Renew Holdings Regulatory News (RNWH)

Renew Holdings plc

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

Final Results

Renew (AIM: RNWH), the Engineering Services Group supporting UK infrastructure, is pleased to announce another set of strong results for the year ended 30 September 2018 delivering the complementary acquisition of QTS and further strengthening of the Company's position in the UK infrastructure market.

Financial Highlights

* operating profit, margin and EPS are stated prior to impairment, amortisation and exceptional item (See Note 10).

* * prior year comparatives restated following the reclassification of two discontinued subsidiary undertakings (see Note 4).

Operational Highlights

· Group adjusted operating profit up 9.6% to £31.1m (2017: £28.4m)

§ Group adjusted operating profit margin now 5.7% (2017: 5.2%)

· Engineering Services adjusted operating profit increased 19.3% to £32.5m (2017: £27.3m)

§ Engineering Services operating margin now 7.0% (2017: 6.3%)

· Engineering Services order book strengthened by 16.4% to £510m (2017: £438m)

§ Reflecting Renew's focus on renewals and maintenance rather than large capital projects which demonstrates the extremely strong position the Company holds in its target markets

· Net debt at the year-end was £21.4m (2017: net cash £3.9m) reflecting the £80m acquisition of QTS in the year and the Company's conservative approach to gearing

David M Forbes, Chairman said: "I am encouraged by another set of excellent results which demonstrates the continued progress in executing our long-standing strategy by growing the business in our chosen markets both organically and through selective complementary acquisitions. Our solid foundations allow the Board to look forward to 2019 with confidence."

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 85% of Group revenue and 95% 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

Introduction

I am pleased to announce an excellent set of results for Renew. The Group focuses on directly delivering its engineering services to critical infrastructure networks in the UK. 2018 has been another successful year for Renew in which we have made decisive progress in delivering our strategic objectives and further strengthening our position in our chosen markets. We continue to improve our trading performance with an increase in adjusted operating profit1 of 9.6% to £31.1m (2017: £28.4m) and an increase in adjusted operating profit margin1 to 5.7% (2017: 5.2%). Adjusted EPS1 of 35.48p (2017: 37.18p) is down on the restated prior year comparatives primarily due the impact of accounting for discontinued operations.

As a leading provider of Engineering Services in the regulated Energy, Environmental and Infrastructure markets, the Group's operations are underpinned by clear strategic priorities which include direct service delivery and the development of long-term relationships through responsiveness. The Group looks to deliver growth both organically and through selective complementary acquisitions. During the year the Group undertook its largest ever acquisition in QTS Group limited ("QTS"), a specialist rail contractor, which was funded through an oversubscribed £45million equity placing combined with new debt facilities. The acquisition materially strengthens the Group's position in the rail market and brings a range of complementary skills to those of our existing rail business. Since we acquired QTS, we have been particularly pleased with its performance to date and remain confident of its growth opportunities.

Over the next 5-year investment period in rail (CP6), the government has stated that Network Rail spending must have a greater emphasis on renewals and maintenance with a focus on improving the customer experience. This spending emphasis aligns with Renew's expanded range of rail service capabilities as we continue to undertake large volumes of day-to-day maintenance tasks to keep the network operational. In addition to rail, the Group targets the nuclear, wireless telecoms and water markets which also benefit from similar long-term programmes of investment to support their essential operational assets.

In February, the Group made the decision to exit from its gas infrastructure activities with the disposal of Forefront, allowing management to focus on the continuing growth opportunities elsewhere in the Group.

Governance

Our strategy is to safely and responsibly deliver essential engineering services to the country's key infrastructure assets: "Engineering Infrastructure for the Future." In order to continue to deliver for all our stakeholders, the Board of Renew are actively involved in ensuring the highest standards of governance. During the year we committed to ensure that we adhere to the QCA Corporate Governance Code 2018. More details of this can be found in the Corporate Governance section of the Annual Report and Accounts and on the Group's website.

As a holding company, we set overall standards for the Group's subsidiary businesses through a formal governance framework to promote best practice and knowledge sharing. We believe that ensuring a healthy corporate culture is an important element in helping us to deliver our strategic objectives and ultimately in delivering value for our shareholders. In achieving these objectives, the Board is assisted by its senior management team who play a vital role in disseminating the Group's shared values with all its employees and other stakeholders. The Board is responsible for ensuring thorough corporate governance is applied throughout the Group and it will continue to work towards further improving its governance framework through 2019.

Dividend

The Board remains confident of the strength of the Group's capabilities and its position within its chosen markets and as such proposes a final dividend of 6.67p per share to be paid to shareholders on the register as at 1 February 2018. This will represent a full year dividend of 10.0p per share (2017: 9.0p).

Board changes

I was proud to succeed Roy Harrison as Chairman following his retirement at the conclusion of the AGM in January. I would like to welcome Sean Wyndham-Quin who joined the Group as Chief Financial Officer in November 2017 succeeding John Samuel who left the Board on 29 November 2017. I would like to thank Roy and John for the valuable contribution they have made to the Group during their time as Directors.

People

The Group operates across a diverse range of markets and our continued success in these markets is the result of our employee's expertise, drive and dedication. The Board would like to thank all its employees and wider stakeholders for their continued effort and support.

Future focus

Our results in 2018 demonstrate that we continue to make progress in executing our long-standing strategy. The Board remains committed to continue to grow the business in our chosen markets both organically and through selective complementary acquisitions whilst maintaining a disciplined approach to risk management.

The Board believes that having a robust corporate governance framework is a key element in guaranteeing our long-term success. As part of this, we are committed to ensuring that succession planning, training and development remain key areas of focus. Our solid foundations allow the Board to look forward to 2019 with confidence.

David M Forbes

Chairman

27 November 2018

1 Renew uses a range of statutory performance measures and alternative performance measures when reviewing the performance of the Group against its strategy. Definitions of the alternative performance measures, and a reconciliation to statutory performance measures, are included in Note 10.

Chief Executive's Review

Results

These strong results demonstrate continued progress and the delivery of our strategic objectives. During 2018, we have strengthened our position as a leading provider of engineering services across the Energy, Environmental and Infrastructure markets.

Group revenue1 of £541.5m (2017: £545.9m) reflected growth in Engineering Services, despite an anticipated reduction in Rail revenue due to being in the final year of the control period, and the anticipated reduction in Specialist Building revenue. Adjusted operating profit1 was up 9.6% to £31.1m (2017: £28.4m) delivering an adjusted operating margin1 of 5.7% (2017: 5.2%). The Group saw strong growth in its order book1 which stood at £558m (2017: £511m) as at 30 September 2018. Net debt at the year-end was £21.4m (2017: net cash £3.9m) reflecting the £80m acquisition of QTS in the year and our conservative approach to gearing.

Corporate activity

Acquisitions are an important element of the Group's long-term strategy and in May the Group announced the acquisition of QTS. QTS is a provider of specialist services to the rail industry which include civil engineering, geotechnical services, fencing and devegetation. QTS has a longstanding relationship with Network Rail and during 2018 it successfully broadened its framework positions, extending geographical coverage.

Since we acquired QTS in May, trading has been in line with our expectations. The integration of QTS has gone extremely well and as a Group we now have a more diverse range of rail capabilities which increase the opportunities available to us under Network Rail's next control period CP6 (2019-2024). The focus of expenditure in this control period will be renewal and maintenance of existing infrastructure which are the areas we specifically support.

In February, the Group announced its decision to exit the gas infrastructure market with the sale of Forefront. This disposal allows management to focus on opportunities that can deliver better value for shareholders.

Engineering Services

Adjusted Engineering Services revenue1 was ahead of management expectations at £466.5m (2017: £435.3m). Adjusted operating profit1 has grown 19% to £32.5m (2017: £27.3m) with an operating margin of 7.0% (2017: 6.3%).

At 30 September 2018, the Engineering Services order book1 strengthened to £510m (2017: £438m). The profile of the order book reflects our focus on renewals and maintenance rather than large capital projects and demonstrates the extremely strong positions we hold in our target markets.

Energy

Working across the nuclear, thermal and renewable energy markets we support the operation and maintenance of key infrastructure assets. Our clients include Sellafield, Westinghouse, BAE Systems, SSE, E.ON, Magnox, Low Level Waste Repository and Scottish Power.

The Nuclear Decommissioning Authority's ("NDA") latest estimate for the UK's nuclear clean-up is approximately £121 billion over the next 120 years2. At the Sellafield nuclear site in Cumbria, which is allocated around 75% of the NDA's £3bn annual expenditure2, we operate as the largest employer of mechanical, electrical and instrumentation trades. The Group provides multidisciplinary services at the site where our work supports operational plant as well as decontamination, decommissioning, waste management and new major project programmes.

The Group operates on long-term decommissioning frameworks at Sellafield, including the 10-year Decommissioning Delivery Partnership programme where we work across all 3 lots. During the year the Group was also engaged via the SR&DP Asset Care, Magnox Swarf Storage Silo, Bulk Sludge Retrieval, Bundling Spares and the Tanks and Vessels Frameworks. Our work on these high-profile programmes positions us strongly for future long-term opportunities at the site.

For BAE Systems in Barrow-in-Furness, we provide engineering support to the Astute Class Nuclear Submarine Programme as well as supporting the major ongoing redevelopment and upgrade at this facility.

The Group continues to work for Westinghouse at Springfields as a preferred contractor and for Low Level Waste Repository where we have delivered mechanical, electrical & instrumentation packages. We were operational at 7 Magnox sites providing a range of services through decommissioning, civil and electrical maintenance framework contracts.

In addition to our nuclear operations, the Group provides long-term engineering maintenance at 7 of the UK's thermal power stations and were appointed to a 4-year electrical maintenance framework at the Drax Power Station.

In renewable energy, we provide maintenance and engineering support to windfarm facilities as well as hydroelectric assets in Scotland.

Environmental

The Group provides engineering support to a range of water infrastructure assets including clean and waste water networks, flood alleviation programmes and coastal protection schemes.

The water industry operates on 5-year network infrastructure investment cycles, known as Asset Management Programmes. The regulator, Ofwat, estimates through the current investment period AMP6, to 2020, a total expenditure of approximately £44bn will have been spent on delivering, maintaining and improving services3. The Board anticipates that the next AMP cycle will see at least the same level of investment due to population growth and the changing climate.

Working for Dŵr Cymru Welsh Water through the Major Civils Framework, the Pressurised Pipelines Framework and the Capital Delivery Alliance Civils contracts we have seen an increase in demand for our services. In addition to engineering maintenance tasks the Group also undertook a high level of emergency reactive works following a period of severe weather in the region. We have developed an expertise in dam safety, a new market where we see growth opportunities and during the year the Group delivered major schemes at the Llanishen and Talybont reservoirs. We continue to work for Wessex Water on the AMP 6 Civils & EMI Delivery Partners Framework and during the year we were pleased to be awarded our first project for new client, Bristol Water.

The Group has grown its activities with the Environment Agency where we are helping to protect and improve the environment through small scale civil engineering and maintenance tasks. In March, we were awarded 5-year Flood and Coastal Risk Management Frameworks in the North, Central and South West Hubs as the only contractor to secure a position in all 3 regions. We also continue to operate as sole provider on the Northern Mechanical, Electrical, Instrumentation, Control, and Automation ("MEICA") Framework as well as in the South East where our framework was recently extended for 2 years.

For the Canal and River Trust, we continue to maintain the trust's waterway assets across England and Wales through a 7-year MEICA Framework. During the year we provided routine maintenance and renewal services as well as emergency support to around 1,200 assets on the network.

In land remediation, our clients include SGN and National Grid where we have frameworks to remediate former gas works sites. New clients include Leeds City Council, Yorkshire Wildlife Park and during the year we successfully completed the Sighthill transformational regeneration scheme for Glasgow City Council.

At the Palace of Westminster, further progress has been made on the Courtyard Conservation Framework and additional work has been secured on the Cast Iron Roof Restoration programme which will continue to 2022. Our activities at this unique World Heritage site have been extended to include specialist restoration activity on the Elizabeth Tower, home to the iconic 'Big Ben'.

Infrastructure

As a leading provider of infrastructure services to Network Rail, we undertake a high volume of asset maintenance and renewals tasks across the UK. Our range of services, alongside our 24/7 emergency support, are essential to maintain the safe operation of the rail network.

We are pleased that the importance of operating maintenance in this sector has been reflected in Network Rail's £48bn CP6 investment plan which is expected to include a 25% increase in operations, maintenance, support, and renewals compared to the previous control period4 to improve existing infrastructure and consequently the passenger experience. The Group has organically expanded its capabilities in rail, which together with the acquisition of QTS, positions us well for future growth during this next period of rail investment.

We continue to provide services on rail infrastructure project frameworks and in April, we secured the Civils and Buildings Asset Management Frameworks for Network Rail on 7 of the 8 geographical routes, with 6 of these on a single source basis for a term of 6 years (5+1).

The Group has electrification and plant frameworks in the Scotland and London North Eastern (LNE) routes and we have extended our offering in signalling with the award of a minor works framework in the South East region. These positions are important in terms of growth opportunities emerging from the Digital Railway Strategy.

Outside of Network Rail's portfolio, the Group was appointed as a Strategic Partner by SPL Powerlines UK Limited on the Midland Mainline Electrification Programme and more recently we were appointed to a 4-year civil engineering framework for Transport for Wales.

Working for London Underground, we deliver specialist electrical, plant and power schemes through 5 frameworks. The Group continues to develop its opportunities in this sector where our work on the depot refurbishment programme is evidence of our growing range of civils, mechanical and electrical engineering services.

In wireless telecoms, to support the growing demand on current infrastructure from increasing data usage, the networks require long-term investment in upgrade programmes. We work for the UK's major cellular network operators and original equipment manufacturers on their 3G and 4G programmes. During the year the Group were awarded new frameworks for Telefonica in the North and London on their latest network programme. We have also expanded our customer base with national programmes being delivered for BT Link and on the Emergency Services Network. We were recently awarded a 5-year national telecommunications framework by Network Rail again demonstrating the advantages of the Group's combined capabilities. In future, the UK government's ambition to be a leader in the provision of the next generation of mobile communications technologies will see opportunities arise on long-term 5G investment programmes. 

Specialist Building

As previously announced, and in line with our strategy of risk management and contract selectivity, revenue in Specialist Building reduced to £74.2m (2017: £106.8m) and operating profit reduced to £0.6m (2017: £2.4m). At the year-end, the forward order book stood at £48m (2017: £73m).

The Group's Specialist Building operation remains focused on the High Quality Residential market in London and the Home Counties where we specialise in major structural engineering works.

Outlook

The nature of the UK's ongoing requirement for investment in its critical infrastructure networks provides us with long-term prospects for continued growth. The Group has successfully developed its strategy to align with the opportunities that exist across numerous programmes. Specifically, we have targeted critical infrastructure networks that require ongoing essential renewal and maintenance support delivered through non-discretionary, operational expenditure budgets. 

The Group has established an enviable reputation across its markets through a track record of reliable and responsive service, evidenced through our long-standing relationships with customers. This strong platform, and our strategy to broaden our range of services both organically and through selective complementary acquisitions, will continue to provide growth opportunities.

Whilst Brexit is a source of uncertainty, our focus on non-discretionary UK infrastructure markets gives us confidence that it will not have a material impact on the financial performance of the Group. After another good year, in which we have successfully renewed our framework positions, we have good momentum going into 2019 and look forward to delivering on our strategic priorities over the next 12 months.

Paul Scott

Chief Executive Officer

27 November 2018

1 Renew uses a range of statutory performance measures and alternative performance measures when reviewing the performance of the Group against its strategy. Definitions of the alternative performance measures, and a reconciliation to statutory performance measures, are included in Note 10

2 Nuclear Decommissioning Authority, Nuclear Provision: the cost of cleaning up Britain's historic nuclear sites (12 July 2018)

3 Ofwat PR14 Setting price controls for 2015-20 Overview (December 2014)

4 Network Rail - Strategic Business Plan Summary (9 February 2018)

Group income statement

For the year ended 30 September 2018

Group balance sheet

At 30 September 2018

Group cash flow statement

For the year ended 30 September

\* The prior year comparatives for the financial year ended 30 September 2017 have been restated following the reclassification of two discontinued subsidiary undertakings. 

Notes

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2018 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, the leasing and sub-leasing of some UK properties and the provision of central services to the operating subsidiaries.

Engineering Services segment operating profit for the year ended 30 September 2017 is stated after charging exceptional costs of £6,009,000 and amortisation of £2,280,000 resulting in a total charge of £8,289,000 (See Note 3).

3 Exceptional items and amortisation of intangible assets

Costs of £1,539,000 were incurred during the acquisition of QTS Group Limited (2017: £209,000 acquisition of Giffen Group.)

The sale of Forefront Group Limited incurred a loss on disposal of net assets of £3,037,000 and resulted in a £6,893,000 write-off of goodwill attributable to that subsidiary undertaking. The total loss on disposal was £9,930,000.

As a consequence of the disposal, the £657,000 exceptional redundancy and restructuring cost incurred in the year ended 30 September 2017 has been reclassified and is now included with the comparative loss for the year from discontinued operations.

The Board has separately identified the charge of £4,157,000 (2017: £2,280,000) for the amortisation of the fair value ascribed to certain intangible assets, other than goodwill, arising from the acquisitions of Giffen Holdings Ltd and QTS Group Ltd.

4 Loss for the year from discontinued operations

On 31 October 2014, the Board reached an agreement to sell Allenbuild Ltd to Places for People Group Ltd 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, in so far as it impacts the Group, is shown in the table above. As a term of the disposal Renew Holdings plc retains both the benefits and obligations associated with a number of Allenbuild contracts which are in the process of being finally settled with the client.

On 2 February 2018 Ferns Group Ltd acquired 100% of the ordinary share capital of Forefront Group Ltd, an Engineering Services subsidiary, for £1. The trading result for this cash generating unit has therefore been included within the loss for the year from discontinued operations and the comparative figures have been reclassified accordingly.

Following a strategic review of the opportunities available, the Board has decided to close Lovell America Inc, a subsidiary which carried out land development projects around Maryland in the USA. The exit from a geographical region means that the trading result from this cash generating unit is included within the loss for the year from discontinued operations and the comparative figures have been reclassified accordingly. The closure of Lovell America Inc is not expected to complete until late 2019.

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 6.67p per Ordinary Share be paid in respect of the year ended 30 September 2018. This will be accounted for in the 2018/19 financial year.

7 Earnings per share

The dilutive effect of share options is to increase the number of shares by 380,000 (2017: 403,000) and reduce basic earnings per share by 0.06p (2017: 0.13p).

8 Acquisition of subsidiary

On 10 May 2018, the Company acquired the whole of the issued share capital of QTS Group Ltd ("QTS") for a cash consideration of £80m. The acquisition was funded by a placement of 12,676,056 new ordinary shares raising £45m, and a four year term loan of £35m provided by HSBC Bank plc.

The value of the assets and liabilities of QTS at the date of acquisition were:

Goodwill of £54,193,000 arises on acquisition and will be reviewed for impairment one year after the acquisition as permitted by IFRS 3. The goodwill is attributable to the expertise and workforce of the acquired business. Other intangible assets, provisionally valued at £17,469,000, represent customer relationships and contractual rights, were also acquired and will be amortised over their useful economic life in accordance with IFRS 3. Deferred tax has been provided on this amount. Amortisation of this intangible asset commenced from June 2018.

9 Preliminary financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2018 or 2017. Statutory accounts for 2017 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 2018 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.

10 Alternative performance measures

Renew uses a variety of alternative performance measures ('APM') which, although financial measures of either historical or future performance, financial position or cash flows, are not defined or specified by IFRSs. The Directors use a combination of APMs and IFRS measures when reviewing the performance, position and cash of the Group.

The APMs used by the Group are defined below:

Net Cash/(Debt) - This is the cash and cash equivalents less bank debt. The Directors consider this to be a good indicator of the financing position of the Group.

Adjusted operating profit and adjusted profit before tax - Both of these measures are reconciled to total operating profit and total profit before tax on the face of the consolidated income statement. The Directors consider that the removal of exceptional items and amortisation provides a better understanding of the underlying performance of the Group.

Adjusted operating margin - This is calculated by dividing operating profit before exceptional items and

amortisation of intangible assets by group revenue from continuing activities both of which are visible on

the face of the income statements. The Directors believe that removing exceptional items and amortisation

from the operating profit margin calculation provides a better understanding of the underlying performance of the Group.

Adjusted earnings per share - This measure is reconciled to the earnings per share calculation based on earnings before exceptional items and amortisation in Note 9 of the 2018 Annual Report and Accounts. The Directors believe that removing exceptional items and amortisation from the EPS calculation provides a better understanding of the underlying performance of the Group.

Group Revenue - This measure is visible on the face of the income statement as Revenue: Group including share of joint venture.

Group order book, Engineering Services order book and Specialist Building order book - This measure is calculated by the Directors taking a conservative view on secured orders and visible workload through long-term frameworks.

Adjusted Engineering Services revenue - This measure is visible in 2018 Annual Report & Accounts Note 2 part (a) business analysis as Engineering Services Revenue from continuing activities. The Directors consider this to be a good indicator of the underlying performance of the Group's Engineering Services business.

Adjusted Engineering Services operating profit - This measure is visible in the 2018 Annual Report & Accounts Note 2 part (a) business analysis as Engineering Services operating profit before exceptional items and amortisation of intangible assets. The Directors consider this to be a good indicator of the underlying performance of the Group's Engineering Services business.

Adjusted Engineering Services operating profit margin - this is calculated in the same way as adjusted operating profit margin but based on the adjusted Engineering Services operating profit and the Adjusted Engineering services revenue figures as set out above.

11 Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 30 September 2018 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.renewholdings.com