North Midland Construction PLC AGM Statement (4778F)

TIDMNMD

RNS Number : 4778F

North Midland Construction PLC

18 May 2017

North Midland Construction PLC

18 May 2017

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, on behalf of the Board will make a statement to shareholders, including the following on current trading:

"We are delighted to be able to report that the momentum of increased profitability and revenue growth generated in the last financial year has been maintained in the first quarter with the delivery of a Group profit of GBP580,000 compared with GBP237,000 for the same period last year, an increase of 144.7%. Revenue increased by 4.7% to GBP62.24 million. The net margin, whilst showing a significant improvement, is 0.93%, which the board continues to consider an unsatisfactory return.

The construction market, riding on the back of sustained economic growth, has continued to expand with greater opportunities being available and the water companies AMP6 cycle is now fully underway. As a consequence of this the current Group order book for work to be executed in this financial year is circa GBP254 million. Further orders will emanate from the existing frameworks and other tendered opportunities and therefore the forecasted revenue for the year will be achieved, if not exceeded.

As you will have noticed from the 2016 Annual Report and Accounts, the reporting procedure has changed from Divisional to Market Sector (i.e.) Construction, Power, Highways, Telecommunications and Water. A detailed segmental analysis of these sectors will provide a deeper understanding of the current Group performance and future prospects for growth.

Construction has experienced a slow start to the year, due to delays in secured projects getting underway. Consequently both profitability and revenue in the first quarter (Q1) declined over the comparable period last year. Revenue by 13.7% to GBP4.76 million (Q1 2016 5.51 million) and profitability by 75.2% to GBP34,000 (Q1 2016 GBP137,000). Secured workload for the year is currently GBP28 million and for 2018 is currently GBP12 million. The area of operation still remains predominantly the Midlands and South Yorkshire region and student accommodation is providing a resilient market with current projects being undertaken in Birmingham, Sheffield and Lincoln. However, the portfolio and range of clients is increasing. Business Development efforts are being concentrated on becoming a significant presence in the regional market. To accommodate this growth, and the increasing scale and complexity of projects being undertaken, more skilled staff are being recruited and the current staff provided with further development. Confidence is high that this year's targets will be achieved.

The power sector continues to offer promise for growth particularly as we are able to offer a full turn-key delivery model. Revenue for the first quarter was static in comparison to the previous years at GBP3.39 million (Q1 2016 GBP3.39 million) but profitability increased by 80% to GBP18,000 (Q1 2016 GBP10,000). The secured workload for this financial year currently is circa GBP12 million and there is a need to secure further orders in the immediate future. Confidence is high that these will be forthcoming in the next few months.

The green energy market is a huge opportunity for development, particularly as the water companies move into this non-regulated market and work has recently commenced on the Stoke Bardolph Crop Digester.

Highways continues to provide good opportunities for profitable growth and geographical consolidation and expansion. Profitability for Q1 2017 increased by 18.5% to GBP64,000 (Q1 2016 GBP54,000) on revenue reduced by 9.1% to GBP9.06 million (Q1 2016 GBP9.97 million). Secured workload for this year currently stands at GBP29.0 million, and tender opportunities are buoyant. Further orders emanating from secured frameworks for Highways England Area 7 and Lincolnshire County Council will be forthcoming. The division is currently highly engaged on GBP10 million of associated highway and infrastructure works on the new York Potash mine in North Yorkshire for Sirius Minerals. Two major highway and public realm schemes are successfully nearing completion in the Bristol area, and a major road improvement scheme, directly for Ikea, a new customer, for a new store in Sheffield is also progressing well.

The Telecommunications business, as is well documented, has experienced problems and it is heartening to report a return to profitability in Q1 of GBP19,000 (Q1 2016 GBP496,000 loss). Revenue declined by 6.9% to GBP8.33 million (Q1 2016 GBP8.94 million). The division has been totally restructured to satisfy the dual requirements of a return to profitability and increasing customer demand. The overall market is experiencing a major increase in activity and the skilled resources to satisfy this requirement are in short supply. A significant in-house capability exists, along with supply chain partners, and this enables top levels of customer service on a 365 / 24 basis to be achieved. The division is heavily committed to Virgin Media not only on their MOTIF framework contract, but also on particular discreet schemes under their Lightening project throughout the Midlands and North. Similar contracts are being undertaken for Centro in the West Midlands, BT, KCOM and CT.

Current market demand provides significant opportunities for rapid growth, but the skilled resources to facilitate the execution both in-house and in the supply chain, are in very short supply so a cautious approach is being adopted. Expansion has to be profitable and the existing high levels of customer delivery have to be maintained, along with positive cash flow.

The Group is highly engaged in the water sector for many companies throughout England and Wales, both through its NMC Nomenca division for Severn Trent Water and the Nomenca subsidiary. The prime focus continues to be working collaboratively from conception and construction to completion, to deliver the respective companies business goals. On high value projects of a complex nature, joint ventures have been formed to deliver the same high level of customer service. In addition, to improve and expand the Engineering and Asset Optimisation Service capability and external offering Nomenca have appointed Gavin Stonard, formerly a director of Sweco UK, to the position of Engineering Director.

Revenue escalated by 16% for Q1 to GBP36.69 million (Q1 2016 GBP31.62 million) but profitability declined by 16.4% to GBP445,000 (Q1 2016 GBP532,000), due to a cautious perspective being taken on the out-turn of several projects that had just commenced during the period combined with initial start-up costs. Secured workload for delivery this year currently stands at GBP147.0 million, but only includes orders actually received under the frameworks to date. Significant further orders from the water sector are expected to be received in the near future, giving great confidence for the business going forward.

NMC Nomenca and Nomenca are currently engaged in four joint ventures. NMC Nomenca with Barhale at the Elan Valley Aqueduct in mid Wales and Newark, and Laing O'Rourke at Ambergate valued at GBP56.0 million, GBP54.0 million and GBP34.0 million, respectively. The first reservoir at Ambergate has been completed and is operational and the second, using a precast twin wall method of construction is on programme and within budget for completion in January 2018. The first tunnel section and connection on the EVA has successfully been completed and the second drive is due to commence ahead of programme next week. On the Newark Strategy project pipe laying is underway in the Town Centre and the shafts for the main tunnelling drives are currently being constructed. The Nomenca joint venture with BAM Nuthall for South East Water has experienced a slow start to the year, but activity has now started to increase as orders are forthcoming.

The sectors that the Group is currently engaged in and the strength of its customer relationships offer great opportunities for profitable growth and this financial year will deliver a significant increase in revenue. Concentration now is upon the sustainable management of this growth and on maximisation of the return on this increased revenue.

To deliver growth in this industry, in particular, requires properly trained, motivated, talented people and the current skill shortages in the construction industry are well documented. The Group also needs to rebalance both its gender and ethnic diversity. Currently the national average for the employment of women in construction is 11%, the Group figure is currently 10%, but both of these two figures are far too low. The solution to these problems lies in our hands. The maintenance and promotion of our core values and the strong sense of a family company are a key element, but it is also about trust and that for this Group is key. We trust our people and our customers trust us to deliver.

Relationships with key educational establishments are being maintained and expanded and current employees incentivised to attract new personnel into the Group. Also, a new exciting initiative is underway with the Prison Service locally to rehabilitate ex-offenders and reskill them for roles within this Group. The response so far has been very encouraging and is a further example of the collaborative ethos engrained in this Group to achieve mutual benefit for all parties involved.

The development and retention of our existing employees is also of paramount importance to deliver the succession required to maintain growth. The retention of the Investors in People Gold status accreditation was an achievement to be particularly proud of and we aspire to achieve the pinnacle of Platinum within the next five years. The leadership and management level 3, 5 and 7 courses have been maintained and the innovative projects undertaken by the individuals have been fed back into the business and resulted in a tangible business improvement. The individuals engaged on level 7 have been collectively engaged on the twin projects of improved communication and brand analysis. An exhaustive consultation document has been produced and the recommendations contained therein are currently under consideration. In parallel, technical training has continued apace and so far this year 1,277 No. days have been undertaken, an increase of 6.8% over the previous year.

The health and well-being of our people is always foremost in our minds and approach to business. Sadly, our safety performance suffered a reverse last year and performance deteriorated. It is therefore, extremely heartening to report that after a major analysis and concentration upon performance, a significant improvement has been achieved this year with our Accident Frequency Rate (AFR) declining to 0.04. "Safe by Action" days were inaugurated last year, where directors visit sites to observe and discuss our safety culture. A successful sequel has already happened in March this year and again the benefits and feedback were extremely positive. The Group and the divisions have been awarded Gold awards by RoSPA this year and Nomenca received the President's Award. Naturally, we are very pleased to receive this commendation from such a prestigious body.

Sustainability is of great importance and is not only linked to exceptional customer service, but also the impact of our activities on the environment and the communities, where we work and source our people from. Great efforts are being made to reduce waste and our carbon footprint, most particularly in better planning and monitoring of vehicle usage. Our commitment to the Modern Slavery Act is total and great strides are being made with our supply chain to ensure ethical behaviour at all times. CSR activity is well promoted throughout the Group and also has a secondary benefit in delivering in a "feel good factor" for the individuals concerned and also assists in their personal development.

As previously mentioned the Group is currently experiencing strong growth and further opportunities are plentiful. Controlling this growth is critical, but also funding it. The maintenance of cash-flow has improved and the Group continues to operate within its facilities. The Board is currently engaged on investigating opportunities for the more profitable utilisation of any free-flow cash.

The increased level of profitability has enabled your Board to increase the dividend payable, with your approval. The maintenance of a progressive dividend policy is a key target. Whilst the Water and Construction sectors of the Group have commenced the year slowly, both have strong order books in place and they are on course to achieve their budgets. This leads the Board to be confident of delivering an improved financial performance this financial year.

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

John Homer Chief Executive commented;

"It is pleasing to report that we have had a strong start to this year. Our strategy of focusing on getting the basic principles of risk management right and delivering exceptional customer service is serving us well. The markets in which we operate are forecast to grow steadily. We have a robust order book and healthy sales pipeline. It is expected that this momentum is set to continue."

Enquiries

   North Midland Construction PLC                      01623 515 008 

John Homer, Chief Executive

Dan Taylor, Finance Director

This information is provided by RNS

The company news service from the London Stock Exchange

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May 18, 2017 02:00 ET (06:00 GMT)