NMCN.L Regulatory News (NMCN)

24 May 2005 12:00

North Midland Construction PLC24 May 2005 North Midland Construction Plc24 May 2005 AGM Statement I make no apologies about commencing on a note of sadness. Most of you will beaware that my father, co-founder of the Company with the late William Morris,passed away recently and he will be sorely missed by his family, the employees,shareholders and clients alike. However, his legacy lives on and moreimportantly the values that he espoused of hard work, trust, loyalty andorganization. These core values, so ably demonstrated within the Group, permitme the luxury of announcing to you all further progress over the comparablefirst quarter of last year. Consolidated pre-tax profits have increased by 27%,on a turnover increase of 54%. The deterioration in net margin is primarily dueto a slow start to the year by the Building subsidiary, but this as will beexplained later, should be remedied by the year end. Last year was critical to your Company in relation to the need to secure severalAMP4 frameworks and certain key utility term contracts. As outlined in myChairman's Statement in the 2004 accounts, the outcome was generally veryfavourable and the current order book stands at 80% of this year's budget. Circa£50million has already been acquired for 2006. The only caveat being that theframeworks were secured in a fiercely competitive market place at very tightmargins. However, this should be compensated for by the high volumes of turnoveravailable. Effectively, this also means that the Company is semi-protected fromthe vagaries of having to compete in the open-tender market. The pursuit of organic growth and increased shareholder value has always beenthe mission. The performance of the individual constituents of the Group are,therefore, the key element in this strategy. As you are aware, the parentCompany trades as three divisions and there are two main subsidiaries, NorthMidland Building Limited and Nomenca Limited, and I will update you on theirprogress individually. The expansion of the Civil's division is of paramount importance and tofacilitate this, the division has been structured into three operatingsub-divisions of rail, general civil engineering and power, and water, all underthe control of one executive board of directors. The results for the firstquarter indicate an improvement over 2004 and the current order intake stands at£33million. Great strides have been taken in building the platform for thefuture and the Contractors Assurance Case has finally been obtained, enablingthe division to operate directly for Network Rail. A £5million composting plantis currently under construction at Bidston in Liverpool for Merseyside Waste.This is another first for the division, for example, and a variety ofsub-stations are being constructed across England for Siemens, VA TECH,Yorkshire Electricity, Central Networks and Scottish & Southern. The AMP4frameworks have yet to really commence, but the anticipation is that a steadystream of work will be underway by the end of this year. The Highways and Special Projects division has commenced the yearsatisfactorily, with results for the first quarter marginally behind those of2004, which was a record for the division. Turnover is anticipated to expand to£11million this year, with secured orders currently standing at £8.5million. Thehighlight of the year so far has been obtaining the Nottingham City HighwaysFramework, which coupled with that of Bradford City, will provide a fundamentallevel of turnover and overhead recovery. The client base is continually beingdeveloped and this bodes well for the future expansion of the division. The Utilities division's first quarter results have surpassed those of thecomparable period last year on the back of the increased turnover generated bythe additional contracts for BT and Marconi in the Eastern Area and for NTL inthe Midlands. The increased roll-out of the Broadband programme across thecountry is also generating increased turnover from other telecommunicationsoperators. The division has the term contracts in place to achieve the enhancedtargets set for 2005, whilst still actively seeking further opportunities intelecommunications and other related areas. The growth of the two subsidiary companies over their short period of existencehas been particularly satisfying and a total vindication of the strategy toenter their respective markets. The ability to offer a full turnkey service isstill particularly attractive to clients and also offers opportunities for thevarious facets of the Group to be working on a single project. North Midland Building Limited has started the year slowly, due to several newprojects being in their early stages and profitability is 70% below that of thesame period last year. However, significant contracts at Everthorpe Prison forHM Prisons, Staveley Fire Station for Derbyshire Fire and Rescue and the rapidescalation of construction at the Pavilions student flat accommodation inLincoln will push the annual projected turnover to a record £29million. Thislevel of order value will lead to a restoration of profitability in accordancewith budget. It is particularly gratifying to witness the Pavilions project, at£27million the largest individual scheme ever undertaken by the company,progressing so well. It provides further ample verification of the company'sconstruction and management capabilities and will provide a massive addition tothe portfolio of projects undertaken, enabling the company to compete in alarger market place. Nomenca Limited has reported first quarter profits 7% down on the same periodlast year, due to the conclusion of the AMP3 programme and the slow commencementof AMP4. Volumes will be down in the second quarter, also, due to the longerlead-in times for M & E works on water related projects. However, dependenceupon the water industry has decreased as a broader base of clients has beendeveloped and the predicted out-turn is for profitability to be equivalent tothat in 2004. The company has been very successful in the AMP4 procurementprocess and the prospects for future years, when the programme in fullyunderway, are immensely encouraging. The Group's success not only in the AMP4 tender process, but throughout its areaof operations in broadening its market share to provide growth, will also throwup many particular challenges. The commitment to an in-house capability remainsand to sustain the growth levels forecast, additional staff of the correctcalibre and commitment will need to be recruited alongside the development ofthe existing workforce. We want North Midland to be a happy place to work, whereindividuals will perform to the best of their capabilities and developthemselves as individuals. There is also a requirement to improve Health &Safety performance. To achieve these aims, training budgets have beensignificantly enhanced. The working environment must also be maintained and improved upon. I highlightedin my Chairman's Statement in the 2004 accounts, the purchase of the adjacentproperty and land. Outline plans for the re-development of this site to provideextra workshops, welfare facilities and offices are available for your perusaltoday. This will be a phased construction over several years, funded fromexisting resources. It will also be an active advertisement of the Group'sability to progress and improve. After the surges in the share price last year, it is pleasing to note that thevolatility has evaporated and the price has stabilized. Your Board is delightedthat the current price is at last reflective of the true worth of the Company. The overall order book stands at record levels and stretches into next year andeven the year beyond. This, coupled with the long term framework and termcontracts, provides a clearer vision of the future and the ability to plan thatfuture than ever before. Confidence, therefore, is high that our twin missionsof organic growth, coupled with increased shareholder value, will be attainedand that North Midland retains that special quality that engenders people towork for it. This information is provided by RNS The company news service from the London Stock Exchange