Renew Holdings Regulatory News (RNWH)

Renew Holdings plc

("Renew" or the "Group")

Interim results

Renew (AIM: RNWH), the Engineering Services group supporting UK infrastructure, announces its interim results for the six months ended 31 March 2019. The Group has delivered record trading in the period, in part reflecting the contribution of the acquisition of QTS in May 2018. The Board is confident that the Group's full year results will be in-line with expectations.

Financial Highlights:

*2019 adjusted results are shown prior to amortisation and the 2018 results are shown prior to amortisation and exceptional items

· Engineering Services revenue grew 25% to £281.6m (2018: £226.1m)

· Engineering Services adjusted operating profit* increasing by 48% to £19.1m (2018: £12.9m)

· Increase in Engineering Services order book to £531m (September 2018: £511m)

· Interim dividend increased by 15% to 3.83p (2018: 3.33p)

· Significant new frameworks secured in Energy and Infrastructure

David Forbes, Chairman of Renew, said: "The Group has delivered record interim results, in part reflecting the contribution of QTS which we acquired in the second half of last year. We are pleased to have increased the interim dividend by 15% consistent with our progressive dividend policy. We continue to deliver on our established strategic objectives and remain confident of reporting full year results in line with expectations."

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 90% of Group revenue and over 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 

Chief Executive's Review

Renew is a leading provider of engineering support services to critical UK infrastructure. Working in the regulated Energy, Environmental and Infrastructure markets, we have a wide range of integrated engineering capabilities and specialist knowledge of these markets, enabling our delivery of ongoing maintenance and renewals to support the day-to-day operation of these key infrastructure assets around the UK.

We are focused on engineering programmes funded by non-discretionary operating budgets. These programmes are underpinned by long-term framework agreements, providing visibility of committed funding. We have established strong, lasting relationships with key customers through our reputation for reliability and responsiveness, delivered by our highly skilled, directly employed workforce.

Group Results

The Group has seen record trading in the period, in part reflecting the contribution of QTS which was acquired in May 2018 and is now fully integrated. Adjusted1 operating profit increased 39% to £18.4m (2018: £13.2m) on revenue of £301.0m (2018: £262.2m). Adjusted1 operating margin, increased to 6.1% (2018: 5.0%). Adjusted1 earnings per share was 19.2p (2018: 16.7p). Statutory profit before income tax was £14.5m (2018: £2.4m).

In line with the Board's progressive dividend policy, the interim dividend will increase by 15% to 3.83p (2018: 3.33p) per share which will be paid on 12 July 2019 to shareholders on the register at 7 June 2019. The ex-dividend date will be 6 June 2019.

The Group's order book at 31 March 2019 was £580m (September 2018: £558m) and continues to be underpinned by a solid foundation of long-term frameworks, including significant new awards during the first half of the year.

At 31 March 2019, the Group had net debt of £17.2m which is £4.2m lower than at the previous year end, evidencing the Group's cash generation and our conservative approach to gearing.

Engineering Services

Engineering Services is the key driver of growth for the Group, and accounts for over 90% of revenue and over 95% of operating profit. Engineering Services revenue grew 25% to £281.6m (2018: £226.1m) with adjusted1 operating profit increasing by 48% to £19.1m (2018: £12.9m) with an improved operating margin of 6.8% (2018: 5.7%). The excellent revenue performance in Engineering Services was a reflection of the impact of QTS as well as strong momentum at the end of the rail Control Period 5 ("CP5") which contributed toward organic growth of 8%. At 31 March 2019, the Engineering Services order book grew to £531m (September 2018: £511m).

Energy

We support the day-to-day operation, decommissioning and maintenance of assets in the nuclear, thermal, and renewable energy markets.

Working on UK sites that command approximately 90% of the Nuclear Decommissioning Authority's c.£3bn annual expenditure2, we provide a range of long-term multidisciplinary engineering services. The largest of these facilities is the Sellafield nuclear site in Cumbria, where we remain the largest mechanical and electrical contractor. We work on programmes associated with decontamination, decommissioning and waste management through long-term frameworks including the ten-year Decommissioning Delivery Partnership programme, SR&DP Asset Care, Magnox Swarf Storage Silo, Bulk Sludge Retrieval, Bundling Spares and the Tanks and Vessels Frameworks. Our involvement on these critical workstreams positions us well for emerging opportunities in Sellafield's major new programmes.

For BAE Systems in Barrow-in-Furness, there has been an increasing demand for our engineering support to the nuclear submarine programme and the major redevelopment and upgrade of this facility. We continue to be engaged by Westinghouse at Springfields & Sizewell 'B', Low Level Waste Repository and across Magnox where we deliver mechanical, electrical & instrumentation and decommissioning packages.

In the period we have grown our nuclear client base securing our first orders for work at the new nuclear Hinkley Point 'C' facility. This involves the supply of high-integrity manufactured components from our long established specialist nuclear manufacturing facilities, positioning us strongly for future major opportunities. We have also been appointed to a major decommissioning services framework for new client Dounreay Site Restoration Limited for a term of up to seven years.

We operate at a number of the UK's thermal power stations where our embedded teams continue to deliver long-term engineering maintenance services. During the period we have seen increasing opportunities at the Drax Power Station where we operate on a four-year electrical maintenance framework.

Environmental

We support a wide range of water infrastructure assets including those across the clean and waste water networks as well as undertaking flood alleviation and coastal protection schemes.

Dwr Cymru Welsh Water ("Welsh Water") plans to increase spending on Asset Management Period 7 (2020-2025) ("AMP7") by c.15% to £2.3bn3 compared to AMP6 with improvements focusing on environmental protection and service resilience. Our existing frameworks with Welsh Water include the Pressurised Pipelines Framework, Major Civils Framework and the Capital Delivery Alliance Civils contracts. In addition to ongoing maintenance and renewals tasks across the network, we have seen increasing demand for our emergency reactive works following a number of major events on the water network. We continue to develop our capabilities in dam safety with work on major projects at Usk, Talybont and Llanishen ongoing in the period.

Wessex Water plans a record investment of £1.4bn4 over the AMP7 period focused on delivering improvements to clean water and sewerage systems. We continue to work closely with Wessex Water on the current AMP6 Civils & EMI Delivery Partners Framework.

For Bristol Water, we have completed a number of schemes in the period including support to their mains rehabilitation programme.

The Environment Agency ("EA") currently spend c.£430m on flood and coastal defences annually, however it estimates that an average annual investment of c.£1bn will be necessary up to 2065 to sufficiently mitigate flooding risk5. The Group continues to strengthen its relationship with the EA, securing the award of a further framework on the Flood and Coastal Risk Management ("FCRM") programme in the South East region. This framework now aligns with our current frameworks in the North, Central and South West Regions, which have the ability to run for the next four years. The Group secured a further extension to the EA's Northern Mechanical, Electrical, Instrumentation, Control, and Automation ("MEICA") framework to March 2020.

During the period we were awarded a Sluice Gate Renewals Framework for new client Peel Ports. Our expertise in the management of waterway assets will see us deliver this refurbishment programme over the three-year term.

In land remediation, we were awarded further projects for Harworth Estates and we continue to work on frameworks for SGN and National Grid to remediate the sites of former gas works.

We have seen increasing restoration activity associated with the Palace of Westminster where work continues on the Cast Iron Roof Restoration Framework and structural repair works to the Elizabeth Tower. Our involvement with a number of phases of work at this UNESCO World Heritage site positions us well for major long-term refurbishment programmes.

Infrastructure

As a major provider of infrastructure services to Network Rail, we deliver a wide range of multidisciplinary maintenance and renewals activities alongside an emergency support provision across the national UK's rail network.

The Government remains committed to the UK rail network with Network Rail spending £48bn6 over the current five-year funding cycle, Control Period 6 ("CP6"). CP6 will see a c.25% increase in spending on operations, maintenance, support, and renewals activities compared to CP5 with an emphasis on delivering an enhanced experience for passengers6. Our expanded range of complementary rail capabilities and national delivery provide the Group with greater opportunities within this rail investment cycle.

Network Rail recently announced a significant restructure and further devolution with the rail network managed via 5 regions and 13 routes. Operating nationally across all 13 Network Rail routes, our six-year maintenance frameworks support critical assets on the network including bridges, tunnels, viaducts and major embankments. We directly deliver our services which include civils asset management, fencing, devegetation, drainage and signalling. Frameworks renewed in the period include our five-year drainage frameworks and our national eight-year Road Rail Vehicle ("RRV") framework.

In the period we successfully secured all the CP6 renewals frameworks that we tendered for, maintaining our positions from CP5. This includes the five-year Geotechnical & Earthworks framework and the five-year Multidisciplinary Renewals Framework in the Scotland North East region. In addition, the Group continues to operate on the new national Station Information and Surveillance Services and Telecommunications Renewals frameworks.

Working for London Underground, the Group delivered major depot refurbishment schemes in the period as well as specialist electrical, plant and power schemes through five framework agreements. We have also been awarded the first of five schemes on London Underground's Depot Control System Programme.

Operating as a strategic partner to SPL Powerlines on the Midland Mainline Electrification Programme we have seen our scope grow as the scheme moves into its second phase.

In wireless telecoms, investment in 4G continues to provide good momentum. We continue to see a significant increase in work through Telefonica's frameworks in the North and London. In addition to infrastructure enhancements, we also delivered emergency reactive works for our clients across a wide portfolio of sites. Work is progressing well on the national Emergency Services Network programme and for BT link.

In the period we were also appointed to our first 5G related programme, an area where we see long-term opportunities on the next phase of mobile communications technologies.

Specialist Building

We remain focused on the High Quality Residential market in London and the Home Counties where we specialise in major structural engineering works. In the period, the Group was awarded a number of contracts for repeat clients in the science sector where we continue to be selective and have a long-established track record.

Revenue reduced to £19.4m (2018: £35.3m) in line with Group's expectations and continued focus on contract selectivity and risk management. Operating profit was £0.3m (2018: £0.9m), with an operating margin of 1.5% (2018: 2.5%). In Specialist Building, the order book was £49m (September 2018: £48m).

Board Changes

On the 8 February 2019, Renew was pleased to announce the appointment of Shatish Dasani as a Non-Executive Director and Chairman of the Audit Committee succeeding John Bishop who retired from the Board at the same time. Shatish is a Chartered Accountant with over 20 years' experience in senior public company finance roles across various sectors including building materials, advanced electronics, general industrial and business services.

Outlook

Renew continues to focus on providing engineering support services to the UK's critical Energy, Environmental and Infrastructure markets. The Group has a growing customer base and holds strong positions in its chosen markets, which provides good visibility of long-term opportunities. These regulated markets benefit from non-discretionary maintenance and renewal programmes and, as such, investment is unlikely to be affected by Brexit.

The Group's appointment to a number of key Network Rail CP6 frameworks in the period demonstrates the strength of the Group's position within the UK Rail market and provides significant opportunity for organic growth. It remains the Group's strategy to grow its Engineering Services business both organically and through selective, earnings enhancing acquisitions.

The Board is confident that the Group's full year results will be in-line with its expectations and that it will continue to deliver on the established strategic objectives.

Paul Scott

Chief Executive

21 May 2019

 Notes:

1 2019 adjusted results are shown prior to amortisation and the 2018 results are shown prior to amortisation & exceptional items

2 NDA Business Plan 1 April 2019 to 31 March 2022 (March 2019) 

3 Dŵr Cymru Welsh Water Our Plan PR19 Business Plan 2020-2025 

4 Wessex Water Business Plan 2020-2025

5 Environment Agency Research and analysis Long-term investment scenarios (LTIS) 2019 (Updated May 2019)  

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

*Operating profit for the six months ended 31 March 2018 is stated after charging £9,923,000 of exceptional items and £552,000 of amortisation cost (see Note 3).

** The prior year comparatives have been restated to be consistent with the reclassification of a discontinued business in the audited accounts for the year ended 30 September 2018.

Condensed consolidated statement of comprehensive income 

for the six months ended 31 March 2019 

Condensed consolidated statement of changes in equity

for the six months ended 31 March 2019

Condensed consolidated balance sheet

at 31 March 2019

Condensed consolidated cashflow statement

for the six months ended 31 March 2019

** The prior year comparatives have been restated to be consistent with the reclassification of a discontinued business in the audited accounts for the year ended 30 September 2018.

Notes to the condensed consolidated accounts

1. Basis of preparation

(a) The condensed consolidated interim financial report for the six months ended 31 March 2019 and the equivalent period in 2018 has not been audited or reviewed by the Group's auditor. It does not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006. It has been prepared under the historical cost convention and on a going concern basis in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The report does not comply with IAS34 "Interim Financial Reporting", which is not currently required to be applied for AIM companies and it was approved by the Directors on 21 May 2019.

(b) The accounts for the year ended 30 September 2018 were prepared under IFRS and have been delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or (3) of the Companies Act 2006. In this report, the comparative figures for the year ended 30 September 2018 have been audited. The comparative figures for the period ended 31 March 2018 are unaudited.

(c) For the year ending 30 September 2019, 2 new accounting standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, which have been adopted by the EU, applied and have been implemented for the condensed consolidated interim financial report. The accounting policies adopted in the preparation of the condensed consolidated interim financial report are consistent with those adopted in the Group's accounts for the year ended 30 September 2018 except for the impact of IFRS 15. The adoption of IFRS 9 from 1 October 2018 did not result in adjustments to the amounts recognised in the financial statements. The Group has no hedging transactions.

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces IAS 11 Construction contracts and related interpretations. IFRS 15 introduces new concepts for revenue and cost recognition. Unlike IAS 11 there is no automatic right to recognise revenue on a progressive basis for construction contracts. Progressive revenue recognition is only permitted where the contractual rights and obligations satisfy certain criteria. The Group's revenue qualifies to be recognised over time, and the series of distinct performance obligations carried out under framework agreements has resulted in no change to revenue recognition. The Group has adopted IFRS 15 using the input method with the effect of applying this standard recognised at the date of initial application (1 October 2018). As noted above, IFRS 15 has had no impact on the timing of revenue recognition recognised by the Group, and so the comparative figures in the financial statements are unchanged as a consequence of the transition to the new standard.

(d) The principal risks and uncertainties affecting the Group are unchanged from those set out in the Group's accounts for the year ended 30 September 2018. The Directors have reviewed financial forecasts and are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the condensed consolidated interim financial report.

This condensed consolidated interim financial report is being sent to all shareholders and is also available upon request from the Company Secretary, Renew Holdings plc, 3175 Century Way, Thorpe Park, Leeds, LS15 8ZB, or via the website www.renewholdings.com.

 2. Segmental analysis

Operating segments have been identified based on the internal reporting information provided to the Group's Chief Operating Decision Maker. From such information, Engineering Services and Specialist Building have been determined to represent operating segments.

*Revenue for the six months ended 31 March 2018 is stated after eliminating £853,000 of joint venture income. Reclassification of a small subsidiary from Specialist Building to Engineering Services has resulted in a corresponding reclassification of the comparative segment analysis.

*Operating profit for the six months ended 31 March 2018 is stated after charging £9,923,000 of exceptional items and £552,000 of amortisation cost (see Note 3). Reclassification of a small subsidiary from Specialist Building to Engineering Services has resulted in a corresponding reclassification of the comparative segment analysis.

3. Exceptional items and amortisation of intangible assets

4. Loss for the period from discontinued operations

5. Income tax expense

6. Earnings per share

The dilutive effect of share options is to increase the number of shares by 436,000 (March 2018: 391,000; September 2018: 380,000) and reduce the basic earnings per share by 0.09p (March 2018: (0.02)p; September 2018: 0.06p). 

7. Dividends

The proposed interim dividend is 3.83p per share (2018: 3.33p). This will be paid out of the Company's available distributable reserves to shareholders on the register on 7 June 2019, payable on 12 July 2019. The ex-dividend date will be 6 June 2019. 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.