May Gurney, the infrastructure services company providing essential maintenance and enhancement services to clients in the public and regulated sectors, has reported record Preliminary Results for the year ended 31 March 2009.

The company has had its tenth consecutive year of record turnover and underlying profits with revenues up 8% to £470.3 million (2008: £437.0 million),  earnings before interest, tax, amortisation and exceptional items up 16% to £20.5 million (2008: £17.6 million) and a recommended final dividend of 3.4 per share up 10% (2008: 3.1p).

Strong forward order book

The company also has a strong forward order book - including framework agreements, in excess of £1.25 billion (2008: £1.0 billion) and a strong pipeline of bidding opportunities and potential contract extensions in its core markets. More than 95% of May Gurney’s business is in dependable long-term contracts delivering essential services to the public and regulated sectors.

During the year the company has had a number of significant long-term contract wins and extensions, including  a British Waterways contract worth   £80 million over 4 years  and a New Household Waste Recycling Centres (HWRCs) contract for Essex County Council worth £16 million over 4 years.

May Gurney’s strategy is to target resilient markets with strong growth characteristics. The company has also successfully strengthened its position in municipal waste management through £14.9 million acquisition of ECT Recycling in June 2008

Commenting on the results, Philip Fellowes-Prynne, Chief Executive, said:"We are delighted to report record turnover and underlying profits for the tenth year in succession, together with a strong cash position, a buoyant forward order book of more than £1.25 billion and a healthy pipeline of sales opportunities in our core markets.  May Gurney's target markets have proven resilient in the current economic environment and we continue to benefit from a good level of future earnings visibility, with more than 95% of our business in dependable long-term contracts to deliver essential front-line services for our clients in both the public and regulated sectors”.

Planning for the future

Going forward the Group will operate and report under two business segments: Public Services (which includes highway services, environmental services and facility services) and Regulated Services (which includes utility services,rail services and waterways services).  The company said that this strategic focus had led it to accelerate  plans to scale back some of its more traditional operations in order to concentrate its energies on core business - the delivery of essential maintenance and enhancement services. May Gurney is not exposed to private or public sector capital projects.

The company also said that although there are currently no signs of a slowdown in its core delivery areas, it believes that future reductions in public spending are inevitable. However, by concentrating on the delivery of essential services, not being exposed to capital projects and a rigorously managed cost base May Gurney is  in a strong position to continue its growth strategy.

Strong outlook in utilities sector

In the utilities market the majority of May Gurney’s business is carried out for water and sewerage companies. The company said that as the water industry moves out of AMP4(4) and into AMP5 in 2010, it is well-positioned to benefit from both of the increase in expenditure under AMP5, and, more significantly, from the shift towards maintenance expenditure.

The market for long-term maintenance and enhancement programmes with national agencies and local authorities is also healthy. May Gurney works on behalf of the Environment Agency to improve flood defence and coastal management assets, which will account for £800 million of government expenditure per annum by 2010(5).   The British Waterways long-term national canal and rivers maintenance contract, worth £80 million over four years and which includes a possible two year extension, also has the potential for additional third party funded canal improvement projects.

The company said that during 2008/09 it had seen a good performance from its core water network and M&E (mechanical and electrical) engineering teams, with additional work secured from long-term client South West Water. According to May Gurney the long-term prospects for maintenance work “remain excellent as the regulator steers spend towards maintenance driven areas, playing to our strengths”.

All of the company’s long-term water contracts are being re-bid under the next regulatory cycle, AMP5 (2010-2015). May Gurney believes it is well positioned to take advantage of the shift towards maintenance expenditure and the variety of other regulatory driven long-term spend opportunities which should prove resistant to the current economic downturn.

Severn Trent has already named May Gurney as one of its eleven framework contractors for AMP5, with the size of the programme to be determined following Ofwat's decision later this year. However, the company said that in common with others in the water industry, it had experienced some short-term volatility which has impacted profitability as it nears the end of the current regulatory cycle (AMP4). This is expected  to continue until 2010 when contracts under AMP5 will have been awarded.

Environment Agency framework gathers pace

In contrast, May Gurney said that its framework contract with the Environment Agency, a joint venture, has gathered pace with additional spend promised by Defra (the Department for Environment Food and Rural Affairs) over the next few years.  Following the various flood and water defence threats that were experienced in the UK throughout 2008, the company is confident that further resources will be allocated to this sector in the coming years.

A highly cash generative business

May Gurney said it remained a highly cash generative business, with cash generated from operations in the year of £24.9 million (2008: £19.1 million)   and that it had maintained a positive track record of turning profits into cash, with cash generated from operations representing 120% of underlying EBITA. The Company concluded that its robust balance sheet, ongoing cash generation and increasing underlying profitability provide a sound base for future business development.