I am pleased to present the first Managing Director’s report to Norfolk shareholders for our maiden period as a listed company.
Since our listing in July 2007, we have made significant progress in pursuing our strategy to develop our underlying business and deliver on our prospectus.
I am delighted to report that we have been successful on both these fronts and your Board of Directors and Management believe the Company is now well placed to build on these results to further develop the Company’s position.
For the period ended 31 March 2008, Norfolk delivered strong underlying earnings with
pro-forma EBIT growth of 27.5% to $34.3 million and a pro-forma net profit after tax growth of
30.0% to $20.0 million, from a year earlier.
Our EBIT margin improved to 4.5% from 3.4% in FY2007 in line with our strategy of pursuing recurring revenue, higher yielding contracts and also our commitment to continued operational efficiency.
This is a creditable result which demonstrates our focus on quality revenue to deliver solid profitability and shareholder value.
Our revenue was below prospectus forecast due to two key reasons. Firstly, as a result of a delay in certain works across the business, mainly in alliance contract work, which is now rescheduled for FY2009. Secondly, as a result of the Company’s strategy to focus on quality revenues. This decision was evident during the year in the Electrical & Communications division, where we withdrew from a tender which failed to reach mutually acceptable contract terms with our customer, and in the Fire & Property Services division, where we elected not to take up an option on an existing contract due to insufficient margin.
Health and safety
At Norfolk we take health and safety very seriously. As a company, it is our responsibility to provide a safe and healthy work environment for our employees, ensuring that our practices and our work sites are safe for our people.
An injury-free environment is a core part of our cultural development and we have embarked on a journey to create a stronger focus on safety. We need to develop our people to think of safety first in the natural course of their working day.
During the coming year we will continue to drive operational improvements to enhance our safety performance, developing a culture of ‘Safety All Ways’. Monthly health and safety reports are distributed to the businesses to highlight success, as well as areas that require further attention.
An injury-free environment is imperative for our people and an injury reduction target is one of the key bonus elements for everyone within Norfolk who participates in our short-term incentive plan.
Our people
A critical element to the success of our service-based business is our people. At Norfolk, we have a team of over 3,580 employees across Australia, New Zealand and India. They are highly skilled with over 1,800 engineers, electricians, plumbers, apprentices, air-conditioning and refrigeration technicians across the business.
A core element of our employee strategy is our apprenticeship programme. We have over 350 apprentices (10% of our employees) to secure the future skills base of our business. We are committed to developing apprentices into highly qualified, experienced team members. A framework of induction and training has been developed to ensure apprentices receive the support they need. We are able to provide apprentices with the opportunity to learn from experienced team members and to provide valuable input and fresh ideas into the way we provide our services.
A tight labour market means that as we continue to develop a highly specialised, responsive workforce with highly motivated people, we need to ensure we have a solid recruitment and retention strategy focused on developing and motivating our people.
Key initiatives include:
Learning and development opportunities
We continue to improve our employee engagement programme with a focus on staff retention through learning and development opportunities with leadership and technical skill development, our COSMIC values programme and an electronic performance development programme for employees. This is a critical area which we will continue to develop over the coming year, as our people are essential to the success of our business.
Recruitment strategy
The ongoing skills shortage is impacting virtually every business in Australia and New Zealand. Norfolk is not immune to this current challenge and we are addressing this in a number of ways. For example, we have implemented a recruitment drive across the business in which we have successfully targeted South Africa, the Philippines and the United Kingdom to recruit engineers, project managers and specific tradespeople to the organisation. We expect this process will continue in the coming year. We have also established a single recruitment partnership across the combined group, in place of several separate recruitment processes, providing us with greater leverage and scale to more efficiently recruit employees.
Our growth strategy
Over the course of the year we have pursued our growth strategy focused on organic growth, bolt-on acquisitions and international expansion. Organic growth has resulted in the opening of new offices in various regions in Australia, New Zealand and India to increase our national footprints. A key part of our future expansion is to identify geographical gaps where there is a clear demand for our services. Establishing new branches for our business allows us to reach new markets and customers.
Another core element of our growth strategy is bolt-on acquisitions that complement Norfolk technologically and geographically. In November 2007 the addition of Gold Coast Airconditioning Services and The Plumbing Doctor (Canberra Region) boosted our earnings and added highly qualified and experienced personnel to our teams.
In addition, we have successfully expanded our international footprint through the acquisition of Trans-American Air-conditioning in India, now known as Norfolk Mechanical India. This established a firm foothold in the important, high growth Indian market.
We are expanding our operations in India this year by opening additional offices and our aim is ultimately to have operations in all 56 states of India. This expansion is supported by an existing customer relationship, new service contracts and significant opportunities across market sectors such as retail, infrastructure, hospitality, information technology and telecommunications (IT&T), and medical science.
We are also assessing expansion opportunities in the Middle East following on from our success in India. We are, however, conscious of the risks involved and we will pursue our international expansion strategy through a measured and disciplined process.
Meanwhile, in our core markets of Australia and New Zealand, Norfolk continues to secure large contracts for some of the region’s most significant infrastructure developments. These high profile projects demonstrate the broad reach of our business and our continued focus on organic growth.
Our Electrical & Communications division is undertaking a significant upgrade of the coal terminal at Dalrymple Bay in Queensland and also a contract to supply, install and commission a rail signalling system for the rail infrastructure in the Pilbara region near Port Hedland in Western Australia.
Our Mechanical division has completed a $15 million 4.5 Star Australian Building Greenhouse Rated (ABGR)/Green Star Design and Construct contract for mechanical services to the new Australian Tax Office Canberra. The service team continues to focus on national contracts in the petroleum, banking and retail sectors.
Our Fire & Property Services division, through our Facilities Management company, continues to reduce the number of low margin contracts to maintain our focus on five key market segments: defence, education, corrections, commercial property and industrial. We continue to leverage export opportunities and expand our product lines and services in fire containment.
Our strategic advantage
Our strategic advantage lies in the strength of our market position. We are number one in the electrical services market and the non-residential HVAC maintenance services market in Australia.
In addition, we continue to focus on quality earnings through building on our recurring revenue maintenance services, alliance contracting, exposure to key growth markets, building
long-term relationships with our customers and investing in our people.
Together, these activities provide Norfolk with a sound structure to grow profitably and continue to create additional shareholder value.
Outlook
The outlook for our business remains positive. Norfolk is well positioned to build on the platform created this year through organic growth, bolt-on acquisitions, international expansion and the move towards alliance contracts and securing recurring revenue.
General market conditions, particularly in the key areas of focus of the business (resources, infrastructure, power, rail and data centres) continue to be strong, supporting our strategic focus on quality earnings. Norfolk benefits from broad diversification of our earnings through the number and quality of our companies and also the breadth of our customer relationships. Our earnings capacity is further strengthened and diversified through our international expansion strategy, which will be extended over the coming year.
Norfolk is in a strong financial position and approximately $550 million of FY2009 revenue is underpinned by contracts, work orders and existing service relationships as at 31 March 2008. We will continue our growth strategy to create additional shareholder value and capitalise on the excellent foundations we have put in place over the last year. I look forward to another exciting year ahead and to your continued support.
Glenn Wallace
Managing Director
Norfolk Group Limited
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