Van Elle Regulatory News (VANL)

Van Elle Holdings plc

Preliminary Results for the year ended 30 April 2017

Van Elle Holdings plc ("Van Elle", the "Company" or the "Group"), the AIM quoted geotechnical engineering contractor offering a wide range of ground engineering techniques and services to customers in a variety of UK construction end markets, announces its preliminary results for the year ended 30 April 2017.

Highlights

* before share-based payments and exceptional costs

Summary highlights

· Successful first year on the market, delivering record revenue and underlying operating profit

· Group revenue increased by 11.8% to £94.1m (2016: £84.2m), with growth in all four divisions

· Robust operational performance and impact of sales mix delivered gross margin of 35.5% (2016: 36.1%)

· Underlying EBITDA increased by 12.9% to £16.3m (2016: £14.4m)

· Underlying operating profit increased by 4.6% to £11.6m (2016: £11.1m) reflecting sales mix effect and overhead investment

· Progress in delivering the growth strategy - increasing the service offering with new techniques, rigs and geographical presence

· Strong balance sheet with net debt at 30 April 2017 of £1.5m (2016: £8.3m)

· The Board is pleased to recommend a final dividend of 1.75p per share (total dividend of 2.60p per share)

· Trading in the new financial year has started well and is in line with the Board's expectations

Jon Fenton, Chief Executive, commented:

"We are delighted to announce these results reflecting record turnover and underlying operating profit in our maiden year as a quoted company. This year will stand out as transformational in the development of Van Elle with the admission to AIM giving the Company an elevated platform from which to drive the business forward.

Looking ahead, we continue to actively monitor conditions in our core markets and, whilst mindful of the risks posed by any sustained period of political or economic uncertainty, we are cautiously optimistic for further progress in the year ahead."

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Chairman's statement

I am delighted to announce, on behalf of the Board of Van Elle Holdings plc, a positive set of results for the year ended 30 April 2017. This is the first full year statement following the successful Initial Public Offering ("IPO") on the Alternative Investment Market ("AIM") of the London Stock Exchange in October 2016.

Van Elle's equity story, which centred around the Company's leading position in the UK, its differentiated offering and attractive end markets, supported by a strong financial profile, a well-invested platform and a strategy for growth, was well received by investors.

Although we have only been a quoted company for a short time, I believe that we have made much progress across the business and confidence is high. It is thanks to the hard work put in by our talented management team, as well as those working across and within the business, that we could make this progress and create the foundation from which to continue to grow our operation.

Highlights

I am pleased that in our maiden results as a quoted company Van Elle has reported an 11.8% increase in revenue to £94.1m (2016: £84.2m) and an underlying operating profit of £11.6m (2016: £11.1m), representing a record year and continuing our impressive year-on-year profitable growth.

These results reflect our continuing strategic drive to focus on growth markets, enabled by targeted investment in specialist rigs, expansion of our precast concrete manufacturing capabilities and further expansion of our geographical footprint in Scotland, serviced by a dedicated facility at Blantyre, Glasgow.

The IPO in October 2016, together with the funds raised, strengthens our balance sheet and gives us the flexibility to invest in new equipment and consider acquisitions that complement our strategy for growth.

As a company, we have worked hard to bring together a team that has the right combination of sector knowledge and corporate experience to enable us to deliver on our vision and strategy.

Dividend

As a quoted company, one of our key ongoing objectives is to create shareholder value. The Board has adopted a progressive dividend policy and, having paid an interim dividend of 0.85p, is recommending a final dividend of 1.75p, making a total of 2.6p for the financial year.

Board and governance

On behalf of the Board, I would like to express our thanks to Michael Ellis who retired from the Board in December 2016. Michael, along with his wife Joan, founded the business some 33 years ago and their contribution during that time has been invaluable. Michael and Joan created the high-quality company that Van Elle now is and I would like to wish them a happy retirement.

I am delighted to follow Michael Ellis as Chairman of Van Elle Holdings plc and I am joined by Robin Williams as Senior Independent Director. Robin chairs the Audit Committee and sits on the Remuneration and Nomination Committees, both of which I chair. We are joined on the Board by the two Executive Directors: Jon Fenton as Chief Executive Officer and Paul Pearson as Chief Financial Officer. The Board intends to recruit a further Non-Executive Director to broaden the experience and support offered to the Company during the new financial year.

I would also like to thank Thomas Lindup, who left the Board as Executive Director in March 2017. Thomas joined the Company in 2015 and helped steer the Group through its successful IPO in October 2016.

As a board, we are committed to promoting the highest standards of corporate governance and ensuring effective communication with shareholders. We intend to apply the UK Corporate Governance Code as far as it is appropriate for a Company of its size.

People

Van Elle has an outstanding group of employees and we continue to place great importance on their engagement. Our objective is to provide opportunities for development, personal growth and successful careers with the Company.

All our staff have gone through a year of significant change. They have coped admirably and delivered an excellent result. On your behalf and on behalf of the Board, I wish to formally record our thanks.

Outlook

The fundamental market drivers for our business look positive in the short and medium terms. The order book remains in line with our expectations and we are well placed in each of our markets.

This is an exciting time to be part of Van Elle as we seek to build on the performance outlined in these accounts. As a profitable and fast-growing geotechnical engineering company, I am confident that the Company has an exciting year ahead. The Board looks forward to meeting shareholders at the AGM on 12 September 2017.

Adrian Barden

Chairman

25 July 2017

Chief Executive's review

This year will stand out as being transformational in the development of Van Elle. We successfully joined AIM, the junior market of the London Stock Exchange, on 26 October 2016 after extensive preparations. This step is important for the Group as not only does it give us access to equity capital markets as we seek to grow the business, but it has also resulted in enhanced governance and improved discipline, which we implemented in preparation for our IPO.

You have already heard from our Chairman on the appointments to the Board. I would also like to echo the words of our Chairman and take this opportunity to thank our founders, Michael and Joan, for their vision and hard work over the last 33 years and to reassure them that the business is in safe hands as they enjoy their well earned retirement.

Delivering the strategy

Van Elle's strategy can be framed, quite simply, as "Driving Profitable Growth". We aim to grow the business by broadening our range of products and services and extending our geographical footprint into high-growth markets. This will be achieved both organically and selectively through acquisitions.

Capital investment has been a key driver of our growth with a further £11.8m spent in the current year bringing the total to £31.5m over the last three years. Our rig fleet now stands at 111 rigs (2016: 98 rigs) and we believe that Van Elle has the broadest and most modern range of specialist piling rigs in the market.

Following our successful move into rail infrastructure and after swiftly becoming one of the sector's leading on-track ground engineering specialists, we have recently completed works on our new test track located at our Kirkby-in-Ashfield site. As one of the largest privately owned specialist facilities in the country, it is designed to enable us to test equipment, develop new techniques and practice for complex projects. There is no other UK specialist putting such time and resource into developing innovative solutions for the UK's rail network.

As part of our continued development, the Group is launching its own training academy to deliver an unequalled standard of training to all industry professionals and companies. Our brand new state-of-the-art, purpose-built training facility is due for completion late summer 2017.

To extend our geographical footprint, we have recently invested in a new factory, offices and a maintenance depot in Blantyre near Glasgow. We often work on large schemes in Scotland and manufacturing our Smartfoot® precast ground beams locally will ensure that mobilisation costs are minimised whilst also delivering environmental benefits, which is key for our housebuilding partners. We are always looking for ways in which we can improve and we see this commitment to Scotland as the next step in delivering a truly comprehensive service for years to come.

We continue to pursue acquisition opportunities and discussions are ongoing with several interested parties. We have discounted certain targets due to unrealistic price expectations and lack of fit; however, there remains a positive pipeline of good opportunities.

Trading performance

I am pleased that we successfully grew revenues by 11.8% in the year to £94.1m (2016: £84.2m), our fourth successive year of double-digit revenue growth. UK construction output grew by 2.2% for the same period, reflecting our view that we continue to grow our market share. We also maintained our record of profitable growth since 2010.

In terms of our performance in the end markets, sales to the housebuilding sector were up 24.4% to £42.5m (2016: £34.2m) and infrastructure sector were up 17.3% to £28.9m (2016: £24.6m). Sales to the commercial and industrial sector reduced by 17.0% to £18.8m (2016: £22.7m) which was, in part a reflection of some short term market uncertainty and the deferral or cancellation of several projects but also reflects the completion of several large education and retail projects by the Company in the previous year. The ability to redirect resources to reflect short term trends in our markets is a key strength of the business, mitigating the impact of a slow down in any one sector.

As we reported in March 2017, the Group experienced a challenging period in its rail business during the fourth quarter with the start dates for several contracts delayed and expected call-off and work distribution schedules revised. Whilst we have seen some encouraging signs of stabilisation in the market, and remain confident in the long term structural growth opportunity in rail, we are remaining cautious as to the near term outlook for the sector.

Operating performance

Sales have grown in each of our operating segments, with a particularly strong performance in Ground Engineering Products, up 71.2% to £10.4m (2016: £6.1m). This has been driven by a significant increase in demand for Smartfoot® as well as additional precast concrete products and our additional investment in manufacturing capacity has enabled this demand to be met.

Sales growth was also strong in Specialist Piling, up 16.6% to £30.1m (2016: £25.8m), enabled by our investment in several specialist rigs and equipment during the year. The restricted access business performed strongly, including securing its largest ever contract at Eden Brows. The division's profit result though was adversely impacted by the weaker-than-expected performance in the higher margin rail business during the fourth quarter.

General Piling has seen sales growth in the year, up 1.9% to £42.9m (2016: £42.1m), a result of the healthy housebuilding sector offset by reduced demand for industrial and commercial work. Divisional gross margin remained strong at 32% (2016: 31%), reflecting the Group's ability to deliver a large number of contracts across a broad range of end markets, achieving good returns through its long-standing and effective operational model.

Ground Engineering Services has increased its sales by 4.6% to £10.6m (2016: £10.2m), boosted by the establishment of a stand-alone operation in Scotland during January 2017.

Outlook

Trading in the new financial year has started well and is in line with our expectations. We are seeing opportunities with each of our markets as we continue our strategy of broadening our range of products and services. We continue to actively monitor conditions in our core markets and, whilst mindful of the risks posed by any sustained period of political or economic uncertainty, we are cautiously optimistic for further progress in the year ahead.

I continue to believe that, with our growth strategy described above, Van Elle is well positioned to deliver further value to shareholders in the year ahead.

Jon Fenton

Chief Executive Officer

25 July 2017

Financial Review

Revenue

The Group continued its strong revenue growth during the year. Revenue for the year ended 30 April 2017 was £94.1m (2016: £84.2m), which represented an increase of 11.8%. Our business continues to be weighted towards the second half of the year as shown below:

Group results are seasonally weighted to H2 due to work patterns over the Christmas and Easter holiday periods, particularly in the infrastructure sector. Weighting is most pronounced in the highest margin Specialist Piling division which has an additional impact on the split of profit. This year saw the seasonal weighting further impacted by a lower level of rail infrastructure activity year on year in Q1 as well as a strong Q3 that saw delivery of the Eden Brows contract for £5.4m, alongside an active rail sector.

Our strategy is to direct our resources and investment into growth markets and, by tracking enquiry levels by end market, this acts as a barometer for identifying trends and targeting our activities into the growth areas. The mix of revenue by end markets is shown below:

New housing, infrastructure and public sector continued to generate growth with strong revenues in this year's sales mix buoyed by the healthy housing market and the Government's investment in the country's infrastructure networks. The commercial and industrial revenues fell year on year as 2016 benefited from several significant contracts for retail developments and student accommodation units in the education sector, boosting performance.

The mix of revenue by our divisions is shown below:

The changing mix reflects our focus on growth markets as well as our ability to focus resources where we feel the best opportunities lie. We have targeted investment into several specialist rigs and equipment during the year and this will be our continuing strategy into the medium term.

Our investment in our production capabilities has increased our capacity to meet demand from the housebuilders for Smartfoot® modular beams and internal demand for precast piles, reducing our reliance on the supply chain. The returns can be seen in our growth in Ground Engineering Products revenues.

Gross profit

The gross margin of the Group has reduced slightly to 35.5% (2016: 36.1%), reflecting sales mix changes due to reduced rail activity in Q4. The delay and restructuring of several contracts prior to the year end adversely impacted utilisation of our RRV rigs which had a consequent impact on divisional overhead recovery. The variability of timing of contracts in the rail sector is unfortunately a feature of Government-backed infrastructure spend and one that we are mindful of and will continue to monitor closely going forward.

Operating profit

The strong revenue performance has translated into strong underlying EBITDA growth during the year. Our EBITDA, before exceptional IPO costs and share-based payment charges, for the year ended 30 April 2017 was £16.3m (2016: £14.4m), which represented an increase of 12.9%.

Our underlying EBITDA margin has improved marginally to 17.3% (2016: 17.1%) despite the sales mix impact of reduced rail activity and an investment in overheads to facilitate our year on year growth strategy. Consequently, our underlying operating margin has reduced slightly to 12.3% (2016: 13.1%).

Exceptional costs

Exceptional items, by their size, incidence or nature, are disclosed separately to allow a better understanding of the underlying performance of the Group. During the year, exceptional items of £1,781,000 were incurred in respect of the IPO of the Company on 26 October 2016 and legal costs associated with post IPO claim and settlements (see note 4).

The Board believes that the underlying performance measures for operating profit, EBITDA and EPS, stated before the deduction of exceptional items and share-based payment charges, give a clearer indication of the actual performance of the business.

Net finance cost

Net finance costs were £422,000 (2016: £333,000) and interest was covered 23.0 times (2016: 33.2 times). This increase reflects the targeted capital investment expenditure over the last couple of years funded by hire purchase lease contracts. The hire purchase contracts are at fixed rates of interest and normally for a five-year term.

Taxation

The effective tax rate for the year was 20.8% (2016: 21.2%). The decrease in effective tax rate from the previous year is principally due to the adjustment in respect of prior year charges mitigated by exceptional IPO costs of £1,348,000 being disallowed for tax purposes. The tax charge includes a deferred tax credit of £40,000 arising due to substantively enacted reductions in the rate of corporation tax to 17% by April 2020.

The Group has paid £2,281,000 (2016: £1,748,000) of corporation tax during the year.

Contingent liability

Our interim announcement referenced a possible liability relating to material bonus payments allegedly due to a former employee pursuant to historic employment arrangements. Having robustly rejected that any such liability exists, the Board has now been informed by solicitors acting for the former employee, that he no longer wishes to pursue the claim.

Dividends

The Board has adopted a progressive dividend policy. On 28 February 2017, the Company paid an interim dividend of 0.85p per share. The Board is now recommending a final dividend of 1.75p per share making a total dividend of 2.60p per share for the financial year.

Subject to approval at our Annual General Meeting of shareholders on 12 September 2017, the recommended final dividend will be paid on 29 September 2017 to shareholders who are on the register on 22 September 2017.

Earnings per share

The underlying basic earnings per share was 12.1p (2016: 12.1p), based on underlying earnings of £9,125,000 (2016: £8,445,000). Underlying earnings are stated after adding back £1,781,000 of exceptional IPO costs, £77,000 of share-based payment charges and deducting tax arising on exceptional charges of £86,000.

This flat performance in underlying earnings per share reflects the consequences of the additional funds raised on IPO to fund future acquisitions with no acquisitions having been completed in the period.

Capital structure and allocation

The Group's capital structure is kept under constant review, taking account of the need for, and availability and cost of, various sources of finance.

The Group's objective is to deliver long-term value to its shareholders whilst maintaining a balance sheet structure that safeguards the Group's financial position through economic cycles. In this context, the Board has established clear priorities for the use of capital. In order of priority these are:

· to fund profitable organic growth opportunities;

· to finance bolt-on acquisitions that meet the Group's investment criteria;

· to pay ordinary dividends at a level which allows dividend growth through the cycle; and

· where the balance sheet allows, to deploy funds for the benefit of shareholders in the most appropriate manner.

Balance sheet summary

The Group has increased net assets by £15.6m to £36.3m (2016: £20.8m) during the year. This increase is partly due to the issue of shares on IPO, raising net funds of £8.8m to finance future acquisitions, and the balance is retained profit from robust underlying trading for the year.

The Group continues to invest in specialist rigs to drive growth in our chosen markets, as well as continuing to invest in our facilities with capital expenditure of £11.8m in the year and a corresponding annual depreciation charge of £4.7m.

The ROCE has decreased in the period to 30.6% at 30 April 2017 (2016: 38.0%), reflecting the additional capital expenditure investment during the year.

Analysis of net debt

Net debt has reduced by £6.9m to £1.5m at 30 April 2017, reflecting the net cash inflow from the additional shares issued as part of the IPO of £8.8m, and the movement in hire purchase obligations.

Cash flow summary

The Group has always placed a high priority on cash generation and the active management of working capital. Cash generated from operations was £13.1m (2016: £11.4m), representing 92% of EBITDA (2016: 80%).

Paul Pearson

Chief Financial Officer

25 July 2017

Consolidated statement of comprehensive income

For the year ended 30 April 2017

All amounts relate to continuing operations. There was no other comprehensive income in either the current or preceding year.

Consolidated statement of financial position

As at 30 April 2017

Consolidated statement of cash flows

For the year ended 30 April 2017

Consolidated statement of changes in equity

For the year ended 30 April 2017

Notes to the preliminary results

For the year ended 30 April 2017

1. Basis of preparation

The consolidated financial statements and preliminary announcement of Van Elle Holdings plc for the year ended 30 April 2017 were authorised for issue by the Board of Directors on 25 July 2017.

The financial information included within this preliminary announcement does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 (the "Act"). The financial information for the year ended 30 April 2017 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued.

The financial statements for the year ended 30 April 2017 will be posted to shareholders on 21 August 2017 and copies will be available from that date from the company secretary at the registered office of the Company, Kirkby Lane, Pinxton, Nottinghamshire, NG16 6JA. The statutory accounts for the year ended 30 April 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The consolidated financial statements of Van Elle Holdings plc and its subsidiaries have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union ("IFRS"), International Financial Reporting Standards Interpretation Committee ("IFRS IC") interpretations and those provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The Group financial statements have been prepared on the going concern basis and adopting the historical cost convention. The accounting policies adopted are consistent with those of the previous financial year. New standards and interpretations which came into force during the year did not have a significant impact on the Group's financial statements.

2. Segment information

The Group evaluates segmental performance based on profit or loss from operations calculated in accordance with IFRS but excluding non-recurring losses, such as goodwill impairment, and the effects of share-based payments. Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of group resources at a rate acceptable to local tax authorities. Loans and borrowings, insurances and head office central services' costs are allocated to the segments based on levels of turnover. All turnover and operations are based in the UK.

Operating segments - 30 April 2017

There are no individual customers accounting for more than 10% of Group revenue in either the current or preceding year.

Operating segments - 30 April 2016

3. Other operating income

Pursuant to an agreement with the Company, an employee settled an insurance policy excess of £200,000. This was in respect of a claim on a contract for which there is already an insurance provision for the policy excess.  

4. Exceptional costs

Initial Public Offering ("IPO")

The charge in the year represents fees and other costs arising because of the IPO which have not been treated as deductions against the share premium account. Of the exceptional charge of £1,452,000, approximately £342,000 is treated as tax deductible and the balance of £1,110,000 is treated as disallowed tax expenses in the tax computation (see note 5).

Other exceptional items

The other exceptional item relates to severance costs arising from the Board changes following the IPO and other legal matters arising as a consequence of the IPO. These are treated as fully tax deductible within the tax computation.

5. Income tax expense

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:

During the year ended 30 April 2017, because of the reduction in the UK corporation tax rate from 20% to 19% from 1 April 2017, corporation tax has been calculated at 19.9% of estimated assessable profit for the year (2016: 20%).

The Finance (No 2) Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017 and to 18% effective from 1 April 2020, was substantively enacted on 26 October 2015. Subsequently, the Finance Act 2016, which provides for a further reduction in the main rate of corporation tax to 17% effective from 1 April 2020, was substantively enacted on 6 September 2016. These rate reductions have been reflected in the calculation of the deferred tax at the statement of financial position date. The closing deferred tax liability at 30 April 2017 has been calculated at 17% reflecting the tax rate at which the deferred tax is expected to be utilised in future periods.

6. Dividends

The proposed final dividend for the year ended 30 April 2017 of 1.75p per share amounting to £1,400,000 and representing a total dividend of 2.6p per share for the full year, will be paid on 29 September 2017 to the shareholders on the register at the close of business on 22 September 2017. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

7. Earnings per share

The calculation of basic and diluted earnings per share is based on the following data:

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders and on 75,123,288 ordinary shares (2016: 70,000,000) being the weighted average number of ordinary shares. In accordance with IAS 33 the weighted average number of shares in issue during the period has been retrospectively adjusted for the proportionate change in the number of the shares outstanding because of the bonus issue and share splits that occurred on admission to AIM.

The underlying earnings per share is based on profit adjusted for exceptional operating costs and share-based payment charges, net of tax, and on the same weighted average number of shares used in the basic earnings per share calculation above. The Directors consider that this measure provides an additional indicator of the underlying performance of the Group.

There is no dilutive effect of the share options as performance conditions remain unsatisfied and the share price was below the exercise price. 

8. Cash generated from operations

9. Analysis of cash and cash equivalents and reconciliation to net debt