29 November 2024

Northern Bear plc

("Northern Bear" or the "Company")

Interim results for the six month period ended 30 September 2024

Northern Bear (LSE:NTBR), the AIM quoted holding company of the group of companies providing specialist building and support services headquartered in Northern England and serving customers across the UK, is pleased to announce its unaudited interim results for the Company and its subsidiaries (together the "Group") for the six months to 30 September 2024 (the "Period" or "H1 FY25").

Financial Summary

·      Revenue of £37.6m (H1 FY24: £36.9m)

·      Gross profit of £8.9m (H1 FY24: £8.2m)

·      Gross margin improved to 23.8% (H1 FY24: 22.2%)

·      Operating profit of £1.7m (H1 FY24: £1.8m) following significant investment in operations

·      Earnings per share of 8.4p (H1 FY24: 6.7p)

·      Cash generated from operations £2.2m (H1 FY24: £1.3m cash outflow)

·      Equity dividends paid in the Period of £0.3m (H1 FY24: £0.6m)

·      £0.5m repaid on Virgin Money term loan in November 2024 following strong cash generation

Operational and Commercial Summary

·      The Board of Directors of Northern Bear (the "Board") is pleased with the Group's performance in the Period, with revenue and profits ahead of management expectations.

·      We have seen improved gross margins through continued growth in higher margin areas of the Group's businesses, along with continued careful contract selection and management.    

·      As intended and previously announced, we have continued to invest in our operations to support future revenue growth, including:

o  Isoler Limited - promotion of Josh Watson to joint Managing Director; relocation to larger premises in Durham; and commenced establishment of a new Southern delivery hub.

o  Callisto Glass Facades - new division in MGM Limited, providing bespoke design, manufacture and installation of architectural glass facades.

o  Alcor Handling Solutions Limited - continued investment in materials handling fleet.

·      As always, the results in the Period are testament to the hard work and commitment of the Group's employees.

Outlook

·      The Board confirms that the Group is trading in line with market expectations.

·      The Group has traded very well during the first half of FY25 and has the potential in the second half to trade ahead of strong prior year results and market expectations.  This is on the assumption, inter alia, that current market conditions remain, the additional investment in operations continues to meet revenue expectations, and that there is no major weather-related disruption which had a significant impact in H2 FY24. 

·      Our forward order book remains strong and should support our trading performance in the coming months. 

·      A further update on trading will be released in the new year and prior to the financial year-end.

Simon Carr CBE, Non-Executive Chairman of Northern Bear, commented:

"I am pleased to report that we remain in a strong financial position and have continued to make good progress against our medium-term objectives. This has been possible in the main by a combination of continued investment, organic growth and focus on cash generation, which has underpinned the results in the period.

I was delighted to be appointed Non-Executive Chairman of Northern Bear plc in the summer of this year. Since then, I have been working very closely with the board of Northern Bear plc and have also now met with all the senior management teams of all the trading subsidiaries. I have been very impressed by their enthusiasm, talent and dedication to the business. I would also like to join our CEO in thanking all the employees for their hard work and commitment, and our shareholders for their continued support."

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Introduction

I am delighted to report the unaudited interim results for the Company and its subsidiaries (together the "Group") for the six months ended 30 September 2024 (the "Period" or "H1 FY25").

Trading

The Group produced a strong set of results in the Period, which has also seen continued investment in our operations with a view to supporting future growth. 

Revenue increased to £37.6m (H1 FY24: £36.9m), with strong performances across our roofing, specialist building services and materials handling operating divisions.

Gross margin increased to 23.8% (H1 FY24: 22.2%), due to a combination of growth in higher-margin areas of the Group's businesses and continued careful contract selection and management. 

Following the planned increased investment in the Group's operations and overhead base as detailed below, operating profit was £1.7m (H1 FY24: £1.8m). 

Earnings per share for the Period was 8.4p (H1 FY24: 6.7p).  The Company completed a return of capital to shareholders by way of a tender offer in the prior period in December 2023, where the Company repurchased 5 million ordinary shares for consideration of £3.1m, funded by an amortising term loan with Virgin Money.  This had a positive impact on earnings per share in the Prior Period and the Period, and will continue to do so in the future.

Investment in operations

We have continued to invest in operations during the period, with a view to generating future growth. This resulted in an increase in administrative expenses in the period to £7.2m (H1 FY24: £6.4m). 

This investment included a relocation of Isoler Limited ("Isoler") to new, larger premises in Belmont, Co Durham, which accommodate an enhanced and expanded training facility. Isoler has also commenced establishment of a Southern delivery hub to support its ongoing national expansion programme. 

We have also opened a new division of MGM Limited, which trades as Callisto Glass Facades, and recruited a team to provide bespoke design, manufacture and installation of architectural glass facades.   This requires an upfront investment in employees and overheads within the first year, following which we expect a positive financial contribution from FY25 onwards. 

We have also invested in Arcas Building Solutions Limited ("Arcas"), following a challenging trading period in FY23, and spent much of FY24 refocusing the business and making significant changes to the management team and internal systems. Having recently appointed Michael Nesbit as Managing Director, we are confident that Arcas is now in a strong position to progress.  Michael has secured some excellent contracts, including being appointed as lead contractor for the refurbishment of a historic grade two listed building in Newcastle City Centre, which should support trading for the rest of the financial year and beyond. 

Other commentary on trading

We have continued to support and invest in H Peel & Sons Limited ("H Peel"), our construction solutions, refurbishment and fit-out business, following a challenging few years.  H Peel has historically served the hospitality and leisure sector and has seen reduced customer demand post COVID-19.  We have concerns over the further impact on the sector of reduced national insurance thresholds and minimum wage changes and, as a result, we are closely monitoring performance in this business and are keeping its long-term future under review. 

Despite challenging market conditions, our materials handing business, Alcor Handling Solutions Limited ("Alcor"), continues to perform well and, with continued investment in the fleet over the period, we believe it is well positioned for an upturn in market conditions, noting in particular the potential impact of falling interest rates.

As in prior years, we have included a calculation of adjusted Operating Profit, adjusted EBITDA, and adjusted earnings per share in notes 4 and 5 to these interim results as supplemental measures of the Group's profitability, in addition to the statutory measures defined under IFRS.  The only adjusting item to Operating Profit in the Period is for intangible assets amortisation of £5,000 (H1 FY24: £6,000). 

Cash flow and bank loans

The Group had a net bank debt position, based on cash balances of £1.4m less the outstanding term loan balance of £2.8m, of £1.4m at 30 September 2024 (30 September 2023: net cash of £0.4m; 31 March 2024: net bank debt of £2.2m). 

During the Period, the Company paid an ordinary dividend of 2.0p per ordinary share (H1 FY24: 2.0p).  In the prior period a further special dividend of 1.0p per ordinary share was paid. 

The amortising term loan with Virgin Money is repayable in equal quarterly instalments over five years.  Due to strong cash generation in the Period, the Company has repaid a further £0.5m on the term loan in November 2024, in addition to the scheduled £0.4m term loan and interest payments made in the Period.

As we have emphasised in our prior results, our net cash (or net bank debt) position represents a snapshot at a particular point in time and can move by up to £1.5m in a matter of days, given the nature, size and variety of contracts that we work on and the related working capital balances. The lowest position in the Period was £2.5m net bank debt, and the highest position in the Period was £0.1m net bank debt, and the average was £1.5m net bank debt. 

People and Board changes

I am delighted to have the opportunity to lead Northern Bear as Chief Executive Officer, having been appointed on 1 April 2024 following Keith Soulsby's retirement. 

We appointed Simon Carr CBE in July 2024 as the Company's Non-Executive Chairman.  Simon is a highly experienced individual with over 45 years' experience in the construction industry, having sat on the board of both private and public companies, and was previously the Managing Director of Henry Boot Construction Limited and sat on the Executive Committee of Henry Boot Plc.  My colleagues and I would like to welcome Simon to the business and look forward to benefiting from his extensive experience.      

I would also like to thank Harry Samuel for acting as our interim Non-Executive Chairman, pending Simon's appointment.  Harry continues as a Non-Executive Director of the Company. 

Anil Khera stepped down from his role as Non-Executive Director in July 2024, in order to provide the board with an appropriate balance between Executive and Non-Executive Directors. The board would like to thank Anil for his hard work and contribution to the Company and wishes him well for his future endeavours.

The Company notes that Tom Hayes, who has served as Finance Director of Northern Bear since February 2014, has stated his desire to leave the Group to pursue another opportunity.   Whilst no arrangements or agreements have yet been finalised, it is expected that Tom will stand down as a Director of the Company and its subsidiaries from 31 December 2024, remaining as an employee of the Company until 31 March 2025.  A further announcement in this regard will be made in due course.

At subsidiary level, we promoted Josh Watson to joint Managing Director of Isoler, alongside John Gilstin.  Josh has been with Isoler for over ten years and has played a key part in its commercial development and current growth initiatives, including the opening of the Southern delivery hub.

We also recently promoted Michael Nesbit to Managing Director at Arcas as previously mentioned.  Michael joined the business in 2023 and has already made a significant contribution, including securing several high-profile contracts which should benefit trading in the coming months. 

I would like to congratulate Josh and Michael on their promotions and look forward to supporting them in their new roles. 

In October 2024, the Company issued options over, in aggregate, 1,000,000 ordinary shares of 1p each under a Company Share Option plan, in order to introduce equity incentives for our Executive team and subsidiary management.

As always, our loyal, dedicated, and skilled workforce is a key part of our success and we make every effort to support them, including through continued training and health and safety compliance. 

Outlook

As at the date of this report, the Group is trading in line with market expectations and our forward order book remains strong. 

Should current market conditions continue and the additional investment in our operations meet expectations, the Group has the potential to trade ahead of both prior year results and market expectations.  This, of course, inter alia, is subject to winter weather conditions, as in the prior year we saw sustained heavy rainfall and a number of named storms which impacted on our operations and trading performance in H2 FY24. 

We will update shareholders on progress in the new year and prior to the financial year-end. 

Conclusion

Once again, I would like to thank all our employees for their hard work and commitment, and our shareholders for their continued support. 

John Davies

Chief Executive Officer

29 November 2024