North Midland Construction profit halves to £790,000

The interim pre-tax profit figure of £790,000 made by North Midland Construction (NMC) in the first half of 2008 is less than half the figure achieved in the opening six months of 2007.

Performance in the second quarter led to the disappointing result, said Robert Moyle, chairman and chief executive.

Turnover in the six months to 30 June 2008 was £104m, a fall of £3m on the same period last year.

The two hits that ate into the latest performance were:

• A major contract to build residential flats was pulled at the last minute;
• The utility division’s contract in the Eastern Region for Relent/BT was closed, triggering a one-off cost of £970,000.

Mike Garratt, finance director, said: “When the residential flats project was pulled we lost potential turnover and faced the costs already incurred, though we weren’t quite on site. If the client had gone bust when we were part-way through the build process it would have been much worse.”

There was a cash out-flow during the period of £7m, resulting in NMC ending the period with an overdraft of £4m.

Part of the reason for this was a call for an increase in working capital, though Garratt anticipated this change would prove to be temporary and would reverse in the future.

A second toll on the cash balance was the result of “certain clients extending payment terms”.

Garratt explained: “We suffer from delay, often a week or more, and the client tries to cover it up though we keep pressing. Our team have been certainly working harder to keep on top of this.

“The major clients such as Severn Trent don’t try this on. Rather, it’s the smaller clients with one-off projects.”

NMC has a creditor days figure of around 45-50 days. Garratt said that figure is higher than it might otherwise be as it includes retentions to subcontractors.

Despite delays in getting its own money in, NMC is keen to maintain payments to its supply chain in accordance with its normal terms, Garratt added.