Last checked at 25 Nov 2008 07:00
Renew Holdings plc
("Renew" or the "Group")
Preliminary results for the full year ended 30 September 2008
Renew, the specialist construction services business, announces pre-tax profits up 29%, prior to exceptional items and amortisation charges.
Financial Highlights
| 2008 | 2008 | 2008 | 2007 | |
| Pre-exceptional items and amortisation charges | Exceptional items and amortisation charges | Post-exceptional items and amortisation charges
| ||
| Revenue | £390.6m | - | £390.6m | £348.1m |
| Operating profit | £7.6m | (£2.8m) | £4.8m | £5.2m |
| Profit before tax | £9.5m | (£2.8m) | £6.7m | £7.4m |
| Earnings per share | 12.2p | (3.4p) | 8.8p | 12.2p |
| Dividend per share | 3.0p | 1.8p | ||
| Net cash balance | £28.2m | £24.4m | ||
| Net assets | £14.3m | £10.0m |
Operational Highlights
Group operating profit up 46%*
Operating margin increased to 1.9%* (2007: 1.5%)
Decisive action taken to reduce capacity and realign business, providing cost savings of over £5m per annum
83% of orders from specialist sectors
79% of order book from repeat business
Net cash balance £28.2m (2007: £24.4m)
Proposed full year dividend increase of 67% to 3.0p (2007: 1.8p)
Post year end acquisition of C&A Pumps Limited, a specialist water services business
* Note - these figures are given prior to charges for exceptional items of £2.6m (2007: £Nil) comprising £1.5m redundancy costs, £1.2m statutory debt provision increase and a £0.1m profit on sale of plant fleet together with amortisation of intangible assets of £0.2m (2007: £Nil)
Roy Harrison OBE, Chairman, commented:
"The Group is strongly positioned with an experienced management team, substantial cash resources and a strong forward work position. Our business model, which focuses on specialist markets, is resilient and able to withstand the impact of challenging market conditions".
25 November 2008
Enquiries:
| Renew Holdings plc | Tel: 0113 281 4200 |
| Brian May, Group Chief Executive | |
| John Samuel, Group Finance Director | |
| College Hill | Tel: 020 7457 2020 |
| Mark Garraway | |
| Adam Aljewicz |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report a strong set of results. We are successfully meeting our strategic objectives for our two main business streams. In Specialist Engineering we have continued to grow revenue, which was bolstered by a full year's contribution from Seymour, while in Specialist Building we saw a marked increase in revenue and particularly in operating profits prior to exceptional items.
Against a background of increasingly difficult market conditions, the results again illustrate the quality and sustainability of earnings with our forward order book indicating an increased level of work in our specialist sectors.
Results
Group revenues for the year ended 30 September 2008 were £390.6m (2007: £348.1m), a 12% increase over the corresponding period last year. Profit before tax for the year prior to exceptional items and amortisation charges was up 29% to £9.5m (2007: £7.4m). Profit after tax and exceptional items and amortisation charges was £5.3m (2007: £7.3m).
At 30 September 2008, the Group's net cash position stood at £28.2m (2007: £24.4m).
As has been well documented, conditions in the house building market, which is the principal end market for our Land Remediation business, have worsened considerably over the last six months. We are also seeing weaker market conditions for our non-specialist and retail businesses which jointly accounted for 46% of Specialist Building revenues in 2008.
As stated in our pre-close announcement on 1 October 2008, the Board has taken decisive action to address these issues by realigning the Land Remediation activities to address the more robust regional civil engineering market, whilst retaining its land remediation capability. In Specialist Building, the Group has reduced capacity by 15%. Whilst these actions have resulted in an exceptional charge in 2008 of £1.5m for redundancy costs, the resultant saving in annual costs will be in excess of £5m.
The Group's order book at 30 September 2008 stood at £219m (2007: £252m) with, pleasingly, 79% represented by repeat order work. The 13% reduction, which is predominantly in non-specialist areas, is in line with the implemented capacity reductions. This reflects our emphasis on project selectivity and quality of earnings as we seek to continue to improve percentage operating margins in these more challenging market conditions.
Dividend
In accordance with the Group's progressive policy, a final dividend of 2.0p per share (2007: 1.0p) is being proposed. This takes the total dividend for the year to 3.0p (2007: 1.8p), a 67% increase over last year. The dividend will be paid on 23 February 2009 to shareholders on the register as at 30 January 2009 and in accordance with accounting standards will be accounted for in the 2009 financial year. The shares will become ex-dividend on 28 January 2009.
Growth strategy
Our declared strategy of focusing on two distinct business streams, Specialist Engineering and Specialist Building, remains in place.
Our aim is to increase revenues in Specialist Engineering both organically and by acquisition, with operating margins of at least 4%. In Specialist Building, our aim is to continue to increase operating margins with a medium-term target of 2%. Currently our Specialist Building margin stands at 1.7%.
Our medium term objective remains to develop a Specialist Construction business with overall operating margins of 2.5% and with Specialist Engineering providing 33% of revenues.
Outlook
Market conditions are more challenging but the Group is operating from a position of strength, supported by a strong balance sheet with cash resources available to take advantage of carefully considered opportunities which may arise. Our management team, led by our Chief Executive Brian May, is very experienced and I am confident in their ability to deliver excellent performance in the difficult economic climate.
The impact of the decisive action taken in September to realign and reduce capacity, and the continued resilience of our specialist markets, gives the Board confidence that we can continue to grow the Group's operating margin percentage albeit on reduced levels of activity in 2009.
Roy Harrison OBE
Chairman
25 November 2008
CHIEF EXECUTIVE'S REVIEW
OVERVIEW
Our strategy of seeking growth in Specialist Engineering, whilst maintaining target margins, combined with growing margins in Specialist Building continues.
In Specialist Engineering, revenue increased by 36%, which included a full year's contribution from Seymour which we acquired in July 2007. Whilst margins were lower due to falling demand for Land Remediation related to the house building sector, they remain at 3.7%, over double that of the margins in Building. The forward order book in Specialist Engineering stands at £49m (2007: £54m).
Revenues in Specialist Building increased by 11% with a 34% increase in operating profit to £4.9m prior to exceptional charges. The forward order book in Specialist Building is £170 million (2007: £198 million), 14% lower than last year which is in line with the capacity reductions implemented in September.
Our total order book remains strong at £219m (2007: £252m), with 86% being in our specialist sectors and 79% in the form of repeat business. These key performance indicators remain ahead of our targets of 66% in each case.
As part of our strategy of developing our Specialist Engineering business we continue to look for complementary acquisitions that can meet our demanding criteria. Immediately following the year end, we completed the acquisition of C&A Pumps Limited, a specialist water services business based in County Durham but which operates nationally. C&A will combine with Seymour to offer an extended package of capability to the Water industry. This acquisition is a further demonstration of our commitment to grow our Specialist Engineering business both organically and by acquisition and follows on from the previous acquisitions of Seymour itself and PPS Engineering Limited, in the Nuclear sector.
Review of operations
Specialist Engineering
Nuclear
Shepley Engineers continues to be the largest Tier 2 mechanical and electrical contractor at Sellafield, operating in the fields of asset support and decommissioning. Activity levels on the Multi Disciplined Site Wide framework were 70% above those anticipated. Our four frameworks continue at Sellafield with extensions recently agreed on both Demolition and Decommissioning. Our PPS subsidiary, which we acquired in 2006, had an exceptional year, outperforming forecasts and repaying its acquisition cost within two years. We have also secured a position in a consortium with EnergySolutions to process Metals Recycling at Sellafield and Drigg. We continue to have activity at the Springfield facility at Preston and have also been awarded a decommissioning project at Capenhurst, which is our first award at this site.
Land Remediation
In response to the downturn in the house building market, we have quickly realigned the VHE business to also access regional civil engineering opportunities. This is demonstrated by the recent £15m award of the Cudworth by-pass which is the fifth major award in recent years from Barnsley MBC. VHE retains its Land Remediation capability and has established itself as the leading specialist contractor for local authority remediation works under Part llA of the Environment Act, completing five such residential projects during the year, with a further recent £2m award in Glasgow. We are also seeing renewed activity for 2009 from the National Grid framework.
Water
The Seymour acquisition has been fully integrated into the Group and is performing in line with our expectations and acquisition plans, with 15% organic growth achieved this year. The Northumbrian Water framework continues to provide a significant level of activity with good visibility out to 2010. We have seen an encouraging increase in repeat business for regional industrial and local authority clients including the award of a framework with Darlington MBC. The C&A Pumps acquisition enhances our offering to the water industry. In the year ended 31 December 2007, C&A recorded an operating profit of £0.2m on a turnover of £4.7m. Organic expansion of civil engineering capabilities in the South West under the Britannia Civil Engineering brand has also been achieved to enable access to regional specialist water and environmental markets.
Specialist Building
Social Housing
Including the recent agreements with Sanctuary and Hexagon Housing Associations, Allenbuild now has eight framework agreements in place, all with leading Housing Associations in the South East of England, for the delivery of their new build programmes. We secured £42m of new projects during the year. New projects completed during the year include Cranes Farm and Clyde Terrace, each valued at over £8 million. This business area is particularly well secured for 2009 and our pipeline of future projects for our existing framework partners remains in excess of £100m.
Retail
Britannia Construction's first project with Marks & Spencer in Manchester has been completed. Four projects were completed for Tesco, with another at Wells in progress. Allenbuild successfully completed a £26m negotiated hotel and mixed retail development at Southport which included hotel, casino and retail outlets and incorporated restoration works to the historic Floral Hall.
Science and Education
Allenbuild has been appointed preferred bidder on a £58 million project to build the new Kirklees College Waterfront Project at Huddersfield and has successfully completed the £18m Rossington School project in Doncaster. Elsewhere, Walter Lilly has continued good progress on the £20 million Queen Mary Innovation Centre project in London and has received awards for two further projects from GSK together with a £12m contract for Eisai Pharmaceuticals at Hatfield.
Restoration and Refurbishment
The high-end residential sector remains busy with a number of awards for Walter Lilly giving good visibility for 2009 and beyond. Five projects have now been successfully completed under the Grosvenor Framework, with others being processed. Good progress continued on the major contracts at Grosvenor Crescent and Regents Park. Our established relationship with Cadogan Estates continues with a further project at Cadogan Gardens.
YJLI has been appointed to a five year LUL framework for tube network modernisations. During the year, further modernisation works were secured for CTRL Platforms for South Eastern and for Network Rail at Waterloo where we are bringing a redundant Eurostar platform back into operational use.
Property and other activities
We have successfully developed and sold a new factory in Cumbria for the Cumberland Pencil Company, but, in light of recent market conditions, there are no current development activities ongoing in the UK. During the year, we completed and sold the Applied Research Facility in the USA for Johns Hopkins University. We continue to look to realise value from our land assets in the US with our portfolio particularly well located in Maryland, predominantly in the Baltimore/Washington corridor, near to the Fort Meade National Security Centre.
People
The health and safety of our people at work is our priority at all times. During the year, we achieved a further reduction in the Accident Incidence Rate which has now reduced by 57% over the last three years. Our target for each of these years was a 10% reduction.
The Group's success derives from the quality and skills of our people. Throughout the Group, we have an excellent blend of experience, youth, talent and ambition. The Board has great confidence in our staff and thanks them all for their commitment and effort.
Summary
The Group continues to make progress on the implementation of its strategy. Despite the prevailing economic environment, our specialist markets are resilient and this is reflected in the quality of our forward order book.
Brian May
Chief Executive
25 November 2008
Group income statement
For the year ended 30 September 2008
| Before | Exceptional | ||||
| exceptional | items and | ||||
| items and | amortisation | ||||
| amortisation | of intangible | ||||
| of intangible | assets | ||||
| assets | |||||
| Note | (see note 3) | Total | Total | ||
| 2008 | 2008 | 2008 | 2007 | ||
| £000 | £000 | £000 | £000 | ||
| Group revenue from continuing activities | 390,557 | - | 390,557 | 348,149 | |
| Cost of sales | (347,820) | - | (347,820) | (311,486) | |
| Gross profit | 42,737 | - | 42,737 | 36,663 | |
| Administrative expenses | (35,137) | (2,765) | (37,902) | (31,445) | |
| Operating profit | 2 | 7,600 | (2,765) | 4,835 | 5,218 |
| Finance income | 1,618 | - | 1,618 | 2,199 | |
| Finance costs | (254) | - | -254 | (768) | |
| Other finance income - defined benefit pension scheme | 543 | - | 543 | 745 | |
| Profit before income tax | 9,507 | (2,765) | 6,742 | 7,394 | |
| Income tax expense | 4 | (2,209) | 727 | (1,482) | (74) |
| Profit for the year attributable to equity holders of the parent company | 7,298 | (2,038) | 5,260 | 7,320 | |
| Basic earnings per share | 6 | 12.2p | (3.4p) | 8.8p | 12.2p |
| Diluted earnings per share | 6 | 11.9p | (3.3p) | 8.6p | 12.0p |
Group statement of recognised income and expense
For the year ended 30 September 2008
| Total | Total | |||
| 2008 | 2007 | |||
| £000 | £000 | |||
| Profit for the year attributable to equity holders of the parent company | 5,260 | 7,320 | ||
| Exchange movement in reserves | 574 | (150) | ||
| Movement in actuarial deficit | (497) | (1,804) | ||
| Movement on deferred tax relating to the defined benefit pension scheme | 116 | 427 | ||
| Total recognised income and expense for the year attributable to | ||||
| equity holders of the parent company | 5,453 | 5,793 |
Group balance sheet
At 30 September 2008
| 2008 | 2007 | ||
| £000 | £000 | ||
| Note | |||
| Non-current assets | |||
| Intangible assets | |||
| - goodwill | 8,548 | 8,516 | |
| - other | 620 | 868 | |
| Property, plant and equipment | 4,503 | 5,188 | |
| Deferred tax assets | 4,069 | 4,987 | |
| 17,740 | 19,559 | ||
| Current assets | |||
| Inventories | 6,367 | 6,391 | |
| Trade and other receivables | 87,766 | 89,669 | |
| Current tax assets | 455 | - | |
| Cash and cash equivalents | 28,289 | 24,565 | |
| 122,877 | 120,625 | ||
| Total assets | 140,617 | 140,184 | |
| Non-current liabilities | |||
| Obligations under finance leases | (10) | (118) | |
| Retirement benefit obligations | (1,479) | (3,559) | |
| Deferred tax liabilities | (256) | (418) | |
| Provisions | (1,068) | (1,172) | |
| (2,813) | (5,267) | ||
| Current liabilities | |||
| Borrowings | (110) | (165) | |
| Trade and other payables | (119,246) | (121,304) | |
| Obligations under finance leases | (67) | (429) | |
| Current tax liabilities | (159) | (480) | |
| Provisions | (3,941) | (2,530) | |
| (123,523) | (124,908) | ||
| Total liabilities | (126,336) | (130,175) | |
| Net assets | 14,281 | 10,009 | |
| Share capital | 5,990 | 5,990 | |
| Share premium account | 5,893 | 5,893 | |
| Capital redemption reserve | 3,896 | 3,896 | |
| Cumulative translation reserve | 424 | (150) | |
| Share based payments reserve | 233 | 97 | |
| Retained earnings | (2,155) | (5,717) | |
| Total equity | 7 | 14,281 | 10,009 |
Group cash flow statement
For the year ended 30 September 2008
| Total | Total | |
| 2008 | 2007 | |
| £000 | £000 | |
| Profit for the year | 5,260 | 7,320 |
| Amortisation of intangible assets | 248 | 41 |
| Depreciation | 1,708 | 1,326 |
| Profit on sale of property, plant and equipment | (262) | (85) |
| Decrease in inventories | 716 | 11,909 |
| Decrease/(increase) in receivables | 2,405 | (1,766) |
| (Decrease)/increase in payables | (1,599) | 6,360 |
| Current service cost in respect of defined benefit pension scheme | 72 | 79 |
| Cash contribution to defined benefit pension scheme | (2,106) | (1,534) |
| Expense in respect of share options | 136 | 97 |
| Financial income | (2,161) | (2,944) |
| Financial expenses | 254 | 768 |
| Interest paid | (254) | (768) |
| Income taxes paid | (1,344) | (107) |
| Income tax expense | 1,482 | 74 |
| Net cash inflow from operating activities | 4,555 | 20,770 |
| Investing activities | ||
| Interest received | 1,618 | 2,199 |
| Proceeds on disposal of property, plant and equipment | 1,267 | 309 |
| Purchases of property, plant and equipment | (2,028) | (1,060) |
| Acquisition of subsidiary net of cash acquired | (32) | (5,932) |
| Net cash inflow/(outflow) from investing activities | 825 | (4,484) |
| Financing activities | ||
| Dividends paid | (1,317) | (839) |
| Repayments of obligations under finance leases | (470) | (542) |
| Repayment of development loans | - | (9,795) |
|
|
| |
| Net cash outflow from financing activities | (1,787) | (11,176) |
| Net increase in cash and cash equivalents | 3,593 | 5,110 |
| Cash and cash equivalents at beginning of year | 24,400 | 19,570 |
| Effect of foreign exchange rate changes on cash and cash equivalents | 186 | (280) |
|
|
| |
| Cash and cash equivalents at end of year | 28,179 | 24,400 |
| Bank balances and cash | 28,289 | 24,565 |
| Bank overdrafts | (110) | (165) |
|
|
| |
| 28,179 | 24,400 |
Notes
1 International Financial Reporting Standards
The consolidated financial statements for the year ended 30 September 2008 have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These preliminary results are extracted from those financial statements which include the restatement of comparative financial information to reflect the adoption of IFRS.
2 Segmental analysis
For management purposes the Group is organised into three operating divisions: Building, Engineering and Property & central activities.
Segment information about the Group's continuing operations is presented below:
| 2008 | 2007 | ||
| £000 | £000 | ||
| Revenue is analysed as follows: | |||
| Building | 294,553 | 265,668 | |
| Engineering | 93,286 | 68,777 | |
| Property & central activities | 8,213 | 16,969 | |
| Inter divisional revenue | (5,495) | (3,265) | |
| Group revenue | 390,557 | 348,149 |
| Before exceptional | Exceptional | |||
| items and | items and | |||
| amortisation | amortisation | |||
| of intangible | of intangible | |||
| Analysis of operating profit | assets | assets | 2008 | 2007 |
| £000 | £000 | £000 | £000 | |
| Building | 4,892 | (889) | 4,003 | 3,652 |
| Engineering | 3,469 | (361) | 3,108 | 3,294 |
| Property & central activities | (761) | (1,515) | (2,276) | (1,728) |
| Operating profit | 7,600 | (2,765) | 4,835 | 5,218 |
| Net financing income | 1,907 | - | 1,907 | 2,176 |
| Profit on ordinary activities before income tax | 9,507 | (2,765) | 6,742 | 7,394 |
3 Exceptional items and amortisation of intangible assets
| 2008 | 2007 | |
| £000 | £000 | |
|
|
| |
| Redundancy costs | 1,471 | - |
| Costs in relation to statutory debt provision increase | 1,168 | - |
| Profit on disposal of plant fleet | (122) | - |
| Total exceptional items | 2,517 | - |
| Amortisation of intangible assets | 248 | - |
| 2,765 | - |
The Board has determined that certain charges to the income statement should be separately identified for better understanding of the Group's results for the year ended 30 September 2008.
Following the deterioration in market conditions faced by certain of the Group's companies, the Group decided to reduce its cost base in its Building business and to realign the activities of one of its Engineering businesses. As a result, the Group has incurred redundancy costs of £1,471,000. Associated with the realignment, the Group disposed of its plant fleet in that Engineering business and the resultant
profit on disposal of £122,000 has also been separately identified.
Additionally, the Group has increased the provision in respect of the statutory debt on the employer liability arising from the pension scheme of one of the Group's dormant subsidiary companies, British Building and Engineering Appliances plc, resulting in a charge of £1,168,000. The winding up of the scheme commenced in 1999 and is expected to be completed in the year ending 30 September 2009.
The Board has also separately identified the charge of £248,000 for the amortisation of the fair value ascribed to certain intangible assets other than goodwill arising from the acquisition of Seymour (C.E.C) Holdings Limited. This item was not separately identified in the income statement for 2007 as the charge of £41,000 for that year was not considered by the Board to be material.
4 Income tax expense
| Analysis of expense in year | 2008 | 2007 |
| £000 | £000 | |
|
|
| |
| Current tax: |
|
|
| UK corporation tax on profits of the year | (159) | (291) |
| Adjustments in respect of previous periods | (409) | - |
| (568) | (291) | |
| Foreign tax | (51) | (107) |
| Total current tax | (619) | (398) |
| Deferred tax - defined benefit pension scheme | (699) | (616) |
| Deferred tax - other timing differences | (164) | 853 |
| Deferred tax - prior period adjustments | - | 87 |
| Total deferred tax | (863) | 324 |
| Taxation charge on profit | (1,482) | (74) |
5 Dividends
| 2008 | 2007 | |
| Pence/share | Pence/share | |
|
|
| |
| Interim (related to the year ended 30 September 2008) | 1.00 | 0.60 |
| Final (related to the year ended 30 September 2007) | 1.20 | 0.80 |
| Total dividend paid | 2.20 | 1.40 |
| £000 | £000 | |
| Interim (related to the year ended 30 September 2008) | 598 | 359 |
| Final (related to the year ended 30 September 2007) | 719 | 480 |
| Total dividend paid | 1,317 | 839 |
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 2.0p per Ordinary Share be paid in respect of the year ended 30 September 2008. This will be accounted for in the 2008/09 financial year.
6 Earnings per share
| 2008 | 2007 | |||||||
| Earnings | EPS | DEPS | Earnings | EPS | DEPS | |||
| £000 | Pence | Pence | £000 | Pence | Pence | |||
| Earnings before exceptional costs & amortisation | 7,298 | 12.18 | 11.87 | 7,320 | 12.22 | 11.99 | ||
| Exceptional costs & amortisation | (2,038) | (3.40) | (3.32) | - | - | - | ||
| Basic earnings per share | 5,260 | 8.78 | 8.55 | 7,320 | 12.22 | 11.99 | ||
| Weighted average number of shares | 59,899 | 61,497 | 59,899 | 61,053 |
The dilutive effect of share options is to increase the number of shares by 1,598,000 (2007: 1,154,000) and reduce basic earnings per share by 0.23p (2007: 0.23p).
7 Reconciliation of movements in total equity
| 2008 | 2007 | |
| £000 | £000 | |
| Profit for the year | 5,260 | 7,320 |
| Dividends paid | (1,317) | (839) |
| 3,943 | 6,481 | |
| Other recognised income and expense for the year | 193 | (1,527) |
| Recognition of share based payments | 136 | 97 |
| Net movement in total equity | 4,272 | 5,051 |
|
|
| |
| At 1 October 2007 | 10,009 | 4,958 |
|
|
| |
| At 30 September 2008 | 14,281 | 10,009 |