Van Elle Regulatory News (VANL)

Van Elle Holdings plc

Preliminary Results for the year ended 30 April 2018

Van Elle Holdings plc (the "Group"), the AIM listed geotechnical 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 2018.

Highlights

* before share-based payment expenses, Carillion bad debt and exceptional costs

Strategic and operational highlights

· Group revenue increased by 10.4% to £103.9m (2017: £94.1m), driven by activity in new housing and infrastructure sectors

· Underlying operating profit was down 4% to £11.1m (2017: £11.6m), reflecting contract specific issues in the rail and ground stabilisation units together with challenging market conditions in H2

· Completed major new rig investment programme with fleet increasing from 111 to 123 rigs

· Strong balance sheet with net debt at 30 April 2018 of £5.9m (2017: £1.5m), representing 0.4x EBITDA

· CEO succession process complete, with Mark Cutler to start in August 2018

· The Board is recommending a final dividend of 2.3p per share (total dividend of 3.7p per share) reflecting its confidence in the long-term prospects of the Group

Adrian Barden, Chairman, commented:

"Following the challenging conditions experienced at the start of 2018, recovery has been slow in a number of our end markets which has resulted in a relatively quiet first quarter for the Group as a whole.

"However, we are seeing an increase in opportunities across each of our divisions, particularly in the housebuilding and infrastructure markets. We continue to monitor conditions in our core markets actively and whilst mindful of the current conditions, we are cautiously optimistic about the Group's prospects, being well positioned to deliver further value to shareholders in the medium term.

"The year to 30 April 2019 will be an important one of transition for the Group, with our new CEO, Mark Cutler, joining the Board in a few weeks' time. As a leader in the UK geotechnical engineering market, Van Elle has established a strong platform from which to pursue its growth strategy. In the near term the Board is focussed on refining the Group's commercial approach, continuing to enhance its processes and operations and maximising the returns from the substantial investment in the rig fleet."

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Chairman's statement

Following a good overall performance in the first half of the year, the second half was significantly impacted by a number of factors including the liquidation of Carillion in January 2018, the disruption caused by the severe weather experienced in the UK between January and March 2018 and the delay of a small number of important contracts in Q4. In spite of this, the Group delivered record turnover for the fifth consecutive year, with year on year growth of 10.4% to £103.9m. This is testament to the robustness of our diversified business model, targeted at growth markets where there is sustainable demand for our services and the housebuilding and infrastructure revenues support this strategy.

Gross profit in the year grew by 2.2% to £34.4m (2017: £33.4m) with the margin reducing by approximately 2 percentage points to 33.1% (2017: 35.5%). This margin reduction was principally due to the adverse impact of two rail contracts undertaken in H1 and a loss-making contract in the Ground Engineering Services division. Additional, robust internal risk controls have been introduced so that we identify and understand all our risk starting at the bidding stage and applying rigorous management and monitoring of contract performance to ensure that the circumstances resulting in each of these situations do not occur again. Underlying operating profit reduced slightly to £11.1m (2017: £11.6m), with reported operating profit for the year flat at £9.7m (2017: £9.7m). Whilst underlying operating margins remained reasonable at 10.7%, this was below prior year (12.3%) and largely reflects the lower gross margin as well as the impact of the weaker than expected second half revenue.

Delivering the strategy

We continue to invest in the strategic development of the Group, driven by our focus on growth markets and enabled by targeted investment in specialist rigs, further expansion of our precast concrete manufacturing capabilities and establishing ourselves as the dominant ground engineering company in the central belt of Scotland. We opened a sales office in London during the year and have increased the coverage of our business development team with new roles covering London, the South East and also the South West of England, complementing our existing coverage across the UK. Capital investment has been central to this development with a further £13.2m spent in the current year bringing the total to £45.1m over the last four years. Our rig fleet now stands at 123 rigs (2017: 111 rigs) and we believe that Van Elle has the broadest and most modern range of specialist piling rigs in the market. Our rig fleet expansion investment is largely complete for now and provides a strong platform for our future growth.

We have continued to grow the business by broadening our range of products and services and extending our geographical footprint into high-growth markets. This is being achieved organically but our strategy is to complement this with bolt-on acquisitions. We retain a strong balance sheet and will continue to pursue acquisition opportunities where appropriate.

Operating performance

General Piling has seen modest sales growth in the year, up 0.5% to £43.1m (2017: £42.9m), a result of good demand in the housebuilding sector offset by reduced demand for industrial and commercial work. In addition, the Division successfully delivered several infrastructure contracts using the three new, large diameter piling rigs which have provided a further competitive advantage to the Group. Divisional gross margin remained strong at 35.1% (2017: 33.1%), 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.

Sales were marginally lower in Specialist Piling at £29.9m (2017: £30.1m). The restricted access business had a very strong second half to the last financial year, including the delivery of its largest ever contract at Eden Brows, and with a small number of important contracts being delayed in the fourth quarter it was unable to replicate that performance this year. The rail business was significantly impacted by the collapse of Carillion and although satisfactory terms were agreed to recommence some of the halted contracts this only had a limited benefit in the second half. Outside of work with Carillion, the rail business had a relatively successful second half including the commencement of a track bed stabilisation contract. Gross margin delivered was down on last year at 41.3% (2017: 43.8%), largely reflecting the impact of the two rail contracts in the first half of the year with operating margins further effected by the weaker turnover performance in the second half.

We saw a particularly strong revenue performance in Ground Engineering Services, up 64.8% to £17.5m (2017: £10.6m). This has been driven by our investment in servicing the burgeoning local Scottish market which has established Van Elle as the dominant ground engineering company in the central belt of Scotland and demonstrates our ability to penetrate new markets with our leading service offering. In addition, the Geotechnical business has been re-branded as Strata to differentiate site investigation work from the Group's other services which the Board believes will open up further growth opportunities with consultants, developers and competitors. Despite the strong turnover performance, gross margins fell to 25.7% (2017: 37.7%) due to a loss-making contract delivered in the Ground Stabilisation operating unit during the year. Actions have been taken to ensure the issues that caused this do not repeat.

Ground Engineering Products has increased its sales by 27.9% to £13.4m (2017: £10.4m), boosted by our increased manufacturing capabilities through the addition of the Scottish facility and coupled with strong demand for our Smartfoot® modular beam foundation system from the housebuilding sector. Gross margin was delivered at 25.4% (2017: 26.2%), the dilution down to the sales mix between Smartfoot® beams and pre-cast piles for internal use, each of which have different manufacturing gross margins.

In terms of our performance in the Group's key end markets, sales to the housebuilding sector were up 22.1% to £51.9m (2017: £42.5m) and infrastructure sector were up 11.9% to £32.3m (2017: £28.9m). Sales to the commercial and industrial sector fell by 13.1% to £16.4m (2017: £18.8m). Our flexibility to redirect resources to reflect short-term trends in our markets is a key strength of the business, mitigating the impact of a slowdown in any one sector.

Dividend

The Board has adopted a progressive dividend policy and, having paid an interim dividend of 1.40p, is recommending a final dividend of 2.30p (2017: 1.75p), making a total of 3.70p (2017: 2.60p) for the financial year and reflects the Board's continued confidence in the long term prospects for the Group. If approved, the final dividend will be paid on 28 September 2018 to those shareholders on the register as at 6 September 2018.

Board and governance

On behalf of the Board, I would like to express our thanks to Jon Fenton who, due to a serious medical matter within his close family, stepped down as CEO and left the Company on 18 May 2018. Jon steered the Company through a successful period of growth, culminating in the IPO in October 2016, and we wish him well for the future.

I am very pleased to announce that, following a detailed process, Mark Cutler is joining the Board to succeed Jon as Chief Executive Officer during August 2018. Mark has considerable sector experience at CEO level, and we look forward to him bringing this experience to Van Elle.

Also in the year we welcomed David Hurcomb as Non-Executive Director. David started on 1 November 2017 and he is Chair of the Remuneration Committee.

As a board, we are committed to promoting highest standards of corporate governance and ensuring effective communication with shareholders. We intend to apply the Quoted Companies Alliance Corporate Governance Code, complemented by applying other suitable governance 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.

Outlook

Following the challenging conditions experienced at the start of 2018, recovery has been slow in a number of our end markets which has resulted in a relatively quiet first quarter for the Group as a whole.

However, we are seeing an increase in opportunities across each of our divisions, particularly in the housebuilding and infrastructure markets. We continue to monitor conditions in our core markets actively and, whilst mindful of the current conditions, we are cautiously optimistic about the Group's prospects, being well positioned to deliver further value to shareholders in the medium term.

The year to 30 April 2019 will be an important one of transition for the Group, with our new CEO, Mark Cutler joining in August. As a leader in the UK geotechnical engineering market, Van Elle has established a strong platform from which to pursue its growth strategy. In the near term the Board is focussed on refining the Group's commercial approach, continuing to enhance its processes and operations and maximising the returns from the substantial investment in the rig fleet.

Mark and I look forward to updating shareholders on our continuing progress at the Annual General Meeting on 18 September 2018.

Adrian Barden

Non-Executive Chairman

25 July 2018

Financial Review

Revenue

Revenue for the year ended 30 April 2018 was £103.9m (2017: £94.1m), which represented an increase of 10.4%.

Group results are usually seasonally weighted to H2 due to work patterns over the Christmas and Easter holiday periods, particularly in the infrastructure sector. However, this year the H1 performance was marginally ahead of H2, with H2 being impacted by the demise of Carillion and subsequent delays in recommencing work on contracts that were being delivered at the time of the company's liquidation. Additionally, there was lost productive time and contract delays resulting from the severe weather disruption during January, February and March and the delay of a small number of important contracts in Q4. Furthermore, the prior year's seasonal weighting reflected a very 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 and infrastructure 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 which the Board believes is reflective of more difficult conditions in those markets generally.

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.

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, the latter reducing our reliance on the supply chain. The returns can be seen in our growth in Ground Engineering Products revenues.

Operating profit

The revenue performance has translated into operating profit for the year ended 30 April 2018 of £9.7m (2017: £9.7m).

The Board believes that the underlying performance measures for operating profit and EPS, stated before the deduction of exceptional items, the Carillion bad debt charge and share-based payment expenses, gives a clearer indication of the actual performance of the business in terms of comparable year on year operational delivery.

During the year, exceptional items of £283,000 were incurred in respect of: legal and other professional costs associated with the EGM held on 15 December 2017 and an aborted acquisition

Net finance costs

Net finance costs were £536,000 (2017: £422,000) and interest was covered 18.1 times (2017: 23.0 times). The increase in costs 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 18.9% (2017: 19.9%).

The Group paid £1,768,000 (2017: £2,281,000) of corporation tax during the year.

Dividends

The Board has adopted a progressive dividend policy. On 7 March 2018, the Company paid an interim dividend of 1.4p per share. The Board is now recommending a final dividend of 2.3p per share making a total dividend of 3.7p per share for the financial year.

Subject to approval at our Annual General Meeting of shareholders on 18 September 2018, the recommended final dividend will be paid on 28 September 2018 to shareholders who are on the register on 6 September 2018.

Earnings per share

The underlying basic earnings per share was 10.6p (2017: 12.1p), based on underlying earnings of £8,516,000 (2017: £9,125,000). Underlying earnings are stated after adding back £283,000 of exceptional costs, Carillion bad debt write-off of £956,000, and £148,000 of share-based payment expenses.

Capital structure and 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 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 £4.8m to £41.1m (2017: £36.3m) 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 continued 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 £13.2m (2017: £11.8m) in the year and a corresponding annual depreciation charge of £5.7m (2017: 4.7m). The Group also continues to invest in the maintenance of its fleet to ensure rigs function well over the long term. As a result, residual values on second hand sales have been higher than those implied by the Group's depreciation policy and the Board will review this in the coming year.

The ROCE has decreased in the period to 23.5% at 30 April 2018 (2017: 30.6%).

Analysis of net debt

Net debt has increased by £4.4m to £5.9m at 30 April 2018, reflecting the net cash outflow from the impact of the liquidation of Carillion on cash collections and the movement in hire purchase obligations in support of 2018 capital investment.

Return on capital employed

Underlying ROCE has reduced year on year from 30.6% to 23.5%, largely reflecting the additional £13.2m capital expenditure investment during the year which did not contribute to earnings for the whole 12 month period. Capital expenditure over the short term is forecast to reduce significantly as our expansion investment programme is nearing completion, which should bring an improvement in ROCE in due course.

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 £13.2m (2017: £13.1m), representing an operating cash conversion of 86% (2017: 92%).

Paul Pearson

Chief Financial Officer

25 July 2018

Consolidated statement of comprehensive income

For the year ended 30 April 2018

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 2018

Consolidated statement of cash flows

For the year ended 30 April 2018

Consolidated statement of changes in equity

For the year ended 30 April 2018

Notes to the preliminary results

For the year ended 30 April 2018

1. Basis of preparation

The consolidated financial statements and preliminary announcement of Van Elle Holdings plc for the year ended 30 April 2018 were authorised for issue by the Board of Directors on 25 July 2018.

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 2018 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 2018 will be posted to shareholders on 7 August 2018 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 2018 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. Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Revenue recognition

This year's revenue includes an estimate for a final account settlement that is still to be concluded but has been assessed by the Board on a prudent basis and the anticipated outcome is reflected in the full year turnover.

The Directors have taken legal and independent expert advice on the potential outcome to ensure that the estimate is as accurate as possible. Consideration has been given by the Directors to contractual terms and the work performed when arriving at the value of the amount claimed, which is approximately £0.7m.

3. 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 2018

There are no individual customers accounting for more than 10% of Group revenue in either the current or preceding year. Operating segments - 30 April 2017

 4. Other operating income

5. Exceptional costs

Initial Public Offering ("IPO")

The charge in the prior 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 £104,000 is treated as tax deductible and the balance of £1,348,000 is treated as disallowed tax expenses in the tax computation

Other exceptional items

The current year other exceptional item relates to costs associated with an EGM held on 15 December 2017, and due diligence fees for an aborted acquisition.

The prior year 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.

6. 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 2018, because of the reduction in the UK corporation tax rate from 20% to 19% from 1 April 2018, corporation tax has been calculated at 18.9% of estimated assessable profit for the year (2017: 19.9%).

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 2018 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 2018 has been calculated at 17%, reflecting the tax rate at which the deferred tax is expected to be utilised in future periods. 

7. Dividends

The proposed final dividend for the year ended 30 April 2018 of 2.3p per share amounting to £1,840,000 and representing a total dividend of 3.7p per share for the full year, will be paid on 28 September 2018 to the shareholders on the register at the close of business on 6 September 2018. 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.

8. 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 80,000,000 ordinary shares (2017: 75,123,288) 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, Carillion bad debt 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.

9. Cash generated from operations

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

Significant non-cash transactions include the purchase of £8,135,057 (2017: £6,202,000) of fixed assets on hire purchase.