T Clarke lifts profit margin to 6.0%

T Clarke, the electrical contractor, has unveiled a sparkling profit margin of 6.0%, well ahead of the previous year’s margin of 4.2%.

Clarke’s latest financial figures cover the 12 months to 31 December 2008.

Turnover was higher at £220m (previous year: £190m). Pre-tax profit showed a strong rise to more than £13m after a figure of £8m in 2007.

Pat Stanborough, chief executive, said: “Last year was an excellent year and I am pleased with the group's performance. To win projects such as the Olympic Stadium demonstrates the quality of projects that we are associated with.

“While market conditions remain challenging and visibility on future workload is more limited now than it has been for some time, we continue to further diversify our business both in terms of sector and geography, so that we are not overly dependent on any one sector.

“We anticipate 2009 revenues to be at more modest levels.”

Stanborough pointed out: “Our core business is in 'late cycle' within the commercial property development cycle”. He added that turnover in 2008 benefitted from the accelerated programme on Westfield Shopping Centre.

Clarke’s order book at the year end stood at £160m (2007 figure: £220) with a further £30m-worth of contracts also under negotiation.

Taking a closer look at future prospects, Stanborough said: “Since autumn 2008 there has been a well-publicised downturn in new commercial property development, particularly in the City of London. Major developers are cancelling and delaying a number of large schemes.

“Private residential schemes have been similarly affected throughout the UK.

“There is however, continued demand in the public sector. Sectors such as health, education, prisons and rail, and also affordable housing and social housing continue to provide the group with work.”

Segmental analysis – turnover

• £100m - London
• £120m – regions
• £640,000 – property

Segmental analysis – pre-tax profit

• £10m – London
• £3m – regions
• £400,000 – property

Clarke’s profit from operations in the UK regions is stated net of a goodwill impairment charge of £1.8m. It follows an annual impairment revue on the last day of the year.

There was no such charge in 2007.

At the latest review, the directors concluded that the goodwill arising from three acquisitions had been impaired:

• JJ Cross
• Kestrel Electrical Systems
• GDI Electrical

The combined sum of goodwill on all three has been written down to zero.

Training stays high on the agenda and Clarke currently employs 233 apprentices and 56 adult trainees. “We are proud of the quality of our people,” said Stanborough.

Turning to pensions, he said: “The risk associated with the defined benefit scheme has to be weighed up against increased staff retention and other benefits to staff as a result of the scheme.”

The group consulted members with a view to making changes and bonuses were removed from pensionable salary with effect from 1 January 2009.

In a move “to contribute towards scheme funding”, the group is granting a charge to the value of the greater of £1.5m or half the value of its London property (which has a current valuation of £2.7m) to the pension fund.

An advantage to the group would be the related reduction in the risk-based levy paid to The Pensions Protection Fund and “the ability to spread deficit contributions over a longer period”

Against current trends, Clarke has managed to cut the size of its obligations to the defined benefit pension scheme from £22m to £19m, a welcome development since the past year saw the value of the scheme’s assets drop from £19m to £16m.

As a result the scheme now has a deficit of £2.7m compared with a weightier figure of £3.3m at the start of the year.

Changes in assumptions used to calculate the state of play in the pension scheme:

rate of increase in salaries 3.7% (previous figure: 4.4%)
rate of increase of pensions in payment 2.4% (previous figure: 3.0%)

The good news for staff is that Clarke anticipates them living longer. Details of the longevity figure now put into the group’s calculations are:

Life expectancy at age 65 for current pensioners

• men 24 years (previous figure: 22years)
• women 27 years (previous figure: 25 years)

Life expectancy at age 65 for future pensioners (current age 45)

• men 25 years (previous figure: 23 years)
• women 28 years (previous figures: 26 years)