Van Elle Regulatory News (VANL)

Van Elle Holdings plc

Interim Results for the six months ended 31 October 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 interim results for the six months ended 31 October 2017.

Highlights

* before share-based payments and exceptional costs

Summary highlights

· Trading in the first half of the year has been positive reflecting the increased service offering with new techniques, rigs and geographical presence.

· Group revenue increased by 22.1% to £52.6m (H1 2016: £43.1m), with revenue growth in all four Divisions.

· Underlying EBITDA increased by 18.7% to £8.4m (H1 2016: £7.1m) and underlying operating profit increased by 15.6% to £5.7m (H1 2016: £4.9m).

· Gross margin of 31.7% (H1 2016: 36.2%) reflecting specific contract issues, now resolved.

· Further investment of £8.0m in new rigs to continue the growth strategy (H1 2016: £2.1m).

· Strong balance sheet with net debt at 31 October 2017 of £4.6m (H1 2016: £4.1m).

· Interim dividend of 1.4 pence per share, reflecting the Board's confidence in the Group's prospects.

Jon Fenton, Chief Executive, commented:

"This good performance is a direct consequence of our growth strategy.

"As anticipated, we entered the second half in a strong position with activity levels remaining high and trading during November, December and the start of January satisfactory across the Group as a whole.

"Unfortunately, the recent collapse of Carillion will have an impact on the business. Van Elle carried out regular work for Carillion as a specialist lead sub-contractor, principally in respect of rail improvement and maintenance work and, as previously confirmed, our outstanding debt and work-in-progress exposure with Carillion is approximately £1.6m. We also identified approximately £2.5m of anticipated revenue for the second half of the current year which related to work with Carillion.

"Whilst the Group is continuing to engage with the Official Receiver in respect of this outstanding balance, it is now expected that we may recognise an exceptional bad debt charge of approximately £1.6m in its full year results. All of this debt arose after 31 October 2017. We have also had constructive dialogue with both the Official Receiver and Network Rail in respect of the £2.5m of anticipated revenue and whilst it is possible that some of the anticipated contracts may be delivered in the current year, the status and timing of specific programmes remains uncertain. Van Elle would typically expect to achieve good margins on rail-related work and therefore these anticipated contracts are material in the context of the Group's financial results. The Board believes it is prudent at this stage to recognise that the disruption to the expected order book due to the situation at Carillion will impact the Group's ability to achieve its previous expectations for the year as a whole.

"Meanwhile, enquiry levels across the Group in general remain encouraging and beyond the specific risks associated with the Carillion situation, the current order book as at January 2018 remains substantial. However, the Group's second half expectation included a small number of important contracts which we had originally expected to commence in the fourth quarter but now believe will slip into the first quarter of next financial year.

"Van Elle continues to deliver strategic progress and, with the support of a strong balance sheet, the long term opportunities for further profitable growth for the Group are significant. Taking all these factors into account, the Board remains confident about the Group's prospects and, reflecting this confidence, has declared an interim dividend of 1.4p per share."

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Van Elle Holdings plc - Interim Report to 31 October 2017

Strategic overview

Since being admitted to trading on AIM on 26 October 2016, Van Elle has actively pursued its growth strategy and the Board is pleased to report further positive results in the first half of this financial year. For the six months ended 31 October 2017, revenues increased by 22.1% over the comparative period to £52.6m (H1 2017: £43.1m), underlying EBITDA increased by 18.7% to £8.4m (H1 2017: £7.1m) and underlying operating profit increased by 15.6% to £5.7m (H1 2017: £4.9m). Underlying profit before tax was £5.4m, an increase of 15.4% on the same period last year (H1 2017: £4.7m).

Our strategy continues to focus on growing the business by broadening our range of products, techniques and services and extending our geographical footprint into high growth markets across the UK. This will be achieved both organically and also selectively through bolt-on acquisitions.

Capital investment continues to be a key driver of growth with a further £8.0m spent in the first half of the year (H1 2017: £2.1m), bringing the total investment over the last three and a half years to over £40.0m. Nine rigs were purchased in the period and our fleet now stands at 118 rigs and we continue to believe that Van Elle has the broadest and most modern range of specialist piling rigs in the UK market.

Our new state-of-the-art, purpose-built training facility was opened in November and has undertaken several training programmes both internally for staff and externally for clients. We believe that this facility allows us to deliver an unequalled standard of training to all industry professionals and companies, and is a key driver to staff retention and succession planning.

Investment in our operational facility in Scotland, to serve the local market, has delivered significant growth in the period. This 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 the new year we opened an office in London as a base for a newly appointed business development manager to cover London and the South of England.

We continue to pursue acquisition opportunities and discussions have been held with several interested parties. We have discounted certain targets due to unrealistic price expectations and lack of strategic fit, however, there remains a pipeline of good opportunities. Our strong financial position will enable us to act swiftly where we feel an opportunity will bring value to the Group.

Cash performance in the half has been good, with strong operating cash flows of £7.1m (H1 2017: £2.6m) representing an operating cash conversion* of 86.9% (H1 2017: 46.9%). The Group has continued to invest, acquiring nine new rigs which will enhance its service offering. As a result of the strong cash performance and the Group's strategic investment programme, net assets have increased by 22.8% to £39.2m (31 October 2016: £31.9m).

* defined as cash generated from operations divided by EBITDA less profit on sale of fixed assets

Trading review

I am pleased to report that the Company grew revenues by 22.1% in the first half of the year to £52.6m (H1 2017: £43.1m) at a time when UK construction output grew by 7.3% for the same period, continuing our track record of outperforming the market and growing our market share.

In terms of our performance in our end markets, sales to the Housebuilding sector were up 22.7% to £26.3m (H1 2017: £21.4m), Infrastructure sector sales were up 37.3% to £15.8m (H1 2017: £11.5m) and sales to the Commercial & Industrial sector were flat at £8.2m (H1 2017: £8.2m). The ability to redirect resources to reflect short-term trends in our markets remains a key strength of the business, mitigating the impact of a slowdown in any one sector.

A key driver of our revenue growth has been our recent investments in larger and more specialist rigs with significant sales increases in our core techniques: CFA piling (+£1.2m); rotary bored piling (+£3.4m); rotary drilling (+£1.4m); and on-track rail piling (+£3.1m). In addition, our modular beam foundation system, Smartfoot®, continues to gain traction with housebuilders across the UK with sales up over 20% in the first half.

Our sales growth was achieved, most notably, on larger contracts (defined as over £500k), which collectively made up c.29% of total sales by value in the period (H1 2017:15% by value), increasing the average contract value to £112k (H1 2017: £92k).

Gross margin has reduced to 31.7% in the period (H1 2017:36.2%) reflecting, as previously announced, the changed commercial parameters on two specific rail tenders and the impact of remedial works carried out on a contract in the Ground Stabilisation operating unit. These contract issues were identified and resolved in the period and the gross margin is forecast to return to [improve] in the second half. Excluding the three specific contracts, the gross margin in the first half would have been approximately 33.5%. Notwithstanding these isolated contract issues impacting on gross margin in the period, we have continued to benefit from operational gearing, which has allowed us to maintain underlying EBITDA margins at 16.0% which, is close to the corresponding period last year (H1 2017: 16.4%).

In light of the Carillion announcement the Group made on 16th January 2018, it should be noted that all work in progress and debt due from Carillion at the end of the interim period had been paid.

Operating performance

General Piling

The General Piling segment has performed strongly in the period with revenues up 7.8% to £22.9m (H1 2017: £21.2m), with growth primarily from the infrastructure (roads) sector. The segment continues to benefit from our large range of rigs and techniques and operating margins have increased to 15.3% (H1 2017:12.5%), as a result of higher utilisation through production efficiencies from delivering higher valued contracts.

Specialist Piling

Revenue growth was once again strong in Specialist Piling, up 23.5% to £14.1m (H1 2017: £11.5m) with all growth generated from infrastructure work, enabled by our strategic investment in specialist rigs and equipment in previous periods to service this sector. Restricted Access revenues grew 4.2% with the operating unit marginally improving both gross and operating margins. Operating conditions in the Group's rail business continue to be challenging, as previously reported. Whilst rail revenue growth has been pleasing, the commercial parameters in two specific electrification contracts resulted in a dilution to gross margin in the first quarter. As a result, overall divisional operating margins reduced to 7.7% in the period (H1 2017:12.5%). However, performance in the second quarter was much better, with margins on an improving trend as the Group exited the first half. It has been expected that the divisional operating margin would recover to c.13% in the second half although the results for the remainder of the year will reflect the impact of the collapse of Carillion which has yet to be fully determined.

Ground Engineering Services

Ground Engineering Services has significantly increased revenue, up 79.7% to £8.7m (H1 2017: £4.9m). This has been driven by strong growth from the burgeoning Scottish operation, which has enabled the Group to increase its activity in this region significantly. Operating margins are, however, below the prior year at 4.5% (H1 2017:6.8%) reflecting an isolated contract issue in our Ground Stabilisation operating unit which has now been resolved. Adjusting for this contract, the margin would have been approximately 8%. Since the period end, the severe weather during December and January has resulted in some contract delays in the Scottish business, which the Group will work to try and deliver as ground conditions improve.

Ground Engineering Products

Revenue growth was also healthy in Ground Engineering Products, up 22.9% to £6.9m (H1 2017: £5.6m). The Group's proprietary Smartfoot® foundation system continues to gain share in the market and the operating performance reflects the benefits of the expanded manufacturing capacity. Operating margins increased to 9.8% in the period (H1 2017: 8.8%) reflecting the benefits of operational gearing and volume driven production efficiencies. 

Board news

On 1 November 2017 David Stuart Hurcomb was appointed as an Independent Non-Executive Director to the Board.

Also, as announced on 22 November 2017, Jon Fenton, Chief Executive Officer, will be stepping down, once a suitable replacement is identified. The Board is conducting a comprehensive and objective search process for Jon's replacement to identify a new CEO that will bring the relevant commercial, operational and strategic experience to the Group. A selection process commenced in December 2017 and a high quality initial shortlist of candidates has been identified. The Board will look to progress the process as quickly as possible and looks forward to updating the market with news of Jon's successor in due course.

In December 2017, Van Elle's shareholders comprehensively rejected resolutions to change the Board proposed by the former Chairman, Michael Ellis. The Board believed firmly that contesting these proposals vigorously was in the best interests of all stakeholders and would allow the Group to focus on running the business and delivering our long-term strategy. As a result of contesting the resolutions the Group will recognise an exceptional charge in the second half of approximately £150,000 arising from costs directly associated with the general meeting.

Dividend

In line with its progressive dividend policy and reflecting the good first half performance, as well as its confidence in the long-term prospects of the Group, the Board is declaring an interim dividend of 1.4 pence per share. The interim dividend will be paid on 7 March 2018 to shareholders on the register on 9 February 2018. The shares will trade ex-dividend on 8 February 2018.

Current trading and outlook

As anticipated, Van Elle entered the second half in a strong position with activity levels remaining high and trading during November, December and the start of January satisfactory across the Group as a whole.

The recent collapse of Carillion and the impact on the UK construction sector that this may have has been hugely disappointing. As set out in the announcement of 16 January 2018, Van Elle carries out regular work for Carillion as a specialist lead sub-contractor, principally in respect of rail improvement and maintenance work, and our outstanding debt and work-in-progress exposure with Carillion was approximately £1.6m. Whilst the Group is continuing to engage with the Official Receiver in respect of this outstanding balance, it is now expected that Van Elle may recognise an exceptional bad debt charge of approximately £1.6m in its full year results.

In the announcement of 16 January 2018, Van Elle also identified approximately £2.5m of anticipated revenue for the second half of the current year which related to work with Carillion. Management have had constructive dialogue with both the Official Receiver and Network Rail and whilst it is possible that some of the anticipated contracts may be delivered in the current year, the status and timing of specific programmes remains uncertain. Van Elle would typically expect to achieve good margins on rail-related work and therefore these anticipated contracts are material in the context of the Group's financial results.

Enquiry levels across the Group in general remain encouraging and beyond the specific risks associated with the Carillion situation, the current order book as at January 2018 remains substantial. However, the Group's second half expectation included a small number of important contracts which the Board had originally expected to commence in the fourth quarter but now believe will slip into the first quarter of next financial year.

Van Elle continues to deliver strategic progress and, with the support of a strong balance sheet, the long term opportunities for further profitable growth for the Group are significant. In respect of the current year, the Board continues to monitor market conditions closely, particularly with regard to evolving situation in respect of Carillion. In doing so, it should be recognised that the disruption to the expected order book due to the situation at Carillion will impact the Group's ability to achieve its previous expectations for the year as a whole.

Consolidated statement of comprehensive income

For the 6 months ended 31 October 2017

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

Consolidated statement of financial position

As at 31 October 2017

Consolidated statement of cash flows

For the 6 months ended 31 October 2017

Consolidated statement of changes in equity

For the 6 months ended 31 October 2017

Notes to the interim results

For the 6 months ended 31 October 2017

1. Basis of preparation

The unaudited interim consolidated statement of Van Elle Holdings plc is for the six months ended 31 October 2017 and do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. These consolidated financial statements have been prepared in compliance with the recognition and measurement requirement of International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) as adopted by the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the group's annual report. These consolidated financial statements have been prepared in accordance with the accounting policies that are expected to be applied in the report and accounts for the year ending 30 April 2018.

IFRS 15, 'Revenue from contracts with customers' has been adopted by the EU with an effective date of 1 January 2018. The Group is continuing to assess the impact of the standard but based on the progress to date, does not expect the standard to have a significant impact on the Group's results. It is likely that the Group will adopt a prospective transition approach to the standard and further details are contained in the report and accounts for the year ending 30 April 2017.

The Group is also considering the impact on the consolidated financial statements of adopting other standards, amendments or interpretations in issue but not yet effective, including IFRS 9, 'Financial instruments' and IFRS 16, 'Leases'. The Group's approach to both of these standards are contained in the report and accounts for the year ending 30 April 2017.

The consolidated financial statements are presented in Sterling, which is also the Group's functional currency. Amounts are rounded to the nearest thousand, unless otherwise stated.

The comparative figures for the year ended 30 April 2017 do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006, but they have been derived from the audited financial statements for that year, which have been filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006 nor a reference to any matters which the auditor drew attention by way of emphasis of matter without qualifying their report.

The Accounting policies adopted are consistent with those described in the annual financial statements for the year ended 30 April 2017 and that will be adopted for the year ended 30 April 2018. There have been no significant changes in the basis upon which estimates have been determined, compared to those applied at 30 April 2017 and no change in estimate has had a material effect on the current period.

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. Traditionally the second half of the year is stronger in turnover and operating performance than the first half of the year with work undertaken by the Specialist Piling division during the statutory holiday periods of Christmas and Easter. However, the impact of Carillion and other matters will make this year an exception to this usual seasonality. 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 - 6 months to 31 October 2017

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

Operating segments - 6 months to 31 October 2016

Operating segments - 12 months to 30 April 2017

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

3. Exceptional costs

Initial Public Offering ("IPO")

The charge in the prior period 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 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.

4. 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 (6 months ended 31 Oct 2016: 70,372,665 and 12 months ended 30 Apr 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 prior 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.

5. Cash generated from operations

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