Renew Holdings Regulatory News (RNWH)

Renew Holdings plc

("Renew" or the "Group")

Preliminary results for the year ended 30 September 2010

Renew, the Specialist Engineering and Construction Services group, announces pretax profits of £4.6m prior to exceptional items and amortisation charges together with a 50% increase in the order book to £304m. The annual dividend is maintained at 3.0 pence.

Financial Highlights

Operational Highlights

·; Specialist Engineering revenue up 11% to £127.4m (2009: £114.8m)

·; Specialist Engineering now accounts for 44% of Group revenue (2009: 36%)

·; Group order book at 30 September up 50% to £304m (2009: £202m)

·; 70% of 2011 revenue secured (2009: 59%)

·; Debt free balance sheet and strong net cash balance of £16.2m (2009: £14.6m)

·; Final dividend of 2.0p declared, annual dividend maintained at 3.0p (2009: 3.0p)

R J Harrison OBE, Chairman, commented:

"The Group has made good progress during the year in moving the balance of Group revenue further towards Specialist Engineering in line with our strategy. Our strong order book, debt free balance sheet and healthy cash position provides confidence that the Group will deliver growth in both revenue and profits in 2011."

23 November 2010

Enquiries:

Chairman's Statement

Introduction

In what has been a further period of economic challenges, I am pleased to report satisfactory operating results for the year in line with expectations.

It is our well established strategy to move the balance of Group revenue to Specialist Engineering, which now accounts for 44% compared with 15% four years ago. This strategy remains valid with both revenue and profit from Specialist Engineering having increased annually over the past four years.

Results

Group revenue for the year ended 30 September 2010 was £290.4m (2009: £316.6m). Profit before income tax for the year prior to exceptional items and amortisation charges was £4.6m (2009: £5.5m). Profit after tax, exceptional items and amortisation charges was £2.7m (2009: £0.4m).

The Group remains debt free and at 30 September 2010, the Group's net cash position was

£16.2m (2009: £14.6m).

Specialist Engineering revenue increased by 11% to £127.4m (2009: £114.8m) and operating profit prior to exceptional items and amortisation charges increased by 4% to £4.2m (2009: £4.0m).

In Specialist Building revenue reduced in the year to £163.1m (2009: £202.4m) with operating profit prior to exceptional items and amortisation charges of £1.8m (2009: £2.5m).

The Group's contracted order book at 30 September 2010 increased by 50% to £304m (2009: £202m) and includes 70% of revenue secured for 2011 (2009: 59%). 87% of orders received were in our specialist sectors with 63% of engineering orders in regulated sectors.

Office of Fair Trading Investigation

The result of our appeal remains outstanding and during the year an exceptional charge of £0.3m has been incurred in respect of legal costs.

Dividend

The Board is proposing to maintain the final dividend at 2.0p per share. This will provide an annual dividend of 3.0p (2009: 3.0p). The dividend will be paid on 24 February 2011 to shareholders on the register as at 28 January 2011.

Strategy

Our strategy remains to focus on two distinct business streams, Specialist Engineering and Specialist Building, progressively moving the balance of Group revenue towards Specialist Engineering. Our aim is to increase revenue in Specialist Engineering both organically and by acquisition, whilst maintaining operating margins of 3% to 4%. In Specialist Building we aim to maintain profitability of at least 1% at the operating level with a longer term target of 2% as and when markets improve.

In Specialist Engineering, the Group seeks to exploit its specialist skills in a range of industries which offer sustainable earnings opportunities and have high barriers to entry.

In Specialist Building, our focus will remain on selectively accessing opportunities in targeted markets where we have knowledge and experience both of our client and of similar projects.

These operational strategies combine to reduce risk and to enhance quality of earnings. Our medium term objective is to develop a Specialist Engineering and Construction Services Group with overall operating profits of over 2% and with Specialist Engineering providing at least 50% of Group revenue by 2012.

Outlook

The Board's analysis of the impact of the Comprehensive Spending Review on our activities is that it will be limited. After taking this into account, the Board remains confident that the Group will continue to deliver a resilient performance in the medium term and is positioned to take advantage of opportunities when economic conditions improve.

Renew is well positioned with a debt free balance sheet, substantial cash resources and a strong confirmed order book. As a result, the Board expects that the Group will return to growth in both revenue and operating profits in 2011.

R J Harrison OBE

Chairman

23 November 2010

Chief Executive's Review

Operational Strategy

During 2010, we have continued to move the balance of the Group's activities towards its Specialist Engineering business stream, where revenue increased by 11% and now accounts for 44% of Group revenue, compared to 36% in 2009. Margins remained within our target range at 3.3%. 

The Specialist Engineering markets in which the Group operates offer higher margins than Specialist Building and engage our skilled workforce in industries which are mainly governed by regulation. Consequently, our Specialist Engineering activities have greater security of funding and more predictable work streams.

It remains the Group's strategy to expand Specialist Engineering activities both organically and by acquisition and we continue to look for suitable, complementary acquisitions. The focus of our acquisition strategy is to identify businesses with specialist skills operating in stable markets in regulated industries such as environmental, energy and transport. We are highly selective in our evaluation of acquisitions and look for business drivers which are not dependent on large capital programmes but have sustainable qualities incorporating non-discretionary and maintenance spend characteristics.

In Specialist Building, the Group targets markets appropriate to our skills and experience with contract selectivity part of a rigorous risk management approach. This business stream has been impacted by the economic recession over the last two years and during 2010 revenue reduced by 19%. Operating margins stabilised at 1.1% and the forward order book is strong with 75% of orders in projects with funding from private sources.

Comprehensive Spending Review

Although it may be several months before the detail of the Comprehensive Spending Review is finalised, we expect its impact on the activities of the Group to be limited.

In our Specialist Engineering business, the Nuclear budget has been reconfirmed. In Rail, where we operate primarily in the Greater London area, the Government remains committed to the maintenance and development of the rail and underground networks. Our Water and Land Remediation activities are not affected.

In our Specialist Building business, the Government has retained its ambition to construct 150,000 new build social housing units per annum. The lifting of the rent cap is expected to liberate the financial constraints under which several of the Housing Associations operate and we expect that the demand for new build social housing in the South East, which is the only geographic area in which we carry out this activity, will continue. Our order book in this business is also particularly strong.

The other markets which we target in Specialist Building are largely privately financed other than some school programmes within Science and Education. Our exposure to the public sector in this area is already limited and we do not foresee a material impact on our operations.

Specialist Engineering

Nuclear

Shepley Engineers continues to be active at five nuclear facilities and remains the largest mechanical and electrical contractor at Sellafield. Shepley operates in the fields of both asset support and decommissioning, concentrating on high hazard programmes carrying regulated mandates and therefore sustainable funding. 

During the year, work continued on the Multi Discipline Site Wide framework. Two new frameworks for decommissioning and bundling spares at Sellafield were also awarded. The integrated supply model offered by the Group is becoming increasingly important, demonstrated by an order for flask maintenance platforms which involves Shepley Engineers, West Cumberland Engineering, Mothersill Engineering and PPS Electrical.

The Group has been successful in securing a key supply position on a number of large programmes at Sellafield including the Evaporator D, Encapsulated Product Store, B30 and Separation Area Ventilation projects with total orders received during the year of £30m. Each of these projects involves the provision of an integrated service response.

The order book in Nuclear is some 71% higher than one year ago providing strong visibility for 2011 in this high quality earnings stream.

Water

The Group has extensive experience in water infrastructure development and maintenance, flood alleviation, sea defences, mechanical and electrical installations, steel fabrications, pumping and sewerage systems for a range of industries. 

Seymour's largest client is Northumbrian Water ("NWL"), the eighth largest water company measured by investment spend, for which it carries out work on four frameworks. In the year Seymour was awarded a fifth clean water framework and is in the final stages of the process to be reappointed to the AMP5 framework. Flood alleviation and combined sewer overflows continue to feature strongly with £14m of orders received in the year from NWL. In addition the Group has framework agreements with Scottish Water and Severn Trent. The Group has seen a 6% increase on forward orders in the Water sector.

Land Remediation

Remediation continues to provide opportunities and during the year the £6m project to remediate the site of the Commonwealth Games Athletes Village in Glasgow, one of the largest remediation projects in Scotland, was completed. The £15m Cudworth Bypass contract, the fifth contract for Barnsley MBC, was also completed ahead of programme and under budget.

During the year the framework with National Grid was extended. This offers the opportunity for growth ahead of the ending of Landfill Tax Exemptions in March 2012. Recent awards include the Partington Hub and Cluster project for the remediation of four former gasworks sites. We are also preferred bidder on the St Helier Gasworks project in Jersey, due to commence in December.

Rail

The Group continues to expand its customer base delivering rail infrastructure projects in the year for Network Rail, London Underground, CTRL and Southern Railways. Good progress was made on station modernisation schemes at Marble Arch and Notting Hill Gate, which have a combined value of over £30m. YJLi has recently been awarded a contract to undertake Ground Penetrating Radar surveys for Network Rail at Reading Station. This is one of the first packages to be let on the major redevelopment of this station.

Our principal market in Rail is within London and the Home Counties where there are over 700 stations and 30 depots. Security of funding for rail projects is more certain in this area following the Comprehensive Spending Review and subsequent announcements from the Mayor of London, which underpin our optimism that the rail market will continue to offer opportunities.

Specialist Building

Social Housing

As one of the leading new build social housing contractors in the South East, we have continued to receive awards recognising our reputation for quality, delivery, innovation and value engineering and we are at the forefront of developments on environmental, sustainability and energy saving issues. 

Allenbuild has a position on eight frameworks with Housing Associations, which provide access to an annual £500m market. During the year £94m of orders were received, securing 100% of planned revenue for 2011 and 2012. These include a £14m project for Metropolitan Housing at Hertford Road, a £21m project at Windmill Park for Notting Hill Home Ownership and the £14m Pitsea London development for the Genesis Housing Group. 

Restoration and Refurbishment (High Quality Residential)

The Group's activity in Restoration and Refurbishment has transitioned over the last two years to concentrate almost exclusively on the High Quality Residential market in London. Walter Lilly remains a preferred contractor for consultants in this sector which is primarily funded by wealthy private individuals and long established London freehold estates. The outlook in this market remains strong with 75% of revenues for 2011 secured and £150m of further opportunities identified. Our particular skills in providing innovative solutions to the temporary works challenges in extending properties underground, a major requirement for most high quality residential projects in London, provides a differentiator and ensures our early involvement.

Awards included further works at Grosvenor Crescent and a major project in Mayfair. Work is progressing well on both these contracts and their combined value has increased since initial award to in excess of £100m. Walter Lilly is also preferred bidder on a further £34m project in Belgravia for a private client.

Science and Education

Our major award this year was the £45m Kirklees College Waterfront Campus. This contract, which includes substantial engineering works, is making good progress and is due for completion in July 2012. 

We secured our first project via the YORbuild Construction framework, with the award of the Sixth Form Centre at Ridgewood School, Scawsby for Doncaster Council. Further work was carried out for GlaxoSmithKline continuing our 18 year relationship. The long association with Defra continued with the Virology Containment Facility being completed in the year.

Retail

Work in the retail sector has increased with projects secured for Tesco at Risca, South Wales, Portland, Dorset and at Sandwell in the West Midlands. In the North West work is underway on a new Neighbourhood Centre at Kensington, Liverpool and in the North East an award was received for the refurbishment of the Market Street Arcade in Leeds.

People

Keeping our employees and those who work with us safe remains the Group's priority and I am pleased that 2010 has seen us further reduce our Accident Incidence Rate by 26%, which represents a 74% reduction over the last four years. 

The economic environment remains tough, so the achievements of the Group during these challenging times are a testament to the skills, resilience, hard work and commitment of every employee for which the Board would like to express its sincere thanks.

Summary

Challenging economic conditions endure in the industry with a number of high profile businesses having recently suffered financial difficulties. Throughout the recession, the Board has sought to act swiftly to reduce the Group's cost base when necessary and we are continually alert to any changes in market dynamics which can affect our operating efficiency.

Renew enters the new financial year with a strong, contracted order book of £304m. The Group remains appropriately sized for today's market and it is both profitable and cash generative. Our strategy is sound and I am confident that the Group has a robust platform from which to grow in 2011 and beyond.

Brian May

Chief Executive

23 November 2010

Group income statement

For the year ended 30 September 2010

Group balance sheet

At 30 September 2010

Group cash flow statement

For the year ended 30 September 2010

Notes

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2010 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's businesses are organised into two operating segments which form the basis of the segment information reported below. These segments are:

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:

Specialist Engineering, 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.

3 Exceptional items and amortisation of intangible assets

The Board has determined that certain charges to the income statement should be separately identified for better understanding of the Group's results.

In 2009, the Group provided for a fine of £500,000 in connection with the decision of the Office of Fair Trading following its investigation into tender activities within the construction sector. The related offences occurred in 2003 and 2004 in part of the Group which has since been closed. In the year ended 30 September 2010 the Group has incurred £251,000 of legal fees in connection with the Group's appeal against this decision. The outcome of the appeal remains outstanding.

The Board has also separately identified the charge of £320,000 (2009: £309,000) for the amortisation of the fair value ascribed to certain intangible assets other than goodwill arising from the acquisitions of Seymour (C.E.C) Holdings Limited and C.&A. Pumps Limited.

4 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 2.0p per Ordinary Share be paid in respect of the year ended 30 September 2010. This will be accounted for in the 2010/11 financial year.

6 Earnings per share

The dilutive effect of share options is to increase the number of shares by 2,685,000 (2009: 1,453,000) and reduce basic earnings per share by 0.20p (2009: 0.01p).

7 Preliminary financial information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2010 or 2009. The financial information for 2009 is derived from the statutory accounts for 2009 which have been delivered to the Registrar of Companies. The auditors have reported on the 2009 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors 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 2010 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.

8 Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 30 September 2010 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.renewholdings.com