Shepherd Group sees profits soar despite gloom in housing market

PROPERTY firm Shepherd Group almost doubled its pre-tax profit last year despite recording a loss in its house building business.

The York-based company, which employs 3,200 staff, made a pre-tax profit of £31.5m in the year to June 30, 2011, compared to £16m the previous year, boosted by the performance of its industrial division.

The company said its Portakabin hire division, which celebrated its 50th anniversary, continued to be the group’s primary source of profit as operating profit rose to £26.6m compared to £24.1m the previous year, despite a small reduction in its turnover.

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There was also a considerable improvement in the profitability of the group’s built environment division where all its businesses achieved significant increases in turnover despite difficult marketing conditions.

Shepherd Construction increased turnover to £251.3m from £185.2m in 2010 and achieved the highest level of operating profit in its history of £4m, compared with a loss of £2.1m in 2010.

While activity levels in the property development sector remained generally subdued, higher sales at Shepherd Developments contributed to a break-even operating performance, following an operating loss last year.

In contrast, Shepherd Homes and Shepherd Park and Leisure Homes, which were exposed to the continuing adverse conditions in the market for new homes, recorded operating losses. Group profit was adversely affected by a write off of goodwill at Shepherd Park and Leisure Homes, which reduced profit by £2.9m.

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Meanwhile, group turnover increased by 16 per cent to £611m.

In the last two years, Shepherd has tightened the reigns on its costs and cash management to improve its financial performance.

Chairman Alan Fletcher said: “The quality of the management teams, the excellence of the product offerings, the swift action taken to improve efficiencies and sound cash management have combined to drive improved profit performance and build the group’s financial strength.

“These are encouraging results which provide firm evidence of the group’s resilience in the face of challenging markets and demonstrate its ability to continue to withstand the current market pressures.”

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He added: “While the continuing general economic uncertainty points to a need for caution in the short to medium term, the considerable improvement in the group’s profitability and its sound financial performance give confidence in the underlying strength and future potential of the business.”

The group said the success of its cash management strategy was reflected in cash flow from operating activities rising to £70.8m, from £44.4m and the resulting net cash position of £45.8m.

All external debt was repaid in the year, reducing the modest 0.9 per cent 2010 gearing to nil.

Major contracts completed during the year included the £105m Wakefield Trinity Shopping Centre, completed by Shepherd Construction, which opened in May. Current projects include the £50m private finance initiative contract for the refurbishment and rebuild of Liverpool Library, involving Shepherd Construction and Shepherd Engineering Services.

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In a statement, Mr Fletcher said market conditions for the industrial division remained difficult. “While Portakabin’s performance has been encouraging, the positive order book brought forward into the year was a significant contributory factor,” he said.

“In the first half of the year, hire terminations in excess of hire order intake and a reduction in the sales order book contributed to a reduced workload for the factory in York and resulted in the decision in January 2011 to reintroduce a shorter working week which continued through to the spring.

“While there has been some improvement in the order position in the key hire and sales markets, order levels continue to be subdued.”

Meanwhile, Shepherd Construction reduced its headcount and its senior management team was restructured.

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An executive director of operations was appointed to eliminate loss-making contracts. The group said it implemented a more focused approach to winning work.

Building services firm SES, which also celebrated its 50th anniversary, increased turnover and profit despite difficulties arising from tight margins.

Shepherd FM, which was restructured in 2008, achieved an annual profit for the first time.

Giant business employs 3,000

Shepherd Group was founded in 1890 in York and is now one of the largest family owned businesses in the UK, employing over 3,000 people. The group is divided into three divisions: Industrial, including the Portakabin, Yorkon, Paton Plant, Allspace, Konstructa, Portaloo, Foremans, Portasilo and Portastor brands; Built environment, including Shepherd Construction, SES, Shepherd FM, SES PRISM and Shepherd Aligned; and Property, including Shepherd Developments, Shepherd Homes and Homeseeker Park & Leisure Homes.

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