Renew Holdings Regulatory News (RNWH)

Renew Holdings plc

("Renew" or the "Group" or the "Company")

Preliminary Results

Renew (AIM: RNWH), the Engineering Services Group supporting UK infrastructure, announces preliminary results for the year ended 30 September 2016 reporting strong cash generation as well as increased revenue, profits and dividends.

Financial Highlights

*Adjusted results are shown prior to amortisation of £3m (2015: £3.5m).

** Prior to discontinued operation

Operational Highlights

· Group adjusted profit before tax up 14% to £22.3m (2015: £19.6m)

§ Reflecting operating margin improvement

· Engineering Services adjusted operating profit increased 7% to £21.5m (2015: £20.1m)

§ Engineering operating margin now 4.9% (2015: 4.6%)

· Group order book up 3% to £516m (2015: £502m)

· Net cash position £4.8m (2015: net debt £4.8m)

§ Group benefitting from strong operating cash generation in the year 

Board Changes

· Following Brian May's retirement, Paul Scott appointed as Chief Executive on 30 September 2016

Post Year End Highlights

· Acquisition of Giffen Holdings Limited

§ Broadening the Group's service offering to Network Rail and creating opportunities in both the London Underground and Train Operating Company markets

R J Harrison OBE, Chairman said: "Another year of record results continues the Group's progress towards achieving its published financial targets. I am particularly pleased to report the improvement in operating margin. The Board is confident of delivering further growth and continued success under the leadership of our new Chief Executive."

Enquiries:

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

About Renew Holdings plc

Engineering Services, which accounts for over 80% of Group revenue and 90% of operating profit, focuses on the key markets of Energy (including Nuclear), Environmental and Infrastructure, which are largely governed by regulation and benefit from non-discretionary spend with long-term visibility of committed funding.

Specialist Building focuses on the High Quality Residential market in London and the Home Counties.

For more information please visit the Renew Holdings plc website: www.renewholdings.com

Chairman's Statement

Results

Record results for the year ended 30 September 2016 show that the Group continues to develop its position as a leading provider of engineering services in the Energy, Environmental and Infrastructure markets where it supports critical UK infrastructure assets.

Group revenue increased to £525.7m (2015: £519.6m) with operating profit prior to amortisation increasing by 8% to £22.0m (2015: £20.4m), a margin of 4.2% (2015: 3.9%). Earnings per share on this basis increased by 5% to 27.43p (2015: 26.03p) with basic earnings per share on continuing activities up 10% to 23.53p (2015: 21.34p).

The Engineering Services business revenue reduced slightly to £436.2m (2015: £440.5m) as a result of non-recurring Rail revenue in the prior year. When this is taken into account, the underlying organic growth in Engineering Services was 3%.

Engineering Services accounted for 83% of Group revenue (2015: 85%). Engineering Services operating profit prior to amortisation increased 7% to £21.5m (2015: £20.1m) delivering an improved margin of 4.9% (2015: 4.6%). 

Our Specialist Building operations remain focused on the High Quality Residential market in London and the Home Counties. Revenue was £90.5m (2015: £79.5m) with an operating profit of £2.3m (2015: £2.3m).

Dividend

The Board is proposing a final dividend of 5.35p per share, increasing the full year dividend by 14% to 8.0p (2015: 7.0p). The dividend will be paid on 28 February 2017 to shareholders on the register as at 28 January 2017. The Board continues to grow dividends progressively.

Order Book

The Group's order book at 30 September 2016 increased by 3% to £516m (2015: £502m), with the Engineering Services order book up 5% to £421m (2015: £400m). The order book reflects our established position in markets which benefit from non-discretionary long-term spending programmes.

Cash

Cash generation has been good and the Group has recorded a net cash position of £4.8m (2015: net debt £4.8m).

People

It remains our priority to provide a safe working environment for our employees and those who work with us. The Group has recorded an Accident Incidence Rate substantially lower than the industry average.

The Board would like to thank all its employees for their hard work and commitment in delivering the continued success of the Group.

Board Changes

As previously reported, Brian May retired as Chief Executive on 30 September 2016 and has been succeeded by Paul Scott. The Board would like to thank Brian for his outstanding leadership of Renew over the last eleven years, during which he transformed the Group from a loss-making building contractor into a leading business in Engineering Services and delivered an increase in market capitalisation from £17m to £229m without recourse to equity financing.

Strategy

In Specialist Building, the Group continues to focus on the High Quality Residential market in London and the Home Counties where we specialise in major engineering structural works.

In Engineering Services the Group continues to play a key role in the support and maintenance of some of the country's key infrastructure assets. Working in the Energy, Environmental and Infrastructure markets, which are mainly governed by regulation, our operations remain focused on the long-term programmes of essential maintenance spending in these markets, which provide good visibility of future opportunities and more sustainable earnings streams.

It remains the Board's strategy to deliver the sustained and profitable expansion of its Engineering Services business through organic and acquisitive growth. We continue to pursue appropriate earnings enhancing acquisitions across all market sectors of our Engineering Services business. After the year end, the Group acquired Giffen Holdings Limited, a £20m specialist mechanical, electrical and power services provider within the railway environment. This acquisition broadens our service offering to Network Rail and creates opportunities for the Group in both the London Underground and Train Operating Company markets.

Outlook

The Group is well positioned for the 2016/17 financial year.

In 2014, the Group published 2017 targets of Group revenue in excess of £500m, Group operating profit margin prior to exceptional items and amortisation of 4.5% and growth in EPS on that basis of at least 40% from the reported level of 20.8p in 2014. The Group has achieved its revenue target already and these results demonstrate substantial progress towards achieving the other targets.

Our established and proven strategy, together with the strong order book gives the Board confidence in our future financial performance.

R J Harrison OBE

Chairman

22 November 2016

Chief Executive's Review

Renew is a leading multidisciplinary engineering services provider. Our independently branded subsidiary businesses support the day-to-day operations of many of the UK's critical infrastructure assets in the Energy, Environmental and Infrastructure markets. The markets in which we operate are mainly regulated with high barriers to entry and benefit from long-term programmes of investment in renewals and enhancements.

We work on a diverse range of assets including nuclear and traditional power generation sites, water and gas infrastructure and the rail and wireless telecoms networks. Our highly skilled directly employed workforce delivers large volumes of maintenance and renewals tasks in addition to providing emergency reactive works to some of the country's key assets.

Our Specialist Building business focuses on the High Quality Residential market in London and the Home Counties.

Engineering Services

Engineering Services revenue was £436.2m (2015: £440.5m) and accounted for 83% (2015: 85%) of Group revenue and 90% (2015: 90%) of Group operating profit prior to amortisation and central activities. This generated an increased margin of 4.9% (2015: 4.6%). Excluding the effect of non-recurring revenue in 2015, underlying organic growth was 3%. The Engineering Services order book grew 5% to £421m (2015: £400m).

Our operations focus on delivering essential maintenance tasks in mainly regulated markets. We do not anticipate an impact to our business following the UK's announcement of its intention to withdraw from the European Union.

Energy

Renew provides engineering support to assets in the nuclear, fossil, renewable energy and gas infrastructure markets.

In the Nuclear market we are engaged at fourteen of the Nuclear Decommissioning Authority's ("NDA") seventeen nuclear licensed sites across the UK. The NDA's latest estimate of the costs to clean up these sites over a programme lasting around 120 years is £70bn. Sellafield, where we have operated since 1945, will command approximately 73% of this expenditure which is currently committed at an annual rate of circa £2bn per annum.

As the largest mechanical, electrical and instrumentation employer at Sellafield, with positions on some of the longest running frameworks, we deliver critical asset care and maintenance of operational plant as well as redundant facilities. Our services are associated with the waste treatment, reprocessing, decommissioning, demolition and clean-up operations.

The acquisition of Nuclear Decontamination Services Limited in February enabled the expansion of our integrated engineering capabilities at Sellafield and other UK nuclear licenced sites. Most notably at Sellafield was our appointment to all three lots of the Decommissioning Delivery Partnership Framework as well as a lead appointment to the Retrievals and Decommissioning Programme. These ten year arrangements are integral to Sellafield's long-term clean up mission, with an estimated value of £500m over the term.

Also at Sellafield, work continues on the Multi Discipline Site Works Framework, which now has an expanded scope to support the long-term Magnox Swarf Storage Silo Programme. Other frameworks at the site include the Bulk Sludge Retrieval Programme, the Bundling Spares Framework and the recently awarded ten year Tanks and Vessels Framework. We also remain positioned to maximise opportunities within the future major projects programmes at Sellafield.

Our commitment to safety in the high hazard nuclear environment is reflected in our achievement of more than seven years of operations since a reportable lost-time accident at Sellafield. Shepley Engineers Limited and subsidiary PPS Electrical Limited were both recognised for their safety achievements at the site with "Outstanding Safety Performance" awards from Sellafield Limited.

Work continues on the second year of a four year, £30m Electrical, Controls and Instrumentation framework for Magnox. Working as sole provider across ten UK sites, support operations are associated with long-term waste treatment and processing, decommissioning, and clean-up of redundant facilities. We also maintain our longstanding relationship with Westinghouse at Springfields where we deliver a range of asset support services as well as decommissioning operations through a new framework agreement.

We continue to develop our position within the emerging nuclear new build programmes at Hinkley, Wylfa and Moorside, where we have initially focused on the potential supply of high integrity fabrications as well as mechanical and electrical installation support to specialist equipment vendors.

Long-term renewal and maintenance services on assets in the traditional and renewable energy markets are undertaken for clients including SSE, E.ON and Dŵr Cymru Welsh Water ("Welsh Water") and for a number of independent power station operators.

In gas, our addressable market remains the 30/30 Iron Mains Replacement Programme and the London Medium Pressure Strategic Gas Mains Replacement Programme which run to 2032. We estimate these programmes to have an approximate expenditure of £1bn per annum. As reported in the interim statement, our focus is on the large diameter medium pressure market, which offers better margin opportunity. Revenue flow from medium pressure frameworks has continued to be slow and as a result this business has continued to perform below our expectations. Good progress has been made in repositioning the balance of our activities by reducing the amount of low pressure, small diameter work leading to a much improved trading performance in the final quarter. This trend will be enhanced following our recent appointment to a new medium pressure major works framework with Southern Gas Networks valued at £45m over the next five years.

Environmental

We support our water clients including Northumbrian Water, Wessex Water and Welsh Water in delivering asset renewal and maintenance programmes, flood alleviation and river and coastal defence schemes across their infrastructure networks.

Working for Northumbrian Water we are positioned as one of two suppliers on the five year, £14m per annum, AMP6 Sewerage Repairs and Maintenance Framework. In addition, we undertook a range of water related maintenance tasks for Northumbrian Water in the period.

Our relationship with Wessex Water has been strengthened in the period with our appointment to the AMP6 Civils and EMI Delivery Partners Framework estimated at £350m to 2020 as well as to the Minor Civils Framework over the same period.

For Welsh Water we operate on the Pressurised Pipelines Framework as well as on both the Major and Minor Civils frameworks. Our responsive performance on the Emergency Reactive Framework has positioned us as a key supplier. We are also engaged via the AMP6 Strategic Partners in this region with good visibility of schemes to be delivered through to the end of the current programme in 2020.

For the Environment Agency work included the maintenance and renewal of over 600 flood control and water management sites throughout the North of England region as part of the exclusive £12m MEICA framework, where we are in the second year of a four year programme. Our MEICA works for the Environment Agency were further enhanced in the year with an appointment to the MEICA Project Framework in the South East region. Works were also undertaken nationally as part of four minor works frameworks. Our emergency response following bad weather over winter led to larger schemes in York and across the North West.

In Land Remediation we work for National Grid on a number of frameworks associated with the remediation of former gasworks sites as well as for Magnox on the Land Quality Services Framework. We continue to work for Viridor in the North of England and Scotland. Work on an £11m scheme at Sighthill for Glasgow City Council is ongoing. Recently completed schemes include the North Gawber Colliery reclamation project for Harworth Estates.

At the Palace of Westminster, work on the second of four cast iron roof repair projects is progressing well. Work also commenced on the four year Courtyards Conservation Framework at this World Heritage Site.

Infrastructure

As a major provider of engineering services to Network Rail, as well as working for Train Operating Companies, we carry out off-track planned, reactive and emergency asset maintenance and renewal works across the rail network.

For our largest client Network Rail, who are investing around £38bn in the current control period, we operate as sole supplier on seven rail Infrastructure Projects frameworks. Works include the refurbishment and repair of a wide range of rail assets nationally including bridges, viaducts, culverts and specialist tunnel and shaft refurbishments. Schemes undertaken include the second phase of extensive repairs to the Central Tunnel in Liverpool and at the Severn Tunnel.

In addition to larger infrastructure schemes we delivered in excess of 5,000 individual infrastructure maintenance tasks through six Asset Management frameworks helping to maintain the smooth running of the rail network. AMCO Rail's commitment to delivering innovative working practices was recognised for a third year at the National Rail Awards in the "Innovation of the Year" category.

We continue to develop our position with Network Rail in Scotland as the major structures renewals and sole civils maintenance contractor and during the year completed schemes at Saltcoats and at the Wamphray Culvert.

Our locally based delivery teams provide a 24/7 national emergency response service which has seen us undertake work at Lamington Viaduct on the West Coast Main Line to repair extensive damage between Carlisle and Glasgow. In the period, our rail teams carried out emergency repair works at more than thirty sites.

New infrastructure awards include the three year, £15m Historic Railways Estate Works framework for Highways England. This maintains the historic assets associated with former railways. Additionally, we secured a five year framework for the provision of minor works services across the Greater Anglia franchise routes for Abellio.

In October 2016, we were pleased to complete the acquisition of Giffen Holdings Limited for a total consideration of £7m. Giffen's complementary skills will allow Amco Rail to offer an expanded range of services across the rail network as well as creating opportunities for the Group to provide services to London Underground.  We are excited about the opportunities that this acquisition will bring.

In wireless telecoms we provide engineering support to the UK's cellular network operators and original equipment manufacturers. The market continues to be driven by consumer demand for faster, more capable mobile connectivity and the installation and expansion of 4G services continues to provide the majority of our work.

Specialist Building

Specialist Building revenue was £90.5m (2015: £79.5m) with an operating profit of £2.3m (2015: £2.3m). Our Specialist Building order book stood at £95m (2015: £102m).

In the High Quality Residential market in London and the Home Counties our subsidiary, Walter Lilly, is a market leading luxury brand. It focuses on major structural engineering works including extending properties below ground.

Discontinued Operation

A further assessment of contracts within the discontinued Allenbuild Ltd business (discontinued from 31 October 2014) has resulted in a pre-tax loss of £4.0m. All contracts have now been completed on site.

Summary

In Specialist Building, the Group continues to focus on delivering stable earnings through risk management and contract selectivity.

In Engineering Services, the Group's established strategy can be summarised as follows:

· focus on infrastructure markets with secure, long-term funding

· exposure to operational expenditure budgets rather than capital expenditure through an emphasis on renewal and maintenance operations

· deploying our directly employed workforce creating long-term relationships through responsiveness to clients' needs

The continued successful delivery of this strategy enables the Board to be confident of sustainable growth.

Paul Scott

Chief Executive

22 November 2016

Group income statement

For the year ended 30 September 2016

Group balance sheet

At 30 September 2016

Group cash flow statement

For the year ended 30 September

Notes

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2016 have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These preliminary results are extracted from those financial statements.

2 Segmental analysis

The Group is organised into two operating business segments plus central activities which form the basis of the segment information reported below. These segments are:

Engineering Services, which comprises the Group's engineering activities which are characterised by the use of the Group's skilled engineering workforce, supplemented by specialist subcontractors where appropriate, in a range of civil, mechanical and electrical engineering applications and:

Specialist Building, which comprises the Group's building activities which are characterised by the use of a supply chain of subcontractors to carry out building works under the control of the Group as principal contractor and;

Central activities, which include the sale of land for development, the leasing and sub-leasing of some UK properties and the provision of central services to the operating subsidiaries.

On 31 October 2014, the Group entered into a contract to dispose of part of its Specialist Building segment. The results of that business are shown as a discontinued operation.

Engineering Services segment operating profit for the year ended 30 September 2015 is stated after charging amortisation of £3,536,000 (See note 3).

3 Amortisation of intangible assets

The Board has also separately identified the charge of £2,954,000 (2015: £3,536,000) for the amortisation of the fair value ascribed to certain intangible assets other than goodwill arising from the acquisitions of Amco Group Holdings Ltd, Lewis Civil Engineering Ltd, Clarke Telecom Ltd and Forefront Group Ltd.

4 Discontinued operation analysis

On 31 October 2014, the Board reached an agreement to sell Allenbuild Ltd to Places for People Group Ltd ("PFP") for a total consideration of £2.75m payable in cash. PFP paid the initial 50% of the consideration on 31 October 2014 and the balance on 31 January 2016. The trading result for this business represents the loss for the year from the discontinued operation.

5 Income tax expense

Dividends are recorded only when authorised and are shown as a movement in equity rather than as a charge in the income statement. The Directors are proposing that a final dividend of 5.35p per Ordinary Share be paid in respect of the year ended 30 September 2016. This will be accounted for in the 2016/17 financial year.

7 Earnings per share

The dilutive effect of share options is to increase the number of shares by 538,000 (2015: 815,000) and reduce basic earnings per share by 0.15p (2015: 0.13p).

8 Preliminary financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2016 or 2015. Statutory accounts for 2015 have been delivered to the registrar of companies. The auditor has reported on those accounts; his reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2016 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

9 Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 30 September 2016 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.renewholdings.com