Vp Regulatory News (VP.)

29 May 2009 07:00



Vp plc

("Vp" or the "Group")

Final Results

Vp plc, the equipment rental specialist, today announces its Final Results for the year ended 31 March 2009.

Highlights

Jeremy Pilkington, Chairman, commented:  

"This has been another year of progress for the Group. The economic conditions remain challenging and uncertain, however we believe that our financial strength, our diversity of end markets and our continued focus on service excellence, will enable Vp to deliver another satisfactory result in the new financial year."

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  CHAIRMAN'S STATEMENT

I am pleased to report a year of further progress for the Group and, under the current economic circumstances, what we believe to be a very satisfactory set of results.

Profit before tax and amortisation rose 8% to £21.7 million on revenues largely unchanged at £151 million (2008: £149 million). Earnings per share increased from 36.1p to 36.4p notwithstanding an increased rate of tax charge. Although we expect the new financial year to be more challenging, reflecting these very satisfactory results and the Group's strong financial position, your Board is recommending a maintained final dividend of 7.7p per share, making a total for the year of 10.8p, an increase of 2.9%. Subject to shareholders' approval at the Annual General Meeting in September the dividend will be paid on 1 October 2009 to members registered as of 4 September 2009.

Today's economic landscape is radically different to the environment in which I wrote my statement twelve months ago. Although our significant exposure to regulated and niche construction markets, together with timely action by management, has helped to mitigate the impact of the economic downturn on the Group's performance, most of our businesses experienced a more challenging second half than a year ago. 

Our natural conservatism with regard to borrowings meant that we entered this recession with relatively modest gearing. Nevertheless, the focus of the Group this year is to conserve cash and manage costs, whilst still taking advantage of business opportunities as and when they arise. Recent investment in our hire fleet has given us an age profile which enables us to reduce capital expenditure significantly over the short term without damaging the quality of the service offered to our customers.

The Group will undoubtedly face challenges in the new financial year. The level of Government debt will constrain spending on public sector infrastructure and social programmes, which have to date been very important in offsetting the sharp decline in private sector work in the UK. Internationally, the decline in the price of oil has led to the deferment of some exploration and development activity, although we expect these workloads to recover and regard prospects for the oil and gas sector positively.

Elsewhere, although no business can expect to be immune from the effects of the global economic slowdown, we believe our mix of regulated and outsourcing markets will provide some cushion against the worst impact of the recession. 

Under what are uniquely challenging economic circumstances, we believe our financial strength, our diversity of end markets and our continued focus on service excellence will enable Vp to deliver another satisfactory result in the new financial year. As always, but of particular importance in the current economic climate, I wish to acknowledge the loyalty and commitment of our employees and their contribution to the continuing success of the Group.

Jeremy Pilkington 

Chairman

29 May 2009

  BUSINESS REVIEW

OVERVIEW

Vp plc is a specialist equipment rental business providing the hire and sale of products and services to a diverse range of markets including civil engineering, rail, oil and gas exploration, construction, outdoor events and industrial markets. During the year under review the strength that the Group derives from that diversity has been clearly demonstrated.

Despite the rapid deterioration of the economy in the UK and globally, the year ended 31 March 2009 saw the group deliver further growth in profitability. Operating profits before amortisation increased 9% to £25.4m, on revenues marginally ahead at £150.9m. Operating margins before amortisation improved from 15.6% to 16.8% in the year.

Investment in rental fleet was reduced by approximately a third on prior year to £28.4m, reflecting the changing economic environment and its direct impact on certain of our businesses. 

The markets which we serve have been mixed. Privately funded construction including housebuilding has been severely affected, but infrastructure and regulated markets largely held up well during the year, although they have started to soften as we enter the new financial year.

GROUNDFORCE

Excavation support systems, specialist solutions and trenchless technology for the water, gas, civil engineering and construction industries.

Groundforce delivered excellent results with revenues up £2.8 million to £37.8 million, and generating operating profits of £11.0 million, 26% ahead of prior year.

The continued investment in infrastructure and contract releases from AMP4 underpinned revenues compensating for the reduction in housebuilding activity. Major excavation propping activity such as at Staythorpe Power Station and over thirty schemes on the 2012 Olympics site provided a steady income stream. Groundforce's class leading expertise in this field secured work on the major second Tyne Tunnel project which commenced in February and will continue into autumn 2009.

During the year Groundforce integrated two small acquisitions. Redding Hire was merged into the shoring business and provided a new distribution point in Wellingborough. U Mole, acquired on 31 March 2008, specialises in pipe rehabilitation and trenchless technology. U Mole introduces a complementary product offering and will benefit from increased geographical coverage across the existing Groundforce network. The business in Ireland maintained its performance, winning new customers and leveraging existing relationships in a very challenging market. Further afield and towards the end of the year, two contracts were undertaken in Denmark.

Capital investment in fleet, whilst down on prior year, remained strong at £6.8 million.

We believe that Groundforce's core markets will be more challenging going forward. Capital investment will be adjusted accordingly but not at the expense of new business opportunities that may arise throughout the coming year.

UK FORKS

Rough terrain material handling equipment for industry, residential and general construction.

Trading conditions proved extremely challenging and, after an exceptional prior year performance, operating profits at UK Forks reduced to £1.2 million. The well documented difficulties within the housing market, which intensified as the year progressed, were the prime cause of revenues falling to £13.2 million, 18% lower than the previous year. Although non-residential construction represents more than 60% of UK Forks' end markets, housebuilding inevitably remains an important element of the customer mix. Other revenue streams were reasonably resilient although shrinkage in demand resulted in some hire rate attrition.

With significant investment having been made in replacement fleet during the previous year, the focus was, and remains, to maintain a fleet aligned with market opportunity. Demand for telehandler products fell and an ongoing programme of fleet reduction and rebalancing was undertaken. Investment in fleet was very significantly reduced on prior year. Cash disposals of older fleet generated proceeds of £3.9 million and margins, whilst showing some weakening, remained at respectable levels.

The division achieved ISO9001 and ISO14001 for all of its operating locations during the year as it continues its drive to add value to its service offering.

Although we believe that housebuilding may be over the worst, it is too early to expect any improvement in demand from this sector for 2009/10. The regime of prudent cost management and fleet maximisation will continue to be the key focus this year.

AIRPAC BUKOM OILFIELD SERVICES

Equipment and service providers to the international oil and gas exploration and development markets.

Building on its sustained growth in revenues and profit over the past 5 years, Airpac Bukom made further progress delivering operating profits of £3.9 million, 18% up on prior year from revenues up 12% to £14.7 million.

The past year has seen reversals in the oil price from the high levels of summer 2008 and lower estimates of oil demand, mirroring general global economic conditions. These factors have led to a contraction in exploration and production expenditure by oil companies during 2009 following six years of double-digit growth. Combined with tightening credit markets, this presents a more challenging business environment for the oilfield services sector.

Further capacity of more specialist equipment such as sand filters, heat exchangers and coflexip hoses was added to the fleet in the course of the year continuing the major capital investment programme embarked on in recent years. 

The new satellite facilities in Western Australia, the Middle East and South America are all contributing to growth, with the Australian operation developing particularly well and supporting business across a variety of end markets.

Well testing, our primary market, absorbed much of the specialist equipment delivered through the investment programme.  The maintenance business, largely focussed in the North Sea, remained strong and grew further during the year. Whilst the activity from pipeline commissioning projects was down, the versatility of our products was demonstrated by a strong contribution from process pipe-work testing for Liquified Natural Gas plant construction, a new revenue stream involving pipeline product transfer related work.

The comparatively low oil price and lower energy demand environment has led to oil company spending cuts and a less certain picture in the short term. Whilst it seems likely that these factors will lead to some fall off in exploration and production activities, particularly from smaller oil operators, overall we anticipate the diversity of our markets will enable us to manage demand changes. In the medium to long term our view is that the market for oilfield services will continue its strong growth trend.

TORRENT TRACKSIDE

Suppliers of rail infrastructure portable plant and specialist services to Network Rail, London Underground and their appointed contractor base. 

Torrent produced an improved trading performance in a difficult market. Profits were £1.2 million, 33% ahead of prior year on static revenues at £14.0 million. The margin improvement demonstrates the impact of a number of cost saving initiatives undertaken over the past year.

Industry funding suffered as Network Rail, in the last year of Control Spend Period 3 (CP3), re-negotiated the next five year CP4 with the Office of the Rail Regulator. This has now been concluded. We are aware that in year one of CP4, some spending from the track renewals programme will be withheld but there will be increased spending on projects and track enhancements. Torrent is well positioned to support all these areas of investment.

Activities on London Underground were curtailed during the year but improvement is expected over the coming year as the Tube enhancement programme geared towards the 2012 Olympic deadline gets underway. Torrent depots at Harlow and Aylesford, along with our new London Underground support depot at Canning Town, are ideally located to benefit from these projects and other national rail infrastructure projects planned in and around the capital in the coming years.

Torrent has secured, and renewed, long term trading agreements with its main contractor customer base and retains its market leading position in the rail portable plant and services market. 

TPA

Portable roadway systems, primarily to the UK market, but also in mainland Europe and the Republic of Ireland.

TPA made further good progress in the year, increasing profits by 42% to £1.7 million on revenues of £15.6 million, 11% up on prior year.

The business operates in three distinct sectors: outdoor events, transmission and construction. Demand for portable roadway products for the summer events season was particularly strong and the transmission sector was very active during 2008 and much improved on prior year. Construction related activity was also good during the year.

The outdoor event market in particular, and to a degree the transmission sectors, are seasonal, which causes demand levels to drop in the winter months. This year the transmission sector experienced a quiet final quarter, contributing to a slow finish to the financial year.

In Germany, TPA GmbH performed very well, further expanding its fleet and operations with demand from the transmission and wind power sectors particularly strong.

Notwithstanding the difficult economic background, we anticipate further positive demand from the transmission and outdoor events markets in the coming year, though the construction related markets are expected to be challenging.

HIRE STATION

Small tools and specialist equipment for industry and construction. 

Against the background of a difficult market, Hire Station performed extremely well in the year, producing profits of £6.4 million, 8% up on prior year, based on further margin improvement. Underlying revenues grew marginally as the prior year included over £2 million of exceptional flood-related revenue.

Capital investment in the rental fleet was £8.8 million, 27% down on prior year, reflecting the hardening market conditions. Three small acquisitions were made earlier in the year (Arcotherm, DJ Tool Hire and UCS Plant) followed in November by Power Tool Supplies, a single tool hire location in Brighton.

Markets in the main were supportive in the first half of the year, which allowed Hire Station to deliver good year on year growth. The second half proved to be much more difficult with some revenue deterioration and an increasing number of bad debts from the small to medium sized customer base. The business responded quickly to the changing market conditions, reducing both headcount and infrastructure to secure an immediate £2 million of annualised savings.

The tools business made further steady progress during the year. New greenfield locations were added in Croydon, Norwich, Poole and Oxford, and the prior year openings in Exeter, Hull and Skipton developed very well and made positive profit contributions. A number of larger branches were successfully relocated in the period. The National Call centre in Manchester has once more grown its transaction levels as more branch telephone traffic is handled by the centre, freeing up the branches to focus on service, delivery and asset management. In the past two years a dedicated operation in the call centre has been established to manage our virtual hire partners. These long term agreements have in effect created over 1,000 new tool hire outlets. Most of our virtual hire customers deal via credit cards and this up front payment is particularly helpful in the current climate.

The safety rental business, ESS Safeforce, reported excellent revenue and profit growth, some from the prior year's NSS acquisition but with the majority being organic. NSS supplies hazardous area lighting to the industrial sector and has been rolled out to two further locations: Runcorn and Rainham. Two new confined space training centres, in Scotland and Middlesbrough, were opened during the year, which increased the network to eleven. In the final quarter ESS Safeforce absorbed the Survey Technology business from Groundforce, providing cost and commercial synergies. The combined survey and safety offering will further enhance ESS's market leading position. The introduction of breathing air trailers into the fleet during the year has worked well with excellent demand for this product.

MEP continues to progress well, with its customer base, mainly in the mechanical, electrical and plumbing sectors, maintaining healthy order books. Two new locations were opened up in Newcastle and Stoke taking the network to six and we anticipate two or three more openings in due course to complete national coverage.

The Climate Hire business had a mixed year. No disaster recovery work and almost non-existent summer demand for air conditioning contrasted with better revenues from heaters during the winter. The Climate Hire business operates from a central call centre in Alfreton with distribution via twelve tool hire outlets around the country.

PROSPECTS

In the year under review, we have seen certain markets slowing down and we anticipate that this general trend will continue into the coming year. The focus of the Group in the near term is to conserve cash, by significantly reducing rental fleet expenditure, tightening working capital management and by negotiating better supply chain arrangements.

Opportunities to win business still exist despite the overall condition of the market and we remain as engaged in development as we do in carefully managing the Group through a challenging environment. These actions, together with strength in the balance sheet, should see that the Group remains in good shape and ready to embrace the opportunities for expansion that will undoubtedly arise in the longer term.

Neil Stothard

Group Managing Director

29 May 2009

Consolidated Income Statement

For the year ended 31 March 2009

Consolidated Statement of Recognised Income and Expense

For the year ended 31 March 2009

  Consolidated Balance Sheet

As at 31 March 2009

The restatement of the prior year figures relates solely to hindsight adjustments to prior year acquisitions.  Consolidated Statement of Cash Flows

For the year ended 31 March 2009

  NOTES

The final results have been prepared on the basis of the accounting policies which are to be set out in Vp plc's annual report and accounts for the year ended 31 March 2009.

EU Law (IAS Regulation EC1606/2002) requires that the consolidated accounts of the Group for the year ended 31 March 2009 be prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ('adopted IFRSs').

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2009 or 2008. Statutory accounts for 2008 have been delivered to the Registrar of Companies, and those for 2009 will be delivered in due course. The auditors have reported on the 2009 and 2008 accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 237(2) or (3) of the Companies Act 1985.

The financial statements were approved by the board of directors on 29 May 2009.

1. Business Segments

2. Earnings Per Share

Basic earnings per share

The calculation of basic earnings per share of 36.41 pence (2008: 36.09 pence) is based on the profit attributable to equity holders of the parent of £15,134,000 (2008: £15,395,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2009 of 41,562,000 (2008: 42,658,000), calculated as follows:

Basic earnings per share before the amortisation of intangibles was 37.99 pence (2008: 36.64 pence) and is based on an after-tax add back of £654,000 (2008: £234,000) in respect of the amortisation of intangibles.

Diluted earnings per share

The calculation of diluted earnings per share of 35.30 pence (2008: 34.26 pence) is based on profit attributable to equity holders of the parent of £15,134,000 (2008: £15,395,000) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2009 of 42,872,000 (2008: 44,939,000), calculated as follows:

There are additional options which are not currently dilutive, but may become dilutive in the future. Diluted earnings per share before the amortisation of intangibles was 36.83 pence (2008: 34.78 pence).

3. Consolidated Statement of Changes in Equity

4. Analysis of Debt

Year end gearing (calculated as net debt expressed as a percentage of shareholders' funds) stands at 85% (2008: 72%). Excluding investment in own shares at market value of £7.7 million (2008: £11.7 million), underlying gearing was 69% (2008: 49%).

5. Taxation

The charge for taxation for the year represents an effective tax rate of 27.4% (2008: 22.5%). The underlying tax rate excluding adjustments in respect of prior years and the impact of the change in the tax charge for future UK corporation tax in the year ended 31 March 2008 was 29.4% (2008: 27.4%).

6. Dividend

The Board has proposed a final dividend of 7.7 pence per share to be paid on 1 October 2009 to shareholders on the register at 4 September 2009. This, together with the interim dividend of 3.1 pence per share paid on 5 January 2009 makes a total dividend for the year of 10.8 pence per share (2008: 10.5 pence per share).

7. Risks and Uncertainties

The Group comprises a number of businesses serving different markets and manages the risks inherent to these activities. The key external risks include general economic conditions, competitor actions, the effect of legislation, credit risk and business continuity. Internal risks relate mainly to investment and controls failure risk. The Group seeks to mitigate exposure to all forms of risk where practicable and to transfer risk to insurers where cost effective. The diversified nature of the Group limits the exposure to external risk within a particular market. Exposure to credit risk in relation to customers, banks and insurers is managed through credit control practices including credit insurance which limits the Group's exposure to bad debts via an aggregate first loss policy which covers approximately half of the Group's accounts receivable. Business continuity plans exist for key operations and accounting centres. The Group is an active acquirer and acquisitions may involve risks that might materially affect the Group performance. These risks are mitigated by extensive due diligence and appropriate warranties and indemnities from the vendors.

Taking into account these risk mitigation actions and the treasury management policies described in the 31 March 2009 accounts, the Group's exposure to market, liquidity and credit risk is considered to be within normal parameters and represents a level of acceptable risk.

8. Annual Report and Accounts

The Annual Report and Accounts for the year ended 31 March 2009 will be posted to shareholders on or about 27 July 2009.

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 financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and 

The Directors' Report includes 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