03/12/2014

Shepherd Group Highlights focus on Quality of Earnings

Shepherd Group reported flat Group earnings (EBIT) of £10.1m (2013: £10.2m) on reduced revenue of £686m (2013: £748m) for the year ending 30 June 2014 and once again retained a nil gearing (no debt) position. 

The Group maintained a strong balance sheet structure with net worth of £229m and cash of £84m. The quality of assets held by the Group was further strengthened in the year as it reduced stocks in legacy residential land and development properties, whilst increasing investment in its profitable Portakabin division, with significant investment in Hire Fleet assets and the acquisition in August 2013 of Oecon, a German subsidiary for Portakabin.

Portakabin, the Group’s primary source of quality earnings, achieved a strong performance and the results for Shepherd Engineering Services, Shepherd Homes and Shepherd FM were all encouraging. Whilst performance at Shepherd Construction and Shepherd Group Engineering was disappointing over the year, decisive mitigating action has been taken.

David Williams, who was appointed Shepherd Group Chairman on 1 July 2014, said:

“As a company with nearly 125 years heritage, Shepherd Group has a strong history adapting to market opportunities as they evolve. The Group Board’s strategy remains to improve focus on the areas of the Group which have the greatest sustainable development opportunities.

“We are currently reviewing our businesses, assessing their strengths and weaknesses in relation to their markets, sector norms and peer performances to ensure that we continue to bring a sharper focus to those areas of the Group where the most significant future investment will be made.

“This strategy is essential in achieving our vision of maintaining and developing a portfolio of fully-empowered, high-performing businesses consistently growing shareholder value.

“Our view is that although the economic climate is improving, offering greater potential, there is still a need for caution.  Whilst there are concerns over specific sector and operational issues, the medium term prospects for the Group are positive.”  

Mr Williams added: “I would like to pay tribute to my predecessor, Alan Fletcher, who retired from the Group Board at the Annual General Meeting in October 2014.  During his 13 years as Group Chairman, the business benefitted from a keen strategic focus on organisation.  The Group’s businesses were made so strong they were able to withstand the worst economic recession in modern times and build balance sheet strength.”

Summary of Divisional performances:

Portakabin Group

Portakabin achieved a considerable increase in its profit performance, with EBIT up by almost a third.  This was driven by good performance across all business units, indicating a recovery in most market sectors.  There was a healthy contribution to profit from Oecon, the German business acquired in August 2013, which is performing ahead of expectations.  Hire fleet demand was very strong in the year and fleet utilisation is now at capacity in most of the fleets.  The quality of earnings from the Hire operation continues to underpin the performance of the Group.  Portakabin is making very good strategic progress and is generally ahead of plan.

Shepherd Group Built Environment

Shepherd Construction's performance was affected by a number of challenging contracts which have now reached practical completion and so the issues affecting performance have been stemmed. In addition, the Group Board has acted swiftly to restructure and reorganise Shepherd Construction to address the issues which cause severe and reoccurring adverse impacts on Group performance.

On a more positive note, Shepherd Construction completed a number of profitable jobs where clients’ expectations were fully met or exceeded. 

The results for Shepherd Group Built Environment also benefited from a significant contribution from a new Development operation, which aims to work with investors on niche opportunities whilst avoiding unacceptable funding exposure.

Shepherd Homes more than doubled its EBIT as the business took advantage of improved market conditions and the “Help to Buy” scheme to make good progress in exiting its legacy landbank.  Margins on more recently acquired sites are encouraging.

Despite a tightening in market conditions, Shepherd Engineering Services still made a  significant contribution to profit, showing a fast-expanding Compound Annual Growth Rate (CAGR) of 15% over the past five years and maintaining its position in the top 5 (by profit) mechanical and electrical (M&E) providers in the UK. Its proven track record on high-tech solutions includes one of the world’s most advanced bio-hazard containment facilities at Pirbright Institute, which won the Judges’ Special Award at the prestigious 2014 British Construction Industry (BCI) Awards.

Shepherd FM recorded a small reduction in profit as it invested further in its work winning capacity, demonstrating the success of investment to date by winning a number of key blue chip contracts. Shepherd FM continues to have an exemplary client retention record and maintains growth at a CAGR of c30%.

Shepherd Group Engineering

This new division, established last year and comprising the Portasilo and Portastor businesses, continued to have a difficult first phase with its profits affected by problems with large legacy contracts and the costs of divisional restructuring and strengthening.    These legacy contracts are now complete.  Securing orders in the current market has been challenging and this has affected performance but the work winning functions have been considerably strengthened and a comprehensive turnaround project is already in hand.