Financial overview

Chairman’s statement

Introduction

I am delighted to announce that Northern Bear has delivered another year of earnings growth despite the current unprecedented economic conditions.

Income has grown by 30% to £41.8 million and profit before tax by 27% to £2.9 million. Earnings per share has grown by 12% to 11.5 pence per share and interest cover remains healthy at 4.8 times.

The Group continues to be very cash generative, reporting a cash flow from operations of £2.0 million (2008: £0.4m).

These results clearly demonstrate the robust nature and sound defensive qualities of our diversified business model.

We have also recently renegotiated and improved our banking terms, which underlines the confidence our funders share with the management team. We have committed bank facilities of £11.0 million, having regard to capital repayments already made, of which £9.3 million was utilised at the year end. This gives us additional flexibility and provides a platform to take advantage of opportunities as they arise.

Strategy and business review

Our strategy of acquiring mature, cash generative, owner managed businesses and to integrate this with the organic growth of our existing Group businesses, remains unchanged. While we have not completed an acquisition for over 12 months, this still remains a key part of our strategy. We continue to look for quality, owner managed businesses with strong, second tier management to complement our existing 13 operations.

On 13th November 2008, we announced the opening of Jennings Roofing Manchester, a sister roofing business to the original business based in Leeds and are delighted at the progress made by this business.

During the period, all of our businesses operated in specific markets that each experienced their own particular challenges. Despite this, many of our businesses have enjoyed strong trading performances, and in some cases, record profitability. These businesses include those in specialist sectors, such as fire protection, asbestos removal and equipment rental. Their performance has helped balance the pressures experienced by some of our other businesses, particularly those with some exposure to the new house build sector. To their enormous credit, those businesses with links to the new house build sector continued to contribute to Group profitability. Given the current tough market environment, this is testament to the quality of our management and the strength of the customer relationships built up over the years.

We continue to win new customers and source new markets, which is partly a result of new members of our team joining us from competitors.

During the period we have actively managed our cost base. Its flexibility allows our individual businesses to minimise the risk of a period of losses. We have found that management have not been afraid, nor slow, to make the tough decisions needed in such uncertain times.

At Group level, there have also been substantial cost saving measures implemented. These include a Group wide pay freeze, cessation of non-contractual cash bonuses, a capital expenditure review, material marketing and entertaining reduction and renegotiation of advisors' fees. Such measures are ongoing as the Board consider it their priority to reduce expenditure wherever possible, while continuing to explore every avenue for new work and opportunities.

Dividend

Given the ongoing uncertainty in the market, and the obvious need for prudence, the priority for the Board is to conserve cash resources and to continue to repay debt. While our strong cash flow and profitability would have supported a final dividend, we have taken the decision to suspend such a payment. However, should trading continue to improve, we will reinstate our dividend policy at the earliest point at which it is responsible to do so.

Board of Directors / advisors

We were delighted to welcome two new directors to the Board during the year. On 8th April 2008, Graham Jennings joined the Board as an Operations Director, in line with our policy of appointing executive directors, wherever possible, from within the existing Group operating businesses and Ian McLean joined the Board on 14 November 2008 as a non-executive director.

Marcus Yeoman and Jon Pither, two of the Company's directors since flotation, retired from the Board on 30 June 2008 and 21 October 2008 respectively. Jon Pither was the Company's co-founder and was instrumental in its development and flotation. We thank him for his substantial contribution to the growth of the Company.

The Company's retained broker, St Helen's Capital, has agreed to stand down. The Company's NOMAD, Strand Partners Limited, will assume their role with immediate effect.

Outlook

While the environment continues to be challenging, I am very confident that our executive team will continue to deliver success in the future.

The strength of our businesses is dependent on the quality of our long-term relationships and partnering agreements with the main contractors and blue chip builders involved in both public and private client contracts. The Northern Bear brand continues to strengthen as trade grows with this customer base.

Our strategy of repositioning the businesses away from new house build, which now accounts for only 4% of Group turnover (2008: 13%) was taken at a very early stage in the cycle and has helped insulate us from the severe downturn in that sector. We are very mindful however, of maintaining a spread of businesses and consider it essential to retain a presence in the new house build sector for when the inevitable upturn arrives. We are already experiencing a slight upturn in our new house build businesses, even though a degree of pricing pressure remains.

With regard to any future acquisitions, it is our intention to fund these with a combination of vendor equity and from the Company's own resources, rather than as previously using vendor equity and bank debt.

We believe that this approach will both help maintain our solid financial base and continue our growth, ensuring we do not jeopardise what we have achieved over the past two and half years. Together with the strong defensive qualities of our business, this will ensure we are best positioned to survive the tough times and prosper and flourish in the good times.

We have proved that our businesses are able to continue to deliver real profits and cash generation in the toughest of trading environments. Opportunities will present themselves over the coming months and I believe we are well placed to capitalise upon these as we emerge from the current downturn.

People

Since becoming Chairman in October 2008, I have been continually impressed by the skill, enthusiasm and expertise of our management. These qualities, above all else, are our greatest assets and give me confidence for the coming year. I would like to thank all of our employees across the group for their contribution to our excellent results.

Howard Gold
Chairman

25 June 2009