Renew Holdings Regulatory News (RNWH)

20 May 2008 07:00



Renew Holdings plc

("Renew" or the "Group")

Interim results for the half year ended 31 March 2008

Renew, the specialist construction services business, announces strong interim results, with operating profits up 38% and a 66% increase in the interim dividend. 

Financial Highlights

(Nb results reported under International Financial Reporting Standards ('IFRS'))

	H1 2008	H1 2007
Revenue	£192.9m	£173.0m	+11%
Operating profit	£3.1m	£2.2m	+38%
Profit before tax	£3.9m	£3.2m	+21%
Earnings per share*	5.61p	5.42p	+4%
Dividend per share	1.0p	0.6p	+66%

(* impacted by return to taxation @ 14.5% during period) 

 

Operational Highlights

 

Roy Harrison OBE, Chairman, commented: 

"Renew continues to report improving profits resulting from our strategy to provide specialist construction services to selected robust sectors. The Group is strongly positioned with substantial cash resources to react quickly to market opportunities as they arise."

20 May 2008

Enquiries:

Renew Holdings plc	Tel: 0113 281 4200
Brian May, Chief Executive
John Samuel, Group Finance Director
College Hill	Tel: 020 7457 2020
Mark Garraway
Adam Aljewicz

  CHAIRMAN'S STATEMENT

The first half of the year produced strong results in line with both internal and market expectations. The results also illustrate the quality and sustainability of earnings with over two-thirds of orders coming in the form of repeat business in our specialist sectors and under negotiated forms of contract.

Group revenue for the six months ended 31 March 2008 was £192.9m (2007: £173.0m), an 11% increase over the corresponding period last year. Profit before tax for the period was up 21% to £3.9m (2007: £3.2m).

The Group expects to incur a tax charge for the year ending 30 September 2008 and the applicable rate has been estimated at 14.5%. As a result of the tax charge, the growth in earnings per share was restricted to 4% but nevertheless improved to 5.61p (2007: 5.42p).

The Group's net cash position stood at £25.7m, an increase of £1.3m compared to 30 September 2007. This strong, ungeared position enables the Group to take advantage of opportunities quickly as they arise in an economic environment which may become more challenging.

In accordance with the Group's progressive policy, an interim dividend of 1.0p per share (2007: 0.6p) is being declared. This is an increase of 66% and reflects the Board's confidence of delivering further progress in the remainder of the year. The dividend will be paid on 7 July 2008 to shareholders on the register as at 6 June 2008. 

Our declared strategy of focusing on two distinct business streams, Specialist Engineering and Specialist Building, is allowing us to secure sustainable and higher margin work with customers who are increasingly looking to develop longer-term relationships.

Our specialist sectors are demonstrating resilience in the current economic environment. Our order book remains strong and we are continuing to secure good quality opportunities to tender and negotiate. The Board believes that this will enable the Group to deliver further progress in the second half of the year.

Roy Harrison OBE

Chairman

20 May 2008

CHIEF EXECUTIVE'S REVIEW

OVERVIEW

Our strategy of seeking growth in Specialist Engineering whilst maintaining target margins combined with increasing margins in Specialist Building continues to provide increasing profits for the Group. 

In Specialist Engineering, revenue increased by 32%, reflecting the acquisition of Seymour. Operating profit has grown by 30% to £2.2m and margins have been maintained within our target range at 4.6%. 

We saw continued margin improvement in Specialist Building, up from 1.3% to 1.5% alongside a 16% increase in revenue. Operating profit increased by 38% to £2.1m.

Our order book remains strong at £247.7m (2007: £228.7m) with 80% being in our specialist sectors, 70% of orders negotiated and 67% in the form of repeat business. These key performance indicators remain ahead of our targets of 66% in each case.

Part of the strategy of developing our Specialist Engineering activities is to consider complementary acquisitions. The Group continues to look at a number of potential opportunities but is mindful of only making acquisitions that meet our demanding criteria. We have a proven acquisition and integration track record following the PPS Electrical and Seymour transactions in the last two financial years. Both these businesses have reported improved performance in revenue and margin since acquisition. 

For the first time, the Group is reporting its results under International Financial Reporting Standards ('IFRS'). 

Review of operations

Specialist Engineering

Nuclear:

Shepley Engineers continues to be the largest mechanical and electrical contractor at Sellafield operating in the fields of asset support and decommissioning, with the majority of work carried out under three framework agreements. We have just completed the first year of a two year Multi Disciplined Site Wide framework, from which revenues were 50% above forecast levels. Discussions have commenced regarding a two year extension to this framework.

Land Remediation:

VHE Construction was awarded five projects during the period including the Diesel Depot remediation project in Bristol for the South West of England Regional Development Agency. VHE has also been appointed to frameworks with the North West Development Agency and Lancashire County Council in addition to our longstanding framework with National Grid. In December 2007, VHE opened an office in Northern Ireland to access the growing number of opportunities there. 

Water:

The Seymour acquisition has been fully integrated into the Group and is performing in line with our expectations. The Northumbrian Water framework has recently been extended until 2011. This framework will provide a reliable earnings stream over the next three years and is a good example of our strategic goal of winning repeat business with blue chip clients. The Shiremoor Flood Alleviation project, which was awarded under this framework, secured three awards at the Constructing Excellence Awards for innovation, integration and collaborative working. In addition to a number of flood alleviation schemes secured during the period, Seymour was also awarded a coastal protection contract at Whitby Marina.

Specialist Building

Social Housing: 

We currently have six framework agreements in place, all with leading Housing Associations in the South East of England for the delivery of their new build programmes. We successfully completed six projects during the period and also commenced work on five new enabling projects which we expect to lead to confirmed orders over the next three months. The pipeline of future projects with our existing framework partners remains in excess of £100m. 

Retail:

Britannia Construction's first project with Marks & Spencer is nearing completion. Tesco continues to provide opportunities with a new store at Aston, Birmingham recently completed and another at Cullompton, Devon under construction. Allenbuild is constructing a £25m negotiated hotel and mixed retail development at Southport which includes the refurbishment of the adjacent Floral Hall Theatre.

Science and Education:

Allenbuild was awarded its first project under a new framework with Wigan Council and also secured three further school projects including the contract for the Kingfisher School, Solihull. This is the eighth year of our DEFRA framework at Weybridge where Walter Lilly has received a further award of a new building which has a major emphasis on environmental specifications. Allenbuild has also secured the contract to construct the Yorkshire Environmental Energy Technology Centre near Sheffield, which is aiming to have the lowest carbon footprint of any building in the UK.

Restoration and Refurbishment:

The high-end residential sector in London has been extremely busy during the period with Walter Lilly securing six awards. The largest of these was a prestigious £37m scheme in Grosvenor Crescent. This project is to refurbish and convert several listed buildings into high quality residential apartments and includes substantial temporary engineering works to form an underground stacking car park. We also continue to be awarded further projects from our Grosvenor Estates framework.

Summary 

We are continuing to make progress on the implementation of our strategy. Our operating businesses are recognised for their excellent skills and experience across our chosen specialist sectors and are seen as long-term partners by our customers. Our specialist markets remain robust within the broader context of the current economic environment. Through our high level of negotiated work, we are managing risk effectively and securing a higher quality of earnings. This strategy has enabled us to improve Group operating margins to 1.6% from 1.3% a year ago, indicating further progress towards our objective of an operating profit margin of at least 2.5% by 2010. 

Brian May

Chief Executive

 

20 May 2008

Group Income Statement	Notes	Six months ended		Year ended
for the six months ended 31 March 2008		31 March		30 September
		2008	2007	2007
		Unaudited	Unaudited	Audited
		£000	£000	£000
Group revenue from continuing activities	2	192,850	172,971	348,149
Cost of sales		(170,142)	(153,654)	(311,486)
Gross profit		22,708	19,317	36,663
Administrative expenses		(19,622)	(17,075)	(31,445)
Operating profit	2	3,086	2,242	5,218
Finance income		800	895	2,199
Finance costs		(207)	(239)	(768)
Other finance income - IAS 19 pension		250	350	745
Profit before income tax	2	3,929	3,248	7,394
Income tax expense	3	(569)	-	(74)
Profit for the period attributable to equity holders of the parent company		3,360	3,248	7,320
Basic earnings per share	4	5.61p	5.42p	12.22p
Diluted earnings per share	4	5.47p	5.35p	11.99p
Proposed dividend	5	1.00p	0.60p	1.20p

Group Statement of Recognised Income and Expense				Year ended
for the six months ended 31 March 2008		Six months ended		30 September
		2008	2007	2007
		Unaudited	Unaudited	Audited
		£000	£000	£000
Profit for the period attributable to equity holders of the parent company		3,360	3,248	7,320
Exchange movements in reserves		20	(96)	(150)
Movements in actuarial deficit		(857)	(890)	(1,804)
Movement on deferred tax relating to the defined pension scheme		-	-	427
Total recognised income and expense		2,523	2,262	5,793

Group Balance Sheet
at 31 March 2008
	Notes	31 March		30 September
		2008	2007	2007
		Unaudited	Unaudited	Audited
		£000	£000	£000
Non-current assets
Intangible assets: goodwill		8,516	4,527	8,516
Intangible assets: other		744	-	868
Property, plant and equipment		5,035	3,513	5,188
Deferred tax assets		4,987	4,329	4,987
		19,282	12,369	19,559
Current assets
Inventories		8,499	5,222	6,391
Trade and other receivables		94,149	72,989	85,319
Cash and cash equivalents		25,817	27,022	24,565
		128,465	105,233	116,275
Total assets		147,747	117,602	135,834
Non-current liabilities
Obligations under finance leases		(59)	(202)	(118)
Retirement benefit obligations		(3,559)	(3,955)	(3,559)
Deferred tax liabilities		(418)	(90)	(418)
Provisions		(1,172)	(1,277)	(1,172)
		(5,208)	(5,524)	(5,267)
Current liabilities
Trade and other payables		(126,751)	(102,309)	(116,954)
Obligations under finance leases		(243)	(151)	(429)
Current tax liabilities		(1,049)	-	(480)
Borrowings		(85)	(298)	(165)
Provisions		(2,530)	(2,530)	(2,530)
		(130,658)	(105,288)	(120,558)
Total liabilities		(135,866)	(110,812)	(125,825)
Net assets		11,881	6,790	10,009
Share capital		5,990	5,990	5,990
Share premium account		5,893	5,893	5,893
Capital redemption reserve		3,896	3,896	3,896
Cumulative translation adjustment		(130)	(96)	(150)
Share based payments reserve	6	165	49	97
Profit and loss account		(3,933)	(8,942)	(5,717)
Total equity	7	11,881	6,790	10,009

Group Cash Flow Statement
for the six months ended 31 March 2008
	Six months ended		Year ended
	31 March		30 September
	2008	2007	2007
	Unaudited	Unaudited	Audited
	£000	£000	£000
Profit for the period	3,360	3,248	7,320
Amortisation of intangible assets	124	-	41
Depreciation	834	563	1,326
Profit on sale of property, plant and equipment	(94)	(37)	(85)
(Increase)/decrease in inventories	(2,015)	12,966	11,909
(Increase)/decrease in receivables	(8,806)	7,205	(1,766)
Increase/(decrease) in payables	9,891	(4,827)	6,360
Current service costs	36	48	79
Cash contribution to defined benefit scheme	(893)	(588)	(1,534)
Expense in respect of share options	68	49	97
Finance income	(1,050)	(1,245)	(2,944)
Finance costs	207	239	768
Interest paid	(207)	(239)	(768)
Income taxes paid	-	-	(107)
Income tax expense	569	-	74
Net cash inflow from operating activities	2,024	17,382	20,770
Investing activities
Interest received	800	895	2,199
Proceeds on disposal of property, plant and equipment	194	145	309
Purchases of property, plant and equipment	(781)	(365)	(1,060)
Acquisition of subsidiary net of cash acquired	-	-	(5,932)
Net cash inflow/(outflow) from investing activities	213	675	(4,484)
Financing activities
Dividends paid	(719)	(479)	(839)
Repayment of obligations under finance leases	(245)	(319)	(542)
Repayment of development loans	-	(9,795)	(9,795)
Net cash outflow from financing activities	(964)	(10,593)	(11,176)
Net increase in cash and cash equivalents	1,273	7,464	5,110
Cash and cash equivalents at the beginning of the period	24,400	19,570	19,570
Effect of foreign exchange rate changes	59	(310)	(280)
Cash and cash equivalents at the end of the period	25,732	26,724	24,400
Bank balances and cash	25,817	27,022	24,565
Bank overdrafts	(85)	(298)	(165)
	25,732	26,724	24,400

NOTES TO THE ACCOUNTS

Note 1 Accounting policies

Explanatory note on adoption of IFRS for the 6 months ended 31 March 2008

A1 Presentation of consolidated financial statements

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted for use in the EU. The Group has applied all accounting standards and interpretations issued by the IASB and International Financial Reporting Interpretations Committee relevant to its operations and expected to be effective for the date of the Group's first IFRS financial statements. In accordance with IFRS 1, estimates consistent with those made in the UK GAAP financial statements for the year ended 30 September 2007 have been used.

The financial statements are presented in sterling since this is the currency in which the majority of the Group's transactions are denominated.

A2 First time adoption of international financial reporting and accounting standards

The Group has applied IFRS 1 "First time adoption of International Financial Reporting Standards" to provide a starting point for reporting under IFRS. The date of transition to IFRS was 1 October 2006 and all comparative information in these financial statements has been restated to reflect the Group's adoption of IFRS.

The adoption of IFRS has resulted in the following transition adjustments to the Group's accounting policies:

Goodwill

Under UK GAAP goodwill was amortised over its useful economic life. Under IFRS 3 "Business Combinations" goodwill is not amortised but is carried at cost with impairment reviews being undertaken annually or when there is an indication that the carrying value has been reduced. Under IFRS 1 the Group has applied the change from the date of transition as opposed to full application to all business combinations prior to that date. The goodwill in the balance sheet at the date of transition to IFRS was £4,527,000. The impact on the 2007 profit for the financial year is a reversal of the amortisation previously charged under UK GAAP of £356,000. 

Intangible assets 

IFRS 3 "Business Combinations" requires the measurement of intangible assets and their annual amortisation. The Group acquired £909,000 in relation to contractual rights on the acquisition of Seymour, which are being amortised over 44 months giving rise to a charge of £41,000 in 2007. Deferred tax has been provided on these intangible assets.

Employee benefits

IAS 19 "Employee Benefits" requires that liabilities for employee benefits should be recognised in the period in which services are provided by the employee. This includes specific guidance on dealing with short-term employee benefits such as holiday pay for which there is no equivalent under UK GAAP. Consequently the 2007 profit for the year is reduced by £114,000 being the increase in accrual to £626,000 from the opening position at 1 October 2006 of £512,000. Deferred tax has been provided on these employee benefits.

IFRS 1 Transition exemptions

IFRS 1 provides certain exemptions which the Group has decided to utilise. Under IFRS 3 "Business Combinations", the Group has elected not to apply the standard retrospectively to business combinations prior to the date of transition. Accordingly, the classification of such business combinations remains unchanged from that under UK GAAP. Assets and liabilities are recognised at the date of transition if they would be recognised under IFRS and are measured using their UK GAAP carrying amount immediately following acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. 

IFRS 1 permits revaluations of property, plant and equipment which had been carried out under UK GAAP to be treated as the deemed cost at the date of transition and the Group has applied this exemption.

Cumulative translation differences 

The Group has taken advantage of the exemption whereby the cumulative translation differences are deemed to be zero at the date of transition to IFRS.

Share based payments

The Group has applied IFRS 2 "Share based payment" from the date of transition to IFRS as at 1 October 2006. 

In preparing its opening IFRS balance sheet, the Group has adjusted amounts previously reported in financial statements prepared in accordance with its old basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to adopted IFRS has affected the Group's financial position, performance and cash flow is set out below.

Reconciliation on transition to IFRS

	1 October	30 September
	2006	2007
	£000	£000
Total equity as presented under UK GAAP	5,316	10,145
Employee benefits	(512)	(626)
Amortisation of goodwill	-	356
Amortisation of intangible asset	-	(41)
Deferred tax	154	175
Equity as presented under IFRS	4,958	10,009
		30 September
		2007
		£000
Profit as presented under UK GAAP		7,098
Amortisation of goodwill		356
Amortisation of intangible asset		(41)
Employee benefits		(114)
Income taxes		21
Profit as presented under IFRS		7,320

A3 Explanation of material adjustments to the cash flow statement for 2007

Interest paid of £768,000 during 2007 is classified as operating cash flow under IFRS, but was included in a separate category of returns on investments and servicing of finance under previous GAAP.

Note 2 Segmental analysis

For management purposes the Group is organised into three business streams: Building, Engineering, and Property and central activities. These operating segments are the basis on which the Group reports its primary segmental information.

Segmental information about the Group's continuing operations is presented below:

	Six months ended	Six months ended	Year ended
	31 March	31 March	30 September
	2008	2007	2007
	Unaudited	Unaudited	Audited
Revenue is analysed as follows:	£000	£000	£000
Building	142,886	122,910	265,668
Engineering	47,231	35,795	68,777
Inter divisional revenue	(2,941)	(2,943)	(3,265)
Property and central activities	5,674	17,209	16,969
Group revenue from continuing operations	192,850	172,971	348,149
Analysis of operating profit
Building	2,137	1,554	3,652
Engineering	2,176	1,678	3,294
Property and central activities	(1,227)	(990)	(1,728)
Operating profit	3,086	2,242	5,218
Net finance income	843	1,006	2,176
Profit before income tax	3,929	3,248	7,394

Note 3 Income tax expense

	Six months ended		Year ended
	31 March	31 March	30 September
	2008	2007	2007
	Unaudited	Unaudited	Audited
	£000	£000	£000
Current tax:
UK corporation tax on profits for the period	(569)	-	(291)
Foreign tax	-	-	(107)
Total current tax	(569)	-	(398)
Deferred tax	-	-	324
Income tax expense	(569)	-	(74)

The Group has unused tax losses available to carry forward against future taxable profits, although a significant element of these losses relates to activities which are not forecast to generate the level of profits needed to utilise these losses. A related deferred tax asset of £3,990,000 has been recognised to the extent considered reasonable by the directors.

Note 4 Earnings per share

	Six months ended 31 March 2008			Six months ended 31 March 2007			Year ended 30 September 2007
		Weighted			Weighted			Weighted
		average			average			average
		number			number			number
	Earnings	of shares	EPS	Earnings	of shares	EPS	Earnings	of shares	EPS
	£000	'000	Pence	£000	'000	Pence	£000	'000	Pence
Basic earnings  per share	3,360	59,899	5.61	3,248	59,899	5.42	7,320	59,899	12.22
Dilutive effect  of share options	-	1,493	(0.14)	-	765	(0.07)	-	1,154	(0.23)
Diluted earnings  per share	3,360	61,392	5.47	3,248	60,664	5.35	7,320	61,053	11.99

Note 5 Dividends

The proposed interim dividend is 1.0p per share (2007 0.6p). This will be paid out of the Company's available distributable reserves to shareholders on the register on 6 June 2008, payable on 7 July 2008. In accordance with IAS 1, dividends are recorded only when paid and are shown as a movement in equity rather than as a charge in the income statement.

Note 6 Share based payments reserve

IFRS 2 "Share based payment" requires a fair value to be established for any equity settled share based payments. Fair value has been independently measured using a Black-Scholes valuation model. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. In total 1,702,156 share options are in issue with a vesting period of 3 years. 417,960 of these options were issued during the period and £68,000 has been charged to administrative expenses. There is no impact on total equity since an equivalent amount is credited to the share based payments reserve.

Note 7 Reconciliation of movements in total equity

	Six months ended		Year ended
	31 March 2008	31 March 2007	30 September 2007
	Unaudited	Unaudited	Audited
	£000	£000	£000
Profit for the period	3,360	3,248	7,320
Dividends	(719)	(479)	(839)
	2,641	2,769	6,481
Movement in share based payments reserve	68	49	97
Other recognised gains and losses for the period [net]	(837)	(986)	(1,527)
Net movement on total equity	1,872	1,832	5,051
Opening total equity	10,009	4,958	4,958
Closing total equity	11,881	6,790	10,009

Note 8 Basis of preparation

(a) The accounts for the six months ended 31 March 2008 and the equivalent period in 2007 have not been audited or reviewed by the Company's auditors. They have been prepared on a going concern basis in accordance with IFRS as set out in Note 1. The interim report was approved by the Directors on 20 May 2008.

(b) The accounts for the year ended 30 September 2007 were prepared under UK GAAP and the auditors issued an unqualified opinion on them. They did not contain a statement under S237(2) of the Companies Act 1985 and were delivered to the Registrar of Companies. The comparative figures for the year ended 30 September 2007 have been audited as part of the conversion to IFRS. The comparative figures for the period ended 31 March 2007 are unaudited.

(c) The Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future.

This interim statement is being sent to all shareholders and is also available upon request from the Company Secretary, Renew Holdings plc, Yew Trees, Main Street North, Aberford, West Yorkshire LS25 3AA, or via the website www.renewholdings.com.

ENDIR SFFFMUSASEII