Principle of profit before ego keeps bear climbing

May 22 2008 by Iain Laing, The Journal

CONSTRUCTION and services group Northern Bear saw its share price climb 7% yesterday after posting impressive maiden results with £32m sales.

And the Newcastle group, which now runs 12 separate businesses, is positive about prospects for the coming months, despite fears on the state of the economy.

Chairman John Pither and his team have shifted Northern Bear away from the troubled housebuilding sector to become more of a support services business and that strategy appears to be paying off.

The company has reported pre-tax profits of £2.3m – a margin of 7% – at a time when many are finding business tough and being cautious about prospects. Yesterday, Northern Bear said it had enjoyed organic growth as well as benefiting from increased revenue through extensive acquisitions.

The year to March 31 saw Northern Bear expand to take in 10 businesses, and it has since added two more – forklift trucks company A1 Industrial Trucks and plumbing and heating firm DJ McGough.

Northern Bear said it had found social housing and refurbishment of public buildings to be buoyant markets with growth potential.

The company has also flagged that it has a “pipeline” of future potential acquisitions in mind and has an £11.5m facility with Yorkshire Bank to bankroll its plans.

Northern Bear finance director David Jay said: “We are delighted with the figures, as is the City, as the shares went up 14% this morning.

“As well as delivering these figures, we acquired two businesses on April 1 and we expect the coming year to continue in the same vein.

“The shift away from new house building, and into government-funded areas, like social housing, education and Ministry of Defence work, has contributed to us being able to deliver such pleasing figures.”

Mr Jay said the North East was still seeing investment on a major scale, including at the Royal Victoria Infirmary in Newcastle and several school rebuilding programmes.

Northern Bear has a business model involving acquisition of profitable businesses and then keeping those businesses operating on the same basis, with the same management teams – ignoring the prevailing trend for parent companies to strip out duplicated management functions in their acquisitions. Mr Jay said: “This is fundamental to running the company. We leave local management in place to do what they have been doing successfully for many years.

“We buy businesses that already make money. We don’t run this business on ego, we run it on profit.”

Northern Bear chairman Jon Pither said: “These are a strong set of results for our first full financial year as a public company. We set out a clear strategy to acquire established, cash generative building services businesses which will contribute strongly to the group’s revenue and profitability and we have been successful in this objective.

“Since the year end, we have added two further acquisitions and believe we can continue to selectively acquire similar, high quality companies. Our customer mix has changed so that we are now predominantly focused on government and public-funded customers, a sector which remains strong.”