North Midland Construction PLC AGM Statement (3463O)

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RNS Number : 3463O

North Midland Construction PLC

17 May 2018

North Midland Construction PLC

17 May 2018

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 pleased to be able to report further progress in the first quarter of this year over the comparable period last year. Group revenue increased by 19.8% to GBP74.55 million and profitability by 11.0% to GBP0.64 million. The net margin declined to 0.86%, which the Board continues to consider to be an unsatisfactory return.

We have now rationalised our reporting procedure to two segments. The Built Environment which includes Building, Highways and Telecoms, and Water, which is self-explanatory, and is a combination of Nomenca and NMCNomenca.

The Built Environment, on the back of a loss-making performance in the Telecoms division, delivered a loss of GBP87,000 on a revenue of GBP24.79 million. Construction maintained the excellent progress made last year and delivered a profit of GBP0.49 million on a revenue of GBP10.53 million. Successful geographical expansion has been extended into the North West and contracts of a higher notational value are being received. The division is currently engaged on two major student accommodation projects in Sheffield and has successfully secured a place on the Leicester City Council framework. Workload for construction this financial year currently stands at GBP38.0 million and GBP8.3 million has already been secured for 2019.

Highways has experienced a solid first quarter increasing margins to 1.97%, whilst delivering an increased profit of GBP138,000 on a revenue reduced by 22.7% to GBP7.01 million. The drop in revenue being attributable to delays in commencement on two large schemes; one for highway improvements at Sowerby for Lincolnshire County Council, valued at GBP4.5 million and the other for flood alleviation at Anlaby for the East Riding of Yorkshire, valued at GBP8.5 million. The number of frameworks currently secured is twelve, and works continue to emanate from these. Very recently four lots of a multi-disciplinary framework for Nottingham and Derby City Councils have been won and work will start to flow in the near future. These, coupled with an order book for GBP27.0 million already secured for completion this year and GBP9.0 million for next year, provides confidence that budgetary targets will be achieved.

The Telecoms division has continued to be loss-making during the first quarter due to on-going delivery problems and declining workloads on the Virgin Media term contract, most particularly in the North West area. A loss of GBP714,000 was generated on revenue reduced by 13.0% to GBP7.25 million. Network expansion has generally been curtailed across the country, but positively a price review has been successfully negotiated with Virgin Media with effect from 1st April 2018. Successful returns are being achieved on the term contracts being undertaken for Telent and Centro in the Midlands and K.Com in the Hull area. However, there is an urgent need to return this business to profitability and a thorough review of all operations and performance is currently being undertaken.

The Water segment has yet again produced an enhanced return with revenues increasing by 24.2% to GBP49.76 million and profitability by 57.9% to GBP731,000. Net margin improved from 0.85% to 1.47%. Both Nomenca and NMCNomenca have grown on the back of increased expenditure in the middle of the AMP6 cycle by the water companies. NMCNomenca delivered a profit 21.9% ahead of the previous year on revenue increased by 27.1% to GBP34.41 million. Nomenca, similarly increased profitability by 175.5% to GBP303,000 on revenue increased by 18.0% to GBP15.35 million.

NMCNomenca is involved in four high profile joint ventures in Newark, Ambergate, Frankley and the Elan Valley Aqueduct and all are large and engineeringly complex projects. It is a testament to the confidence that Severn Trent Water have in the team, to work collaboratively with its partners to deliver projects on this scale. All the schemes are progressing well with the tunnel drive at Newark complete and two of the three drives on the Elan Valley Aqueduct also successfully finished. Both reservoirs at Ambergate are now constructed and tested, the latter utilising the Laing O'Rourke explore twin-wall precast system, which further developed our experience of using off-site build techniques.

Nomenca continues to expand in its chosen markets, utilising its network of divisional offices, and the growth achieved servicing Yorkshire Water from its Leeds base, has been particularly impressive. South West Water went to the market for its AMP7 frameworks earlier in the year and I am delighted to report that the MEICA Capital Works Framework was retained, maintaining our significant presence in the area.

The off-site build capabilities in steel fabrication, control panel and chemical dosing rig manufacture, are also being expanded. To accommodate this growth, new and larger offices and workshops have been leased in Leeds, St Austell and Plymouth, providing a significantly improved working environment for the staff.

The current projections for revenue this year are GBP160 million for NMCNomenca and GBP65.0 million for Nomenca and these will be achieved, along with the forecasted profitability.

Three of the current water companies for whom we are currently engaged have gone to the market this year for their AMP7 programme. South West Water has already determined and Nomenca were a significant winner, as I stated previously. Severn Trent and Yorkshire are still engaged in the procurement process and whilst failure to be selected in our current areas of service would be a major blow, significant opportunities to expand the level of current business being undertaken are also available and need to be secured. Whatever, the results they will have no impact on this year's results for the Water segment of the Group.

The Construction market is currently quite buoyant and this year, on the back of its strong customer relationships and its ability to deliver larger and more complex projects, the Group will deliver further growth in both revenue and profit. Therefore, a very selective and thorough approach to contract selection and risk management is being taken. All the concentration going forward will be on managing this growth and maximising the return upon it.

To service this growth and also replace the people retiring and leaving the business is a major undertaking. All industries and professions are looking for talented, skilled, hard-working and motivated individuals and we are no exception. Our number of employees currently stands at 1,698, but we have a persistent number of vacancies of around one hundred. Close relationships have been forged and maintained with particular higher-educational establishments and also schools, and the recruitment and training of apprentices is going very well. However, we need to do more and become more diverse at the same time. It was becoming very apparent that we needed to develop another area of potential recruitment, and I told you last year about our fledgling initiative with the Prison Service at HMP Ranby to rehabilitate ex-offenders and reskill them for roles within the Group. I am delighted to inform you that the NM Academy at Ranby Prison is now up and running with the first cohort of ten offenders completing the course. Six have been offered positions within the NM Group. The second cohort is now up and running. We see this collaboration as a massive opportunity for all three of the parties concerned.

The retention of our existing employees is also of paramount importance, and to do that we need to offer them the opportunity to progress their careers within the Group and attain the level of skill and qualifications that they aspire to, whilst valuing them as individuals. We want this Group to be a great place to work, where our people are happy and motivated. To achieve this, high levels of training in skills, management and leadership have been maintained. Their well-being is also of massive importance and the construction industry has an extremely poor record in Mental Well-Being in particular, with the highest suicide rate in UK industry. Mental Health Awareness training is currently being undertaken throughout the Group.

Health and Safety is always on the highest agenda as far as your Board is concerned. It is extremely gratifying to experience the improvement in performance and awareness, as the progression in culture from "Safe to Safer" becomes embedded. The recruitment of a behavioural psychologist to the Group will only but assist on this journey. Our Accident Frequency Rate (AFR) has now declined to 0.09, and Nomenca have operated for a three year unbroken period without a RIDDOR, which is a fantastic achievement that they should all be extremely proud of.

Running a sustainable business is very close to our hearts, and good progress is being achieved in the reduction of our carbon footprint and waste. The Group still needs to go further in embracing new technology to reduce adverse environmental impact, and in overall waste reduction. Going forward initiatives will be introduced with the supply chain to reduce the need for packaging that leads to the production and subsequent necessary treatment of this waste. The new company car policy also includes for the provision of hybrid vehicles.

CSR activity is well promoted throughout the Group, but we are still looking at the other areas, where we can have a greater impact on the communities upon whom our operations impact on and where we recruit from. Material collection and donation is valuable, but other contributions such as volunteering can be of greater benefit and provide a greater 'feel good factor' for our employees and these are currently being introduced.

The Group is currently experiencing strong growth in both revenue and profitability and cash-flow continues to be robust. To utilise some of the free-flow cash, "NM Investments" has been established. The purpose being to generate both a development profit, at a margin currently in excess of existing contracting margins, and also provide revenue and a return for the Construction Division. The first opportunity, in collaboration with a developer, Earl and Pelham, for twelve town houses in Nottingham has already commenced on site. The land has recently been purchased for a second joint-venture with another party, for a development in Sutton-in-Ashfield. Both of these schemes are a tentative "toe in the water" on a moderate scale with low risk and should provide enhanced returns.

You would not expect me to conclude without comment on the current situation with regard to the ongoing legacy contractual dispute with Cyden Homes Limited. As previously reported, permission has been granted to appeal the High Court ruling and this will be heard later in the year and pursuit of our entitlement is ongoing.

The Board decided to maintain the level of final dividend payable based upon the current level of profitability, but a progressive dividend policy is a key objective going forward. A secured workload to date of GBP310 million for delivery this financial year and a promising level of secured orders for the subsequent year, leads the Board to be confident in the delivery of an improved performance this financial year.

This year will see the retirement from the Group of several key long-serving individuals, whose skill and dedication have contributed to the growth of the Group from being a regional civil engineering contractor to a national multi-disciplinary entity. Martin Queally and Mark Blakeway, with 54 and 33 years of service respectively, rising from labourer and site engineer to director positions are ample testament to the opportunities to progress a career within this organisation.

Steve Brown has also informed me of his desire to retire from the Board later in the year. Steve has served on the Board since 2004. He has also undertaken the roles of Senior Non-Executive Director and Chairman of both the Audit and Remuneration Committees. His knowledge, experience and most particularly wisdom have proved invaluable and of immeasurable benefit to the Group. Both the Board and the shareholders are indebted to him for his total commitment and formally extend our thanks to him for his service to the company.

On a personal and particularly sad level, my mother died peacefully on 27th April at home. She was devoted to my father and this company and supported him right up to the hilt, through good and bad times, particularly in the early formative years, even being directly involved as a director of the now no longer trading Nottingham Plant Hire.

To finish, may I take this opportunity to thank all the shareholders for their continued support and all the employees all their continued endeavour, 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 losses in the telecommunications sub segment are disappointing and full management attention is being focussed to rectify the situation.

The forward order book and cash generation are positive indications of a successful year. It is expected that these will continue."

Enquiries

   North Midland Construction PLC                      01623 515 008 

John Homer, Chief Executive

Dan Taylor, Finance Director

This disclosure is made in accordance with Article 19 of the EU Market Abuse Regulation 596/2014.

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May 17, 2018 02:00 ET (06:00 GMT)