Review of operations Mechanical division
Norfolk’s Mechanical division has more than 65 branches across Australia, New Zealand, India and more recently, the United Arab Emirates. The division provides a range of services including the design, construction, installation and maintenance of HVAC and refrigeration systems, duct cleaning services, plumbing and pipeline services.
The Mechanical division has a portfolio of leading brands, including Haden, Climatech, Smith Brothers Plumbing, Ductclean, Tempest, Airforce and Airfield (Norfolk Mechanical India) and Haden MEP (UAE).
Haden remains number one in the non-residential Australian HVAC maintenance services market.
Financial results summary
For the year ending 31 March 2009, the Mechanical division contributed revenue of $282.1 million (FY2008: $260.8 million), for EBIT of $16.2 million and an EBIT margin of 5.8 per cent.
Highlights for the period included year-on-year growth in revenue of 14 per cent by Haden’s service division to $143.6 million.
Impacts on financial performance for the period were the decline in economic conditions in New Zealand and the unpredictability of macro-economic conditions in Australia, particularly in relation to green field construction projects, many of which were delayed.
Haden
Service
The Haden service division delivered a strong result in 2009, due to an ongoing strategy of growing recurring service revenues across the Group, the organic growth of its branch network, and the extreme summer season in the southern states of Australia.
New service contract wins include a project for Visy Pulp & Paper near Wagga Wagga in New South Wales, Serco Sodexo Defence Services in North Queensland, electricity generation company Delta Electricity and global shopping centre giant Westfield.
The acquisition of a small air conditioning service and installation business in Alice Springs early in the financial year has resulted in a maintenance contract with the Department of Planning and Infrastructure.
In Western Australia, Haden extended Norfolk’s relationship with BHP Billiton through a HVAC and refrigeration, preventative maintenance and emergency services contract for the mining operations at Mount Whaleback in Newman. The BHP Billiton contract has justified the establishment of a new Haden branch in Newman.
Significant growth in service contract revenue was achieved at Haden Wagga Wagga, which was opened as a green field branch in calendar 2008, and at Haden’s recently established branches in Newman and Bunbury, both in Western Australia.
National Key Accounts
The strategy of targeting large national and international corporations to build its portfolio of National Key Account (‘NKAs’) service clients has been rewarded in the 2009 financial year with year-on-year growth in revenue of 54 per cent.
Under the NKA structure, Haden offers a competitive edge through the delivery of dedicated, multi-state and multi-site management, and its directly employed team of specialised technicians.
New NKA clients in the period include National Australia Bank, Caltex, David Jones, and both Ericsson and IBM as a result of the Strategic Alliance Program signed with Jones Lang LaSalle in 2008 to provide services across Asia-Pacific and India.
Haden has taken a ‘client-led’ approach in developing its portfolio of NKAs and will continue to target large, national and international corporations, with mission-critical operations and specialised service needs.
A key part of Norfolk Mechanical’s expansion strategy is to continue to identify ‘geographical gaps’ and strengthen its position where there is a clear demand for its services.
Construction
Haden’s construction business endured difficult trading conditions as the global financial environment declined, creating a drag on the commercial construction sector and leading to a number of project delays.
However, significant wins for the period include the Bovis Lend Lease 420 George Street Project, a 4.5 Star ABGR (NABERS) premium commercial grade A office tower in the heart of the Sydney CBD, and the Hedland Regional Resource Centre Project to replace the existing health campus in Port Hedland, Western Australia, supporting Haden’s strategy of targeting government-funded projects.
Haden was also successful in winning the construction component of the William McCormack Place Stage 2, a 5 Star ABGR (NABERS) grade A commercial office tower in the regional city of Cairns, Far North Queensland. Haden’s role in the new Cairns Domestic Airport, working with Hansen Yuncken, is expected to be completed by the end of calendar 2009.
Haden was selected by the University of Queensland to deliver the mechanical air conditioning upgrade works to the Chemical Engineering and Hawkins Building, and Haden’s New South Wales business has received a letter of intent for the government-backed Macquarie University Library Project, working with builders AW Edwards.
Other construction projects for the year include a CSIRO Laboratory and the 6 Mort Street Project, both in Canberra, the panda enclosure at the Adelaide Zoo, and the Hindmarsh Church Office Building and Building 3, also in Adelaide.
During the year, George Komorowski was appointed General Manager — Haden Construction. George has worked for Haden for over 25 years and brings a wealth of experience to the role.
Climatech
Climatech made the strategic decision to secure lower margin construction projects in New Zealand in order to retain market share during that country’s deep economic recession. While revenue stayed flat for the year, the EBIT margin was significantly impacted by tough economic conditions which created more competitive conditions and tighter margins.
Notwithstanding the difficult trading conditions, Climatech secured some high profile contracts including the Christchurch Civic Offices, working with Hawkins Construction Ltd, the Hastings Court House (Ministry of Justice, New Zealand), the Countdown Supermarket in Milford (Progressive Enterprises) and the New World Supermarket in Morrinsville (Stanley Construction).
Through its agreement with Cylon Controls for building management systems and supporting its focus on delivering environmentally sustainable solutions for customers, Climatech secured projects with Maori Television and Air New Zealand.
Smith Brothers Plumbing
The challenging economic environment leading to a decline in construction opportunities impacted growth of Smith Brothers Plumbing in South Australia. However, increased demand for the Pipeline Technology Services business led to the investment in another Jet Vac unit, and has enabled the expansion of this business in the Australian Capital Territory and New South Wales.
Smith Brothers Plumbing expects to expand the Pipeline Technology Services business into another metropolitan market in the 2010 financial year.
Tempest
The lower cost, ease of installation HVAC modular system alternative offered by Tempest led to strong growth in the 2009 financial year, including the securing of a contract with Credit Corporation in Papua New Guinea.
The diversification of its client base, the expansion into new markets and the introduction of new products including ‘flat pack’ systems have delivered a high growth trajectory for Tempest. The Plaza at Palmerston North in New Zealand is a major project for Tempest and requests for design and build projects are increasing.
Norfolk Mechanical India
During the year, Norfolk Mechanical India — operating under the Airforce and Airfield brands — expanded operations from 11 to 20 branches, delivering an approximately 33 per cent increase in revenue.
The service division secured strong contract wins with a number of blue-chip customers, including IBM (through the Jones Lang LaSalle agreement), Citibank, Shopper’s Stop, Honeywell Technology Solutions and Knight Frank.
Haden MEP (UAE)
During the year, Norfolk Group signed a joint venture with Abu Dhabi-based investment company Novus Capital for the delivery of MEP services.
The JV will better enable Norfolk Group to leverage opportunities within the construction sector in the United Arab Emirates (‘UAE’). The conservative approach into the UAE is consistent with Norfolk’s expansion in India. The company has established a local team and branch, and is actively bidding for maintenance and construction opportunities.
Outlook
The outlook for the Norfolk Mechanical division is positive, through an ongoing focus of building recurring service revenue and growing the portfolio of NKAs. A recovery in the Australian construction market, including major government works to come out of the recently announced stimulus packages, bodes well for Haden, which has executed a dedicated marketing campaign to target the ‘Building the Education Revolution’ investment.
Anticipated improvements in operations in New Zealand through a reduction in fixed costs, consolidation of businesses and signs of a gradually improving economy should deliver stronger returns in the coming year.
An ongoing dedication to customer retention and expansion through Haden’s customer symposium program will insulate the business during further economic uncertainty over the 2010 financial year.