NMCN.L Regulatory News (NMCN)

North Midland Construction plc

27 May 2010

AGM Statement

At the AGM held at 12.00 noon today, Robert Moyle, Chairman, provided the following update on trading:

CHAIRMAN'S STATEMENT

In spite of the very difficult trading conditions currently prevailing within the construction industry, it is very gratifying to be able to report an improved performance for the first quarter in comparison to the previous year. Group profitability has increased by 32.6% to £557,000 on revenue increased by 6.7% at £38.1million.

Collectively, it has been a positive performance, with only the building subsidiary struggling and delivering a small loss of £21,000 for the period. A detailed breakdown of the individual performance of each division and subsidiary will provide a greater insight into the overall Group performance.

As previously reported, the Civil Engineering division and the M & E subsidiary, Nomenca, were successful in securing a proportion of both the infrastructure and non-infrastructure AMP5 programme for Severn Trent Water. There will also be the opportunity to secure an element of the large capital projects to be undertaken, which are excluded from the framework. To service this contract, which will generate revenue of circa £50million in the first year, it has been decided to pool resources from both Nomenca and the Civil Engineering division into a new divisional entity called NMC/Nomenca. The contribution from NMC/Nomenca is distributed into the Civil Engineering division and Nomenca for financial reporting. The Civil Engineering division returned a profit of £261,000 on revenue of £12.5million. Excluding the AMP5 framework for Severn Trent, the division has an order book of £12million for the year and there is an urgent need to secure further orders, which will be undertaken this financial year, to deliver the budgeted revenue of £24million. The joint venture with Biwater to deliver the Minworth project has operated very harmoniously and successfully. The project will be concluded this year and confidence is high that a significant contribution to the year end result will be forthcoming.

The Highways division has generated a first quarter profit of £39,000 on a revenue of £3.3million. The poor winter weather hit the division particularly hard at the start of the year, bringing paving works to a virtual standstill. Current secured workload stands at £12million, which is 64.9% of the year's budget, which is a significant increase on the previous year. The division has been particularly successful in recent years in expanding both its geographical area of operation and its range of clients. Public realm contracts have become a particular area of expertise and the city centre schemes undertaken in Leeds have been the recipients of awards. The division has recently secured a major three year framework with Liverpool City Council and is currently engaged on the first scheme of city centre paving at a value of £4.2million. Tender opportunities are currently reasonably buoyant, but there are concerns that further public sector cut-backs will seriously affect this situation. However, on the back of the base workload already secured and the division's growing reputation for delivering high quality paving schemes, in particular, an improved performance over that of the previous year will be delivered.

Although the economy is experiencing one of the deepest recessions in recent history, the telecommunications sector on the back of demand for faster and wider broadband and increased traffic generally, is paradoxically buoyant. The utilities division has benefited from this situation, as most of the major telecommunications companies are its clients. Profit for the first quarter was £177,000 on a revenue of £9.0million. The current order book for this year stands at £36million and further opportunities are currently under negotiation. The large Fibrespeed project in North Wales has been concluded, but various additional schemes have been secured on the back of it, most recently in Anglesey, maintaining a presence in the area. This has been replaced by the £31.0million South Yorkshire Digital contract, which is now well underway, operating profitably, and contributing revenue at circa £1.0million per month.

North Midland Building continues to be the Group member most badly affected by the current economic situation. The marketing strategy has been revised to re-focus more on the public sector and this has been successful in delivering a current order book of £25million, which is 71.4% of the budget required for the year. The first quarter produced a small loss of £21,000 on a revenue of £5.3million. Projects currently being undertaken include construction of one of the largest private houses to be commissioned in this country in the last few years, fire stations, office refurbishment for Severn Trent Water and Pera in Melton Mowbray. Public sector work includes a school for Nottingham City Council and projects at the Queen's Medical Centre in Nottingham. The construction market remains extremely competitive and there is a need to secure the extra workload to achieve the budget target. However, there is a confidence that this will be achieved and that a positive contribution will be forthcoming this year.

Nomenca has delivered a first quarter profit of £101,000 on a revenue of £8.0million. Excluding its contribution to NMC/Nomenca, received workload to be delivered in the current financial year stands currently at £19million, which is 67.9% of the budget requirement. The foundation of the subsidiary's business strategy has been to secure framework contracts to support the regional office structure. The company currently has secured 22 No. frameworks, of which 18 No. are within the water industry. The latest success is for Wessex Water AMP5 treatment works stream for both clean and waste water. This framework is of five years duration, with the option for a client extension to ten years. The company has successfully bid with Murphy for a large contract at Deepham for Thames Water. The value to Nomenca being £17million, of which £4million will be constructed this year. The company is still actively engaged in tendering the AMP5 programme, where agreements have not been concluded, and is cautiously hopeful of further success.

Constant pressure is being exerted by clients to deliver cost savings and as margins are extremely tight already, this is a major challenge. Significant steps have been taken during the last year to reduce the cost-base, improve supply chain management and generally become more innovative and efficient. The supply chain management system, P4D (Partners for Delivery) originally developed within Nomenca, is now being rolled out throughout the Group. Our real strength, however, is our people and ultimately it will be their performance and commitment that differentiates this Group from its competitors. This Group is particularly well blessed in this regard and I am always delighted each year how many long service awards are presented. We have an enviable record in both retention, length of service and the ability to attract people of the required calibre. Sadly, there has been some headcount reduction during the past year, but the Group is committed to a path of organic growth and to this end has maintained its investment in training, university sponsorship and the apprentice scheme. 306 No. training days were undertaken in the first quarter. 8 No. undergraduates are currently being sponsored in various universities and the apprentice scheme currently has 21 No. members. Three offers of employment have been made to the 2010 undergraduates who have been on placements with the Group. The current group of apprentices mostly came from recommendations within the Group, which is particularly satisfying.

As the Group has grown, it is only appropriate that its commitment not only to its own workforce but to the wider community as well, should develop and progress. The 2009 Corporate Responsibility Report, which hopefully you will all have received, documents both our philosophies and our actions. The Group has recently joined the "Business in the Community" organization and this will enable initiatives to be more focused and co-ordinated in the future, whilst providing a national benchmark of performance.

In the construction industry, in particular, Health & Safety and Environmental Performance are of paramount importance. The last few years have witnessed great strides forward in both cultural and behavioural performance. This year the Group will be the recipient of Gold Awards in Health & Safety from the British Safety Council and ROSPA. Both NMC/Nomenca and Nomenca will receive ROSPA Gold Awards and North Midland Building a Considerate Construction Award for the Severn Trent Raynesway project. The Group has a defined target to measure and reduce its carbon footprint on an annual basis and the statistics for 2009 are currently being compiled. Confidence is high that there will be a reduction in the 2008 result.

You will all be aware that the 2009 result was reduced by the provision of £1.59million for the fine levied by the OFT and predicted associated legal costs. An appeal has been lodged and a hearing date of 9 July 2010 has been set. The Group will be vigorously defending its position.

Cash generation has been positive during the quarter and the Group is operating well within its existing facilities, which have recently been extended. The share price has remained fairly stagnant, but it is pleasing to note that Brewin Dolphin have upgraded their price target to 220p in their latest investment update, copies of which are available to yourselves today. The current forecast for this financial year is for delivery of a £3.4million profit before tax on revenue of £184million. Your Board has no reason at this stage to revise this forecast.

Enquiries:

North Midland Construction plc 01623 515008

Robert Moyle, Chairman

Mike Garratt, Finance Director