2015 GBP22,000 loss) on a revenue of GBP3.39 million (Q1 2015 GBP1.55 million), however this included a one-off cost of GBP43,000 incurred during the period on the completion of outstanding legacy contracts. The power sector continues to be developed and contracts are currently being undertaken for WPD on various sub-stations, and Siemens and Alstrom on wind farm infrastructure in East Anglia. Severn Trent Green Power Ltd have just awarded the division an GBP11.8 million contract to be completed this year for a "Gas to Grid" installation. The outstanding order book for completion this year is circa GBP19.0 million.

The Highways division has performed as expected during the quarter returning a profit of GBP54,000 (Q1 2015 GBP89,000) on revenues of GBP9.97 million (Q1 2015 GBP9.44 million). The division has consolidated it's expansion into the Bristol area and contracts, with a combined value of GBP12.0 million, are currently being constructed from the Bristol office. The Stocklake Link, at a value of GBP2.7 million, is the first contract to be awarded to the division by Buckinghamshire County Council. The current outstanding order book for completion this year is circa GBP17.0 million and confidence is high of receiving further orders in the near future.

Water continues to be a major market for the Group and over 50% of Group revenues are derived from work within the water industry. Over successive AMP programmes the Groups' market share and penetration has increased and we continue to successfully punch above our weight.

NMC Nomenca, which is predominantly engaged on frameworks for Severn Trent and Anglian Water, increased profitability to GBP479,000 (Q1 2015 GBP229,000) on revenues of GBP21.60 million (Q1 2015 GBP22.0 million). The current level of orders received still to be constructed this year is circa GBP53 million and visibility of the future programme is good, leading to confidence in the future. Particularly, as the commencement of each AMP cycle always experiences a slow-down in activity in the first year. The construction of the GBP37.5 million concrete storage reservoir at Ambergate by the joint venture of Laing O'Rourke IMTECH and ourselves, is progressing to programme and cells one and two have now been completed. The relationship on site between the two companies is seamless. The division is engaged on another joint venture with Barhale for works on the Elan Valley Aqueduct in Mid Wales valued at circa GBP59.0 million. The contract involves hard rock tunnelling and major civil engineering works. Preliminary works have commenced on site and the tunnelling machine has been purchased and delivered to site. The tunnel bore is on programme to commence at the end of this month. NMC Nomenca has previously worked in collaboration with Barhale on other similar schemes for Severn Trent Water.

The transition between the two AMP cycles has affected Nomenca's results in the period with a slow-down in orders being received, particularly in the North West. The gestation period for its projects is longer and therefore the transition has a greater impact. Revenues declined to GBP10.01 million (Q1 2015 GBP13.42 million) and consequently profitability was reduced to GBP53,000 (Q1 2015 GBP156,000). The current situation is improving as the framework programmes get underway. Orders received to date, still to be undertaken this year now total circa GBP21.5 million and confidence is high that the budget can be achieved.

The first year of the joint venture with BAM Nuthall to deliver the South East Water framework has been delivered successfully. It is now well-placed to develop the relationship with the client to undertake the framework for potentially a fifteen year period. Recent major successes are securing the Yorkshire Water Direct Delivery framework and consolidating the presence with Wessex Water by winning three AMP6 frameworks.

The manufacture of chemical dosing rigs and steelwork fabrications for the water industry remain an integral segment of the Nomenca business strategy. To be successful in receiving a new framework for United Utilities for the design and manufacture of Chemical Dosing Rigs and for Yorkshire Water to extend their existing contract, is therefore, excellent news. The continuing development of Nomenca's in-house design capabilities and the promotion of off-site fabrication solutions are seen as being key to meeting the clients' efficiency requirements for the current AMP6 programme and successive programmes thereafter.

The opportunities for growth available to the Group are very tangible and encouraging. This year will deliver an increase in revenues. However, growth has to be managed and profitable. Due to the well documented problems with the resolution of the legacy contracts, whilst the underlying performance has been positive, the level of margin has been unacceptable. The main concentration going forward will be on maximising the return on revenue and a lower risk approach to pursing potential tenders has been adopted.

To achieve and successfully manage this growth requires talented people and a robust integrated supply chain. Skill shortages have become again a major topic as the industry climbs out of recession and house-building is on the increase. This is a problem that the Group has to resolve itself. The attraction, training and retention of these individuals is key. The emphasis on core values continues to be attractive, along with our message of "People, Inspire, Excellence", which is incorporated into all documentation. Whilst the Group has an excellent record, there are currently over seventy un-filled vacancies for new employees. The relationships with selected universities have been expanded, along with the apprentice intake. 28 No. apprentices are currently employed within the Group and 6 No. university placements. The development of key individuals, to maximise their potential and the leadership training for them to achieve this, has been a major investment. Currently selected employees are engaged on Level 3 and 5 schemes, which leads to ILM certification, and Level 7, successful completion of which is the attainment of CMI certification. The benefit back to the business of these schemes

has been immense. So far this year 69 No. days of learning and development and 1,196 No. days of technical training have been undertaken.

As always optimum Health & Safety and Environmental performance are key drivers for the business and its clients. Our Key Performance Indicators consistently outperform those of the construction industry and the Group continues its enviable performance in the receipt of Health & Safety and Environmental Awards.

Construction, by definition, can have a significant impact on the communities, where it is undertaken. It is incumbent upon us as an organisation not only to promote the NM Group "brand", but also to work with these communities to minimise the effect of our operations. The Group is particularly proud of its achievements in this sphere and the response from the public in general. We also need to be actively involved within these communities and this also has a bi-product in assisting in the personal development of our individuals. All the divisions are engaged in CSR activity, whether it is promoted through "Business in the Community" or self-initiated. Fourteen volunteers will be assisting in "Give and Gain" day projects in Derby and Mansfield this Friday.

Returning to the subject of growth, obviously, adequate working capital is critical. The maintenance of cash flow is of paramount importance and a perpetual on-going issue. Ernst Young were appointed to undertake a review of cash collection in the Group and where it could be improved. Their report has now been issued and its recommendations approved by the Board. On a positive note the Group continues to operate within it's facilities.

On a personal note, I feel that the time is now right to devolve the roles of Chairman and Chief Executive. It is my intention to continue in the role of Executive Chairman and to assist the new appointee in every way I can in maintaining the growth and improving the profitability of the Group. The process has already commenced and the decision will be announced in the near future.

Whilst the return to profitability is encouraging, the Board decided that cash should be retained within the business and that a prudent approach should be adopted. The restoration of the dividend, as soon as possible, remains the Boards primary objective and we are fully aware that the non-payment of a final dividend was particularly unpalatable. All bar one of the legacy contracts are now resolved and, as stated previously, contractual resolution of this outstanding account may prove lengthy and involve litigation. However, the Group has returned to growth and the emphasis is on margin improvement. This coupled with the healthy level of workload and the potential from the existing frameworks, leads the Board to be cautiously optimistic for this year.

To finish, may I take this opportunity to thank all the shareholders for their maintained support and all the employees for their continued commitment and loyalty."

Enquiries

   North Midland Construction PLC                      01623 515 008 

Robert Moyle, Chairman

Dan Taylor, Finance Director

This information is provided by RNS

The company news service from the London Stock Exchange

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May 19, 2016 02:01 ET (06:01 GMT)