Van Elle Regulatory News (VANL)

Van Elle Holdings plc

('Van Elle', the 'Company' or the 'Group')

20 August 2020

Results for the year ended 30 April 2020

Van Elle Holdings plc, the UK's largest independent ground engineering contractor, announces its results for the year ended 30 April 2020 ('FY2020').

* Underlying results are stated before non-underlying items of £1.3m (2019: £0.7m) comprising share-based payment expense and items disclosed in note 4.

Highlights

Mark Cutler, Chief Executive, commented:

"These results reflect a challenging trading environment that persisted for much of the year and which was significantly exacerbated by the impact of COVID-19.

"Our strategy remains unchanged: improving the operational performance of the business whilst developing positions for differentiation and growth with key customers in the housing, infrastructure and construction sectors.

"Despite the market conditions, we made good progress in the delivery of this strategic plan. The restructuring programme has been completed, with a streamlined divisional structure now in place. This, combined with the strengthened financial position following the successful share placing in April, means that the Group is better positioned to return to growth as markets improve.

"I am extremely thankful to all our employees for their professionalism and commitment as we worked through the last five months. Our teams have been flexible in adapting to the changed working methods in the construction sector. Importantly, Van Elle has retained its skill-base and capacity to be able to respond to recovering demand.

"Throughout this challenging period the Group is also grateful for shareholder and UK government support and, with an improved cash position, now has liquidity headroom to support future growth.

"FY2021 has started encouragingly, with activity levels recovering slightly ahead of our expectations and we look forward, subject to no further significant business interruptions arising from any further COVID-19 disruption, to returning to full operational capacity by the end of Q3 FY2021.

"Finally, I would like to welcome Frank Nelson to the Board as Non-Executive Director and Chairman designate and also thank Adrian Barden and Robin Williams who both step down from the Board on 31 August for their positive contributions to Van Elle since the IPO in late 2016."

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CHAIRMAN'S STATEMENT

Overview

The Group's financial performance was impacted by challenging market conditions as a result of Brexit uncertainty and the significant impact in Q4 by COVID-19, with the majority of sites closed in late March and throughout April, reducing revenues by approximately £10m compared to pre-COVID internal expectations. Over the full year, revenue was £84.4m compared to £88.5m in 2019. These impacts resulted in an underlying operating loss in the year of £0.3m (2019: £5.2m profit).

Nevertheless, the Group made good progress in the delivery of its strategic plan during the year, focused on improved operational performance, and establishing strong market positions for future growth. This has been achieved despite a very challenging year with continued uncertainties in the construction market causing a general slowdown in contract deployment and the significant impact of the COVID-19 outbreak and government response on the UK construction markets.

The streamlining of the business, including the successful co-location of all operations on to the main site in Kirkby in Ashfield, and changes to the senior leadership team were completed during the year. Significant progress continues to be made on improving engagement with strategic customers, fostering an improved commercial and business development focus, and strengthening performance review and commercial processes across the business. Alongside this, we have introduced a new human resources team to support the focus on staff engagement and retention.

The impact of COVID-19 was felt across all sectors of the business with many customer sites closed and projects paused during March and April. Against this backdrop, the Group took swift and decisive action to protect the business, its employees, and its customers throughout the period of the pandemic and is now well placed to take full advantage of growth opportunities as markets recover.

Notwithstanding current market uncertainty, the Group remains a leader in the UK geotechnical engineering services market where significant opportunities exist across our target markets of Housing, Infrastructure and Regional Construction, much of which remains well-funded and/or are underpinned by long-term structural growth dynamics.

Capital allocation

The Group's capital structure is kept under constant review, taking account of the need for, and the 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 normal economic cycles. To this end, the Group is in advanced stage negotiations over a new lending facility which, when concluded, will provide greater headroom for growth.

Investment over recent years has positioned the Group strongly, with a large, modern rig fleet, capable of delivering a broad range of services efficiently. In the short term, capital expenditure on rig fleet expansion will continue to be considered on a selective basis where a compelling investment case exists. Bolt-on acquisitions will be considered where they present an opportunity to enhance shareholder value.

Capital raise

Given the current wider market uncertainties, particularly as a result of COVID-19, the priority focus continues to be strong management of working capital. In order to provide the Group with sufficient headroom to withstand a COVID-19 downside scenario, in April 2020 the Group raised £6.3m net of expenses through a well-supported equity fundraising. On behalf of the Board, I would like to express our gratitude to our shareholders for their continued support of the business.

Dividend

In light of the Group's performance and reflecting the importance of prudent cash management as the Group's markets recover from the COVID-19 pandemic, the Board is not recommending a final dividend for FY2020.

The Board fully recognises the importance of dividends to shareholders and the creation of shareholder value and will review the dividend approach once the current period of disruption has passed.

Board and governance

In February 2020, I notified the Board of my intention to step down as Non-Executive Director and Chairman at the sooner of the conclusion of the next annual general meeting or the appointment of a successor.

Frank Nelson joined the Board as Non-Executive Director and Chair designate on 1 July 2020. Frank will assume the role of Chair following the release of these financial results and I will retire from the Board on 31 August 2020. I would like to extend a warm welcome to Frank on behalf of the Board.

In February 2020, Charles St John and Graeme Campbell were appointed to the Board. Charles joined the Board as an Independent Non-Executive Director and Graeme as Chief Financial Officer, replacing Paul Pearson who resigned from the Board in October 2019.

Robin Williams, Senior Independent Non-Executive Director, who has served on the Board since the IPO, will also step down from the Board on 31 August, in line with his resignation announced on 6 February. Charles St John will take over as Chair of the Audit Committee.

On behalf of the Board, I would like to thank Paul and Robin for their service and support.

As a Board, we are committed to promoting the highest standards of corporate governance and ensuring effective communication with shareholders. We are committed to applying the Quoted Companies Alliance for Corporate Governance Code, complemented with other suitable governance measures appropriate for a company of its size.

People

During the year senior team changes have been embedded and I am pleased that the strengthened leadership team ensures we have the optimal mix of experience and capability as we develop the platform to grow the business.

As a Group, 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.

Van Elle remains a market-leading business with an outstanding group of employees. I would like to thank all employees for their hard work and ongoing contribution to the business.

Outlook

Whilst the majority of customer sites have safely re-opened and trading for the first quarter of FY2021 was encouraging in the circumstances, the exact trajectory of the wider industry recovery remains uncertain. The Board is mindful that this market uncertainty will likely persist well into the current financial year. However, the Group's customer focused approach and committed investment programmes across several sectors, gives the Board confidence for the Group's prospects over the medium-term.

Adrian Barden

Non-Executive Chair

20 August 2020

CHIEF EXECUTIVE'S STATEMENT

OPERATING REVIEW

Overview

Wider uncertainties in the construction market as a result of Brexit continued to impact the Group throughout a challenging year, although optimism remains over longer term prospects, particularly after the general election and subsequent firm commitments to government investment, and support for, infrastructure and housing construction.

The Group has made good progress in the delivery of its strategic plan, focused on improved operational performance and establishing strong market positions for future growth.

During the year much of the restructuring has been completed with a streamlined five-division structure now in place. Senior team changes are now embedded, including the appointment of Malcolm O'Sullivan to lead the General Piling division in June 2019. Greater internal collaboration has also been facilitated by the successful co-location of all operations on our main site in Kirkby in Ashfield from May 2019.

As a recognised technical leader in the market, the Group continues to invest in development of its specialist capabilities, including progressing the implementation of its new vibro stone column capability and several techniques in the rail sector including a wider ground investigation capacity and expansion of its patented track bed stabilisation system. As indicated last year, capital expenditure of rig assets has been reduced with focus on improved utilisation of the modern 118 strong fleet.

In the first half of the year, the Group reported some margin deterioration from two particularly challenging projects, both of which have since been completed although commercial discussions continue in order to recover our full entitlement.

Despite the challenging market conditions, consistent with previous years, the Group delivered a wide range of services across its core sectors of housing, infrastructure and regional construction, with circa 1,100 projects delivered in the year.

The year ended with the business withstanding the unprecedented circumstances resulting from COVID-19, following a post-Christmas period of very poor weather. In response to the pandemic the Group undertook early and decisive actions to protect its cashflow, reduce costs and safeguard the health of its employees. The impact on construction activity was felt across all sectors: housing sites closed completely, construction projects were substantially paused, and critical infrastructure schemes continued where safe to do so but with reduced productivity. In addition, construction in Scotland, where the Group has a substantial presence, ceased for several weeks. As a result, revenues were impacted heavily in March and by as much as 80% in April, the final month of the financial year.

To provide the Group with sufficient headroom to withstand a COVID-19 downside scenario, the Group took early action in April 2020, raising net proceeds of £6.3m from institutional investors. This leaves the Group well positioned with a strengthened balance sheet to take full advantage of growth opportunities as market conditions recover. The Group's cash performance has tracked ahead of the mid-case scenario modelled to support the fundraising.

Throughout the year the Group has continued to focus on staff engagement and retention. A new human resources team has supported delivery of the early stage of our people strategy, which included our first Company awards event in December 2019.

Strategic approach

The Group remains a leader in the UK geotechnical engineering services market. Our strategy is focused on twin workstreams targeted on delivering sustainable profitable growth in the medium term:

1. Phase 1 is improving the operational performance of the business through simplifying the structure, addressing operational weaknesses, improving leadership capability, strengthening commercial capability, targeting cost reduction and efficiency improvements, and employee engagement activities.

2. In Phase 2 the Group positions for future growth by developing clear strategic plans for our core sectors of housing, infrastructure and regional construction, developing customer account plans and relationships, maximising our integrated solutions offering, broadening our range of products and services, and extending our geographical footprint into high growth markets across the UK.

3. Phase 3 of our strategy targets sustainable, profitable growth as the Group capitalises on the potential opportunities presented by construction market recovery with medium term objectives set out in the Group's statement of 9 April 2020, being; revenue growth of 5-10% per annum, underlying operating margins of 7-8% and a return on capital employed of 15-20%. The Group will track these additional performance targets to assist with measuring the success of strategic progress.

Good progress has been made during the year on the transition plan, including the completion of the management restructuring, full co-location of personnel on our main site in Kirkby in Ashfield, improved bidding and customer engagement processes, consistency of our approach to operational delivery through our Perfect Delivery model, strengthening of the commercial function, a re-launch of our health, safety and quality initiatives and ongoing cost reduction activities. Investment in wider specialist capability has also continued with development of several innovations and techniques in the period including our vibro capability and rail specialisms.

There are therefore three main enablers of the strategy:

· A diverse sector coverage and strategic customer base;

· Breadth of specialist techniques, well invested rig fleet and operational excellence; and

· Experienced management team, engaged employees and collaborative operating model

This strategy is unchanged from that announced at the end of FY2019, but recovery of our core markets remains uncertain post COVID-19. One of the benefits of a more collaborative, streamlined business model is that the Group can more easily re-deploy resources and assets to stronger market segments and preferred customer programmes as it monitors and responds to emerging activity levels.

We continue to see significant opportunity across our core target markets, being residential, infrastructure and regional construction. Since the early 2020 general election, the Group is reassured by both government commitments to investment and the post-Brexit opportunities.

In March 2020, the UK Government announced its five-year Infrastructure Plan including £640bn of funding in roads, rail, power networks, schools, hospitals and telecoms and, since then, further announcements have committed to accelerated funding over the next year.

The nature of Van Elle's typically lower risk, mid-sized project range supported by a diverse range of specialist capabilities and expertise in regulated project environments mean we are well positioned to benefit from these investment programmes:

· Residential constitutes approximately 50% of Group revenues, including private and social housebuilding and larger residential developments, all of which are expected to remain resilient.

· Infrastructure includes highways, railways, coastal and flooding and power and energy segments, for all of which the Group has considerable experience and a strong track record. Highways England's RIS2 programme, including the new £4.5bn Smart Motorways Alliance, is expected to support further progress in highways. Although initially subdued throughout FY2020, the Group is well positioned for future growth in Network Rail's CP6 investment programme and future rail electrification programmes. The confirmation of notice to proceed on High Speed 2 phase 1 is also a significant opportunity for the Group.

· Regional Construction includes the general private and public sector building and developer-led markets across the UK which, post COVID-19 and Brexit, are anticipated to support continued growth including previously targeted distribution and logistics and mixed-use sectors.

Markets

Performance across many of our markets has been impacted by a combination of lower customer confidence, delayed decision making and in turn, increased competition and pricing pressures.

The housing sector was relatively buoyant, and during the year the Group made progress in increasing its market share of the piling and modular foundation market although margins have been under pressure from competitor pricing and some operational inefficiencies.

The rail market continued to experience delays in reaching expected activity levels in the early stages of Network Rail's CP6 programme and the completion of committed electrification schemes. After a period of project slippage, the highways sector has delivered sustainable opportunities, with the Group active on six smart motorways projects in the year and further strong prospects ahead in 2021 and beyond.

In regional construction the market remained highly competitive as Brexit uncertainty impacted developer confidence and continued delays to the start of High Speed 2. However, the logistics sector continued to be buoyant with several large distributions projects completed in the year.

COVID-19 update

The Group experienced a sharp downturn in revenue as working restrictions and sites closures impacted from mid March. In April, 80% of revenues were lost and this has recovered to 30% below normal levels at the end of July.

At the peak of the COVID-19 lockdown, the Group furloughed 50% of its total workforce and pay reductions and other cost reduction measures were implemented. However, several projects remained open and, with the support of our customers, our employees were able to adapt to new ways of working, overcome travel and accommodation challenges, and deliver safely and productively throughout. At the end of July, 25% of our workforce remain furloughed.

As a result of reduced workload since April and operational efficiencies identified across the Group, less than 20 redundancies have been consulted or processed to date.

Operating performance

Last year we reported the launch of the Group's Perfect Delivery programme in response to inconsistent project delivery and commercial weaknesses in several divisions, notably in General Piling. This work continued in FY2020 alongside leadership changes in four out of five divisions, supplemented by strengthened project management, commercial management and business development capabilities.

Financial performance in the year was heavily impacted in Q4 by the COVID-19 pandemic following a year of challenging market conditions as a result of Brexit uncertainties which affected the wider construction industry. Over the full year, revenue was £84.4m compared to £88.5m in 2019. Underlying operating margins reduced from 5.9% in 2019 to -0.3% in 2020.

Operating structure

As with last year, we report our operating performance in three segments as follows:

· General Piling: open site, larger projects; key techniques being large diameter rotary and CFA piling as well as larger precast driven piling.

· Specialist Piling and Rail: restricted access, rail mounted capability, smaller rigs and engineering techniques, including soil nails, anchors, mini-piling and ground stabilisation projects.

· Ground Engineering Services: modular foundation solutions (e.g. Smartfoot), ground improvement (vibro) and geotechnical services (trading as Strata Geotechnics).

Overall, the Group experienced delay and uncertainty in its regional construction markets due to Brexit, positive progress in highways, subdued activity in rail due to delayed commencement of Network Rail's CP6 programme and consistent activity levels in the housing sector.

General Piling

The General Piling division has the largest fleet within the Group and offers a wide variety of larger piling techniques (rotary, CFA and pre-cast driven) for open-site construction projects.

Revenue contracted by 21.2% in the year to £29.3m (2019: £37.2m), suffering from the uncertainties in the markets for the reasons described above as well as the significant impacts of COVID-19 in the later weeks of the financial year.

As we experienced in 2019, challenging market conditions also resulted in low utilisation of our large diameter rotary and CFA piling rigs which are the higher margin techniques in this division. A problem contract in the first half of the financial year, for which commercial claims are being pursued also weakened blended margin performance, resulting in a reduction in underlying performance with an underlying operating loss of £0.9m (2019: underlying operating profit £1.2m).

Malcolm O'Sullivan, former managing director of Balfour Beatty Ground Engineering, was appointed as the new General Piling director in June 2019 and since then the division has strengthened work winning, operational and commercial capabilities.

Specialist Piling

In the Specialist Piling division, revenue was approximately 11% lower at £25.4m (2019: £28.6m). The division benefited from a strong performance in the highways sector with a presence on six smart motorway projects in the year, with several ongoing into 2021. Last year we reported a short-term revenue reduction due to the decision to cease exposure to lump sum drill and grout activities following poor margins from works delivered in 2018. Revenues from this activity have stabilised around a more selective customer base and margins are now satisfactory.

The Rail division endured a year of subdued revenues as a result of delayed CP6 funding and the conclusion of major electrification programmes in mid 2019. The Group's track bed stabilisation system has developed positively with the completion of further projects in 2020 supported by an expanding library of test data, including with Irish Rail. We expect this technique to make further positive impacts in the UK and in Europe in the medium term. The rail business also invested in expanding its ground investigation capabilities in conjunction with Strata Geotechnics, delivering several important projects in 2020 reflecting the Group's strategy to target early involvement in key projects. As a consequence of the reduced revenues, as well as the adverse mix with lower volumes of Rail work, underlying operating profits fell to £0.3m (2019: 2.7m).

Ground Engineering Services

Revenues of £29.6m represented a 30.6% increase on the prior year (2019: £22.6m).

Our housing division delivers integrated piling and Smartfoot foundation beam solutions to UK housebuilders. The division benefited from increased revenues as a result of increased market share. However competitive pricing, investment in vibro capabilities and some operational inefficiencies as well as the impacts of COVID-19 in the later weeks of the financial year, resulted in underlying operating profits reducing to £0.2m (2019: £1.3m).

The housing sector is expected to move increasingly to modern methods of construction as the time and resource savings of modular foundations become better appreciated. To supplement our all-round service offering to housebuilders the Group has completed its investment in six vibro stone column (vibro) rigs in the year with early performance in line with our expectations for this start-up activity, including the award of our first ground improvement projects in the highways sector and on High Speed 2.

Strata, our Geotechnical division, reported revenues of £5.1m (2019: £4.0m). As in the prior year, the blended margins were impacted by reduced pile testing volumes because of lower revenues in the General Piling division. Similar to the wider Group, the division has made good progress in the highways sector, culminating in the award in Q4 of a place on Highways England's four-year national ground investigation framework.

Rig fleet

Rig investment in the year has been modest with one new rig procured in the Housing division. The business has concentrated on actions required to improve rig utilisation and reliability plus the development of new vibro capability, including two second-hand acquisitions. The total fleet size now stands at 118, up from 115 last year, incorporating some rig disposals and the conversion of previously under-utilised rigs.

Board changes

I would like to express my thanks to the directors who are retiring in August, in particular to Adrian, who has served as Chairman since IPO, and throughout a period which has seen significant transitional challenges, and has now brought us to a strong operating base and an experienced management team from which to grow.

We welcome Charles and Graeme to the Board during the year, and Frank as our incoming Chairman.

Summary and outlook

This has been a second year of transition for the business, having continued to strengthen the leadership team, improve our commercial approach, streamline operations and focus on our key customers.

This transition has coincided with a year of challenging market conditions and latterly the impact of COVID-19 which has heavily impacted the year-end profitability of the Group. However, as a result of actions taken, the business is in a strong financial and operational position to fully benefit from improved market conditions in all its core sectors as the industry recovers to normalised trading levels towards the end of FY2021.

Quarter 1 of FY2021 has seen an encouraging resumption of project workload, up to 70% of prior year levels in June, up from a low point of only 20% in April, although not all divisions are recovering at the same rate. The Group continues to monitor workload resumption and productivity levels and remains cautious over the impact of further COVID-19 outbreaks. As a result, the Board believes it is too early to reinstate guidance for FY2021.

A further trading update will be issued for the Annual General Meeting, scheduled for 28 September 2020.

Mark Cutler

Chief Executive Officer

20 August 2020

CHIEF FINANCIAL OFFICER'S STATEMENT

FINANCIAL REVIEW

Revenue

Revenue in the year to 30 April 2020 declined to £84.4m (2019: £88.5m). During the last 6 weeks of the financial year, the lockdown, as a result of the COVID-19 pandemic, had a significant adverse impact on the Group with many customer sites, particularly in the housing and regional construction sectors closing down. The most significant impact was in April 2020, where revenue was approximately 20% of management's pre COVID-19 expectations.

In the first half of the financial year, despite subdued conditions in the commercial and rail markets, strong growth in housing and highways markets resulted in a revenue increase of 13.1%. In contrast H2 revenues were significantly impacted by COVID-19 resulting in a year-on-year reduction in revenues of 21.3%.

The Group tracks enquiry levels by market sector, which helps to identify trends and target our activities into growth areas. The mix of revenue by end markets is shown below:

Residential continued to dominate revenues this year despite COVID-19 having a significant impact on this sector with many sites closed in the last few weeks of the financial year. The housing sector growth has been driven by improved customer focus and closer relationships with national housebuilders which are seeking faster build times and integrated piling and foundation solutions. The Group has seen increased competition in the regional construction sector and subdued activity levels in the infrastructure market (partially due to delays to Network Rail's CP6 programme) resulting in reduced revenues in these sectors.

The mix of revenue by our divisions is shown below:

Ground Engineering Services revenue has grown as a result of the housing sector growth. General Piling and Specialist Piling have been impacted by increased competition and reduced activity in the regional construction sector.

Head office revenues relates to the provision of training services delivered through the dedicated training facility located at Kirkby-in-Ashfield.

Gross profit

The gross margin of the Group decreased to 26.8% (2019: 31.9%) mainly due to an adverse sales mix, with higher margin activities including rail and regional construction subdued in the year. The Group also completed a number of one-off poor performing contracts during the year impacting overall gross margin rates.

Encouragingly, gross margin has not been significantly impacted by COVID-19 as the Group responded quickly, reducing costs in line with the downturn in activity.

Operating profit

The 4.6% reduction in revenues year on year and reduced gross margin delivered a lower contribution to overheads, translating into an operating loss for the year of £1.6m (2019: operating profit £4.6m) and an underlying operating loss for the year of £0.3m (2019: underlying operating profit £5.2m). Reported operating margin decreased to -1.9% (2019: 5.2%) and our underlying operating margin decreased to -0.3% (2019: 5.9%).

Operating margins were impacted by impairment of property and goodwill, and restructuring costs partially offset by income from research and development tax credits relating to previous financial years, all of which have been classified within other non underlying items.

Alternative performance measures

In reporting financial information, the Group presents alternative performance measures (APMs), which are not defined or specified under the requirements of IFRS. The Group believes that these APMs provide depth and understanding to the users of the financial statements to allow for further assessment of the underlying performance of the Group and comparability from one year to the next.

The Board believes that the underlying performance measures for operating profit, profit before tax and EPS, stated before the deduction of non underlying items give a clearer indication of the actual performance of the business.

During the year, total non underlying items of £1.3m were incurred, principally in respect of:

· Further restructuring costs including redundancy and CEO compensation costs as the Group made the final changes to the operating divisions, the streamlining of which began in 2018;

· Impairment of the Pinxton site which the Group vacated during the year ending 30 April 2020 and which is now held as an investment property;

· Impairment of the goodwill allocated to the General Piling division as a result of the reduction in trading performance in this division;

· Income in respect of a research and development tax credit claim relating to previous financial years; and

· Share-based payment costs.

Note 4 describes why the above items have been classified as non-underlying in the financial year ending 30 April 2020. Consistent with prior year share-based payment costs are deemed non-underlying.

Net finance costs

Net finance costs were £630,000 (2019: £527,000). The increase in finance costs reflects the adoption of IFRS 16 as of 1 May 2019. The interest on IFRS 16 property lease liabilities was £151,000 during the year ending 30 April 2020. The remaining reduction in finance costs reflects the reducing financial liabilities as hire purchase contracts reach their term. HP agreements are typically at fixed rates of interest and over a five-year term.

Taxation

The effective tax rate for the year was -9.6% (2019: 20.0%).

The Group had a taxable loss in the financial year ending 30 April 2020. No deferred tax asset has been recognised on these unused tax losses as they are not expected to be utilised in the next 12 months.

The tax charge of £216,000 relates to deferred tax on timing differences only.

Dividends

A final dividend of 1.0p per share was paid to shareholders on 27 September 2019 in respect of the financial year ending 30 April 2019.

In light of COVID-19 and in order to manage cash resources during a period of uncertainty the Board resolved to cancel the interim dividend of 0.2p per share, which was due to be paid to shareholders on 27 March 2020. No final dividend is proposed in respect of the financial year ending 30 April 2020.

The Board recognises the importance of dividends to shareholders and the creation of shareholder value and expects to reinstate an appropriate and meaningful dividend once the period of disruption has passed.

Earnings per share

The underlying basic earnings per share was -1.5p (2019: 4.7p), based on an underlying loss of £1,245,000 (2019: underlying earnings £3,788,000).

Balance sheet

On 9 April 2020 26,666,650 new ordinary shares were placed at a price of 25 pence each raising net proceeds of £6.3m. The proceeds from this placing provide the Group with sufficient headroom to withstand the downturn in trading due to COVID-19 and, in conjunction with additional debt finance, ensure the Company is well placed and sufficiently capitalised to respond quickly as its market recovers.

Despite reporting a loss in the financial year ending 30 April 2020 the Group's net assets increased by £3.1m to £45.2m (2019: £42.1m), which includes the impact of the capital raise in April 2020. This has allowed the Group to exit the year with a strengthened balance sheet and improved liquidity position.

The Group invested £3.7m (2019: £3.6m) in assets during the year including £1.5m on Vibro rigs as part of the strategic plan for growth in the vibro stone column market. The Group also added a further rig to its Housing division to support the housing sector growth and capitalised £0.4m of development costs primarily relating to new techniques in the Housing and Rail division.

The adoption of IFRS 16 as of 1 May 2019 resulted in two of the Group's property leases being brought on the balance sheet with the creation of right-of-use assets totalling £3.7m and corresponding lease liabilities of £4.0m.

Working capital decreased to £5.3m (2019: £7.1m) primarily due to the lower activity levels during April 2020 as a result COVID-19.

As part of the consolidation of the Group's operations into a single site at Kirkby-in Ashfield, the Dereham site was vacated during the year.

ROCE has decreased in the period to -3.6% at 30 April 2020 (2019: 9.9%), reflecting the impact of the reduced operating profit.

Net funds

Net debt has decreased by £5.1m to a net funds position of £0.9m as at 30 April 2020. The net funds position in 2020 includes IFRS 16 lease liabilities of £4.0m in respect of property leases which were not recognised in 2019 as IFRS 16 had not been adopted. Excluding these liabilities, the Group's net funds position has improved by £9.0m.

This improvement reflects the repayment of all outstanding loans in the year, a reduction in finance lease liabilities (£3.9m) and maximising the bank balance through robust working capital management and by the raising of cash through the share placing.

The Group has continued to explore a financing solution with a view to establishing a funding facility to provide additional liquidity headroom and support future growth.

Cash flow

The Group continues to prioritise cash generation and the active management of working capital. The downturn in trading as a result of COVID-19 has caused a temporary reduction in working capital requirements resulting in a cash conversion of 175.0% (2019: 106.3%).

Graeme Campbell

Chief Financial Officer

20 August 2020

Consolidated statement of comprehensive income

For the year ended 30 April 2020

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 2020

Consolidated statement of cash flows

For the year ended 30 April 2020

Consolidated statement of changes in equity

For the year ended 30 April 2020

1. Basis of preparation

The consolidated financial statements and announcement of Van Elle Holdings plc for the year ended 30 April 2020 were authorised for issue by the Board of Directors on 19 August 2020.

The financial information included within this 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 2020 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued.

The statutory accounts for the year ended 30 April 2020 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The Group financial statements have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union ("IFRS"), International Financial Reporting Standards Interpretations 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 Group's accounting policies remain consistent with the previous financial year with the exception of the adoption of IFRS 16. The impact on the financial statements of the adoption of IFRS 16 is set out below.

Adoption of new and revised standards

IFRS 16 is adopted for the first time in these financial statements. The nature and impact of adoption is discussed below:

IFRS 16 removes the distinction between 'operating' and 'finance' leases and, with this, leases which would have been previously deemed as 'operating' - based on an assessment of the balance of risk and reward transferred - are now recognised on the balance sheet with the creation of a 'right-of-use' asset and an associated lease liability reflecting future lease payments. The risk/reward distinction criteria of IAS 17 is removed and the aforementioned treatment applies to all lease contracts where it is deemed the lessee has the right to direct an identified asset's use and to obtain substantially all the economic benefits from that use (termed 'control' under IFRS 16). In the income statement, the operating lease charges which would have been recognised under IAS 17 are replaced by an IFRS 16 depreciation and interest charge.

Impact of accounting policy change

The Group has elected to adopt the modified retrospective approach whereby the standard is applied from the beginning of the current period and, as a result, prior-period financial information is not restated. In the application of this approach the right of use asset is equal to the lease liability adjusted for prepaid or accrued lease payments immediately before the date of initial application. The cumulative impact of initial recognition of IFRS 16 is immaterial and thus there is no adjustment through opening retained earnings.

The Group applied the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

· Use of a single discount rate across a portfolio of leases with reasonably similar characteristics

· Application of the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.

The lease payments for low-value and short-term leases are expensed on a straight-line basis in accordance with IFRS 16.6.

On initial adoption of IFRS 16 lease liabilities of £3,961,000 were recognised. This reconciles to the operating lease commitments presented in the prior period financial statements as shown below:

Adopting IFRS 16 has resulted in the following during the year ending 30 April 2020:

· gross assets and gross liabilities increasing as at 1 May 2019 with the creation of the 'right-of-use assets' (recognised within 'property, plant and equipment' - £3,659,000 impact) and corresponding lease liabilities (shown as 'lease liabilities' - £3,961,000 impact)

· depreciation and interest increased by £121,000 and £153,000 respectively;

· rental charges decreased by £202,000;

· cash flows for rental charges and interest on lease liability payments and other interest amounts moved from operating cash flows to financing cash flows.

The difference of £302,000 between the value of the right of use asset and lease liability recognised on adoption of IFRS 16 reflects the accrual for lease payments as at 1 May 2019.

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 2020

Operating segments - 30 April 2019

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

3. Revenue from contracts with customers

Disaggregation of revenue - 30 April 2020

Head office revenue relates to revenue generated from the provision of training services.

During the financial year ended 30 April 2020 the commercial and industrial and public customer sectors have been reclassified as regional construction. New housing has been renamed residential.

Disaggregation of revenue - 30 April 2019

4. Other non-underlying items

Current year exceptional costs relate to restructuring including redundancy and CEO compensation as the Group made the final changes to the operating divisions, the streamlining of which began in 2018, and costs incurred in the resolution of the technical compliance irregularity concerning the final dividend for the year ended 30 April 2019.

The Group vacated the site located at Pinxton during the financial year and sub-let the site to a third party. The valuation of the site undertaken to establish rental values indicated impairment of the property. An impairment loss of £486,000 has been recognised in respect of this investment property.

The goodwill allocated to the General Piling division has been impaired by £1,101,000 and is considered to be non-underlying.

Income in respect of a research and development expenditure credit claim relating to financial years ending 2018 and 2019 is considered to be non-underlying as it relates to previous financial years.

Prior year exceptional costs primarily relate to restructuring including redundancy and related consultancy costs as the Group was streamlined from eight to five divisions.

Also included in the prior year exceptional costs is a one-off loss of £90,000 following a settlement the Company reached with a supplier relating to non‑compliant plant and machinery.

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 2020, corporation tax has been calculated at 19% of estimated assessable profit for the year (2019: 19%).

The provision for deferred tax is calculated based on the tax rates enacted or substantively enacted at the balance sheet date. The change to the corporation tax rate, announced in the Budget on 11 March 2020, was substantively enacted on 17 March 2020. The rate applicable from 1 April 2020 will now remain at 19%, rather than the previously enacted reduction to 17%. These changes to the future tax rate were substantively enacted at the balance sheet date. The provision for deferred tax in the financial statements has been based upon the expected rate of reversal for each major part of deferred tax.

6. Dividends

No final dividend is proposed for the year ended 30 April 2020.

During the financial year the Board became aware of an irregularity concerning technical compliance with the Companies Act 2006 in respect of the final dividend approved by shareholders at the Company's annual general meeting on 12 September 2019.

Note 12 (Dividends) to the consolidated financial statements of the Group for the year ended 30 April 2019, in referring to the dividend, stated that "the Board of the subsidiary company will pay a dividend to the Company in advance of the final proposed dividend being paid to ensure that the Company has sufficient distributable reserves in order to pay the dividend."

As a result of an administrative oversight, the subsidiary company dividend referred to in note 12 was not made and as a consequence the requisite level of distributable reserves was not available within the Company prior to the payment of the dividend. In addition, interim accounts should have been filed by the Company in respect of the payment of the dividend. Consequently, the dividend was technically unlawful.

On becoming aware of this situation, the Board has taken steps to rectify this position as follows:

a) the interim accounts prepared, confirming sufficient distributable reserves were available at the time the dividend was declared by the Board, have now been filed with the Registrar of Companies satisfying the requirements of Section 838(6) of the Companies Act 2006; and

b) an extraordinary general meeting was held on 26 February 2020 and the following special resolutions were passed:

· authorising and approving the appropriation of distributable profits of the Company as of 27 September 2019 to the payment of the relevant distributions;

· releasing shareholders from claims by the Company in relation to the unlawful dividend and directing the Company to enter into a deed poll in respect of the same; and

· releasing past and present Directors from claims in relation to the unlawful dividend and directing the Company to enter into a deed of release in respect of the same.

7. Earnings per share

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

There is no dilutive effect of the share options given the loss in the current year and as in the previous year the performance conditions remain unsatisfied or the share price was below the exercise price.

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders and on 81,534,246 ordinary shares (2019: 80,000,000), being the weighted average number of ordinary shares.

The underlying earnings per share is based on profit adjusted for share-based payment charges and other non underlying items, 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.

8. Cash generated from operations

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

Significant non-cash transactions include the purchase of £975,000 (2019: £1,250,181) of fixed assets on hire purchase, £3,961,000 of liabilities introduced on the adoption of IFRS 16 and £612,000 of interest expense on lease liabilities.

Cash transactions in respect of lease liabilities include interest paid on lease liabilities of £612,000 and principal paid on lease liabilities of £4,839,000.