Vp Regulatory News (VP.)

Vp plc

('Vp', the 'Group' or the 'Company')

Final Results

Vp plc, the equipment rental specialist, today announces its Final Results for the year ended 31 March 2018.

Highlights

Commenting on the Final Results, Jeremy Pilkington, Chairman of Vp plc, said:

"It has been another year of significant progress for the Group underpinned by record profits and the acquisition of Brandon Hire, our largest to date. In view of this outstanding set of results, the Board is recommending a final dividend of 19.2 pence per share making a total for the year of 26.0 pence per share, an increase of 18%.

We entered the new financial year in excellent shape and whilst there may be market uncertainties, we look forward to the new financial year with confidence."

Neil Stothard, Chief Executive of Vp plc, added:

"The start to the new financial year has been positive. We anticipate that our core UK markets will continue to provide a strong platform for future growth to our UK division. Internationally we do see some recovery in the oil and gas segment and a supportive Australian economy. We continue to drive positive change and development through the whole of Vp and we remain excited about delivering on those initiatives in the new financial year."

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CHAIRMAN'S STATEMENT

I am very pleased to report to shareholders on another year of significant progress for the Group highlighted by record profits and, with Brandon Hire, the Group's largest acquisition.

Profits before tax, amortisation and exceptional items increased 16% to £40.6 million (2017: £34.9 million) on revenues ahead by 22% to £303.6 million (2017: £248.7 million), delivering a very satisfactory 14.8% return on average capital employed. Net debt at the year end was £179.2 million (2017: £98.9 million) after funding £64.9 million investment in the rental fleet (2017: £57.6 million) and £80.2 million on acquisitions including assumed debt.

Earnings per share increased 18% to 81.8 pence per share (2017: 69.5 pence per share).

In view of this outstanding set of results, your Board is recommending a final dividend of 19.2 pence per share making a total for the year of 26.0 pence per share, an increase of 18%. Subject to shareholders approval at our Annual General Meeting on 2 August 2018, it is proposed to pay the final dividend on 9 August 2018 to members registered at 29 June 2018.

It has been an active period for the Group with four acquisitions completed during the year in support of UK growth opportunities. Jackson Mechanical Services, Zenith Survey Equipment and First National have all been successfully integrated within their respective businesses and in November 2017, we were delighted to complete the acquisition of Brandon Hire. At £69.2 million, including debt, Brandon is the Group's largest acquisition and delivers a profitable, specialist tool hire business, with a strong customer base in our key SME markets and a customer service culture closely aligned to our own. The Brandon acquisition adds a team of c.900 experienced tool hire specialists and our combined tool hire business will operate from over 200 locations across the UK.

Shortly after completing this acquisition, we were notified that the transaction was to be reviewed by the Competition and Markets Authority who subsequently cleared the transaction in March 2018. We have, since then, been fully engaged in starting to realise the synergies which attracted us to this opportunity in the first place. We are excited about the potential that this strategic acquisition offers the Group both in the immediate and longer term.

Our ambitions for the Group lie within the UK, Europe and Internationally. The quality of these results demonstrates the strength of our core UK activities whilst in Europe our relatively new business enterprises are starting to gain traction. We envisage further growth here in the future.

The International business was inevitably adversely affected by the impact of the low oil price on activity in the global oil and gas sector. However the recent significant improvements in the oil price encourage us to view the year ahead with a greater degree of optimism.

TR had a very successful year with good progress being made in the Australian and New Zealand markets. At this early stage, the new financial year again looks promising.

Outlook

The Group is focused on delivering sustainable long term value creation for shareholders by leveraging our proven expertise in the specialist rental sector. We remain committed to being first choice provider and first choice employer and to aspire to lead our markets in terms of service and customer satisfaction.

We entered the new financial year in excellent shape and whilst there may be market uncertainties we look forward to the new financial year with confidence.

It remains my great pleasure to thank, on behalf of shareholders and the Board, all employees for their contribution to these excellent results.

Jeremy Pilkington

Chairman

5 June 2018

BUSINESS REVIEW

OVERVIEW

Vp plc is a specialist rental business providing products and services to a diverse range of end markets including infrastructure, construction, housebuilding, and oil and gas. The Group comprises a UK and an International Division.

The financial year ended 31 March 2018 was a year of considerable success for the business which reports a 17% increase in operating profits before amortisation and exceptional items.

Group operating profits before amortisation and exceptional items were £44.0 million which compares with prior year £37.8 million. Operating margins remained healthy at 14.5%, and our key measure of profit quality, return on average capital employed (ROACE), continued to be robust at 14.8%. The reduction in ROACE was due to the timing of the Brandon Hire acquisition in the year. The underlying ROACE for the rest of the Group was maintained at 16%. Revenues grew by 22% to £303.6 million (2017: £248.7 million).

The markets which we support have delivered variable, but generally favourable demand. The infrastructure, housebuilding and construction markets remained positive, though the offshore oil and gas sector did not deliver the anticipated modest recovery.

EBITDA before exceptionals, an indicator of the cash generative nature of the Vp business model, has remained strong, and increased by 18% to £84.3 million (2017: £71.2 million). In order to facilitate the acquisition of Brandon Hire we increased our banking facilities by £70 million at competitive rates from our existing group of banks. Net debt at 31 March 2018 was £179.2 million (2017: £98.9 million).

We continued to invest in our rental fleet with increased gross capital expenditure of £64.9 million (2017: £57.6 million). Fleet disposal proceeds were improved at £18.5 million (2017: £16.7 million), generating profit on disposal of £6.1 million (2017: £5.8 million).

In addition to organic investment in the rental fleet, the Group made four acquisitions during the year, all within the UK trading division.

On 7 April 2017 we announced the acquisition of the mechanical & electrical rental and sales activity of Jackson Mechanical Services (UK) Limited ('JMS M&E') for a cash consideration of £3.6 million. Operating from locations in Harpenden and Leeds, JMS M&E has integrated well within the MEP division of Hire Station, Vp's specialist tool hire business.

On 25 April 2017 we announced the acquisition of the entire issued share capital of Zenith Survey Equipment Limited ('Zenith') for a cash consideration of £3.7 million plus assumed debt of £2.3 million. Zenith is engaged in the specialist rental and sale of survey & safety equipment from seven locations across the UK. Zenith has also been successfully integrated within Hire Station as part of the ESS Safeforce business.

On 7 November 2017 the Group acquired the entire issued share capital of Brandon Hire Group Holdings Limited and its subsidiaries ('Brandon Hire') for a cash consideration of £41.7 million payable on completion, together with assumed net debt of £27.5 million. The Brandon Hire acquisition was the largest in the Group's history and delivers a step change in the growth of our UK specialist tool hire division.

We also acquired in November 2017, First National, a specialist rough terrain fork lift rental business for a consideration of £0.9 million plus assumed debt of £0.7 million. First National now operates within our UK Forks division.

UK DIVISION

Vp's UK division had an excellent trading year delivering a 20% increase in operating profits before amortisation and exceptionals to £43.0 million (2017: £35.9 million). Revenues grew by 24% to £272.0 million (2017: £220.0 million).

The UK division comprises four main business groupings: UK Forks, Groundforce/TPA, Hire Station and Torrent Trackside; all of which have national exposure to the infrastructure, housebuilding and construction sectors within the UK.

The UK Forks division enjoyed sustained demand from a stable but busy housebuilding sector. Activity levels for the core telehandler business remained high whilst the spider access platform fleet experienced a more subdued trading period with a combination of a quieter telecoms market and an increased level of competition impacting revenues. Investment in equipment remained strong in UK Forks as the fleet was both grown and refreshed.

In Groundforce/TPA, positive demand from the infrastructure sector and, in particular, the water industry via Asset Management Programme 6 (AMP 6) helped to deliver a strong overall trading performance. We did see a somewhat lower number of major basement schemes, particularly in the South East, but this was more than compensated for by activity elsewhere. The TPA Portable Roadways activity had a quieter first half but utilisation levels improved considerably into the second half of our financial year. In Europe, the TPA operations also had a busy year, and the Groundforce business, whilst less mature at this stage, is starting to gain some traction in the region. Europe remains a developing geographic market for Groundforce/TPA but we are encouraged by the current momentum.

The Hire Station specialist tool hire division, comprising Hire Station (tool hire), Brandon Hire (tool hire - from November 2017), ESS Safeforce (safety and survey) and MEP (press fitting and low level access), delivered another excellent trading performance. The major development for the division was the acquisition of Brandon Hire as referred to above. This acquisition increases the branch footprint for the combined specialist tool hire operations to over 200 locations and in particular increases the Group's exposure to customers in the targeted SME sector. An early positive development has been the creation of a single management structure for the combined Hire Station/Brandon tools business and whilst it is very early in the process, the integration of Brandon Hire into the Vp group is going well. Trading at Brandon Hire has been in line with our expectations in the first months of ownership. Our Specialist tool hire division delivered good growth in the period and capital investment was strong in support of that growth. Other noteworthy developments were ESS Safeforce securing a five year safety services contract in Rotterdam with Exxon Mobil and a further four new branch locations opening across the ESS Safeforce and MEP businesses.

The UK rail infrastructure sector experienced a mixed period of demand as the Control Period 5 ('CP5') expenditure was slowed, including a number of postponed and cancelled contracts. Our Torrent Trackside business saw revenues a little below expectations, but mitigated by a sustained focus on managing costs and improving service delivery to customers, the business maintained profitability targets. Product investment particularly aimed at the overhead electrification programmes has paid off with strong demand for the new products introduced to the fleet. The business maintained its position as the premier small plant provider to the UK rail sector and it remains well placed to support the recently announced Control Period 6 ('CP6') with expenditure of £48 billion planned over the five year life of the programme. CP6 is more focused on maintaining rather than renewing the UK rail network and this fits the Torrent Trackside service offer very well.

INTERNATIONAL DIVISION

Operating profits before amortisation in the International division were £1.0 million (2017: £1.9 million), a decrease of 46% on revenues of £31.6 million (2017: £28.7 million), an increase of 10%.

The International division comprises two main business groupings: Airpac Bukom which operates globally from a network of regional hubs in Australia, Singapore, Middle East and South America, and TR Group which has operations in Australia, New Zealand, Malaysia and Singapore.

Airpac Bukom supports the global oil and gas well test, pipeline testing, rig maintenance and LNG markets. These markets were again challenging in the financial year, with a continuation of volatile trading conditions throughout calendar 2017, however in 2018 they have started to show tentative signs of improvement. The LNG market will start to slow in Australia over the coming year, but elsewhere the business is identifying new markets which it is hoped will replace the reducing demand from LNG. We expect some improvement in global exploration activity, not least because the oil price has increased significantly over the last 12 months, making this high cost activity more viable. Enquiry levels have improved considerably in 2018 and we hope to see this sector move off the bottom of the cycle over the next 12 months.

TR Group completed a first full year in the Vp group with a good trading performance and ahead of prior year. TR is one of Australasia's leading technical equipment rental groups, providing test and measurement, communications, calibration and audio visual solutions across the region. Market conditions were improved in Australia and New Zealand, supported by an increased infrastructure spend. TR opened an office alongside Airpac Bukom in Singapore during the year, expanding its South East Asia footprint outside Malaysia. TR supports a wide range of end markets including mining, aerospace, oil and gas, utilities and construction. We anticipate continued positive conditions in Australia, and improved markets in Malaysia in the new financial year.

OUTLOOK

The start to the new financial year has been positive. We anticipate that our core UK markets of infrastructure, housebuilding and construction will continue to provide a strong platform for future growth to our UK divisional business streams. Internationally we do see some recovery in the oil and gas segment and a supportive Australian economy over the next 12 months.

We were very pleased to make our largest ever acquisition in November 2017, in Brandon Hire, and we will be heavily focused on capturing all the positive attributes that this business brings to Vp, and looking to further improve the overall financial performance of our enlarged specialist tool hire business. Our European activities with TPA, Groundforce and ESS Safeforce have a busy year ahead and we look forward to further progress in that region. International growth will be driven by further development of our TR business and some modest recovery in our offshore oil and gas support services business.

We continue to drive positive change and development through the whole of Vp and we remain excited about delivering on those initiatives in the new financial year.

Neil Stothard

Chief Executive

5 June 2018

Consolidated Income Statement

for the year ended 31 March 2018

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2018

Consolidated Statement of Changes in Equity

for the year ended 31 March 2018

Consolidated Balance Sheet

as at 31 March 2018

Consolidated Statement of Cash Flows

for the year ended 31 March 2018

NOTES

The final results have been prepared on the basis of the accounting policies which are set out in Vp plc's annual report and accounts for the year ended 31 March 2018. The accounting policies applied are in line with those applied in the annual financial statements for the year ended 31 March 2017.

EU Law (IAS Regulation EC1606/2002) requires that the consolidated accounts of the Group for the year ended 31 March 2018 be prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ('adopted IFRSs').

Whilst the financial information included in this preliminary announcement has been computed in accordance with adopted IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements in June 2018.

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 March 2018 or 2017. Statutory accounts for 31 March 2017 have been delivered to the registrar of companies, and those for 31 March 2018 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 31 March 2018 or 31 March 2017.

The financial statements were approved by the Board of Directors on 5 June 2018.

1. Business Segments

Operating profit before amortisation and exceptional items is reconciled to profit before tax in the Income Statement. In addition, all performance measures stated as before amortisation are also before impairment of intangibles.

The amortisation and impairment charge of £8.1 million (2017: £4.5 million) includes £5.3 million (2017: £2.7 million) in relation to impairment of goodwill and intangibles. The majority of this, £4.8 million, is in respect of the Bukom acquisition in 2006 within the Airpac Bukom division and reflects the lower activity levels in the oil and gas sector as a result of the lower oil price over the last few years.

Furthermore, return on average capital employed is based on profit before tax, interest, amortisation and exceptionals divided by average capital employed on a monthly basis.

2. Exceptional Items

During the year, the Group incurred £1,682,000 of exceptional costs in relation to the acquisition of Brandon Hire Group Holdings Limited. These one off costs related to the professional fees and legal costs associated with the acquisition process and the Competition and Markets Authority (CMA) review of the acquisition, together with restructuring costs in relation to severance payments and depot closure costs. The CMA review was subsequently concluded in March 2018 with the acquisition being cleared by the CMA. These are analysed as follows:

3. Earnings Per Share

The calculation of basic earnings per share of 61.72 pence (2017: 60.31 pence) is based on the profit attributable to equity holders of the parent of £24,366,000 (2017: £23,652,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2018 of 39,476,000 (2017: 39,215,000), calculated as follows:

Basic earnings per share before the amortisation of intangibles was 81.80 pence (2017: 69.52 pence) and is based on an after tax add back of £7,924,000 (2017: £3,610,000) in respect of the amortisation of intangibles and exceptional items.

The calculation of diluted earnings per share of 60.95 pence (2017: 58.65 pence) is based on profit attributable to equity holders of the parent of £24,366,000 (2017: £23,652,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2018 of 39,976,000 (2017: 40,330,000), calculated as follows:

Diluted earnings per share before the amortisation of intangibles and exceptional items was 80.77 pence (2017: 67.60 pence).

Year end gearing (calculated as net debt expressed as a percentage of shareholders' funds) stands at 116% (2017: 72%).

As at 31 March 2018 the Group had £200 million (2017: £120 million) of committed revolving credit facilities. The year on year increase in the facilities reflects an additional facility of £10 million taken out in August 2017 using the step up facility and a new £70 million facility put in place to fund the acquisition of Brandon Hire Group Holdings Limited. In addition to the committed facilities, the Group net overdraft facility at the year-end was £5 million (2017: £5 million).

5. Taxation

The charge for taxation for the year represents an effective tax rate of 20.9% (2017: 22.0%). The effective tax in the year was reduced by 2.7% (£829,000) as a result of a reduction in the deferred tax liability due to the reduction in the future standard rate in the UK to 17%. This reflects the reduction in the rate to 17% for the year ended 31 March 2021. The effective tax rate excluding adjustments in respect of prior years is 20.3% (2017: 21.5%).

6. Dividend

The Board has proposed a final dividend of 19.20 pence per share to be paid on 9 August 2018 to shareholders on the register at 29 June 2018. This, together with the interim dividend of 6.80 pence per share paid on 5 January 2018, makes a total dividend for the year of 26.00 pence per share (2017: 22.00 pence per share). The ex dividend date will be 28 June 2018 and the last day to elect to participate in the dividend reinvestment plan will be 13 July 2018.

7. Principal risks and uncertainties

The Board is responsible for determining the level and nature of risks it is appropriate to take in delivering the Group's objectives, and for creating the Group's risk management framework. The Board recognises that good risk management aids effective decision making and helps ensure that risks taken on by the Group are adequately assessed and challenged.

The Group has an established risk management strategy in place and regularly reviews divisional and department risk registers as well as the summary risk registers used at board level. A risk register is prepared as part of the due diligence carried out on acquisitions and the methodology is subsequently embedded.

All risk registers have a documented action plan to mitigate each risk identified. The progress made on the action plan is considered as part of the risk review process. The summary divisional and departmental risk registers and action plans were reviewed at risk meetings held in May 2018. In all cases it is considered that the risk registers are being used as working documents which provides the required assurance that existing risks are being managed appropriately. In addition, the risk registers provide a process for recognising, scoring and thus appropriately managing new risks.

The risk registers are reviewed at the start (to facilitate the planning process) and at the end of each internal audit project. A post audit risk rating is agreed with management. If new risks are identified following an audit project they are added to the relevant risk register. Heat maps illustrating post audit risk ratings and new risks are provided to the board in each published internal audit report.

To promote risk awareness amongst group and divisional employees, risk registers have now been disseminated further down levels of management.

Further information is provided below on our principal risks and mitigating actions to address them.

Market risk

Risk description

A downturn in economic recovery could result in worse than expected performance of the business, due to lower activity levels or prices.

Mitigation

Vp provides products and services to a diverse range of markets with increasing geographic spread. The Group regularly monitors economic conditions and our investment in fleet can be flexed with market demand.

Competition

Risk description

The equipment rental market is already competitive, and could become more so, potentially impacting market share, revenues and margins.

Mitigation

Vp aims to provide a first class service to its customers and maintains significant market presence in a range of specialist niche sectors. The Group monitors market share, market conditions and competitor performance and has the financial strength to maximise opportunities.

Investment/product management

Risk description

In order to grow, it is essential the Group obtains first class products at attractive prices and keeps them well maintained.

Mitigation

Vp has well established processes to manage its fleet from investment decision to disposal. The Group's return on average capital employed was a healthy 14.8% (2017: 16.0%) in 2017/18. The quality of the Group's fleet disposal margins also demonstrate robust asset management and appropriate depreciation policies.

People

Risk description

Retaining and attracting the best people is key to our aim of exceeding customer expectations and enhancing shareholder value.

Mitigation

Vp offers well structured reward and benefit packages, and nurtures a positive working environment. We also try to ensure our people fulfil their potential to the benefit of both the individual and the Group, by providing appropriate career advancement and training.

Safety

Risk description

The Group operates in industries where safety is a key consideration for both the well-being of our employees and the customers that hire our equipment. Failure in this area would impact our results and reputation.

Mitigation

The Group has robust health and safety policies, and management systems. Our induction and training programmes reinforce these policies. We have compliance teams in each division.

We provide support to our customers exercising their responsibility to their own workforces when using our equipment.

Financial risks

Risk description

To develop the business Vp must have access to funding at a reasonable cost. The Group is also exposed to interest rate and foreign exchange fluctuations which may impact profitability and has exposure to credit risk relating to customers who hire our equipment.

Mitigation

The Group has a revolving credit facility of £200 million and maintains strong relationships with all banking contacts. Our treasury policy defines the level of risk that the Board deems acceptable. Vp continues to benefit from a strong balance sheet, with growing EBITDA, which allows us to invest into opportunities.

Our treasury policy requires a significant proportion of debt to be at fixed interest rates and we facilitate this through interest rate swaps. We have agreements in place to buy or sell currencies to hedge against foreign exchange movements. We have strong credit control practices and use credit insurance where it is cost effective. Average debtor days were 59 (2017: 58) days and bad debts, as a percentage of revenue remained low at 0.5% (2017: 0.4%).

Contractual risks

Risk description

Ensuring that the Group commits to appropriate contractual terms is essential; commitment to inappropriate terms may expose the Group to financial and reputational damage.

Mitigation

The Group mainly engages in supply only contracts. The majority of the Group's hire contracts are governed by the hire industry standard terms and conditions. Vp has defined and robust procedures for managing non-standard contractual obligations.

8. Forward Looking Statements

The Chairman's Statement and Business Review include statements that are forward looking in nature. Forward looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may cause the actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Except as required by the Listing Rules and applicable law, the Company undertakes no obligation to update, review or change any forward looking statements to reflect events or developments occurring after the date of this report.

9. Annual Report and Accounts

The Annual Report and Accounts for the year ended 31 March 2018 will be posted to shareholders before the end of June 2018.

Directors' Responsibility Statement in Respect of the Annual Financial Report (extracted from the Annual Financial Report)

We confirm that to the best of our knowledge:

· The Group and Parent Company financial statements which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Parent Company; and

· The Business Review and Financial Review, which form part of the Directors' Report, include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with the description of the principal risks and uncertainties that they face.

For and on behalf of the Board of Directors.

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