A copy of Northern Bear plc’s latest financial results can be accessed here.
Chairman’s Statement – Financial Results
I am pleased to report the results for the year to 31 March 2016 for Northern Bear and its subsidiaries (together “the Group”).
The Group has delivered another strong performance, with profit before tax and earnings per share in line with prior year results despite the severe winter weather.
Northern Bear was admitted to trading on AIM on 19 December 2006 and we are consequently approaching our tenth anniversary as a public company. During this period, despite having experienced the worst recession to hit the building services industry that any of our operational staff can recall, we have reported a trading profit (before exceptional items) every year as a public company. Under current management, we have also driven substantial performance improvements, as well as having restructured operations and de-leveraged the Group’s balance sheet. This leaves us in an excellent position from which to approach the next ten years and beyond.
Turnover for the year was £36.5m (2015: £41.7m) and gross profit was £8.9m (2015: £9.8m). It has been well publicised that, during the winter of 2015/2016, the North of England was hit by unprecedented floods and high winds for a prolonged period. This seriously affected our ability to carry out site work, particularly for our Roofing division. As a result, turnover and gross profit decreased in the period, although gross margin increased to 24.5% (2015: 23.6%) through careful contract selection and our policy of avoiding chasing turnover on lower margin work.
The Group was able to make savings in administrative expenses which fell to £6.8m (2015: £7.4m) to partly offset the impact of lower volumes on operating profit, which decreased to £2.1m (2015: £2.5m) in the year (both including exceptional items).
The results also benefited from reduced finance costs following the renegotiation of bank facilities in March 2015 and the reduction in debt levels, with finance costs falling to £0.2m (2015: £0.6m). This was also due to a non-recurring write off of £0.2m of prepaid bank facility fees included in the 2015 results.
As a result, profit before tax remained at £1.9m (2015: £1.9m). Basic earnings per share was 8.2p (2015: 8.5p), with the difference relating to a slightly higher corporation tax charge for the period.
Net bank debt at 31 March 2016 was £2.5m (2015: £4.8m), following the strong trading performance and some favourable payment terms on newer contract work. This led to cash generated from operations of £3.7m (2015: £2.4m), which represents an outstanding cash conversion rate, although an element of this may reverse later in the year depending on the ongoing customer mix.
We continued to invest in the Group’s fixed asset base during the year, with capital expenditure of £0.8m (2015: £0.7m) well in excess of depreciation charges. The majority of this was in our Materials Handling division’s fleet of fork lift trucks, where we continue to see opportunities to invest at an attractive rate of return.
The Group is grateful for the continued support of Yorkshire Bank.
In view of the continued strong trading performance and substantially reduced net bank debt, I am pleased to announce that the Board proposes the payment of an increased final dividend of 2.0p per share (2015: 1.5p per share) for the year ended 31 March 2016. This is subject to shareholder approval at the Annual General Meeting to be held on 23 August 2016 and, if approved, will be payable on 26 August 2016 to shareholders on the register at 5 August 2016.
The Board is very pleased to be able to significantly increase the level of dividend payment for this financial year, having decreased the level of bank debt and associated outgoings over the last few years to what we deem to be a more appropriate and sustainable level. The Board will continue to assess the level of dividend and our current intention is to adjust future dividends in line with the Group’s relative performance, taking into account the Group’s available cash, working capital requirements, debt obligations and the macro-economic environment at the relevant time.
Operational and commercial matters
Despite the adverse weather conditions during the winter months, our Roofing division produced another excellent set of results. It is pleasing that customers continue to recognise the exceptional skill base within this division of the Group. This has allowed it to maintain profitability in what has become a margin-pressured marketplace.
Our mainstream Specialist Building Services companies continue to secure high quality work and to grow their reputations within the industry. This year, the Group has continued to secure high profile contracts, ranging from Heritage sites to lighthouses. These include Acklam Hall (Middlesbrough), Alnwick Castle (Northumberland), St George’s Quarter (Huddersfield), Durham Castle (Durham), Haworth Parish Church (Haworth), The Literary and Philosophical Society (Newcastle) and Souter Lighthouse (Sunderland).
The Group’s Materials Handling business, A1 Industrial Trucks, continues to perform strongly through both the sale and hire of Mitsubishi Fork Lift trucks and providing an outstanding service in maintaining sold and leased trucks for its customers.
I would also mention our excellent supply chain that has been built up over a number of years and which has once again supported all of our Group companies. Our suppliers have always ensured that we receive quality products, both sustainably sourced and competitively priced, and have always met our just in time approach for deliveries ensuring the efficiency of the Group’s operations.
Outlook and strategy
Current order book levels remain strong across the Group and the new financial year has started well. It remains a source of frustration that the Group is often not in a position to influence when contracts commence, so flexibility is the key to maintaining profitability.
I am pleased to say that we are being presented with a number of acquisition opportunities and continue to believe that making a small number of bolt-on acquisitions of specialist building services businesses could further enhance the Group’s service offering to customers. We will, however, only execute an acquisition where we are confident that it will broaden the Group’s service offering, predictably enhance earnings and provide an attractive return on investment for our shareholders.
I am proud to say that the Group directly employs the large majority of its workforce and has continued to invest in training new operatives throughout difficult economic times. Having a loyal, dedicated and skilled workforce continues to pay dividends in a sector where labour shortages and cost pressures are impacting operators of all sizes.
The Group is also proud of its apprenticeship schemes, which are available with all Group companies. We currently run a number of schemes which cover a wide range of skills such as roofing, joinery and brickwork. This continuous investment in apprenticeships will ensure that we have a steady stream of qualified tradespeople who are able to supplement our existing workforce, both now and in the future.
As previously mentioned, the new ‘National Living Wage’ legislation is not expected to impact the Group’s results, as our full time operatives can already expect to earn in excess of the proposed amounts.
I would once again like to thank all of our employees for their hard work and contribution to the Group’s continued success.
11 July 2016