NMCN: 12 months that led to collapse
On Monday afternoon, NMCN announced it was calling in the administrators after its £24m refinancing plan fell apart. It marked the end of a downward spiral that has played out over the past few years.
The company, formerly known as North Midland Construction, ceased trading after 75 years in business. The contractor that worked primarily in the water sector, but also operated in the highways, telecoms and building markets, had grown rapidly in recent years, recording turnover of £217.6m in 2015, to £404.7m in 2019, the last year for which accounts are available. Its margin stagnated over the period, however, averaging 1.5 per cent.
In August last year, it appeared to have made its way through the initial impact of the pandemic relatively unharmed and, for the six months to 30 June 2020, it reported a £809,000 pre-tax profit on revenue of £181.6m. These would prove be the final set of figures the business would release as its finances unravelled over the the course of little more than 12 months.
On 25 September last year, the company made the surprise announcement that its CEO John Homer was leaving the company with immediate effect. The reason for his departure, four years after he joined the contractor in 2016, was not given.
In his last interview with Construction News, that took place just over a month before he left, Homer defended a £1m dividend payout to shareholders after the company claimed an unspecified amount from the Coronavirus Job Retention Scheme.
Alongside the news of Homer’s exit, the company said it was facing “operational challenges” and warned it “may incur losses” for the financial year. Chairman Robert Moyle took over as acting CEO. The company was also without a permanent CFO after Dan Taylor left in July.
On 15 October, the first sign of significant financial problems emerged when it told investors it expected to make a pre-tax loss of up to £15m for the year to 31 December 2021. Shares in the company plunged 25 per cent on the back of the news. The losses were uncovered following an internal review that was launched after the departure of Homer the previous month. They primarily fell in NMCN’s water business, which accounted for 70 per cent of its turnover. The firm also started efforts to try and get some financial breathing space. It appointed a finance company to sort out a medium-term finance package and began re-financing one of its property developments in a bid to free up £4m of cash. NMCN ended the month with more positive news as it announced the appointment of a new CFO, with Alan Foster joining the company from the National Grid.
As businesses across the country wound down for Christmas after a tough year, NMCN dropped a surprise announcement on 23 December; its losses were £1.5m higher than previously thought and now expected to report a £16.5m pre-tax loss for 2020. Around £5.3m of this should have been reported in previous financial years, the company said.
NMCN had previously blamed the water business for its losses, but it now revealed the highways business had also been loss-making during the year due to two problem contracts. Its building business also made a loss, which was blamed on disruption caused by the pandemic.
On top of the losses on old jobs, new jobs worth around £20m had also failed to start on time during the year. They were expected to commence in 2021.
Growing financial strain was also apparent as the company said it was having to adjust to work within its £15m overdraft limit while new debt facilities were put in place. This had “regrettably” led to a “stretch” in payments to suppliers, it said.
Nevertheless, chairman Ian Elliot said the group expected to return to profit in 2021, when it also hoped to reinstate dividend.
Two months into the new year, NMCN upped its anticipated 2020 losses for a third time, putting them at around £22m, with extra losses uncovered in its water business. The news came a month after it announced it had poached NG Bailey’s commercial director Lee Marks to take over as CEO. It said it expected to publish its results for 2020 by the end of April. Its shares dropped 17 per cent following the news. Three days after the update, on 26 February, NMCN shareholders voted overwhelmingly in favour of allowing the company’s directors to raise its borrowing limit. This was designed to allow the company to swiftly get a new medium-term funding package, secured against its property developments, in place. However, a month later at the end of March it was still “in talks” to securing extra financing and also trying to get its primary lender, Lloyds Bank, to extend its overdraft.
In early April, NMCN confirmed it had secured an 18-month loan from a company called Bridging Finance, six months after it launched its effort to secure more capital. Lloyds Bank also agreed to the extend the contractor’s overdraft to £12.5m.
The group’s directors said they were still working on a long-term financing solution and advised investors that their results would be released by the end of June. The company said it needed the extra time to conclude its re-financing and for auditing to be carried out under the restrictions caused by COVID-19.
Under stock market listing rules, this was the final cut-off for their publication, it being six months after its year end. Failure to meet the deadline would result in NMCN shares being suspended from trading.
The final two weeks of June saw the company publish a number of major announcements. First, on 14 June, it revealed it expected to make a loss in the current 2021 financial year, on top the £24m of losses for 2020 previously disclosed.
Eight days later, it followed up with news that it had agreed terms with turnaround investor Svella for a £24m re-financing of the business. Svella agreed to provide a £10m bridging loan and would take up £7.4m worth of £14m in new shares the company planned to issue. The remaining £6.6m would be placed with other large investors. If the share-raising was approved by investors by the end of August, Svella’s £10m loan would be converted to equity. And under certain scenarios determined by the uptake of new shares by other investors, Svella could have ended up owning almost 93 per cent of the company.
Shareholders were expected to vote on the plans in late August. But this depended on the company publishing its 2020 accounts and, on 29 June, the company confirmed it would not get them out for the end of the month, which resulted in its shares being suspended.
Late on Friday 1 October, the company released a surprise, brief trading update confirming it had not been able to sign off its accounts with its auditors and would not meet the November re-financing timeframe it had set out.
The following Monday, NMCN called in the administrators. Its subsidiaries are expected to be sold as going concerns.