REG - Renew Holdings PLC - Final Results
29/11/2022 07:00
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RNS Number : 8500H Renew Holdings PLC 29 November 2022
929 November 2022
Renew Holdings plc
("Renew" or the "Group" or the "Company")
Final Results
Continued outperformance reflects differentiated, low-risk nature of business
model
Renew (AIM: RNWH), the leading Engineering Services Group supporting the
maintenance and renewal of critical UK infrastructure, announces its
preliminary results for the year ended 30 September 2022 ("the Period").
Financial Highlights
Year ended 30 September 2022 FY2022 FY2021 Change
Group revenue(1) £849.0m £791.0m +7.3%
Adjusted operating profit(1) £58.8m £51.2m +14.8%
Operating profit £50.0m £41.1m +21.7%
Adjusted operating margin(1) 6.9% 6.5% +45bps
Profit before tax £49.5m £40.8m +21.4%
Adjusted earnings per share(1) 59.5p 50.5p +17.8%
Full year dividend 17.0p 16.0p +6.3%
( )
● Record results reflecting the core strengths of the Group and the resilient
nature of our differentiated, high-quality, low-risk business model
● Group order book of £775m (FY2021: £749m)
● Net cash position (pre-IFRS16) of £20.2m (FY2021: Net debt £13.7m)
● Final dividend of 11.33p reflecting strong cash position and positive outlook
● De-risking of balance sheet with completion of Amco Pension Scheme buy-in
Operational Highlights
● Secured position as second largest supplier of road restraint systems in the
country with the successful collaboration of AmcoGiffen and Carnell for
National Highways
● Significant expansion of water client list following the successful
integration of Browne
● Framework extensions secured in Scotland and Eastern which leave the Group
ideally placed ahead of CP7 determinations
● Meaningful improvements in the Group's safety performance
Current Trading & Outlook
● Trading momentum has continued into the new financial year
● Whilst Renew is not immune to the challenging macroeconomic environment,
structural growth drivers in our end markets have never been more attractive
● Government reiterated infrastructure as a growth priority and restated its
commitment to invest over £600bn(2) on infrastructure by 2027
● Post-period end acquisition of Enisca Group Limited, adding new capabilities
to Renew's water business
Paul Scott, CEO of Renew, commented:
"Given the difficulties faced by most UK businesses in 2022, I am extremely
pleased to be presenting another set of record results for the Group. This
continued success would not be possible without the incredible hard work of
our colleagues who I would like to thank on behalf of the Board. The last
three years have presented a unique set of unprecedented circumstances and our
continued outperformance in each year illustrates the resilient nature of our
differentiated, high-quality, low-risk business model. We have made good
progress across all our divisions and post-period end we were pleased to
welcome Enisca to the Renew family who will add new capabilities to our water
business.
As we look ahead, we are committed to building on our strengths and will
continue to leverage the combined expertise of our subsidiary businesses.
Pleasingly, our positive trading momentum has continued into the new financial
year and we enter 2023 with a strong order book and believe the structural
growth drivers in our end markets, underpinned by committed regulatory spend,
continue to provide the Group with significant opportunities."
For further information, please contact:
Renew Holdings plc www.renewholdings.com
Paul Scott, Chief Executive Officer via FTI Consulting
Sean Wyndham-Quin, Chief Financial Officer 020 3727 1000
Numis Securities Limited (Nominated Adviser and Joint Broker) 020 7260 1000
Stuart Skinner / Kevin Cruickshank
Peel Hunt LLP (Joint Broker) 020 7418 8900
Mike Burke / Harry Nicholas / Charles Batten
FTI Consulting (Financial PR) 020 3727 1000
Alex Beagley / Sam Macpherson / Rafaella de Freitas Renew@fticonsulting.com
About Renew Holdings plc
Renew is a leading UK Engineering Services business, performing a critical
role in keeping the nation's infrastructure functioning efficiently and
safely. The Group operates through independently branded subsidiaries across
its chosen markets, delivering non-discretionary maintenance and renewal tasks
through its highly skilled, directly employed workforce.
Renew's activities are focused into two business streams: Engineering
Services, which accounts for over 95 per cent of the Group's adjusted
operating profit, focuses on the key markets of Rail, Infrastructure, Energy
(including Nuclear) and Environmental which are largely governed by regulation
and benefit from non-discretionary spend with long-term visibility of
committed funding.
Specialist Building focuses on the High Quality Residential, Landmark and
Science markets in London and the Home Counties.
For more information please visit the Renew Holdings plc website:
www.renewholdings.com
Certain information contained in this announcement would have constituted
inside information (as defined by Article 7 of Regulation (EU) No 596/2014)
prior to its release as part of this announcement.
Chairman's statement
Introduction
As the new Chairman I am pleased to announce that the Group achieved a record
financial performance, with continued growth in revenue and profit and strong
operating cash generation, again reflecting the core strengths of the Group
and our well-established positions in attractive and sustainable growth
markets. Supported by the commercial terms within our frameworks, the Group
continues to successfully manage the well documented inflationary pressures
and supply chain challenges in the wider economy.
Differentiated business model
Our differentiated business model and the services we provide continue to
support key infrastructure assets in regulated markets. Our markets enjoy
committed funding which provides visible, reliable and resilient revenues via
long-term programmes.
We deliver non-discretionary maintenance and renewals tasks and have little
exposure to the financial and contractual risks of larger enhancement schemes.
Operating in complex, challenging and highly regulated environments, our
markets have high barriers to entry, and we directly employ a highly skilled
workforce which enables us to be extremely responsive to our clients' needs.
Results
Group revenue(1) increased to £849.0m (2021: £791.0m) with adjusted(1)
operating profit increasing to £58.8m (2021: £51.2m) and an adjusted(1)
operating margin of 6.9% (2021: 6.5%). Statutory operating profit was £50.0m
(2021: £41.1m). The adjusted(1) EPS has increased by 17.8% to 59.5p (2021:
50.5p) and basic earnings per share was 47.8p (2021: 38.7p). The Group had a
pre IFRS16 net cash(1) position of £20.2m (2021: net debt £13.7m), in line
with our expectations.
Post period end we were delighted to announce the acquisition of Enisca Group
Limited. This acquisition represents an excellent strategic fit, adding new
capabilities to Renew's water business and will form a key part of the Group's
strategy to maximise the opportunities presented by AMP8. We have worked
closely with Enisca for many years as JV partners and we are delighted to
welcome all the Enisca employees to the Renew Group. The acquisition was
funded out of the Group's cash and existing debt facilities.
Dividend
The Group's strong trading performance, cash position and positive outlook
give the Board the confidence to propose a final dividend of 11.33p (2021:
11.17p) per share. This will be paid on 3 March 2023 to shareholders on the
register as at 10 February 2023, with an ex-dividend date of 9 February 2023.
This will represent a full year dividend of 17.0p (2021: 16.0p) per share, an
increase of 6.3%.
Environmental, Social and Governance
Environmental
We are committed to achieving net zero by no later than 2040, ahead of the
2050 target date set by the Government. During 2022, our initiatives to
achieve this included developing the Group's wider sustainability strategy and
our TCFD reporting. We have continued to work on our net zero planning and the
innovative working practices that will support both the Group and its clients
in achieving critical sustainability objectives.
We are pleased to retain our London Stock Exchange's Green Economy Mark, which
recognises those companies that derive over 50 per cent of revenue from
products and services that are contributing to environmental objectives. Renew
plays an important role in helping to achieve Government aims for greater
sustainable infrastructure.
Social
We understand the value that businesses can provide to the wider community.
During the year we continued to engage with local schools and education
providers, supporting our local communities and undertaking a range of charity
events. We invest heavily in the training and development of our colleagues
including over 270 trainees, apprentices and graduates. We also continue to
invest in the Group's management development programme, Renew Inspiring
Successful Executives (RISE). We remain committed to making Renew an
attractive and diverse employer and to support this objective, we have created
a number of diversity forums across the Group aimed at improving our
performance in this important area.
Governance
As a Board, we are responsible for ensuring the effective application of high
levels of governance within our business, balancing the interests of all our
stakeholders. As a minimum, the Group complies with the QCA Corporate
Governance Code, more details of which can be found in the corporate
governance section of the Group's website. Risk management is led by the
Board, which reviews the Group's risk profile on an ongoing basis alongside
the Audit and Risk Committee.
Board changes
In May, David Forbes resigned as the Group's Chairman and from the Board after
almost 11 years. The Board would like to thank David for his outstanding
contribution to the transformation of the Group during his tenure.
Following a process run by the Nomination Committee, I was appointed as Group
Chairman and Chair of the Nomination Committee. Additional Board changes
include Shatish Dasani, Chair of the Audit & Risk Committee, assuming the
responsibility of Senior Independent Director and Stephanie Hazell,
Non-executive Director, appointed as Chair of the Remuneration Committee. I
have been a member of the Renew Board for the last five years and, as
Chairman, remain focused on providing the right environment that ensures that
the Group continues to grow in a sustainable manner and that we deliver on our
strategic plans.
On 9 December 2021, Louise Hardy was appointed as Non-executive Director and
subsequently resigned on 10 March 2022 to take up a non-executive position at
another listed company.
On 1 November 2022, we were pleased to announce the appointment of Liz Barber
as a Non-executive Director. Liz brings a wealth of experience gained over 12
years' in the regulated water sector, an established market for Renew.
Combined with her financial background, Liz will complement the Board's
current skillset and will be invaluable as we continue on our growth journey.
People and safety
As a Board we recognise the critical role our employees play in the success of
the Group and we sincerely thank all our colleagues for their ongoing
dedication and hard work. We remain focused on the mental and physical
wellbeing of our colleagues.
We are committed to ensuring a safe working environment to ensure that none of
our colleagues, or those who work with us, are injured during the conduct of
our operations. During the year we have had an increased focus on the
behavioural aspects of safety to further improve our safety record.
Future focus
The Group is supported in the delivery of its long-term strategy through
effective relationships with our directly employed workforce, customers,
suppliers, shareholders, and wider stakeholders and these are critical to the
continued success of the business as we build on our track record of
consistently creating shareholder value.
We will continue to deliver our strategic priorities whilst focusing on our
environmental, social and governance responsibilities and on our approach to
diversity and inclusion as we move through 2023 and beyond.
The Group was pleased to see the Chancellor's recent Autumn Statement where he
confirmed the Government's commitment to infrastructure spending which leaves
Renew ideally placed as we look ahead. The Board expects to continue to
deliver growth, both organic and through strategic earnings-enhancing
acquisitions. Our differentiated business model and the reliable long-term
nature of the UK infrastructure markets give the Board continued confidence
despite the wider uncertain economic outlook.
David Brown
Chairman
29 November 2022
(1) Renew uses a range of statutory performance measures and alternative
performance measures when reviewing the performance of the Group against its
strategy. Definitions of the alternative performance measures, and a
reconciliation to statutory performance measures, are included in Note 9.
Chief Executive Officer's Review
Record year underpinned by resilience and reliability
The financial year ended 30 September 2022 has, for most UK businesses, been
defined by challenging macroeconomic and geopolitical circumstances, resulting
in an operating environment that is very different from where we were 12
months ago. While Renew is not immune to all of the headwinds this environment
has caused, it is pleasing to be able to report another set of record results
for the Group. During the last three years we have operated through national
lockdowns, a global pandemic, high inflation, resourcing challenges and
materials shortages, despite which, we have delivered record results in each
of those three years. This period, perhaps more than any other, has
highlighted the resilient nature of our differentiated, high-quality, low-risk
business model. The Group's continued outperformance would not be possible
without the incredible hard work of all our directly employed colleagues
across the business and, on behalf of the Board, I would like to thank them
for their tireless work throughout what was an extraordinary year.
We remain committed to delivering engineering infrastructure solutions for a
sustainable future. Our focus on critical asset maintenance and renewal means
we are not dependent on large, capital-intensive contract awards, providing
Renew with a significantly lower risk profile than others in our industry. We
perform a mission-critical role in keeping the nation's infrastructure
functioning efficiently and safely as a leading provider of essential
maintenance and renewals-led engineering services, operating in regulated
markets including rail, highways, mobile telecommunications, civil nuclear,
water and environmental.
As part of the pledge to level up the economy and reach net-zero carbon
emissions by 2050, and as confirmed in the Autumn Statement, the Government
remains committed to a record £600bn(2) investment in transforming the UK's
infrastructure and we continue to benefit from an increased focus on
maintaining and renewing assets as part of this shift. Renew has a vital role
to play in supporting the sustainable infrastructure of the future and we have
also made good progress on our own sustainability agenda this year and remain
committed to achieving net-zero emissions across the Group by 2040.
Supported by the commercial terms within our frameworks, the Group has
successfully managed industry-wide material shortages and inflation challenges
throughout the year, delivering operating profit, margin and revenue ahead of
strong prior year comparatives. This performance reinforces Renew's ability to
deliver consistently and reliably through the economic cycle thanks to our
differentiated and resilient business model, the critical nature of our work
and the committed, long-term, highly visible spending cycles that underpin our
end markets.
There were countless achievements across the Group throughout the year and
while it is impossible to mention them all, it's worth highlighting a few of
note. We were pleased to be able to record an improvement in the Group's
safety performance. The successful collaboration of AmcoGiffen and Carnell for
National Highways saw the Group become the second largest supplier of road
restraint systems in the country, while our water division expanded its client
list with the extremely successful integration of Browne into the Renew
family. Separately, our Rail division secured framework extensions in Scotland
and Eastern which leave the Group ideally placed ahead of CP7 determinations
in 2023.
Acquisitions form a key feature of our strategic ambition to deliver
compounding shareholder returns. We finished the year with a robust balance
sheet and this together with our strong operational cash generation leaves us
uniquely positioned to continue to appraise selective value-accretive M&A
opportunities in the industries and sectors where we operate. As we expand
through M&A, we will continue to leverage collaboration opportunities
between our brands, providing a unique advantage when applying for frameworks.
Post period end we were delighted to announce the acquisition of Enisca Group
Limited, a multi-disciplinary design, engineering and construction business
providing mechanical, electrical, instrumentation, control and automation
(MEICA) services to the water industry. This acquisition represents an
excellent strategic fit, adding new capabilities to Renew's water business and
will form a key part of the Group's strategy to maximise the opportunities
presented by AMP8. We have worked closely with Enisca for many years as JV
partners and we are delighted to welcome all the Enisca employees to the Renew
Group.
Our chosen markets continue to see significant levels of investment providing
us with organic growth opportunities through our focus on asset management
programmes with non-discretionary funding and high barriers to entry. We enter
2023 with a strong forward orderbook supported by long-term contracts with
repeat clients and framework agreements that provide barriers to entry which
protect our current market share and provide a solid platform for growth. We
look to the future with optimism, confident in the spending plans of our
clients which are underpinned by strategic national need and committed
regulatory spend.
Renew's strengths
Renew has a number of core strengths which provide distinct competitive
advantages in our chosen markets and leave us well placed to build on our
strong track record of long-term value creation:
● The health, safety and wellbeing of our colleagues, and those impacted by our
work, remains our number one priority and we have implemented industry leading
safe working practices for the Group's employees and operations.
● We operate a differentiated, diversified, low-risk, low-capital operating
model, providing critical asset maintenance and renewals services that are not
dependent on large, high-risk, capital-intensive contract awards.
● Our directly employed workforce enables us to provide a more efficient and
valuable service to our clients, reducing our exposure to sub-contractor
pricing volatility and being able to deliver extremely responsive solutions.
● The commercial terms within our frameworks mean we are able to proactively and
effectively manage cost inflation.
● Our businesses are well established in complex, challenging and highly
regulated markets with significant barriers to entry, which demand a highly
skilled and experienced workforce and a proven track record of safe delivery.
● We work in markets underpinned by resilient, long-term growth dynamics and
highly visible, reliable, committed regulatory spending periods, providing
predictable cashflows.
● We have a proven track record of sustainable value creation, reliable revenue
growth and strong returns on capital thanks to our highly cash generative
earnings model and clearly defined strategy.
● We are committed to growing the business both organically and through
selective complementary acquisitions while maintaining a disciplined approach
to capital allocation and risk underpinned by a strong balance sheet.
● We have strong relationships in place with all our stakeholders, from our
workforce to our customers, suppliers, communities and shareholders.
● Our model of compounding earnings through the redeployment of internally
generated cashflows enables us to execute on our strategy of delivering
reliable and consistent growth for all our stakeholders.
Compelling market drivers
Our businesses bring exposure to attractive long-term, non-discretionary
structural growth drivers. Increasing demand for the maintenance and renewal
of existing UK infrastructure is driven by a number of factors including:
● a commitment by the Government to level up the economy by investing £600bn(3)
in an infrastructure-led recovery, two-thirds of which will be in the
transport and energy sectors, with fiscal stimulus measures likely to flow
through to lower cost infrastructure maintenance programmes ahead of larger,
more capital-intensive enhancement schemes;
● greater focus on sustainability and climate change as part of the UK's target
of reaching net-zero carbon emissions by 2050, together with flood risk
prevention measures and investment in nuclear projects, renewables and rail
electrification programmes;
● population growth increasing the pressure on housing, energy, water and demand
for natural resources;
● technological innovation driving a shift towards digital roads, smart cities
and the transformation of transport and telecommunications networks; and
● increased Government regulation to improve safety, efficiency and resilience
of key infrastructure assets leading to more demanding maintenance, renewal
and upgrading requirements.
Our track record of resilient growth and long-term value creation
Renew has a strong track record of sustainable value creation through the
economic cycle thanks to the Group's high-quality, value-accretive compounding
earnings model. Over the past five years, we have delivered:
· Adjusted(1) earnings per share growth of 68 per cent;
· an increase in our adjusted(1) operating margin from
6.5 per cent to 6.9 per cent;
· Group organic revenue growth of 1.9 per cent and total
revenue growth of 7.3 per cent; and
· five strategic acquisitions supported largely by our
strong free cash flow.
Our track record of reliable revenue growth, cash generation and conservative
approach to gearing has resulted in our ability to deliver highly predictable,
consistent organic earnings growth as well as funding for the acquisition of
complementary businesses that meet our strategic requirements.
Results overview
During the period, Group revenue(1) of £849.0m (2021: £791.0m), an increase
of 7.3% partly as a result of the full year impact of Browne, which was
acquired in March 2021. The Group achieved an adjusted(1) operating profit of
£58.8m (2021: £51.2m) with an adjusted(1) operating profit margin of 6.9%
(2021: 6.5%). As at 30 September 2022, the Group had pre-IFRS 16 net cash(1)
of £20.2m (30 September 2021: net debt £13.7m).
Underpinned by long-term framework positions, the Group's order book at 30
September 2022 has remained strong at £775m (2021: £749m).
Refinancing
Post the year-end, the Group has refinanced its debt facilities with its
existing banking partners HSBC UK Bank plc and National Westminster Bank plc
and has introduced a new bank into the banking syndicate, Lloyds Banking Group
plc. The new facility comprises an £80m secured revolving credit facility
committed until November 2026.
Amco pension buy-in
As previously announced, the Trustee of the Amco Group Pension Scheme ("Amco
Scheme"), in consultation with the Board, entered into a "buy-in" agreement
with a specialist insurer on 8 April 2022. This transaction will ensure the
security of the benefits of the Amco Scheme's pensioners and deferred members
and, while the Group remains legally responsible for the scheme, the
transaction has eliminated all of the Group's exposure to investment and
funding risks in the Amco Scheme. The transaction also improves the long-term
security of members' benefits. As a result of this buy-in, and the previous
buy-in that occurred in 2013, all of the Amco Scheme's liabilities are now
matched with corresponding annuities. The "buy-in" will be completed using
Amco Scheme assets plus an additional, one off, cash contribution which is
expected to be around £1.6m to purchase annuities from the specialist insurer
which match corresponding pension liabilities, where the annuity policy
remains an asset of the Amco Scheme.
Dividend
The Group's strong trading performance, cash position and positive outlook
gives the Board the confidence to propose a final dividend of 11.33p per
share, an increase of 1.4 per cent over the prior year final dividend of
11.17p. This will be paid on 3 March 2023 to shareholders on the register as
at 10 February 2023, with an ex-dividend date of 9 February 2023. This will
represent a full year dividend of 17p (2021: 16p) per share.
Engineering Services
Our Engineering Services activities account for over 95 per cent of the
Group's adjusted(1) operating profit and delivered revenue(1) of £778.9m
(2021: £706.7m) with an adjusted(1) operating profit of £59.1m (2021:
£51.5m) resulting in an adjusted(1) operating margin of 7.6% (2021: 7.3%). At
30 September 2022, the Engineering Services order book was £717m (2021:
£679m).
Rail
Network Rail is investing £53bn(4) over the current Control Period (CP6),
which runs to 2024. Network Rail is a significant strategic customer for the
Group and during the period the Group became the third largest provider of
engineering services to Network Rail nationally. CP6 has an increased focus on
operational support, renewal and maintenance works, which plays to our
strengths, as does the Government's commitment to its rail decarbonisation
programme. This will include significant investment in electrification
programmes as part of the overall UK target to deliver net-zero by 2050.
As the largest provider of multidisciplinary maintenance and renewals
engineering services to Network Rail, we support the day-to-day operation of
the rail network nationally, directly delivering essential asset maintenance
through our long-term CP6 frameworks. The Group assists Network Rail through
our mission-critical renewals and maintenance services supporting assets
including bridges, embankments, tunnels, drainage systems, signalling and
electrification.
During the period, we continued to add new positions including the Southern
Buildings and Civils Framework and the Structures Integrity Framework in the
South, while also securing further fencing and vegetation management work
under CP6 and new frameworks for Transport for Wales. We also secured work on
the Transpennine Upgrade and have seen growth in our renewals work bank.
Pleasingly, we are beginning to see the early signs of the electrification
market come to life as part of the UK Government's plan to decarbonise the
nation's railways. We have begun electrification work on the Midland Main Line
and the Aberdeen to Glasgow line and see a greater emphasis on rail
electrification as we move into Control Period 7 (CP7).
Importantly, we secured a one-year framework extension in Scotland which
leaves the Group ideally placed to seize further opportunities as we move into
CP7. We have also made excellent progress on preparations to resecure our
framework positions for CP7.
Innovation remains a key differentiator for the Group and during the period we
maintained our position as the leading rail plant innovator in the country. We
have received positive recognition from our clients for the efficiency of our
work which is in part a result of our relentless pursuit to implement
industry-leading innovations. Our Rail MegaVac and Mega Chipper V2 are just
two recent examples of innovations we have brought to market and our teams
continue to evaluate other opportunities to make our work more efficient and
sustainable.
The compelling maintenance-focused structural growth drivers within this
sector and Renew's high quality engineering expertise leave the Group ideally
positioned to deliver long-term, profitable growth in Rail particularly as we
see opportunities present themselves in the current and future Control
Periods. Our team remains focused on securing our existing frameworks which
are coming up for renewal while continuously appraising other areas for
organic growth. The early stages of increased electrification on the railways
bode well for future CP7 framework applications where our three rail brands
have formed a collaborative and unique position for Overhead Line
Electrification delivery, another key strategic pillar for the Group.
Infrastructure
Highways
Following the Group's successful entry into the Highways market via its
acquisition of Carnell in January 2020, it has continued to go from strength
to strength. We made good progress during the period, delivering essential
asset maintenance and critical infrastructure renewals underpinned by
non-discretionary regulatory requirements.
The UK Government has committed to an unprecedented level of spending on
England's strategic road network as part of its second Road Investment
Strategy ("RIS2"). Of the £24bn(5), £11.9bn of funding is ringfenced for
operations, maintenance and renewals which represents a significant
opportunity for Renew. Importantly, this trend looks set to continue with
increased spend in renewals forecast over the next 10 years with a focus on
structures, concrete pavement and road restraints.
Recently, Transport Focus, the independent watchdog representing the interests
of users of England's motorways, submitted its six strategic objectives for
RIS3(6). The objectives build on the first two strategies and while all six
objectives are important, Transport Focus notes that those of the greatest
importance relate to the top three road user priorities: improved quality of
road surfaces; safer design and upkeep of the road network; and better
management of roadworks. This continued focus on renewals and maintenance
plays well into the Group's capabilities as we move into RIS3.
During the period, work commenced on the National Highways Scheme Delivery
Framework ("SDF") across five framework lots, covering civil engineering, road
restraint systems and drainage disciplines, worth £147m over six years. The
road restraint lots will be delivered through a collaboration between two of
the Group's subsidiary businesses, AmcoGiffen and Carnell, illustrating the
integration and collaboration potential of our brands. The joint venture
between AmcoGiffen and Carnell, was the only successful joint venture on the
SDF and makes the Group the second largest supplier of road restraint systems
in the country. Following this key strategic advancement, the Group continues
to pursue further opportunities where it can leverage the combined expertise
of its subsidiaries.
With the continued focus on renewals and maintenance on the country's
strategic road network, Renew remains uniquely placed to seize attractive
growth and market share opportunities within Highways.
Aviation
During the period we were appointed to the 5-year Manchester Airports Group
£700m Civils Framework to deliver medium-sized civil-engineering projects
valued between £3m - £10m. This will support its programme of infrastructure
development across its three airports namely, Manchester, East Midlands and
Stansted. Works are expected to gather momentum in late 2023 onwards.
Wireless telecoms
As the UK Government continues to invest in wireless technology to improve the
nation's connectivity, the sector remains an attractive growth area for the
Group. An estimated £30bn(7) is required to upgrade the nation's broadband
networks to gigabit-capable speeds, which includes the Government's £5bn
investment in Project Gigabit to upgrade the UK's broadband infrastructure, a
significant component of which is 5G, the expansion of the Shared Rural
Network and the £500m programme to extend 4G mobile coverage to 95% of the
UK.
The Group is well positioned to benefit from various upcoming projects to
cater for the increasing demand for 5G services. We operate across 3UK's
programme of cell site densification and VMO2 and MBNL's three-year 5G
services frameworks. We are progressing well in our works with EE and BT to
remove Huawei equipment from UK networks by 2027 and we have secured contracts
with Vodafone and VMO2 to deliver acquisition, design and construction
services.
Growing investment in fibre by Openreach, Virgin and Altnets, underpinned by
Government regulation, presents a strong opportunity in the sector, and we
continue to build on our long-term relationships with the main UK network
operators, equipment vendors and managed service providers.
Energy
Nuclear
The Government's total nuclear decommissioning provision is estimated at
£124bn(8) over the next 120 years, with around 75% of the total spend
allocated to Sellafield which is the largest of the Nuclear Decommissioning
Authority's sites and where we remain a principal Mechanical, Electrical and
Instrumentation services contractor. The Nuclear Decommissioning Authority is
increasing investment in decommissioning at Sellafield, Magnox and Dounreay
with EDF stations being brought into public ownership.
Having worked for over 75 years in civil nuclear, we provide a
multidisciplinary service through our large complement of highly skilled
employees who operate to demanding nuclear standards, including
decontamination and decommissioning services, operational support and asset
care, as well as waste retrieval in high-hazard areas such as legacy storage
ponds and silos. As such, the Group can take advantage of opportunities in the
decommissioning stage and the new nuclear build programme.
In the period, the Group has secured a number of decommissioning and
decontaminating contracts. We are excited to have won our first project to
plan decommissioning of facilities at AWE - Aldermaston, and a separate
decontamination project for the recently closed THORP nuclear fuel
reprocessing plant.
We continue to operate across a number of long-term frameworks at Sellafield
and we are collaborating with Programme and Project Partners ("PPP") to secure
further growth opportunities. PPP is a 20-year framework for the delivery of a
broad range of major projects for the site, with £7bn in the programme
pipeline. We have also secured memorandum of understanding ("MOU") to
support three of these projects. In a joint venture, the Group has delivered
the installation of the first waste retrieval machine within the highest
hazard building on the site. Our work at Sellafield positions us well for
opportunities in the Major Projects Programme and we continue to build
relationships outside of Sellafield at Magnox and Dounreay and AWE, broadening
opportunities for decommissioning contracts.
This year has seen significant changes to the Government's stance towards
nuclear energy. Turbulent energy markets and high gas prices have exposed the
issues of over reliance on foreign supplies. In April 2022, the Government
launched the British Energy Security Strategy, identifying new nuclear as an
important part of its plans to ensure greater energy independence. The
strategy will see a significant acceleration in investment in new nuclear,
with an ambition of new nuclear producing up to 24GW by 2050, representing 25%
of projected electricity demand(9).
Whilst most existing plants will be shut down by the end of the decade, the
Government has simultaneously set a target to commence construction of up to
three new nuclear plants in the next 10 years, with the approval of a £100m
investment in Sizewell C(10) (estimated to be a £30bn project), £210m
allocated to Small Modular Reactors (SMR's)(11) and the establishment of Great
British Nuclear. This sizeable investment in new nuclear represents an
exciting growth area for the Group.
Our contract to support Rolls Royce at Hinkley Point "C" for manufacturing and
installation of key components is progressing well and we have a MOU in place
to support the manufacture of Rolls Royce's Small Modular Reactor.
Electric Vehicle Charging
The UK Government's commitment to ban the sale of non-electric new cars by
2030 provides the Group with another exciting growth opportunity. This target
has been identified as a key priority in supporting the Government's net zero
emissions targets as well as its ambition to become the fastest nation in the
G7 to decarbonise road transport(12).
As part of its plans, the Government committed to remove charging
infrastructure as both a perceived, and a real, barrier to the adoption of
electric vehicles and has allocated a £950m Rapid Charging Fund(13) to
support the rollout of at least 6,000 high powered charge points across
England's motorways and major A-roads by 2035. An additional sum of over
£500m of funding has been granted to support local authorities to find
innovative ways to increase local charge point coverage, as well as the launch
of the £10m Local EV Infrastructure pilot project(14).
The sector has seen over £3bn invested in recent years(15). Large vehicle
fleet owners such as Amazon, XPO and Post Office are investing in vehicle
charging infrastructure to support return to base electric fleets.
Our projects during the year included the delivery of Volvo bus and truck
electrical infrastructure and charging projects UK wide, providing EV
infrastructure for Amazon distribution facilities, the Post Office and the
installation of EV and network upgrades in nine mainline Network Rail
stations.
Thermal Power, Renewables, Networks, Transmission and Distribution
Our essential engineering maintenance services continue in a number of the
UK's thermal power stations. We are progressing delivery of our work on the
Minor Works Framework with National Grid and our Minor Civils Framework with
Western Power Distribution and have secured additional contracts for works on
the SSE Hydro Tunnels Framework and the Drax Electrical Framework.
The Group is an accredited Independent Connection Provider (ICP), supporting
electrical system upgrades required for EV and Telecoms. Our offer is unique
and provides a consultative solution for the delivery of large-scale
electrical charging infrastructure.
Renew is focused on leveraging opportunities in the electricity transmission
and distribution market. This is expected to grow as a consequence of the
changing energy generation mix where we note that Ofgem has announced more
than £20bn(16) of initial funding to strengthen the transition to low carbon
technologies.
Environmental
Water
In Water, we continue to benefit from the UK Government's commitment to spend
£51bn(17) over AMP7 into 2025 with increased expenditure on capital
maintenance, asset optimisation and supply resilience including dam safety and
infrastructure refurbishment schemes. The market is underpinned by committed
regulatory spend and long-term growth opportunities.
AMP7 has been characterised by a focus on cost efficiency & leak reduction
resulting in an increase in planned expenditure on capital maintenance, asset
optimisation & supply resilience. As we enter Year 3, we expect to see an
increasingly accelerated programme of regulatory spend over the final years of
the current AMP cycle, given the lower level of expenditure in the early part
of the cycle.
Our offer of mains renewal, scheduled repairs and maintenance as well as
extensive 24/7 emergency reactive works remains one of our key strengths,
providing specialised, mission-critical services for clients around the UK.
With water companies increasing expenditure on capital maintenance and asset
optimisation, we are in a strong position to fulfil any new works in these
areas.
During the period we continued our work with Dŵr Cymru Welsh Water ("DCWW")
and currently hold a number of contracts with market-leading companies
including for the Pressurised Pipelines Framework and the Capital Delivery
Alliance Civils & Pipeline Framework. We are delighted that for the first
time, we have secured a place on the DCWW Major Civils 8-year Framework, a key
strategic target for the Group.
Elsewhere, we have been awarded a new framework with Severn Trent and we
continue engagements for Bristol Water on mains renovation, Wessex Water on
the Phosphate Removal Programme and we are maintaining and renewing existing
assets on operational treatment and distribution facilities (AMP7 Minor Civils
Framework) with Yorkshire Water.
During 2021, we welcomed Browne into the Renew family and that acquisition has
continued to strengthen our offering and footprint in the sector. Browne has
seamlessly integrated into the Group, continues to trade ahead of management's
expectations and helped the Group to expand our Water client base. During the
period we added Thames Water, Affinity Water, South East Water and Southern
Water to our growing list of clients.
We also continue to see long-term opportunities with existing clients Scottish
Canals and Peel Ports.
Flood & Coastal
Changing weather conditions have highlighted the need for investment in flood
defence, and the UK Government has committed £5.2bn(18) over the next six
years to improve flood defence infrastructure. This includes plans to improve
protection to 336,000 properties exposed during the floods in 2019, with
similar programmes being planned in devolved budgets for Scotland & Wales.
The Group currently undertakes work for the Environment Agency ("EA") on the
EA Flood and Coastal Erosion Framework. With growing investment in the
segment, and increased pressure on governments to improve the UK's resilience
for climate change, the Group is well-positioned to expand its presence in the
sector. We also continue to work on national frameworks for the Canal and
River Trust, Scottish Canals and Natural Resources Wales.
Specialist Restoration
As reported in our interim results, we are progressing well with works at the
Palace of Westminster, now entering the new flat roofs phase at the site,
through the award of a five-year Conservation Framework. This market continues
to present a number of long-term opportunities for our specialist
capabilities. In the period we were appointed to schemes at Tollcross in
Glasgow and Royal Botanic Garden Edinburgh.
Specialist Building
Revenue was in line with the Group's expectations at £70.1m (2021: £84.4m)
reflecting a continued focus on contract selectivity and risk management.
Operating profit was £1.7m (2021: £1.6m). In Specialist Building, the order
book was £58m (2021: £70m).
Our Specialist Building business focuses on the High Quality Residential,
Landmark and Science markets in London and the Home Counties.
The High Quality Residential market continues to be robust and we are active
on a number of schemes across the capital. The Group was also awarded several
other landmark schemes during the period including for the National History
Museum. Our essential work for the Medical Research Council is nearing
completion and we have recently been appointed on a scheme for Imperial
College London's Department of Infectious Diseases.
Environmental, Social and Governance (ESG)
Our purpose is to provide essential engineering services to maintain and renew
critical infrastructure networks. It is well recognised that investment into
low-carbon infrastructure will be fundamental in delivering the Government's
ambition to reach net-zero emissions in the UK by 2050. Indeed, it is the
Board's ambition that the Group will achieve net zero by no later than 2040.
From the rail network and digitally assisted roads to high-speed telecoms and
clean energy, Renew has a key enabling role to play on the frontline of
efforts to decarbonise the economy. Our long-term approach to sustainability,
which has always been at the heart of our business, is more relevant now than
ever before.
Since the introduction of our quantitative targets at the Group's interim
results in May 2021, we are pleased to report good progress on our ESG
strategy across four key areas:
· take climate action;
· operate responsibly;
· empower our people; and
· build social value.
We continue to advance our strategy, and this year we have focused on
implementing TCFD disclosure and developing next steps for 2023. Pleasingly,
we have also taken the necessary steps to retain our LSE Green Economy Mark.
Further details of our comprehensive approach to ESG will be set out in the
Group's 2022 Annual Report and Accounts.
Our people
Our people are the most important part of our business and I, on behalf of the
Board, would once again like to thank them for all their hard work throughout
the year.
Our highly skilled, directly employed workforce are essential to our
high-quality, low-risk, resilient and differentiated business model. In
response to the increase in the cost of living and to ensure we retain our
talent, we have undertaken a number of initiatives to support our employees
during this difficult economic time. Pleasingly, we remain below the
industry average attrition rate and expect this to continue as a consequence
of the initiatives we have rolled out during the period.
M&A - A key growth driver
Our high-quality compounding earnings model enables the Group to redeploy
internally generated cashflow in a disciplined manner, creating value through
highly selective and strategically complementary M&A opportunities that
supplement our profitable organic growth. We have a strong record of
successfully identifying, acquiring and integrating value-enhancing
acquisitions, more recently improving our capabilities in the Water sector
through the acquisition of Browne in 2021, whilst successfully entering the
Highways market in 2020 through the acquisition of Carnell. Both of these
brands have outperformed expectations and now form key elements of our growth
strategy going forward. We continue to actively appraise opportunities that
fit within our strict acquisition criteria and will supplement our existing
capabilities and extend our footprint into untapped markets in the UK. The
M&A landscape remains dynamic and we will remain disciplined in our
pursuit of targets in terms of both valuations and strategic fit.
Outlook - moving forward with confidence
The year has once again highlighted the differentiated and resilient nature of
our, high-quality, low-risk business model. In the face of incredibly
challenging political and economic circumstances, the Group has delivered
another record set of results supported by the commercial terms within our
frameworks.
Despite recent political instability, the UK Government remains committed to
its plans to level up the economy and reach net-zero by 2050 through
long-term, record levels of committed investment with an increased focus on
maintaining and renewing assets. This commitment was confirmed in the
Chancellor's recent Autumn Statement when he said "I am not cutting a penny
from our capital budgets in the next two years and maintaining them at that
level in cash terms for the following three years." The UK Government has also
sharpened its focus on infrastructure to improve climate resilience and energy
self-sufficiency, investing in renewable sources and nuclear capabilities. To
this end, the structural growth drivers in our end markets have never been
more attractive and we remain uniquely positioned to seize both organic and
acquisitive growth opportunities.
Our business model is built on solid foundations, evidenced by strong and
well-established market positions across key infrastructure sectors with
visible, non-discretionary spending cycles. The spending plans of our clients
are underpinned by strategic national needs and regulatory commitments. In
line with previous years, we have entered the new financial year with our
order book in a strong position and trading in the new year has begun
positively.
As we look ahead, we are committed to building on our strengths and will
continue to leverage the combined expertise of our subsidiary businesses in
2023, following their successful collaboration on a number of projects this
year as we target new areas for organic growth while simultaneously appraising
acquisitive opportunities in our end markets. Our chosen markets continue to
see significant levels of investment which gives us confidence in the Group's
future prospects as we move into 2023 and into new framework cycles across our
sectors of expertise.
Paul Scott
Chief Executive Officer
29 November 2022
1 Renew uses a range of statutory performance measures and alternative
performance measures when reviewing the performance of the Group against its
strategy. Definitions of the alternative performance measures, and a
reconciliation to statutory performance measures, are included in Note 9.
2 HM Treasury, Autumn budget and spending review 2022 - October 2022
3 HM Treasury, Autumn budget and spending review 2022 - October 2022
4 Network Rail Delivery Plan, Control Period 6, High Level Summary - 26 March
2020
5 UK Government Department for Transport, Planning ahead for the Strategic Road
Network - December 2021
6 Transport Focus, Putting road users at the heart of the Road Investment
Strategy for 2025-2030 - October 2022
7 UK Government Department for Digital, Culture, Media & Sport, Future
Telecoms Infrastructure Review - 23 July 2018
8 Nuclear Decommissioning Authority, Nuclear Provision: the cost of cleaning up
Britain's historic nuclear sites - 4 July 2019
9 British Energy Security Strategy - April 2022
10 British Energy Security Strategy - April 2022
11 British Energy Security Strategy - April 2022
12 Taking Charge: the electric vehicle infrastructure strategy - March 2022
13 Taking Charge: the electric vehicle infrastructure strategy - March 2022
14 Taking Charge: the electric vehicle infrastructure strategy - March 2022
15 Taking Charge: the electric vehicle infrastructure strategy - March 2022
16 Ofgem RIIO-ED2 Draft Determinations - Overview Document - 29 June 2022
17 Ofwat PR19 final determinations, December 2019
18 UK Government Department for Environment, Food and Rural Affairs, Flood and
coastal erosion risk management - 29 July 2021
Group income statement
for the year ended 30 September
Before Exceptional Before Exceptional
exceptional items and exceptional items and
items and amortisation items and amortisation
amortisation of intangible amortisation of intangible
of intangible assets of intangible assets
assets (see Note 3) Total assets (see Note 3) Total
2022 2022 2022 2021 2021 2021
Note £000 £000 £000 £000 £000 £000
Revenue: Group including share of joint ventures* 849,048 - 849,048 790,995 - 790,995
Less share of joint ventures' revenue* (32,772) - (32,772) (15,356) - (15,356)
Group revenue from continuing activities 2 816,276 - 816,276 775,639 - 775,639
Cost of sales (693,336) - (693,336) (666,454) - (666,454)
Gross profit 122,940 - 122,940 109,185 - 109,185
Administrative expenses (68,184) (8,527) (76,711) (57,985) (10,070) (68,055)
Other operating income 3,655 - 3,655 - - -
Share of post-tax result of joint ventures 362 (267) 95 11 - 11
Operating profit 2 58,773 (8,794) 49,979 51,211 (10,070) 41,141
Finance income 16 - 16 19 - 19
Finance costs (573) - (573) (836) - (836)
Other finance income - defined benefit pension schemes 33 - 33 428 - 428
Profit before income tax 2 58,249 (8,794) 49,455 50,822 (10,070) 40,752
Income tax expense 5 (11,330) 1,782 (9,548) (11,096) 2,427 (8,669)
Profit for the year from continuing activities 46,919 (7,012) 39,907 39,726 (7,643) 32,083
Loss for the year from discontinued operations 4 (2,242) (1,620)
Profit for the year attributable to equity holders of the parent company 37,665 30,463
Basic earnings per share from continuing activities 7 59.52p (8.89)p 50.63p 50.51p (9.72)p 40.79p
Diluted earnings per share from continuing activities 7 59.13p (8.87)p 50.43p 50.09p (9.63)p 40.46p
Basic earnings per share 7 59.52p (11.74)p 47.78p 50.51p (11.78)p 38.73p
Diluted earnings per share 7 59.13p (11.70)p 47.60p 50.09p (11.68)p 38.41p
* Alternative performance measure, please see Note 9 for further details.
Group statement of comprehensive income
for the year ended 30 September
2022 2021
£000 £000
Profit for the year attributable to equity holders of the parent company 37,665 30,463
Items that will not be reclassified to profit or loss:
Movement in actuarial valuation of the defined benefit pension schemes 347 (25,672)
Movement on deferred tax relating to the pension schemes (240) 9,026
Total items that will not be reclassified to profit or loss 107 (16,646)
Items that are or may be reclassified subsequently to profit or loss:
Exchange movement in reserves - (8)
Total items that are or may be reclassified subsequently to profit or loss - (8)
Total comprehensive income for the year attributable to
equity holders of the parent company 37,772 13,809
Group statement of changes in equity
for the year ended 30 September
Share Capital Cumulative Share based
Share premium redemption translation payments Retained Total
capital account reserve adjustment reserve earnings equity
£000 £000 £000 £000 £000 £000 £000
At 1 October 2020 7,856 66,378 3,896 1,316 821 40,180 120,447
Transfer from income statement for the year 30,463 30,463
Dividends paid (10,354) (10,354)
New shares issued 12 647 659
Recognition of share based payments 258 258
Exchange differences (8) (8)
Actuarial movement recognised in pension schemes (25,672) (25,672)
Movement on deferred tax relating to the pension schemes 9,026 9,026
At 30 September 2021 7,868 66,378 3,896 1,308 1,079 44,290 124,819
Transfer from income statement for the year 37,665 37,665
Dividends paid (13,281) (13,281)
New shares issued 18 18
Recognition of share based payments 658 658
Vested share option transfer (362) 362 -
Reclassification on closure of overseas (1,308) (1,308)
subsidiaries
Actuarial movement recognised in pension schemes 347 347
Movement on deferred tax relating to the pension schemes (240) (240)
At 30 September 2022 7,886 66,378 3,896 - 1,375 69,143 148,678
Group balance sheet
At 30 September
2022 2021
(restated*)
£000 £000
Non-current assets
Intangible assets - goodwill 138,445 139,698
- other 22,385 29,241
Property, plant and equipment 17,834 16,254
Right of use assets 15,519 17,247
Investment in joint ventures 5,538 5,708
Retirement benefit asset 2,230 661
Deferred tax assets 2,899 2,301
204,850 211,110
Current assets
Inventories 2,613 2,078
Assets held for resale 1,250 1,250
Trade and other receivables 164,590 157,416
Current tax assets - 1,382
Cash and cash equivalents 20,218 881
188,671 163,007
Total assets 393,521 374,117
Non-current liabilities
Lease liabilities (8,640) (9,421)
Retirement benefit obligation (1,049) (152)
Deferred tax liabilities (7,568) (8,067)
Provisions (338) (441)
(17,595) (18,081)
Current liabilities
Borrowings - (14,609)
Trade and other payables (212,684) (207,667)
Lease liabilities (5,884) (6,180)
Current tax liabilities (595) -
Provisions (8,085) (2,761)
(227,248) (231,217)
Total liabilities (244,843) (249,298)
Net assets 148,678 124,819
Share capital 7,886 7,868
Share premium account 66,378 66,378
Capital redemption reserve 3,896 3,896
Cumulative translation adjustment - 1,308
Share based payments reserve 1,375 1,079
Retained earnings 69,143 44,290
Total equity 148,678 124,819
*Reclassification from accruals to provisions (please see accounting policy
Note 1)
Group cashflow statement
for the year ended 30 September
2022 2021
£000 £000
Profit for the year from continuing operating activities 39,907 32,083
Share of post-tax trading result of joint ventures (95) (11)
Impairment and amortisation of intangible assets 8,109 6,463
Research and development expenditure credit (1,353) -
Defined benefit pension scheme G.M.P. equalisation/past service deficit - 2,805
Depreciation of property, plant and equipment and right of use assets 10,136 10,504
Profit on sale of property, plant and equipment (830) (649)
Increase in inventories (534) (405)
Increase in receivables (7,455) (15,289)
Increase in payables and provisions 10,986 3,996
Current and past service cost in respect of defined benefit pension scheme 23 61
Cash contribution to defined benefit pension schemes (315) (560)
Charge in respect of share options 657 258
Finance income (16) (19)
Finance expense 540 408
Interest paid (573) (836)
Income taxes paid (7,595) (7,335)
Income tax expense 9,548 8,669
Net cash inflow from continuing operating activities 61,140 40,143
Net cash outflow from discontinued operating activities (3,977) (976)
Net cash inflow from operating activities 57,163 39,167
Investing activities
Interest received 16 19
Dividend received from joint venture 265 60
Proceeds on disposal of property, plant and equipment 1,514 1,263
Purchases of property, plant and equipment (5,056) (4,042)
Acquisition of subsidiaries net of cash acquired - (33,343)
Net cash outflow from investing activities (3,261) (36,043)
Financing activities
Dividends paid (13,281) (10,354)
Issue of share equity 18 659
New loan 18,000 10,000
Loan repayments (22,373) (18,752)
Repayments of obligations under lease liabilities (6,693) (7,410)
Net cash outflow from financing activities (24,329) (25,857)
Net increase/(decrease) in continuing cash and cash equivalents 33,550 (21,757)
Net decrease in discontinued cash and cash equivalents (3,977) (976)
Net increase/(decrease) in cash and cash equivalents 29,573 (22,733)
Cash and cash equivalents at beginning of year (9,355) 13,396
Effect of foreign exchange rate changes on cash and cash equivalents - (18)
Cash and cash equivalents at end of year 20,218 (9,355)
Bank balances and cash 20,218 881
Bank overdraft - (10,236)
Cash and cash equivalents at end of year 20,218 (9,355)
Notes
1 Basis of preparation
The consolidated financial statements for the year ended 30 September 2022
have been prepared in accordance with UK adopted International accounting
standards ("Adopted IFRS"). These preliminary results are extracted from those
financial statements.
Going concern
The Board has concluded that it is appropriate to adopt the going concern
basis, having undertaken a rigorous review of financial forecasts and
available resources. The Directors have robustly tested the going concern
assumption in preparing these financial statements, taking into account the
Group's liquidity position at 30 September 2022. The Directors have considered
the results of the stress testing of key assumptions and consider the
likelihood of events or circumstances that would impact the going concern
assessment as collectively remote. The Directors have reviewed the period to
31 December 2023.
Prior year restatement
In the prior year, £6.0m of provisions were incorrectly recorded as
accruals. This has resulted in previously reported trade and other payables
reducing by £6.0m and previously reported provisions increasing by £6.0m.
This reclassification impacts the balance sheet only. There is no impact to
any other primary statement or note to the financial statements. The impact at
the beginning of the prior period (1 October 2020) would be to increase
provisions and reduce accruals by £6.0m.
2 Segmental analysis
The Group is organised into two operating business segments plus central
activities which form the basis of the segment information reported below.
These segments are:
Engineering Services, which comprises the Group's engineering activities which
are characterised by the use of the Group's skilled engineering workforce,
supplemented by specialist subcontractors where appropriate, in a range of
civil, mechanical and electrical engineering applications;
Specialist Building, which comprises the Group's building activities which are
characterised by the use of a supply chain of subcontractors to carry out
building works under the control of the Group as principal contractor; and
Central activities, which include the leasing and sub-leasing of some UK
properties and the provision of central services to the operating
subsidiaries.
Group including Group revenue Group revenue
Less
share of joint share of joint from continuing from continuing
ventures ventures activities activities
Revenue is analysed as follows: 2022 2022 2022 2021
£000 £000 £000 £000
Engineering Services 778,917 (32,772) 746,145 691,207
Specialist Building 70,125 - 70,125 84,425
Segment revenue 849,042 (32,772) 816,270 775,632
Central activities 6 - 6 7
849,048 (32,772) 816,276 775,639
Before
exceptional Exceptional
items and items and
amortisation amortisation
of intangible of intangible
assets assets
2022 2022 2022 2021
£000 £000 £000 £000
Engineering 59,123 (8,376) 50,747 42,456
Services
Specialist Building 1,679 - 1,679 1,613
Segment operating profit 60,802 (8,376) 52,426 44,069
Central activities (2,029) (418) (2,447) (2,928)
Operating profit 58,773 (8,794) 49,979 41,141
Net financing costs (524) - (524) (389)
Profit on ordinary activities before income tax 58,249 (8,794) 49,455 40,752
Engineering Services segment operating profit for the year ended 30 September
2021 is stated after charging exceptional costs of £3,607,000 and
amortisation of £6,463,000, resulting in a total charge before taxation of
£10,070,000 (see Note 3).
3 Exceptional items and amortisation of intangible assets 2022 2021
£000 £000
Defined benefit pension scheme guaranteed minimum pension equalisation - 1,107
Amco defined benefit scheme past service cost deficit - 1,698
Aborted acquisition costs/acquisition costs 418 802
Total losses arising from exceptional items 418 3,607
Amortisation of intangible assets 7,123 6,463
Impairment of intangible asset 1,253 -
Total exceptional items and amortisation charge before income tax 8,794 10,070
Taxation credit on exceptional items and amortisation (1,782) (2,427)
Total exceptional items and amortisation charge 7,012 7,643
Last year's Annual Report reported that on 20 November 2020 the High Court
handed down a further judgment in the Lloyds Banking case regarding equalising
guaranteed minimum pension benefits. The judge found that pension schemes do
have a liability to pay top-ups to members who transferred out in the past.
The effect of this for the schemes has been estimated by the actuaries as an
additional liability of £1,107,000.
Last year the Amco defined benefit scheme recognised an actuarial estimate of
£1,698,000 additional liabilities from extending the Barber window to be in
line with recent legal advice received by the Trustee as part of a potential
"buy-in" transaction to remove the scheme's investment and funding risk.
This legal advice indicates that the scheme may not have equalised normal
pension age (NPA) as previously assumed in the early 1990's, and that the NPA
for members in service in May 1991 may be 60 for a higher proportion of their
service.
During the year the Company incurred £418,000 of costs on an unsuccessful
acquisition opportunity. Last year's acquisition costs related to the
acquisition of J Browne Group Holdings Ltd and Rail Electrification Ltd on 26
March 2021 and 28 May 2021 respectively.
The Board has separately identified the charge of £7,123,000 (2021:
£6,463,000) for the amortisation of the fair value ascribed to certain
intangible assets, other than goodwill, arising from the acquisitions of
Giffen Holdings Ltd, QTS Group Ltd, Carnell Group Holdings Ltd. J Browne Group
Holdings Ltd and Rail Electrification Ltd.
The Directors have made a full provision of £1,253,000 against Britannia's
goodwill carrying value following the decision to wind down that company's
operations.
4 Loss for the year from discontinued operations 2022 2021
£000 £000
Revenue - -
Expenses (2,242) (1,620)
Loss before income tax (2,242) (1,620)
Income tax charge - -
Loss for the year from discontinued operations (2,242) (1,620)
On 31 October 2014, the Board reached an agreement to sell Allenbuild Ltd to
Places for People Group Ltd. As a term of the disposal Renew Holdings plc
retained both the benefits and the obligations associated with a number of
Allenbuild contracts which have resulted in the requirement for an additional
£3,353,000 (2021:£1,620,000) accrual. This is as a result of the settlement
of historic claims during the financial year and a subsequent internal
reassessment of the likely costs required to settle other known contractual
disputes.
This expense was offset by the recycling of the foreign currency translation
reserve of £1,308,000.
5 Income tax expense
(a) Analysis of expense in year 2022 2021
£000 £000
Current tax:
UK corporation tax on profits of the year (10,692) (8,719)
Adjustments in respect of previous period (193) 25
Total current tax (10,885) (8,694)
Deferred tax - defined benefit pension schemes (87) 601
Deferred tax - other timing differences 1,424 (576)
Total deferred tax 1,337 25
Income tax expense in respect of continuing activities (9,548) (8,669)
(b) Factors affecting income tax expense for the year
2022 2021
£000 £000
Profit before income tax 49,455 40,752
Profit multiplied by standard rate
of corporation tax in the UK of 19% (2021: 19%) (9,396) (7,743)
Effects of:
Expenses not deductible for tax purposes (1,705) (837)
Timing differences not provided in deferred tax 1,721 1,476
Change in tax rate 25 (1,590)
Adjustments in respect of previous period (193) 25
(9,548) (8,669)
Deferred tax has been provided at a rate of 25% (2021: 25%) following the
decision that the UK corporation tax rate should increase to 25% (effective
from 1 April 2023) and substantively enacted on 24 May 2021. The deferred tax
asset and liability at 30 September 2022 has been calculated based on these
rates, reflecting the expected timing of reversal of the related temporary
timing differences (2021: 25%). The Group has available further unused UK
tax losses of £23.7m (2021: £25.3m) to carry forward against future taxable
profits. A substantial element of these losses relates to activities which are
not forecast to generate the level of profits needed to utilise these losses.
A deferred tax asset has been provided to the extent considered reasonable by
the Directors, where recovery is expected to be recognisable within the
foreseeable future. The unrecognised deferred tax asset in respect of these
losses amounts to £5.9m (2021: £5.2m).
6 Dividends
2022 2021
Pence/share Pence/share
Interim (related to the year ended 30 September 2022) 5.67 4.83
Final (related to the year ended 30 September 2021) 11.17 8.33
Total dividend paid 16.84 13.16
£000 £000
Interim (related to the year ended 30 September 2022) 4,472 3,800
Final (related to the year ended 30 September 2021) 8,809 6,554
Total dividend paid 13,281 10,354
Dividends are recorded only when authorised and are shown as a movement in
equity rather than as a charge in the income statement. The Directors are
proposing that a final dividend of 11.33p per Ordinary Share be paid in
respect of the year ended 30 September 2022. This will be accounted for in
the 2022/23 financial year.
7 Earnings per share
2022 2021
Earnings EPS DEPS Earnings EPS DEPS
£000 Pence Pence £000 Pence Pence
Earnings before exceptional items and amortisation 46,919 59.52 59.30 39,726 50.51 50.09
Exceptional items and amortisation (7,012) (8.89) (8.87) (7,643) (9.72) (9.63)
Basic earnings per share - continuing activities 39,907 50.63 50.43 32,083 40.79 40.46
Loss for the year from discontinued operations (2,242) (2.85) (2.83) (1,620) (2.06) (2.05)
Basic earnings per share 37,665 47.78 47.60 30,463 38.73 38.41
Weighted average number of shares ('000) 78,825 79,125 78,655 79,304
The dilutive effect of share options is to increase the number of shares by
299,750 (2021: 649,000) and reduce basic earnings per share by 0.18p (2021:
0.32p).
8 Preliminary financial information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 30 September 2022 or 2021. Statutory
accounts for 2021 have been delivered to the registrar of companies. The
auditor has reported on those accounts; his 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 their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006. The
statutory accounts for 2022 will be finalised on the basis of the financial
information presented by the Directors in this preliminary announcement and
will be delivered to the Registrar of Companies in due course.
9 Alternative performance measures
Renew uses a variety of alternative performance measures ('APM') which,
although financial measures of either historical or future performance,
financial position or cash flows, are not defined or specified by Adopted
IFRSs. The Directors use a combination of APMs and Adopted IFRS measures when
reviewing the performance, position and cash of the Group.
The Directors believe that APMs provide a better understanding of the
underlying trading performance of the business because they remove the impact
of non-trading related accounting adjustments. Furthermore, they believe
that the Group's shareholders use these APMs when assessing the performance of
the Group and it is therefore appropriate to give them prominence in the
Annual Report and Accounts.
The APMs used by the Group are defined below:
Net Cash/(Debt) - This is the cash and cash equivalents less bank debt. This
measure is visible in Note 32 in the Annual Report & Accounts. The
Directors consider this to be a good indicator of the financing position of
the Group.
Adjusted operating profit (£58.773m) and adjusted profit before tax
(£58.249m) - Both of these measures are reconciled to total operating
profit and total profit before tax on the face of the consolidated income
statement. The Directors consider that the removal of exceptional items and
amortisation provides a better understanding of the underlying performance
of the Group. The equivalent GAAP measures are operating profit (£49.979m)
and profit before tax (£49.455m).
Adjusted operating margin (6.9%) - This is calculated by dividing operating
profit before exceptional items and amortisation of intangible assets
(£58.773m) by group revenue including share of joint venture (£849.048m)
both of which are visible on the face of the income statement. The Directors
believe that removing exceptional items and amortisation from the operating
profit margin calculation provides a better understanding of the underlying
performance of the Group. The equivalent GAAP measure is operating profit
margin (6.1%) which is calculated by dividing operating profit (£49.979m)
from
group revenue from continuing operations venture (£816.276m).
Adjusted earnings per share (59.52p) - This measure is reconciled to the
earnings per share calculation based on earnings before exceptional items
and amortisation in Note 7. The Directors believe that removing exceptional
items and amortisation from the EPS calculation provides a better
understanding of the underlying performance of the Group.
Group Revenue (£849.048m) - This measure is visible on the face of the
income statement as Revenue: Group including share of joint venture.
Group order book, Engineering Services order book and Specialist Building
order book - This measure is calculated by the Directors taking a conservative
view on secured orders and visible workload through long-term frameworks.
Engineering Services revenue (£778.917m) - This measure is visible in Note 2
business analysis as Engineering Services Revenue including share of joint
venture. The Directors consider this to be a good indicator of the underlying
performance of the Group's Engineering Services business.
Adjusted Engineering Services operating profit (£59.123m) - This measure is
visible in Note 2 business analysis as Engineering Services operating profit
before exceptional items and amortisation of intangible assets. The Directors
consider this to be a good indicator of the underlying performance of the
Group's Engineering Services business. The GAAP equivalent measure is
Engineering Services operating profit (£50.747m) which is also visible in
Note 2.
Adjusted Engineering Services operating profit margin (7.6%) - This is
calculated in the same way as adjusted operating profit margin but based on
the adjusted Engineering Services operating profit (£59.123m) and the
Engineering Services revenue (£778.917m) figures as set out above. The
equivalent GAAP measure is Engineering Services operating profit margin (6.8%)
which is calculated by dividing Engineering Services operating profit
(£50.747m) from Engineering Services revenue from continuing operations
(£746.145m).
10 Post balance sheet events
Acquisition
On 29 November 2022 the Company announced that it had agreed to acquire the
entire issued share capital of Enisca Group Limited, a leading specialist
water contractor based in Northern Ireland for a cash consideration of £15.6m
on a cash free, debt free basis. The acquisition was funded by a combination
of cash and the Group's existing revolving credit facility. There is no
deferred consideration payable. Further information will be included in the
Interim Report and Accounts for the six months ended 31 March 2023.
Refinancing
Post the year-end, the Group has refinanced its debt facilities with its
existing banking partners HSBC UK Bank plc and National Westminster Bank plc
and has introduced a new bank into the banking syndicate, Lloyds Banking Group
plc. The new facility comprises an £80m secured revolving credit facility
committed until November 2026.
11 Posting of Report & Accounts
The Group confirms that the annual report and accounts for the year ended 30
September 2022 will be posted to shareholders as soon as practicable and a
copy will be made available on the Group's website:
www.renewholdings.com
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