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Worthington Nicholls Group plc (LSE:WNG), installers of air conditioning, heating, ventilation and chilled water systems, have appointed Chris Neilson as interim Finance Director with immediate effect. He will take over responsibility for all financial matters whilst the company seeks a permanent candidate for this role.

The Wilmslow-based company announced on Wednesday that, as part of this reorganisation of the finance function within the Group, Tim Hunt, the current Finance Director, will step down from the Board. Hunt joined the firm only in January of this year.

"As a result of the significant amount of work involved in these areas particularly for a newly floated company with a highly acquisitive strategy, Tim and the Board have decided that, in the best interests of the Group, his focus should be on the financial operational aspects of the business and he has therefore agreed to step down from the Board, to allow a new finance director to be appointed to deal with the City. Tim will remain with the Group going forward in a senior role as Head of Finance," the company said in a statement.

Windfall

Worthington Nicholls, which was founded in 1973, was hailed as possibly the 'float of the year' when it was listed on the Alternative Investment Market (AIM) in June 2006. New European legislation forcing thousands of building owners to replace ozon depletive gases in air conditioning and ventilation systems with more environmentally-friendly ones created a windfall for air conditioning installation companies like Worthington Nicholls. The deadline for owners of hotels, retail and office buildings to replace air conditioning, heating, ventilation and chilled water systems using banned gases is the end of 2009.

A new, energy compliant air conditioning plant in a high street store can cost anywhere between £80,000 and £120,000. Re-fitting a Debenhams branch costs around £670,000, while hotels can expect to pay around £3,500 a room for a new air conditioning unit. Worthington Nicholls offers a complete service, designing the system, managing installation and providing regular maintenance. "We're talking billions here," Mark Worthington, Chief Executive, said last year.

In the short term, this left the company with an acute need for working capital to cope with an anticipated increase in turnover from £11.7 million to nearly £30 million this year and for acquisitions. Worthington Nicholls took the decision to raise the money through an AIM listing.

Very healthy pipeline

Following the flotation, Worthington Nicholls appeared to be a star performer as its share price soared from 51 pence in June 2006 to 194 pence in April. The flotation enabled company's founder chairman Peter Worthington, 70, to sell shares worth around £7 million. Worthington stepped down in July 2007, a previously agreed period of twelve months after flotation.

In March of this year, the Group spoke of a "very healthy pipeline of new orders". It also said that it had been aided greatly by the skills and experience of Tim Hunt. "We are pleased at how quickly and well Tim has integrated himself within the Group, and we are already benefiting from the improvements to our financial accounting systems that he has introduced. We believe Tim's experience will be key as we continue to explore further acquisitions and grow sales," according to the firm's AGM statement in March.

Warnings

Only in July, Worthington Nicholls said that the business pipeline figure published in its interim results announcement released on 29 June 2007 was "materially understated". "The current pipeline for the Group stands at £125.3 million and not the £61.3 million previously stated. The number quoted originally reflected the position at the end of the interim period and not at the date of the announcement as stated. It did not, therefore, reflect the pipeline of business from the companies acquired since the period end nor did it include contracts tendered in this period."

However, shares in the company fell to 19.75 pence on 17 August, when over 27 million shares were traded amidst warnings that turnover and profit would be "materially below market expectations" as a result of delayed hotel equipment contracts, floods and a reduction in maintenance callouts as a result of poor summer weather. In total, some £15 million was wiped of the value of the company. Worthington Nicholls' Board said it recognised the "urgent need" to strengthen the management of the business. "This includes the possibility of making appointments at the most senior levels," the company said in a statement.

Since being appointed in January 2007, Tim Hunt has focused his attentions on dealing with the City, reviewing internal systems and procedures and dealing with acquisitions.

Chris Neilson has advised a number of companies on financial reporting and strategy having previously worked for two AIM listed companies. He joined Synexus Clinical Research plc (“Synexus”) in September 2005 as finance director to strengthen its board of directors prior to it flotation in November 2005. During his time with Synexus he helped to deliver the initial phase of a buy and build strategy through overseeing the acquisition of two businesses in central Europe and the maiden results in line with City expectations. Synexus experienced a drop in share value from 107 pence to 30 pence this year.

Prior to working with Synexus, Chris Neilson spent seven years with cake makers Inter Link Foods plc as both finance director and business development director. He was the finance director of Inter Link during the time of its AIM flotation in 1998  and was the junior market's Company of the Year in 2001. It raised £21 million from three share issues. During Neilson's time with Inter Link, it integrated several acquisitions in UK and Europe and its annual turnover increased from a break-even level of £5 million to £98 million with profits of £5.9 million. The shares peaked at 775p before the first of a series of profit warnings in May last year, after Neilson's departure. Blackburn-based Inter Link Foods was bought in July 2007 by Irish firm McCambridge just hours after going into administration.

Tim Hunt qualified as a Chartered Accountant in 1991 after training with KPMG in Preston and has held corporate finance positions with KPMG and JD Sports Plc, now The John David Group Plc. His most recent role at JD Sports was as business analyst, a position he held for two years. He was instrumental in negotiations and due diligence for the acquisitions and subsequent integration of First Sport in 2002, RD Scott in 2004 and Allsports in 2005 and previously while with KPMG, advising JD Sports on its admission to the London Stock Exchange's Official List.

Worthington Nicholls said that this appointment will bring significant public company experience to bear on the Group’s finances whilst a permanent, full time finance director can be identified with a suitable background and experience.

Best practices

As part of his new role as Chairman, Alastair Stoddart has implemented two reviews aimed at assisting the Group in identifying areas for improvement and to ensure the adoption across the Group of best practices identified from within newly acquired companies.

The first is a strategic and operational review of the Group focused on organic growth opportunities, integration of the acquired businesses, margins and ensuring the adoption of best practices within the Group. The review is being carried out in two stages; Mr Frank Holland with a strategic focus and Gary Price with an operational focus. Frank Holland was a founding director of MITIE Air Conditioning (North) Limited and is a business consultant to the building services industry on an international basis. He has many years’ experience within the building services industry.

Gary Price was formerly Managing Director of Project Air Limited which was acquired by Worthington Nicholls in June 2006 and historically achieved gross margins significantly ahead of those achieved by other Group companies. As part of the acquisition, Gary Price was contracted to Project Air Limited until 30 June 2007. He has since agreed to remain with the Group and now has specific responsibility for identifying and implementing robust operating practices in relation to project planning and margin enhancement throughout the Group.

The Board is also conducting a review of the Company’s accounting policies, the manner in which they are applied and their suitability to the recently enlarged Group. Shareholders will recognise that the Group has changed considerably in a very short space of time through five acquisitions and the Board considers it prudent to undertake such a review at this time.

Whilst cash balances were £12.5m as at 17 September 2007, the Board said it will not be considering making further acquisitions in the short term. This is to allow the firm's directors the time to ensure the acquisitions made to date are sufficiently integrated into the Group. "The acquisition strategy previously outlined to the Company’s shareholders does, however, still form a significant part of the longer term strategy of the Group," according to the Board.

The Group’s current financial year ends on 30 September 2007. The Board said it intends to issue a trading statement in the second half of October 2007 outlining, in broad terms, the expected outturn for this financial year.

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• Worthington Nicholls Group plc