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Shepherd restructures as profits fall despite turnover growth

Shepherd saw a fall in pre-tax profits in 2011/12 as it secured a £50 million refinancing and underwent a major operational restructure.

The Yorkshire-based group saw profit before tax fall by 12 per cent to £27.6m (2011: £31.5m) - though the company said last year’s performance, when profits were doubled, was helped by a large one-off pension credit. 

Turnover increased by nearly 10 per cent to £672m in the year to 30 June 2012, up from £611m a year earlier, with underlying operating profit up 4 per cent to £25m (2011: £24m).

The group also secured a £50m refinancing deal in 2011/12 to provide “capacity for growth”.  It had £89m cash in the bank, compared with £47m a year earlier.

Shepherd said it is placing more focus on its “Shepherd Aligned” concept, which brings together its services - financing, development, architecture, construction, building services and FM. It said the aim is to improve efficiencies and work “more cohesively together”.

The group’s three main divisions are now Shepherd Group Built Environment, Shepherd Group Engineering and Portakabin Group - all of which achieved growth in turnover.

The move saw the former Industrial Division split into two of the new group divisions - Portakabin Group, comprising the Portakabin operations; and Shepherd Group Engineering, which comprises Portasilo and Portastor. 

The Property Division brand was scrapped, with Shepherd Homes integrated into Shepherd Group Built Environment.

The reorganisation was aimed at “bringing a sharper focus to those areas of the group with the greatest sustainable development opportunities”.

Homeseeker Park & Leisure Homes - formerly Shepherd Park & Leisure Homes - is “being refocused” after seeing a “very subdued” market, with continued losses.
It is concentrated on efficiency savings and new models, together with fresh marketing and customer strategies.

The biggest increases in turnover were in Shepherd Construction and Shepherd Engineering Services. It comes as the built division is “developing its reputation as a supplier of large and technically complex projects” such as the £50m Drax biomass deal.

Shepherd Construction achieved “considerable growth in turnover”, with a “a significant contribution to group operating profit, similar to last year‘s record level”.

“This performance flows from good margin performance on some key contracts and the efficiency improvements made in recent years,” it said.

Portakabin Hire, which is the principal contributor to group profit, recorded a rise in revenue but drop in operating profit, with “tight market conditions affecting margins”.

There were “significant improvements” in profits for Portasilo, mainly resulting from higher activity levels, and SES, driven by improvements in efficiencies. Shepherd Homes, which had seen several years of losses blamed on “poor market conditions”, achieved a “breakeven position”.

Group chairman Alan Fletcher said: “Strong management aligned with quality products and services have ensured that the group continues to make steady progress against a very challenging market backdrop, driving the business for profit and value growth for the shareholders.

“The completion of our business restructuring and the recruitment of new senior executive management continue to give confidence in the underlying potential of the group.”

The firm said the refinancing “demonstrates significant confidence from the banks in the potential of the group”, adding that it provides “additional flexibility and capacity for growth as it plans its options for the future.”

The company had seen a restructure in construction in 2009, The average number of employees during the 2011/12 year fell only slightly to 3,146, from 3,187.

There have been various senior appointments throughout the year, though there was no mention of a replacement for Richard Vining, who left as construction chief executive in February.

Shepherd Group Built Environment

This division saw “further management strengthening and the provision of divisional service functions to all business units”.

The group said the reorganisation ensures a focus on work winning and delivery, and provides “consistency of approach to reporting, communication, service delivery, and governance.”

Shepherd Construction - saw “considerable growth in turnover”.

SES - markets remain “very tight” but both turnover and profit were higher than last year, with profits “driven by improvements in efficiencies”.

Shepherd Homes - achieved increased turnover and a “breakeven” position after years of losses, “although the market remains very difficult”. It said its move into built environment “benefits from senior management operational and strategic input”.

Shepherd Developments - is being delivered as part of “Shepherd Aligned”, with “action being taking action to sell the current stock”. The primary disposal during the year was the Marine House project in Portsmouth for £20m and the sale of the Market House, Maidenhead project for £32m at year-end.

Shepherd FM - continues to make “good progress in growing contracted revenues” and, following overhaul in 2008, is making “consistent contribution to group profit”.

Portakabin Group

Derek Carter was appointed towards the end of the year to head the new group division. The firm said “unfavourable market conditions continue to pose a considerable challenge”.

Portakabin Hire - continues to be the principal contributor to group profit, but recorded “relatively flat profit performance in challenging market conditions”.

It said the continuing global economic uncertainty and the government’s deficit reduction programme have had a “particularly adverse impact upon the performance of Portakabin Sales division and Yorkon, where both turnover and profits were down compared with last year”.

There was a “mixed performance at the other operating units within the Portakabin Group”.

Shepherd Group Engineering

Todd Altman was appointed in January 2012 to lead this new division.

The division is “increasingly focusing on larger and more complex projects where better margins can be secured and on global activity which helps to mitigate the cyclical nature of key market sectors”.  

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