Managing Director’s report
The 2009 financial year has been challenging for Norfolk Group, largely attributable to the impact of the global financial crisis and in particular the rapid decline in the New Zealand economy.
However, through decisive action and recalibrating our businesses to better suit the changed environment — including the consolidation of our electrical and mechanical operations in New Zealand — I am pleased that we achieved a normalised EBIT result of $28.9 million, which fell within our revised forecast range.
This achievement was the direct result of processes to identify trouble spots in the business and the initiation of programs to rectify them promptly and effectively. Critically, we recognised a need to improve our performance in relation to working capital and to take proactive steps to reduce our debt position.
At the end of the period our net debt level was $49.5 million. Notwithstanding this outcome, our average debt draw down throughout the period was considerably higher. In the changed and more conservative economic circumstances of today, management will focus on delivering reductions to our average debt level over the next period. While securing debt financing is more difficult in this climate, the finance team has been pro-active in seeking the support of our bankers to help us deliver the facilities required to support the business in the long term.
The work we have done around cost management has also been pleasing and I want to take this opportunity to assure our shareholders that management is committed to a sustained effort in this area across everything we do.
Increased pressure on funding for a number of our customers — particularly those in construction and development — added to our challenge through the delay in a number of projects that we had budgeted for in the 2009 financial year.
And finally, a disappointing outcome in relation to the resolution of payments for an historical project — Southern Suburbs Rail Project in Western Australia — has also conspired against us this financial year, but I am relieved to report that based on all current information and advice, we hope to be in a position to move forward from this project.
HSEC
At Norfolk we continue to take health and safety very seriously and I am pleased to report that the Group achieved the ambitious target of a 20 per cent reduction in Total Recordable Injury Frequency Rate (‘TRIFR’) year-on-year. We are targeting a further 20 per cent reduction in the coming year.
While we take the view that any injury is one too many, it is worth noting that of Norfolk’s 143 sites in Australia and New Zealand, 45 per cent of them recorded no injuries at all in the last 12 months.
The positive results of our health and safety measures can be attributed to Norfolk’s commitment to its Safety All Ways program launched last year.
The Safety All Ways program encompasses a full calendar of training and educational activities, including monthly ‘Tool Box Talks’, each dedicated to a specific area of health and safety in the workplace. Topics covered in the last year include hand injuries, electric shocks, vehicle safety and safety at home during the summer holiday season.
Our people
Our people continue to be the lifeblood of Norfolk’s existence. Over the last 12 months there have been some extraordinary efforts and, on behalf of the Senior Management Team and the Board, I want to thank our 3,600 employees for helping to deliver a solid performance considering the challenging environment.
I would also like to acknowledge the contribution of David Lee to the Norfolk Group. David resigned during the financial year and we wish him well in the future.
In May this year we appointed David Rafter to the position of Chief Executive — Norfolk Electrical & Communication and Norfolk International, and we look forward to his contribution in this role following a successful period as Chief Executive — Norfolk Mechanical.
It has been a tragic year in Australia for natural disasters, with major floods in Queensland, the ‘Black Saturday’ bushfire disaster in Victoria and ongoing drought in large parts of the country. In spite of the trying conditions, Norfolk Group employees’ ability to respond beyond the call of duty has stood out.
Across the Group we have received a number of testimonial letters from clients and the various State Emergency Services, praising members of the Norfolk family for their heroics, hard work and overwhelming displays of support.
Both cash and ‘in kind’ donations were made to a number of appeals across the year to support victims of the major disasters. I would like to thank employees who committed personal time and resources to these causes.
Creating future growth
Norfolk’s strategic advantage lies in the strength of its position in the key sectors in which its companies operate. For example, we are the market leader in the Australian electrical engineering, contracting and services market (O’Donnell Griffin) and number one in the non-residential HVAC maintenance services market (Haden) in Australia.
In addition, we continue to focus on quality earnings through our recurring revenue, maintenance services, alliance contracting, exposure to key growth markets, building long-term relationships with our customers and our investment in our people.
During the difficult economic environment, Norfolk has worked diligently to boost its engagement with its customers, in particular our important National Key Accounts (‘NKAs’) and blue-chip customers, through a series of customer symposiums that will be extended across the Group in the future.
The performance of Haden’s service business was a highlight, with year-on-year growth in revenue of 14 per cent, and we will maintain our commitment to organically growing our stable of NKAs, particularly in the service division. Current NKAs include IBM, David Jones, National Australia Bank, Caltex and Ericsson.
For the last two years the Norfolk Electrical & Communications division has placed specific focus on the transport infrastructure, water and power generation sectors, and in the current environment we believe we are well-placed to attract new business through federal and state government investment.
Resolve FM has actively positioned itself in the market to deliver outstanding technical solutions for its customers and will maintain its focus on the commercial property, tertiary education, industrial and automotive, custodial and corrective services, defence and health sectors.
Norfolk Building Products has endured a difficult 12 months, which led to the divestment of the Trafalgar fire business. However, the companies in New Zealand delivered some high profile projects and a solid return, despite challenging economic conditions in a recessionary market.
The result was largely attributable to strong sales performances by Energy Products International (‘EPI’) and Metalbilt Doors, and a keen focus on cost management across all companies.
We will continue our conservative expansion internationally, with the establishment of a joint venture mechanical, electrical and plumbing (‘MEP’) business in the United Arab Emirates during the year, to complement our operations in India.
Outlook
While the economic outlook remains uncertain, Norfolk Group has some very exciting opportunities ahead that support the company’s strategy:
- Stable sector focus: we have had a strong focus on the more stable government and infrastructure sector opportunities for some time and there has been some outstanding work done to ensure we are well-placed for new projects in the transport infrastructure, education, health, water, power generation, defence and justice areas.
- Recurring service revenue: a key component of our strategy has been to increase the percentage of our total revenue from recurring services, which we have achieved in difficult economic times and expect to continue.
- Technology leaders: we have worked hard to develop deep expertise in niche sectors through the harnessing of technology; our rail and water sector expertise are two examples. We will continue to train and develop our people right across the Group to become building services solutions experts.
Maintaining our margins in a far more competitive environment will be a challenge; indeed, in some cases we have made the strategic decision to engage in work at a lower margin in order to maintain market share.
Overall, we are looking to deliver a positive return for shareholders through a continued focus on cost efficiencies, combined with specialisation and the harnessing of technology to deliver market-leading solutions for our customers.
We believe Norfolk is well positioned for a solid performance in 2010. We enter this financial year with approximately $570 million of revenue underpinned by contracts, work orders and ongoing service commitments (as at 31 March 2009).
The 2010 financial year will present new challenges — that is the nature of being in business — and we look forward to meeting those challenges and to your continued support of Norfolk Group.
Sincerely,
Glenn Wallace
Managing Director
Norfolk Group Limited