Kazera Global Regulatory News (KZG)

17 Aug 2007 07:01

Worthington Nicholls Group plc17 August 2007 Worthington Nicholls Group plc Trading update Worthington Nicholls Group plc, (AIM: WNG) ("Worthington Nicholls" or the "Company"), announces that for the financial year ending 30 September 2007, itexpects that turnover and profit will be materially below market expectations. As at 16 August 2007, the Company has booked £23.6 million of revenues, is onsite at projects worth £5.5 million in revenue that are expected to be invoicedprior to the current year end and is scheduled or expected to commence andcomplete further work worth approximately £2.4 million prior to the year end. Onthis basis the Company would report revenues for the year of £31.5 million,which would produce a breakeven result. As at 16 August 2007, the Company had £12 million of net cash, representing13.79 pence per share. The shortfall in turnover is due predominantly to contract delays, a number ofwhich are attributable to the recent widespread flooding in the UK, and to theimpact on the maintenance side of the business of the cooler than averageweather conditions experienced throughout the UK this summer. The loss of profit attributed to the delayed contracts is £3.3 million. TheCompany has also recently lost margin on a small number of contracts which didnot perform to management's expectations, and its overheads base has increasedby £1.2 million as it prepared for anticipated growth. Contract delays At the time of the interim results announcement, the Company had beenshortlisted, along with two other contractors, to tender for the installation ofair conditioning into 3,000 bedrooms as part of a fast track installationprogram for a mid-tier hotel chain. The Company had been given indications thatit could reasonably expect to win at least 1,000 rooms and that there was alikelihood that this could be higher. A significant portion of this program wasexpected to be delivered during this financial year. Owing to internal issues within the customer relating to the timing of theirtendering and sign off process, the Company was notified on 15 August that thistendering process would not now be completed until the beginning of October ofthis year and therefore all of the expected revenue, should the Company besuccessful in its tender, which amounts to approximately £3.5 million, will falloutside this financial year. In addition, the Company has had a number of contracts delayed, worthapproximately £3.1 million, as a direct result of the recent flooding across theUK. In particular, two hotel groups have notified the Company that capitalexpenditure on air conditioning installations which had commenced or were due tocommence, would be delayed as they have suspended certain capital expenditurepending completion of their assessment of the likely cost of flood damage repairamongst a number of hotels within each hotel group. An additional hotel grouphas also yet to confirm anticipated works following flood damage at one of itshotels. Maintenance Division Following this summer's unseasonal weather, the Company has seen lower thanexpected demand in its maintenance division. The run rate of maintenancecall-outs has been lower than expected following a cooler than average summer,leading to less air conditioning usage and consequently less breakdown andmaintenance work required. This situation has compounded the effect of a delayin commencement of a material maintenance contract for a hotel group with theresult that the Board now expects the Company's maintenance division tounderperform on management expectations for the current financial year byapproximately £2.5 million. Margins and costs for the year ending 30 September 2007 Assuming turnover of approximately £31.5 million for the current financial year,it is expected that the gross margin would be £4.9 million below marketexpectations. £3.3 million of this variance is due to the reduction in turnoverdue to delayed contracts and the recent adverse weather conditions. In addition,some of the contracts which the Company has undertaken have not performed inline with management's expectation and this has resulted in lost gross margin ofapproximately £1.0 million. The Company also took the decision to take oncontracts with new major customers at lower margins, and in some cases as asub-contractor, in anticipation of achieving principal contractor status withthose customers in the future. For the current financial year the Company will see a £1.2 million increase inits level of overheads, with the sales team being increased as the Companysought to take advantage of market opportunities arising out of a changingregulatory environment. Additionally, the Company has enhanced its projectmanagement capability in anticipation of an increase in the number of contracts,prior to the notification of the delays detailed above. Summary Given the very recent timing of the notifications to the Company of the delayshighlighted above, the Board is not at this time in a position to provideguidance on anticipated turnover for the financial year ending September 2008. The Board recognises the urgent need to strengthen the management of thebusiness. The Chairman is personally overseeing this process and is currentlyexploring the options available. This includes the possibility of makingappointments at the most senior levels. Further announcements will be made asand when appropriate. Enquiries: Worthington Nicholls Alastair Stoddart, Chairman 0870 6091829Mark Worthington, Chief Executive 07766 137780 Smithfield Group 020 7360 4900Katie Hunt / Miranda Good Blue Oar Securities plc 020 7448 4400Rhod Cruwys / Romil Patel Information on Worthington Nicholls can be accessed via the Group's website:www.worthington-nicholls.co.uk This information is provided by RNS The company news service from the London Stock Exchange