TIDMNMD
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
END
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