Just 18 months ago NMCN, the company formerly called North Midland Construction, posted its 2019 financial results showing double digit growth in revenue and profit. Today it is filing for administration.
The 2019 numbers were good: a pre-tax profit of £7.44m on turnover of £404.7m. It ended the year with £25.8m cash in the bank. That turnover was split between £283m from the water industry and £123m from built environment; operating profit was £7.6m from the former; £3.0m from the latter.
A lot has happened in the past 18 months to knock many businesses off course, but the fall of NMCN has little or nothing to do with the Covid-19 pandemic, material shortages or any of these recent industry-wide ills.
To understand the problems facing NMCM, it seems, one may have to look a little further back, to the collapse of Carillion in January 2018 and the tightening in accountancy protocols that followed. Much tougher restrictions were introduced on the practice of showing anticipated revenue as money actually banked. This has had implications for all publicly listed construction companies.
The first indication that all was not going swimmingly at NMCN came in the summer of 2020 when, first, finance director Dan Taylor left after seven years in post and, a few weeks later, John Homer chief executive since 2016, also departed suddenly. Chairman Robert Moyle moved back downstairs as interim chief executive and long serving non-executive director Ian Elliott took over as acting chairman.
For Moyle, NMCN is very much his family business. His father Major Terence Moyle was one of the two founding partners in 1946. Robert Moyle joined the business after graduating in civil engineering from Birmingham University in 1973 and joined the board in 1984, two years after the company’s stock market flotation. He was chief executive from 1990 until 2016 when he moved up to become chairman and brought in John Homer from Morgan Sindall as his successor.
The wider Moyle family still owns 48% of the business.
Ian Elliott, a former director of engineering Severn Trent Water, NMCN’s biggest customer, has been on the board continuously since March 2006 – more than 15 years, an unusually long stint for a non-executive director of a public company and totally counter to recognised best practice. The Corporate Governance Code says no more than nine years.
News of the boardroom changes was accompanied by the revelation in September 2020 that the group was set to post losses of between £13.5m and £15.0m for the year. Robert Moyle instigated an external investigation “to verify the extent of the prior year adjustments included within this loss”.
At the same time, the group’s auditor, BDO, was replaced by EY having completed two five-year terms.
Ian Elliott said that the issues had only come to light after the boardroom changes. The problem contracts were mainly in the water company, the board said. It is now understood that the problem contracts are a new £100m water treatment plant at Frankley (in joint venture with Doosan Enpure) for Severn Trent Water and the new £60m Bellozanne sewage treatment works in Jersey. They were quite ambitious undertakings for a company the size of NMCN.
It was not until January 2021 that new finance director was installed, Alan Foster, and only May when the new chief executive, Lee Marks, arrived from NG Bailey.
The scale of losses kept piling up – £16.5m by December 2020 and £23m by May 2021.
Then came a white knight, in the form of Svella, an investment company based in Carlisle, set up in 2018 by former Stobart executives Andrew Tinkler and Ben Whawell to invest in under-performing companies.
A deal announced on 21st June was set to recapitalise NMCN through an equity raise of £24m to £29m and a new banking facility of £7.5m-£8.5m. NMCN would get an immediate £10.0m capital injection by way of a convertible bridging loan from Svella, converting into new ordinary shares on completion of the overall transaction. A further equity fund raising would generate another £19m. The end result would be that NMCN would be financially stable and Svella would own a controlling stake. NMCN had already received irrevocable undertakings from majority of shareholders to approve the transaction at a general meeting.
However, it has been unable to hold the necessary shareholder meeting because a prerequisite is to sign off the 2020 accounts. With a new auditor, EY, and a new finance director having extended the scope of the audit to address historic financial reporting issues, this was not straightforward.
NMCN had said back in April 2021 that its 2020 results would be published by 30th June. But then on the 29th June it revealed that the audit was “still ongoing mainly in respect of concluding the determination of contract costs to complete and recognition of recoveries” and so was unable to meet that 30th June deadline. In accordance with City rules, trading in its shares had to be temporarily suspended until the results were published.
Another update, on 20th July, said that the results should be ready sometime in August.
Come 2nd August and another statement: “The group is now expecting to report £43m of aggregate losses…. the increased losses are largely covered by contingencies included within the working capital and cash projections used to support the Company's refinancing and also includes some losses which are likely to reverse in FY21.”
Oh, and the accounts won’t be ready until September at the earliest.
On 25th August came this: “The company and its auditors are working towards approval and release of the ARA [annual report and accounts] by 27th September to enable the subsequent publication of the prospectus, which will incorporate a circular to convene a general meeting to approve the proposed refinancing of the group.”
As that deadline approached, a 24th September statement revealed that NMCN and Svella were working towards a 19th November date for the refinancing. But this came with the coda: “A substantial amount of work has been undertaken on the audit with material further work to be undertaken and as such there is no certainty that the above timelines will be achieved.”
The new deadline for producing the accounts was 5th November, as that was as far as it could negotiate an extension to its £11.8m Lloyds Bank plc overdraft facility. After that, the money ran out.
On Friday 1st October came this: “Further to the announcement of 24th September 2021, the company has been in intensive discussions with regards to completing the preparation of the group's annual report in respect of the financial year ended 31st December 2020. As a result of these discussions, it has become apparent that the group will be unable to approve the audited financial statements within the extension period set out in the company's announcement on 24th September 2021.”
By Monday 4th October it was all over. “NMCN today announces that the board of the company, having taken advice, has concluded that the company is no longer able to continue trading as a going concern.”
It said that the Svella rescue deal had always been conditional on getting the accounts sorted and it just couldn’t.
“The board, its advisers and Svella have worked tirelessly in the intervening period. However, as previously notified, completing the preparation of the group's accounts has revealed further underlying contractual issues with expected losses rising to £43m. It has now become apparent that the company will be unable to approve the audited financial statements in a timely manner to allow the proposed transaction to complete within the required timeframe. This in turn has led to significant liquidity issues for the group and particularly the company, which unfortunately is now considered to no longer be able to continue trading as a going concern.”
Svella chairman Andrew Tinkler said: “We have been working tirelessly with the company, its auditors and advisors throughout this process to enable completion of the proposed transaction. However, the situation is out of our control and it is unfortunate that NMCN was unable to complete its 2020 audit within timings that would have allowed the transaction to proceed.
“Svella is now the principal secured creditor for the business and we will work alongside the administrators to consider options to seek to secure the best future for the businesses within the group and that of its employees.”
While Svella may get something back, shareholders should not expect to.
It is suggested that there are four bits of NMCN that might be worth a bob or two and be of interest to potential purchasers: the telecoms business is considered to have turned a corner and is doing rather well in its market; so is Norfolk-based business Lintott Control Systems, which designs and produces process software and was only acquired by NMCN in October 2019; then there is a steel fabrication business that supplies the water sector; and the asset security division is also likely to have value.
Most of the 1,700 or so employees of NMCN, however, will doubtless now be rapidly freshening up their CVs.
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