REG - Renew Holdings PLC - Final Results
28/11/2023 07:00
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RNS Number : 8321U Renew Holdings PLC 28 November 2023
28 November 2023
Renew Holdings plc
("Renew" or the "Group" or the "Company")
Final Results
Record financial performance with consistent year on year growth
Renew (AIM: RNWH), the leading Engineering Services Group supporting the
maintenance and renewal of critical UK infrastructure, announces its final
results for the year ended 30 September 2023 ("the Period").
Financial Highlights
Year ended 30 September 2023 FY2023 FY2022 Change
Group revenue(1) £960.9m £849.0m +13.2%
Adjusted operating profit(1) £63.6m £58.8m +8.2%
Operating profit £59.0m £50.0m +18.0%
Adjusted operating margin(1) 6.6% 6.9% -31bps
Profit before tax £58.1m £49.5m +17.4%
Adjusted earnings per share(1) 63.5p 59.5p +6.7%
Full year dividend 18.0p 17.0p +5.8%
( )
· Record financial performance demonstrates the differentiated
qualities and resilient nature of the Group, combined with the strong demand
in our end markets
· Group revenue increased 13% to £960.9m (FY2022: £849.0m), with
organic growth of 10%
· Group order book remained strong at £860m (FY2022: £775m)
· Net cash position (pre-IFRS16) of £35.7m (FY2022: £20.2m)
· Full year dividend of 18.00p (2022: 17.00p), an increase of 5.8% and
reflecting the Board's confidence in the Group's trading performance
· Robust balance sheet and strong operational cash generation leaves
us well positioned to continue to appraise selective value-accretive M&A
opportunities
Operational Highlights
· Entered into new business areas with a sharpened focus on
collaboration within the Group and the strategic acquisitions of Enisca and
Rail Electrification Limited
· Largest provider of maintenance and renewals services to Network
Rail nationally
· In Water, we have successfully leveraged our Mechanical, Electrical,
Instrumentation, Control and Automation ("MEICA") capabilities to win the
Welsh Water Major Electrical and Mechanical Framework
· In Rail, our subsidiaries have successfully collaborated to open up
framework positions to the Group that were previously unattainable
· In Highways, we continue to deliver a growing work bank on our
National Highways Scheme Delivery Frameworks
· Exceeded prior year safety comparators, ensuring that our workplace
remains a safe and secure space
· Retained LSE Green Economy Mark as more than 50% of revenues are
contributing to environmental objectives
Current Trading & Outlook
· Uniquely positioned to seize both organic and acquisitive growth
opportunities with attractive structural growth drivers
· Well placed to benefit from the Government prioritising investment
in maintenance and renewals of existing infrastructure instead of large-scale
enhancement projects
· Exciting growth prospects in Water ahead of significantly increased
sector expenditure over the next decade and beyond
· Post period end, we announced the acquisition of T.I.S. Cumbria Ltd,
a leading nuclear manufacturing and fabrication specialist which will
strengthen our position in the growing nuclear decommissioning and new build
markets
· Trading momentum has continued into the new financial year, and we
are encouraged by the significant opportunities across the Group
Paul Scott, CEO of Renew, commented:
"I am very pleased to report that we have once again delivered record results
despite the turbulent macroeconomic landscape. Continued growth in revenue,
profit and our solid operating cash generation is testament to the strength of
our business model and the Group's well-established positions in attractive
and sustainable growth markets. On behalf of the Board, I would like to
sincerely thank all of our dedicated colleagues whose hard work and commitment
has enabled the Group to deliver yet another record performance.
"Our core strengths leave us well placed to build on our strong track record
of long-term value creation as we look ahead with impressive trading momentum
and a strong forward order book. We remain excited about the significant
growth opportunities across the Group, underpinned by the increasing national
demand for the maintenance and renewal of existing UK infrastructure, which
will continue to be a domestic priority regardless of the outcome of the next
election."
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
Deutsche Numis (Nominated Adviser and Joint Broker) 020 7260 1000
Stuart Skinner / Kevin Cruickshank
Peel Hunt LLP (Joint Broker) 020 7418 8900
Mike Burke / Ed Allsopp
FTI Consulting (Financial PR) 020 3727 1000
Alex Beagley / Tom Hufton / Rafaella de Freitas / Amy Goldup 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 98 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
Chairman's statement
Introduction
I am pleased to announce that the Group achieved a record financial
performance, with continued growth in revenue, profit and strong operating
cash generation. In what has been a challenging year for the economy, these
excellent results are a testament to the Group's core strengths and
well-established positions in attractive and sustainable growth markets.
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. 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 £960.9m (2022: £849.0m) with adjusted(1)
operating profit increasing to £63.6m (2022: £58.8m) and an adjusted(1)
operating margin of 6.6% (2022: 6.9%). Statutory operating profit was £59.0m
(2022: £50.0m). The adjusted(1) EPS has increased by 6.7% to 63.5p (2022:
59.5p) and basic earnings per share was 54.9p (2022: 47.8p). The Group had a
pre IFRS16 net cash(1) position of £35.7m (2022: £20.2m), in line with our
expectations.
During the period we were delighted to announce the acquisition of Enisca
Group Limited. This acquisition added new capabilities to Renew's water
business and forms a key part of the Group's strategy to maximise the
opportunities presented by AMP8. The acquisition was funded out of the Group's
cash and existing debt facilities.
Post period end, we were pleased to announce the acquisition of T.I.S. Cumbria
Ltd ("TIS"), a leading nuclear manufacturing and fabrication specialist. TIS
was acquired by our existing nuclear subsidiary business Shepley Engineers and
will benefit from synergies with our existing businesses and strengthen our
position in the growing nuclear decommissioning and new build markets. We are
delighted to welcome the management and staff of TIS to the Renew family.
Dividend
The Group's strong trading performance, cash position and positive outlook
give the Board the confidence to propose a final dividend of 12.00p (2022:
11.33p) per share. This will be paid on 8 March 2024 to shareholders on the
register as at 9 February 2024, with an ex-dividend date of 8 February 2024.
This will represent a full year dividend of 18.00p (2022: 17.00p) per share,
an increase of 5.8%.
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 2023, we continued with our
Climate and Nature Steering Group that comprises representatives from all the
Group's subsidiary businesses and which focused on developing the Group's
climate opportunities and climate related financial disclosure reporting. As
part of this process, we continued to consider how we can best support our
clients in achieving their own 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.
A number of our businesses are in the process of submitting their
science-based targets to the
Science Based Targets initiative. The lessons learned from this process will
drive improvements in the collection of emissions data from across the Group.
Social
We understand the value that businesses can provide to the wider community and
we continue to strengthen our relationships with local schools and education
providers as well as continuing to engage with our local communities. During
the year employees from across our businesses shared their knowledge and
expertise to support young people with employment and education opportunities.
The training and development of our colleagues remains essential to the
Group's long-term success and we now have around 330 trainees, apprentices and
graduates across the business. We are also committed to our management
development programme, Renew Inspiring Successful Executives ("RISE") which
allows us to develop leadership talent within the business and is a key
element of the Group's succession planning strategy. This programme has also
improved the levels of collaboration we are leveraging to drive success across
our brands.
As part of our commitment to ensuring Renew remains an attractive and diverse
employer, we have supported the Group and subsidiary businesses' diversity
forums which are aimed at improving our performance in this important area and
we continue to increase the number of female participants in our graduate
training schemes.
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
On 1 November 2022, we were delighted to announce the appointment of Liz
Barber as a Non-executive Director. Liz has a wealth of experience gained over
12 years in the regulated water sector, an established growth market for
Renew. Combined with her financial background, Liz complements the Board's
current skillset which 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 all our colleagues and continue to provide support through a
number of schemes, including our Employee Assistance Programme, on a range of
topics.
We are committed to providing 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. The Group's health and safety performance is discussed as a
priority at each Board meeting and during the year we continued to focus on
the behavioural science aspects of safety to further improve our safety
record.
Future focus
The delivery of our long-term strategy is built on effective relationships
with our directly employed workforce, customers, suppliers, shareholders and
wider stakeholders, and these are critical to the ongoing success of the
business. 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 2024 and beyond.
The Group's differentiated business model and the long-term investment
programmes across our UK infrastructure markets give the Board continued
confidence in delivering further growth, both organic and through strategic
earnings-enhancing acquisitions.
David Brown
Chairman
27 November 2023
Chief Executive Officer's Review
Renew continues to outperform - demonstrating our resilient and differentiated
model
In the face of an ever-changing macroeconomic backdrop, our business has once
again demonstrated its unique characteristics by successfully navigating these
challenges and delivering outstanding trading performance for the year. I am
very pleased to be reporting another set of record results for Renew,
demonstrating the resilience and differentiated nature of our high-quality,
low-risk business model, combined with the strong demand we have seen in our
end markets. As we look forward to commencing new control periods within the
Rail and Water sectors we fully expect this growth to strengthen further.
Our track record of consistent year on year growth across all of our key
financial metrics clearly illustrates the critical nature of our work and the
committed, long-term, highly visible spending cycles that underpin our end
markets. Whilst our business is not immune from the difficulties facing the
wider economy, our focus on the maintenance and renewal of existing UK
infrastructure means we are not dependent on large, capital-intensive contract
awards, providing Renew with a significantly lower risk profile than others
operating in our sectors. Supported by the commercial terms within our
frameworks and the typically short execution periods of the tasks we
undertake, the Group has been able to successfully alleviate UK-wide inflation
challenges throughout the period, delivering strong margins as well as
operating profit and revenue ahead of record prior year comparatives.
Further, with pressure on public expenditure as a result of the difficult
macroeconomic environment, we are seeing increased funding being directed
towards the maintenance and renewal of existing assets and away from major
infrastructure enhancement projects which bodes well for our business. The
Government continues to confirm infrastructure investment is a national
priority and this, along with a target of net zero by 2050, will continue to
be a priority regardless of a potential change in government in 2024.
We note the recent announcements regarding the reduction in the HS2 programme.
It is anticipated that this funding will be reinvested into smaller, regional
transportation improvement schemes which we believe will present a range of
opportunities in our chosen markets.
There were many achievements across the Group during the year, but I would
like to highlight some key examples of how we are delivering profitable
organic growth. Some of our more recent strategic acquisitions and our
sharpened focus on collaboration within the Group has seen us organically
expand into areas where we had not previously operated. Most notably, the
acquisitions of Enisca and Rail Electrification Limited ("REL") have added to
our capabilities and the unlocking of greater opportunities in more
frameworks. In Water, we have successfully leveraged our Mechanical,
Electrical, Instrumentation, Control and Automation ("MEICA") capabilities to
win the Welsh Water Major Electrical and Mechanical Framework, whilst in Rail,
our subsidiaries have successfully collaborated to open up framework positions
to the Group that were previously unattainable. In Highways, we continue to
deliver a growing work bank on our National Highways Scheme Delivery
Frameworks ("SDF") where there continues to be an emphasis on asset
maintenance and renewals. It has been extremely rewarding from a management
perspective to see the strategic rationale behind our acquisitions start to
come to fruition and there is still more to come. The enhanced focus on
collaboration between our brands has contributed to a strong rate of organic
growth during the period and it will continue to be a focus going forward.
Acquisitions form a key feature of our strategic ambition to deliver
compounding shareholder returns as we have historically demonstrated. We
finished the year with a robust balance sheet and this, together with our
strong operational cash generation, leaves us well positioned to continue to
appraise selective value-accretive M&A opportunities. We are currently
seeing a healthy pipeline of opportunities including complementary bolt-on
acquisitions as well as larger, more complex opportunities that will grow our
geographical reach and service capability in a similar way to that achieved by
our recent strategic acquisitions. As we expand through M&A, we will
continue to leverage collaboration opportunities between our brands, providing
a unique advantage when applying for a broader range of frameworks.
Post-period end we were delighted to announce the acquisition of T.I.S.
Cumbria Limited, a leading nuclear manufacturing and fabrication specialist.
This acquisition represents an excellent strategic fit, adding new
capabilities to Renew's nuclear services and immediately doubling our
specialist manufacturing capacity. We are delighted to welcome all the T.I.S.
employees to the Renew Group.
Safety is our highest priority at Renew and I would like to take this
opportunity to commend our dedicated teams for their unwavering commitment to
safety throughout the past year. Our strong safety record stands as a
testament to the collective efforts of every individual within our
organisation. Their vigilance, adherence to protocols, and proactive approach
has fostered an environment where each employee can thrive without
compromising their well-being. I take immense pride in the fact that we have
not only met but exceeded our prior year comparators, ensuring that our
workplace remains a safe, secure and nurturing space for all.
In summary, FY23 has been another terrific year for Renew and we enter FY24
with confidence as we continue to see robust demand across our end markets. By
focusing on collaboration and leveraging the unique services of each of our
brands, we are growing the list of capabilities within our business as we move
through changing control periods in our key markets. The success of Renew is
due to the outstanding work of our directly employed colleagues who continue
to go above and beyond for our clients and I would like to thank, on behalf of
the Board, all our dedicated workforce for their outstanding work and
continued commitment to providing our clients with our mission-critical,
highly responsive services at all times.
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 and short project durations within our frameworks mean we
can proactively and effectively manage cost inflation enabling us to maintain
strong margins.
● 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 have consistently demonstrated performance resilience despite significant
global and macroeconomic events, including inflation, that have had a negative
impact on the wider economy.
● 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.
● Our complementary services enable us to leverage the strengths of
collaboration across our brands.
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
£600bn2 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, climate change and infrastructure resilience
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, transport, energy, water
and demand for natural resources;
● technological innovation, including artificial intelligence, driving a shift
towards digital roads, smart infrastructure 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 79 per cent;
● an increase in dividends of 80 per cent from 10.0p to 18.0p per share
● an increase in our adjusted(1) operating margin from 5.7 per cent to 6.6 per
cent;
● Group organic revenue growth of 36 per cent and total revenue growth of 77 per
cent; and
● five strategic acquisitions supported largely by our strong free cash flow,
deploying £173m.
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 increased to £960.9m (FY2022: £849.0m),
with organic growth of 10% and the Group achieved an adjusted(1) operating
profit of £63.6m (FY2022: £58.8m). Statutory operating profit was £59.0m
(2022: £50.0m). Adjusted(1) operating profit margin was 6.6%. As at 30
September 2023, the Group had pre-IFRS16 net cash of £35.7m (30 September
2022: net cash £20.2m). The Group's order book at 30 September 2023 remained
strong at £860m (FY2022: £775m) underpinned by long-term framework
positions.
Dividend
The Group's robust trading performance, cash position and strong forward order
book have given the Board the confidence to declare a final dividend of 12.00p
(FY2022: 11.33p) per share. This represents a full year dividend of 18.00p
which is a 5.8 per cent increase over the prior year. This will be paid on 8
March 2024 to shareholders on the register as at 9 February 2024, with an
ex-dividend date of 8 February 2024.
Engineering Services
Our Engineering Services activities account for over 98 per cent of the
Group's adjusted(1) operating profit and delivered revenue of £887.5m
(FY2022: £778.9m) with an adjusted(1) operating profit of £64.3m (FY2022:
£59.1m) resulting in an adjusted(1) operating margin of 7.2% (FY2022: 7.6%).
At 30 September 2023, the Engineering Services order book was £777m (30
September 2022: £717m). The Group's resilient performance was driven by
continued positive momentum across our markets. We continue to resecure
positions for CP7 in Rail, we have expanded our range of capabilities in the
Water sector and we continue to see strong demand in our Telecoms activities.
Rail
Network Rail, a significant strategic customer for the Group, is investing
£53bn(3) over the current control period ("CP6"), which runs to March 2024.
With CP6 drawing to a close and CP7 scheduled to start on 1 April 2024, the
Group has been focusing efforts on securing framework extensions and expanding
framework positions for CP7. In May 2023, Network Rail set out its Strategic
Business Plan ("SBP") for CP7 which laid out a commitment of £44bn4 in the
operations, maintenance and renewal of the railway in England and Wales.
Whilst this spending commitment may appear to be a reduction from the previous
control period, it's important to note that CP7 doesn't allocate a separate
enhancement budget so the maintenance and renewals programme which directly
supports our business is actually 2.5% higher than the projected CP6
expenditure.5 The ORR has since proposed that Network Rail increase the amount
it spends on renewal and maintenance of its core assets on the rail network by
a further £600m over the control period. 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
frameworks. The Group assists the network through mission-critical renewals
and maintenance services supporting assets including bridges, embankments,
fencing, devegetation, tunnels, drainage systems, signalling, electrification
and plant.
During the period, we were the largest provider of maintenance and renewals
services to Network Rail nationally and achieved early success in securing CP7
frameworks with Wales & Western on their Wales Structures and Wales &
Western Electrification & Plant frameworks and in North West and Central
on the Reactive Maintenance Framework. It was particularly pleasing to win the
Wales & Western Electrification & Plant frameworks as this work will
be delivered through a unique collaboration between AmcoGiffen, REL and QTS
("ARQ") and again illustrates the expanding number of frameworks we are able
to target through leveraging the capabilities within the businesses we have
recently acquired complementing the existing Group. Elsewhere we expanded our
credentials in emergency project delivery with Network Rail through our
excellent work across the country. Throughout the year the Group assisted on
projects which included major flooding incidents and landslides, whilst the
Group's rock armour resilience work in Wales received excellent media coverage
and accolades from Network Rail. Our early success in securing CP7 framework
positions gives us confidence that we will be able to unlock further
opportunities across other regions during the upcoming CP7 framework awards.
In our half year results, I wrote that we were mindful of speculation
regarding public expenditure budgets for CP7 being constrained but we were
continuing to see record demand for our services internally. Following the
publication of Network Rail's SBP, it's clear there is an emphasis on driving
as much value out of investment as possible with a focus on "what customers
and wider society value most".6 This has resulted in an expanded budget in
the area of renewals and maintenance which is good news for our Rail
businesses.
The compelling maintenance-focused structural growth drivers within this
sector and Renew's high-quality engineering expertise leaves the Group ideally
positioned to deliver long-term, profitable growth in Rail. We continue to be
confident of retaining our existing frameworks which are coming up for renewal
and expanding upon those positions in CP7. We have previously highlighted in
our results statements the opportunities we see in electrification of the rail
network so it is pleasing to see that it has been included as one of five CP7
objectives in Network Rail's SBP. Our three rail brands have formed a
collaborative and unique position for Overhead Line Electrification delivery,
and this will become an increasing strategic focus for the Group.
Infrastructure
Highways
The Group continued to make good operational and strategic progress within
Highways during the period, continuing work 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. This work, delivered through a joint venture between two of
our brands, successfully completed its first projects during the year, drawing
client praise for delivery and performance. This joint venture is only the
second successful joint venture on the SDF and makes the Group the second
largest supplier of road restraint systems in the country.
Elsewhere, we were successful in securing a position on the new Manchester
City Council Highways Framework for two years with an option to extend for a
further two. We are delighted to have made progress in developing a work bank
in Scotland which is a new region for our Highways business. The success the
Group has enjoyed in delivering essential asset maintenance and critical
infrastructure renewals across the country's strategic road network leaves it
ideally positioned to take advantage of the increasing focus on maintenance
and renewals over significant enhancement projects. Our innovative StoneMaster
technology continued to be successfully deployed across the national highways
network.
The UK Government's second Road Investment Strategy ("RIS2") committed an
unprecedented level of spending on England's strategic road network between
2020 and 2025. Of the £27.4bn committed over a five-year period, £11.9bn of
this funding is ringfenced for operations, maintenance and renewals which
gives Renew a unique advantage from which it has continued to benefit. We
noted in our half year results that early market consultation for RIS3, which
is scheduled to begin in 2025, suggested that there would be a sharper focus
on critical maintenance and renewals as opposed to significant road
enhancement projects and this appears to be correct. In May 2023, National
Highways published an initial consultation on RIS3 outlining its proposed
priorities highlighting that renewal of existing assets "is likely to be a
growing element of the roads programme"7 and recognises that users want
"existing roads in good condition before building new ones".8 Further, the
House of Commons Committee report stated "the existing Strategic Road Network
is ageing and requires significant renewal work in places. The portfolios for
RIS3, RIS4 and beyond should prioritise investment in the maintenance, renewal
and resilience of existing assets over brand new projects."9
With a sharp focus on public expenditure in the current macroeconomic
environment it is clear the Government is prioritising critical maintenance
and renewals programmes over significant enhancement projects. This emphasis
clearly plays to the strengths of our business and we remain uniquely
positioned to seize attractive growth and market share opportunities within
Highways through the distinctive capabilities within our Group.
Aviation
The Group continues to see growing momentum in Aviation following its
appointment to the 5-year Manchester Airports Group ("MAG") £700m Civils
Framework to deliver medium-sized civil-engineering projects valued between
£3m - £10m. The most pleasing part of our Aviation business is that we were
able to move into this sector organically which has been historically
difficult to do. Our early work at Manchester Airport has led to the Group
securing further frameworks with the successful procurement of Airfield Works
Phase 1 for the MAG worth up to £8m but more importantly providing our team
with development and growth opportunities within the sector. We have seen
demand for travel dramatically increase since 2022 after several years of
decreased demand due to Covid-19 resulting in underinvestment in critical
assets in the sector. Aviation is becoming an area of increased focus within
the Group and we look forward to continuing to seize opportunities as we grow
our credentials in the sector.
Wireless Telecoms
The nation's connectivity is becoming ever more critical in the digital age,
and as a result the wireless telecoms sector contains many attractive growth
drivers. An estimated £30bn1(0) is required to upgrade the nation's broadband
networks to gigabit-capable speeds, which includes the UK Government's £5bn
investment in the roll-out of 5G, the expansion of the Shared Rural Network
and the Government's £500m programme to extend 4G mobile coverage to 95% of
the UK.
This year was another record year for our Telecoms business as we continued to
design, build and commission infrastructure for all the nation's major network
providers including Vodafone, EE, BT, VM02 and Three. We are particularly
pleased that our recent work for Vodafone, delivering across multiple
programmes, has established our subsidiary business as a key supplier to them
moving forwards.
We are one of a very limited number of partners responsible for delivering the
major new build sites for the Shared Rural Network, a complex programme
delivering phone and data coverage in very remote locations driving
transformational change for rural communities. We continue to explore new
opportunities in 5G private networks after our recent completion of a 5G
network for the UK Satellite Application Catapult. Our business continues to
evolve to meet the needs of our niche target markets where we see considerable
opportunities going forward.
Continuing to establish ourselves as a trusted partner to the nation's network
providers will leave the Group well placed to seize further growth
opportunities in the future.
Energy
Nuclear
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.
The Government's total nuclear decommissioning provision is estimated at
£124bn(11) 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.
In the period, we successfully signed four long-term frameworks as part of
Sellafield's Project Partnership Programme ("PPP"), which was mobilised in
2019 with £7bn of capital projects planned for the next 20 years1(2). We will
be delivering the frameworks alongside the PPP's Key Delivery Partners for
Heating Ventilation Air Conditioning ("HVAC"), Electrical and Mechanical
Fabrication and Installation Services.
We continue to operate across a number of other long-term frameworks at
Sellafield, where works include the manufacture of the first of the Hybrid 2
fuel racks. These enable Sellafield to safely store all the spent fuel it
receives from operating reactors in its existing storage pond without the need
for new facilities. This further supports the UK decommissioning programme and
delivers significant time and cost savings. Elsewhere at Sellafield, we
continue to make good progress on the Magnox Swarf Storage Silo programme, one
of the UK's most critical decommissioning projects and our work to
decontaminate the first part of the recently closed Thermal Oxide Reprocessing
Plant ("THORP") is progressing at pace.
Expanding our nuclear capabilities, the Group has been awarded a place to
support a new six-year framework for Nuclear Restoration Services (formerly
Magnox), for mechanical decommissioning and decontamination services. The
programme of work covers 11 sites and will contribute to the clean-up of the
UK's nuclear waste whilst reducing the environmental impact of the sites and
helping to deliver the Nuclear Decommissioning Authority's strategic goals.
Post-period end we completed the acquisition of T.I.S. Cumbria Limited,
strengthening our position in nuclear decommissioning and new build markets.
In line with the Group's strategy, the acquisition enhances Renew's nuclear
services offering by immediately doubling our specialist manufacturing
capacity.
While the work we do in this sector is predominantly focused on
decommissioning and waste retrieval in high-hazard areas such as legacy
storage ponds and silos, the budget from the UK Government, announced earlier
this year, suggests that new nuclear will offer further growth opportunities
in the future. The UK Government has committed to achieving net zero emissions
by 2050, and decarbonisation of our energy supply is a key step to achieving
carbon neutrality. The Government is delivering a radical shift in the UK
energy system towards cleaner, more affordable energy sources of which new
nuclear is an essential component. This is underpinned by the creation of
Great British Nuclear1(3) and the Government's target to commence construction
of up to three new nuclear plants in the next 10 years. This provides
long-term and sustainable demand for our specialist manufacturing capabilities
in high grade nuclear components which we are investing in and seeing record
demand for.
Electric Vehicle Charging
The transition to Electric Vehicles ("EV") plays a key role in supporting the
UK's ambition of achieving net zero emissions by 2050 and zero vehicle
emissions by 2035. A collaboration between two of our subsidiaries has
delivered EV charging solutions to Network Rail and Volvo Trucks and we
continue to grow our services in this area, having recently been awarded
significant UK wide roll-out projects for two major charge point operators.
Environmental
Water
The Group continues to expand its capabilities in Water and to grow its
network in the sector. The UK's water companies', through their latest AMP8
business plans, are proposing to almost double their spending over the next
five year control period compared with that determined in AMP7. With a
strengthened position in the market, we are well positioned to benefit from
this increased water investment. As we prepare for the AMP8 cycle beginning in
April 2025, we have taken significant steps to secure our long-term future
with framework proposals for each of our key clients. We have already received
Early Contractor Involvement ("ECI") awards from Thames Water for three
packages of mains renewals works worth up to £200m, which are planned to
start in 2024 and run well into AMP8.
Building on momentum following the acquisition of Enisca in November 2022 and
Browne in 2021, we are making significant strides in broadening our
capabilities and growing our customer network. In addition, we have secured a
new client in South West Water, which will drive significant organic growth
and is testament to the strength of our strategic and value-add acquisitions
and growing reputation in this sector.
In the period, we have progressed works for Severn Trent Water and secured
places on both Dŵr Cymru Welsh Water's Major Electrical & Mechanical
Frameworks and Major Civils Framework, as well as a further 5-year extension
to our Thames Water Area-Wide Capital Delivery Framework.
With our work for Southern Water, priority compliance and work completions are
at their highest levels for the last 9 years. We are also setting a new
standard for how work is managed and delivered for Thames Water; from getting
onto site within 9 weeks of receiving an order on design and build for
multi-million-pound packages of works, to handover within 9 days of
construction completion.
We are supporting Yorkshire Water with the delivery of their storm tank
capacity schemes which are needed to satisfy new increased capacity
obligations for storm storage on their wastewater treatment works. As part of
the Water Industry National Environment Programme, these new consent
capacities are spread across 3 years of delivery up to March 2025.
Further developing the synergies between our brands, the Enisca Browne joint
project has delivered its first works in the Essex and Suffolk region for
Northumbrian Water as the Low Complexity MEICA Framework commenced, and has
seen growth in the value of work delivered for key client South East Water.
Flood and Coastal
Changing weather conditions continue to highlight the need for investment in
flood defences and we see an increasing focus on climate and weather
resilience. The UK Government has committed £5.2bn1(4) from 2021-2027 to
improve flood defence infrastructure. Of this, £1.6bn1(5) is directed towards
coastal erosion and sea flooding projects where the Group currently undertakes
work for the Environment Agency ("EA") on the EA Flood and Coastal Erosion
Framework.
In the period, we secured and delivered our first projects under the Canal
& River Trust Minor Civils Framework and have been awarded the Leeds City
Council Watercourse Maintenance Framework, a single source direct award
maintenance framework supporting our growth in the Environmental sector.
Land Remediation and Specialist Restoration
In Land Remediation, we continue to see demand for our specialist
environmental services during the period. We continue to further leverage the
synergies of Renew's businesses, including the unlocking of long-term
opportunities at the Palace of Westminster.
Specialist Building
Our Specialist Building business focuses on the High Quality Residential,
Landmark and Science markets in London and the Home Counties.
The ultra-high quality residential sector remains resilient with a number of
new projects awarded in the year. Work continues to progress at Lambeth Palace
and the Natural History Museum in our Landmark sector.
In Science we have been awarded a new framework for the Medical Research
Council at Harwell following the successful delivery of a new laboratory
complex at Hammersmith. In addition, we have received a number of new awards
through our existing Defra frameworks.
ESG
The Group continues to progress its ESG strategy and, in the period, has
focused on developing reporting disclosures in line with Climate Related
Financial Disclosure regulations, which are included as part of the 2023
Annual Report & Accounts.
With quantitative targets in place, we continue to focus our energy on and are
making significant progress against our four key areas:
· climate action;
· operating responsibly;
· empowering our people; and
· building sustainable social value.
During the period we were pleased to retain our LSE Green Economy Mark, which
recognises London-listed companies and funds that derive more than 50% of
their revenues from products and services that are contributing the
environmental objectives such as climate change mitigation and adaptation,
waste and pollution reduction, and the circular economy.
It is well recognised that investment into low-carbon infrastructure will be
fundamental in delivering the Government's ambition to reach net zero by 2050.
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. Alongside our role in progressing the net
zero transition, the Group has committed to reaching net zero emissions by
2040.
Health and Safety
The health, safety and wellbeing of our colleagues, and those impacted by our
work, is our highest priority and at the heart of everything we do, and we
take seriously our responsibility to provide a safe workplace for our
employees.
We are proud to have in place industry-leading safe working practices for the
Group's employees and operations and are pleased to be able to report an
improved safety performance over the previous comparative period.
Outlook - outstanding FY23 gives further confidence in the year ahead
The outstanding trading result achieved in FY23 is testament to the strength
of our business model and the people we employ. To once again report record
results despite the continually shifting macroeconomic landscape illustrates
quite clearly the differentiated qualities and resilient nature of Renew.
With a heightened focus on public expenditure as a result of the weak economic
landscape, it is clear that the Government is prioritising investment in
maintenance and renewals of existing infrastructure instead of large-scale
enhancement projects. This plays to the Group's strengths and we have seen
evidence of this in Network Rail's Strategic Business Plan1(6) and the
Transport Committee's Strategic Road Investment report1(7). We also remain
excited about the growth prospects in Water, a market that is likely to
benefit from significantly increased expenditure over the next decade and
beyond.
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 trading momentum has continued into the
new financial year, and we are excited by the significant opportunities across
the Group.
Paul Scott
Chief Executive Officer
27 November 2023
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 - November 2022
3 Network Rail Delivery Plan, Control Period 6, High Level Summary - 26 March
2020
4 Network Rail Strategic Business Plan, Control Period 7 - 19 May 2023 Available
at:
https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf
(https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf)
5 Network Rail Strategic Business Plan, Control Period 7 - 19 May 2023, Page 6
Available at:
https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf
(https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf)
6 Network Rail Strategic Business Plan, Control Period 7 - 19 May 2023, Page 7
Available at:
https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf
(https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf)
7 Transport Committee, Strategic Road Investment (HC), 2022-23, HC 904, 27 July
2023 (paragraph 34) Available at:
https://committees.parliament.uk/publications/41071/documents/199999/default/
(https://committees.parliament.uk/publications/41071/documents/199999/default/)
8 Transport Committee, Strategic Road Investment (HC), 2022-23, HC 904, 27 July
2023 (paragraph 34) Available at:
https://committees.parliament.uk/publications/41071/documents/199999/default/
(https://committees.parliament.uk/publications/41071/documents/199999/default/)
9 Transport Committee, Strategic Road Investment (HC), 2022-23, HC 904, 27 July
2023 (paragraph 35) Available at:
https://committees.parliament.uk/publications/41071/documents/199999/default/
(https://committees.parliament.uk/publications/41071/documents/199999/default/)
10 UK Government Department for Digital, Culture, Media & Sport, Future
Telecoms Infrastructure Review - 23 July 2018
11 UK Government Nuclear Decommissioning Authority, Nuclear Provision: the cost
of cleaning up Britain's historic nuclear sites - 4 July 2019
12 The appeal of a 20-year pipeline, (2023). Construction News. Available at:
https://www.constructionnews.co.uk/partnership-publishing/the-appeal-of-a-20-year-pipeline-02-10-2023/
13 Press statement by The RT Hon Grant Shapps MP, Shapps sets out plans drive
multi-billion pound investment in energy revolution, (2023). Available at:
https://www.gov.uk/government/news/shapps-sets-out-plans-to-drive-multi-billion-pound-investment-in-energy-revolution
(https://www.gov.uk/government/news/shapps-sets-out-plans-to-drive-multi-billion-pound-investment-in-energy-revolution)
14 Lovell, A. 2023. EA Chair says collaboration needed to protect local economies
and nature on the coast. Annual Coastal Futures Conference, 26 January,
London.
15 Lovell, A. 2023. EA Chair says collaboration needed to protect local economies
and nature on the coast. Annual Coastal Futures Conference, 26 January,
London.
16 Network Rail Strategic Business Plan, Control Period 7 - 19 May 2023 Available
at:
https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf
(https://www.networkrail.co.uk/wp-content/uploads/2023/05/England-and-Wales-CP7-Strategic-Business-Plan.pdf)
17 Transport Committee, Strategic Road Investment (HC), 2022-23, HC 904, 27 July
2023 Available at:
https://committees.parliament.uk/publications/41071/documents/199999/default/
(https://committees.parliament.uk/publications/41071/documents/199999/default/)
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
2023 2023 2023 2022 2022 2022
Note £000 £000 £000 £000 £000 £000
Revenue: Group including share of joint ventures* 960,937 - 960,937 849,048 - 849,048
Less share of joint ventures' revenue* (39,383) - (39,383) (32,772) - (32,772)
Group revenue from continuing activities 2 921,554 - 921,554 816,276 - 816,276
Cost of sales (786,503) - (786,503) (693,336) - (693,336)
Gross profit 135,051 - 135,051 122,940 - 122,940
Administrative expenses (75,384) (4,413) (79,797) (68,184) (8,527) (76,711)
Other operating income 3,865 - 3,865 3,655 - 3,655
Share of post-tax result of joint ventures 77 (231) (154) 362 (267) 95
Operating profit 2 63,609 (4,644) 58,965 58,773 (8,794) 49,979
Finance income 360 - 360 16 - 16
Finance costs (1,285) - (1,285) (573) - (573)
Other finance income - defined benefit pension schemes 66 - 66 33 - 33
Profit before income tax 5 62,750 (4,644) 58,106 58,249 (8,794) 49,455
Income tax expense (12,600) 1,554 (11,046) (11,330) 1,782 (9,548)
Profit for the year from continuing activities 50,150 (3,090) 47,060 46,919 (7,012) 39,907
Loss for the year from discontinued operations 4 (3,676) (2,242)
Profit for the year 43,384 37,665
Basic earnings per share from continuing activities 7 63.47p (3.91)p 59.56p 59.52p (8.89)p 50.63p
Diluted earnings per share from continuing activities 63.28p 59.38p 59.30p 50.43p
7 (3.90)p (8.87)p
Basic earnings per share 7 63.47p (8.56)p 54.91p 59.52p (11.74)p 47.78p
Diluted earnings per share 7 63.28p (8.54)p 54.74p 59.30p (11.70)p 47.60p
* Alternative performance measure, please see Note 9 for further details.
Group statement of comprehensive income
for the year ended 30 September
2023 2022
£000 £000
Profit for the year 43,384 37,665
Items that will not be reclassified to profit or loss:
Movement in actuarial valuation of the defined benefit pension schemes 387 347
Movement on deferred tax relating to the pension schemes (106) (240)
Total items that will not be reclassified to profit or loss 281 107
Total comprehensive income for the year net of tax 43,665 37,772
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 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 subsidiaries (1,308) (1,308)
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
Transfer from income statement for the year 43,384 43,384
Dividends paid (13,683) (13,683)
New shares issued 27 41 68
Recognition of share based payments 669 669
Vested share option transfer (777) 777 -
Actuarial movement recognised in pension schemes 387 387
Movement on deferred tax relating to the pension schemes (106) (106)
At 30 September 2023 7,913 66,419 3,896 - 1,267 99,902 179,397
Group balance sheet
At 30 September
2023 2022*
£000 £000
Non-current assets
Intangible assets - goodwill 148,805 138,445
- other 27,869 22,385
Property, plant and equipment 19,400 17,834
Right of use assets 19,174 15,519
Investment in joint ventures 3,979 5,538
Retirement benefit asset 2,456 2,230
Deferred tax assets - 2,899
221,683 204,850
Current assets
Inventories 4,169 2,613
Assets held for resale - 1,250
Trade and other receivables 187,311 164,590
Current tax assets 814 -
Cash and cash equivalents 35,657 27,559
227,951 196,012
Total assets 449,634 400,862
Non-current liabilities
Lease liabilities (10,733) (8,640)
Retirement benefit obligation (822) (1,049)
Deferred tax liabilities (7,363) (7,568)
Provisions (338) (338)
(19,256) (17,595)
Current liabilities
Borrowings - (7,341)
Trade and other payables (228,677) (212,684)
Lease liabilities (6,945) (5,884)
Current tax liabilities - (595)
Provisions (15,359) (8,085)
(250,981) (234,589)
Total liabilities (270,237) (252,184)
Net assets 179,397 148,678
Share capital 7,913 7,886
Share premium account 66,419 66,378
Capital redemption reserve 3,896 3,896
Share based payments reserve 1,267 1,375
Retained earnings 99,902 69,143
Total equity 179,397 148,678
*reclassification between cash and borrowings (please see accounting policy
note 1)
Group cashflow statement
for the year ended 30 September
2023 2022
£000 £000
Profit for the year from continuing operating activities 47,060 39,907
Share of post-tax trading result of joint ventures 154 (95)
Impairment and amortisation of intangible assets 6,014 8,109
Gain on remeasurement of existing equity asset (2,164) -
Research and development expenditure credit (1,249) (1,353)
Depreciation of property, plant and equipment and right of use assets 10,688 10,136
Profit on sale of property, plant and equipment (822) (830)
Increase in inventories (1,348) (534)
Increase in receivables (14,060) (7,455)
Increase in payables and provisions 11,247 10,986
Current and past service cost in respect of defined benefit pension scheme - 23
Cash contribution to defined benefit pension schemes - (315)
Charge in respect of share options 669 657
Finance income (360) (16)
Finance expense 1,219 540
Interest paid (1,285) (573)
Income taxes paid (11,767) (7,595)
Income tax expense 11,046 9,548
Net cash inflow from continuing operating activities 55,042 61,140
Net cash outflow from discontinued operating activities (1,265) (3,977)
Net cash inflow from operating activities 53,777 57,163
Investing activities
Interest received 360 16
Dividend received from joint venture - 265
Proceeds on disposal of property, plant and equipment 1,251 1,514
Purchases of property, plant and equipment (5,509) (5,056)
Acquisition of subsidiaries net of cash acquired (13,324) -
Net cash outflow from investing activities (17,222) (3,261)
Financing activities
Dividends paid (13,683) (13,281)
Issue of share equity 68 18
New loan 23,000 18,000
Loan repayments (23,000) (22,373)
Repayments of obligations under lease liabilities (7,501) (6,693)
Net cash outflow from financing activities (21,116) (24,329)
Net increase in continuing cash and cash equivalents 16,704 33,550
Net decrease in discontinued cash and cash equivalents (1,265) (3,977)
Net increase in cash and cash equivalents 15,439 29,573
Cash and cash equivalents at beginning of year 20,218 (9,355)
Cash and cash equivalents at end of year 35,657 20,218
Bank balances and cash 35,657 27,559
Bank overdraft - (7,341)
Cash and cash equivalents at end of year 35,657 20,218
Notes
1 Basis of preparation
The consolidated financial statements for the year ended 30 September 2023
have been prepared in accordance with International Financial Reporting
Standards ("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 2023. 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 2024.
Prior year restatement
In the prior year, the Group incorrectly offset a net £7,341,000 overdraft
balance with one financial institution against a positive cash balance with
another financial institution.
However, since the cash balance was with a different institution, there was no
legal right of offset. As a result of the error, a restatement has been
recorded to increase Cash and cash equivalents by £7,341,000 to £27,559,000
and Bank overdraft, disclosed within Borrowings, has also increased by
£7,341,000 from £Nil. The restatement does not impact net assets, nor any
other primary statement.
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: 2023 2023 2023 2022
£000 £000 £000 £000
Engineering Services 887,541 (39,383) 848,158 746,145
Specialist Building 73,375 - 73,375 70,125
Segment revenue 960,916 (39,383) 921,533 816,270
Central activities 21 - 21 6
960,937 (39,383) 921,554 816,276
Analysis of profit on ordinary activities before taxation from continuing
activities
Before Before
exceptional Exceptional exceptional Exceptional
items and items and items and items and
amortisation amortisation amortisation amortisation
of intangible of intangible of intangible of intangible
assets assets assets assets
2023 2023 2023 2022 2022 2022
£000 £000 £000 £000 £000 £000
Engineering Services 64,275 (4,084) 60,191 59,123 (8,376) 50,747
Specialist Building 1,269 - 1,269 1,679 - 1,679
Segment operating profit 65,544 (4,084) 61,460 60,802 (8,376) 52,426
Central activities (1,935) (560) (2,495) (2,029) (418) (2,447)
Operating profit 63,609 (4,644) 58,965 58,773 (8,794) 49,979
Net financing costs (859) - (859) (524) - (524)
Profit on ordinary activities before income tax 62,750 (4,644) 58,106 58,249 (8,794) 49,455
3 Exceptional items and amortisation of intangible assets 2023 2022
£000 £000
Acquisition costs/aborted acquisition costs 560 418
Total losses arising from exceptional items 560 418
Amortisation of intangible assets 6,245 7,123
Gain on remeasurement of existing equity interest (2,161) -
Impairment of intangible asset - 1,253
Total exceptional items and amortisation charge before income tax 4,644 8,794
Taxation credit on exceptional items and amortisation (1,554) (1,782)
Total exceptional items and amortisation charge 3,090 7,012
During the year the Company incurred £560,000 of costs on acquiring Enisca
Group Ltd. Prior year's
acquisition costs related to an unsuccessful acquisition opportunity.
On 25 November 2022, the Company acquired the whole of the issued share
capital of Enisca Group Limited which resulted in the Group owning 100% of
Enisca Browne Ltd. The Group previously owned 50% of this Company and
accounted for it as a joint venture using the equity method of accounting. As
a result, under IFRS 3 this is treated as a step acquisition where the
previously held equity interest is remeasured at its acquisition-date fair
value with the resulting gain recognised in the income statement. Further
information on this acquisition can be found in Note 10.
£000
Remeasured value 3,566
Less equity interest (previously included in investments in joint ventures) (1,405)
Gain on remeasurement of existing equity interest 2,161
The Directors in the comparative year 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 2023 2022
£000 £000
Revenue - -
Expenses (3,676) (2,242)
Loss before income tax (3,676) (2,242)
Income tax charge - -
Loss for the year from discontinued operations (3,676) (2,242)
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. At the time of the disposal, the sale of this business
was accounted for as a discontinued operation.
During the year an additional provision of £3,676,000 (2022: £3,353,000) has
been recognised, and because this adjustment relates to uncertainties directly
related to the operations of Allenbuild before its disposal, this has been
classified within discontinued operations. This additional provision was as a
result of the settlement of historical claims during the financial year and a
subsequent internal reassessment of the likely costs required to settle other
known contractual disputes. The comparative figure comprised £3,353,000 in
relation to increases in the provision partially offset by £1,308,000 which
related to the recycling of the foreign currency reserve.
5 Income tax expense
(a) Analysis of expense in year 2023 2022
£000 £000
Current tax:
UK corporation tax on profits of the year (12,447) (10,692)
Adjustments in respect of previous period 1,164 (193)
Total current tax (11,283) (10,885)
Deferred tax - defined benefit pension schemes (29) (87)
Deferred tax - other temporary differences 266 1,424
Total deferred tax 237 1,337
Income tax expense in respect of continuing activities (11,046) (9,548)
(b) Factors affecting income tax expense for the year 2023 2022
£000 £000
Profit before income tax 58,106 49,455
Profit multiplied by standard rate
of corporation tax in the UK of 22% (2022: 19%) (12,783) (9,396)
Effects of:
Expenses not deductible for tax purposes (620) (1,705)
Timing differences not provided in deferred tax - 1,721
Non-taxable income 696 -
Change in tax rate 640 25
Adjustment in respect of tax losses (143) -
Adjustments in respect of previous period 1,164 (193)
(11,046) (9,548)
Corporation tax rate increased from 19% to 25% from April 2023 so profits for
the year are subject to a blended rate of 22% (2022: 19%).
Deferred tax has been provided at a rate of 25% (2022: 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 2023 has been calculated based on these
rates, reflecting the expected timing of reversal of the related temporary
timing differences (2022: 25%).
The Group has available further unused UK tax losses of £23.1m (2022:
£23.7m) 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
£5.8m (2022: £5.9m).
6 Dividends 2023 2022
Pence/share Pence/share
Interim (related to the year ended 30 September 2023) 6.00 5.67
Final (related to the year ended 30 September 2022) 11.33 11.17
Total dividend paid 17.33 16.84
£000 £000
Interim (related to the year ended 30 September 2023) 4,748 4,472
Final (related to the year ended 30 September 2022) 8,935 8,809
Total dividend paid 13,683 13,281
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 12.00p per Ordinary Share be paid in
respect of the year ended 30 September 2023. This will be accounted for in
the 2023/24
financial year.
7 Earnings per share
2023 2022
Earnings EPS DEPS Earnings EPS DEPS
£000 Pence Pence £000 Pence Pence
Earnings before exceptional items and amortisation 50,150 63.47 63.28 46,919 59.52 59.30
Exceptional items and amortisation (3,090) (3.91) (3.90) (7,012) (8.89) (8.87)
Basic earnings per share - continuing activities 47,060 59.56 59.38 39,907 50.63 50.43
Loss for the year from discontinued operations (3,676) (4.65) (4.64) (2,242) (2.85) (2.83)
Basic earnings per share 43,384 54.91 54.74 37,665 47.78 47.60
Weighted average number of shares ('000) 79,011 79,253 78,825 79,125
The dilutive effect of share options is to increase the number of shares by
242,000 (2022: 299,750) and reduce basic earnings per share by 0.17p (2022:
0.18p).
8 Preliminary financial information
The financial information set out above does not constitute the company's
statutory accounts for the years ended 30 September 2023 or 2022. Statutory
accounts for 2022 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 2023 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 IFRSs. The
Directors use a combination of APMs and IFRS measures when reviewing the
performance, position and cash of the Group.
The Directors believe that APMs provide a better understanding of the ongoing
trading performance of the business by removing costs
such as amortisation, and one-off exceptional items which will not directly
impact the future cashflows and will mainly relate to the unrepeated cash
outflows incurred in acquiring a specific equity investment.
Depreciation is not removed on the basis that the tangible and right of use
assets will be replaced at the end of their useful economic lives resulting in
future cash outflows.
Furthermore, they believe that the Group's stakeholders use these APMs, for
example when assessing the performance of the Group against discounted cash
flow models, 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 - 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 (£63.609m) and adjusted profit before tax
(£62.750m) - 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 ongoing performance of the Group. The
equivalent GAAP measures are operating profit (£58.965) and profit before tax
(£58.106m).
Adjusted operating margin (6.6%) - This is calculated by dividing operating
profit before exceptional items and amortisation of intangible assets
(£63.609m) by Group revenue including share of joint venture (£960.937m)
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 ongoing
performance of the Group. The equivalent GAAP measure is operating profit
margin (6.4%) which is calculated by dividing operating profit (£58.965m)
from group revenue from continuing activities (£921.554m).
Adjusted earnings per share (63.47p) - 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 ongoing performance of the Group.
Group Revenue (£960.937m) - This measure is visible on the face of the income
statement as Revenue: Group including share of joint ventures.
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 (£887.541m) - This measure is visible in Note 2
segmental analysis as Engineering Services revenue including share of joint
venture. The Directors consider this to be a good indicator of the ongoing
performance of the Group's Engineering Services business.
Adjusted Engineering Services operating profit (£64.275m) - This measure is
visible in Note 2 segmental 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 ongoing performance of the Group's
Engineering Services business. The GAAP equivalent measure is Engineering
Services operating profit (£60.194m) which is also visible in Note 2.
Adjusted Engineering Services operating profit margin (7.2%) - This is
calculated in the same way as adjusted operating profit margin but based on
the adjusted Engineering Services operating profit (£64.275m) and the
Engineering Services revenue (£887.541m) figures as set out above. The
equivalent GAAP measure is Engineering Services operating profit margin (7.1%)
which is calculated by dividing Engineering Services operating profit
(£60.194m) from Engineering Services revenue from continuing operations
(£848.158m).
10 Acquisition of subsidiary undertaking - Enisca Group Limited
On 25 November 2022, the Company acquired the whole of the issued share
capital of Enisca Group Limited ("Enisca") for a cash consideration of
£14.6m. The Group previously held a 50% interest in Enisca Browne Ltd, a
joint venture originally acquired through its subsidiary J Browne Group Ltd.
As a result of obtaining control of Enisca Group Ltd, the Group has
derecognised the investment in the joint venture and accounted for the
acquisition of the remaining 50% interest as a business combination achieved
in stages. This required the Group, as acquirer, to remeasure its previously
held equity investment in Enisca Browne Ltd at its acquisition-date fair
value. The Group's equity interest prior to acquisition was £1.4m and its
remeasurement to £3.6m resulted in a gain of £2.2m which was recognised in
the income statement (please see note 3).
The net acquisition cost was funded by a combination of cash and the Group's
existing revolving credit facility provided by HSBC UK Bank plc, National
Westminster Bank plc and Lloyds Bank plc.
Enisca is a multi-disciplinary engineering business operating in the water and
environmental sector with headquarters in Cookstown, Northern Ireland but with
a base on the UK mainland. Enisca has long term Mechanical, Electrical,
Instrumentation, Controls and Automation (MEICA) frameworks with Southern
Water, South East Water, Affinity Water, Yorkshire Water, Irish Water,
Northern Ireland Water, Anglian Water and Northumbrian Water.
The acquisition represents an excellent strategic fit, adding new capabilities
and clients to Renew's water business which continues to benefit from the UK
Government's commitment to spend £51bn over AMP7 into 2025. Further, Enisca
will form a key part of the Group's strategy to maximise the opportunities
presented by AMP8 ahead of the anticipated start of procurement in 2024.
The value of the assets and liabilities of Enisca at the date of acquisition
were:
Fair value
£000
Assets
Intangible assets 11,498
Property, plant and equipment 328
Right of use assets 501
Inventories 208
Trade and other receivables 7,411
Cash and cash equivalents 1,264
Total assets 21,210
Liabilities
Lease liabilities (403)
Deferred tax liabilities (2,833)
Trade and other payables (9,736)
Lease liabilities (121)
Current tax liability (324)
Total liabilities (13,417)
Total identifiable net assets at fair value 7,793
50% equity interest measured at fair value (3,555)
Goodwill arising on acquisition 10,360
Purchase consideration transferred 14,598
Goodwill of £10,360,000 arose on acquisition and is attributable to the
expertise and workforce of the acquired business. Other intangible assets
provisionally valued at £11,498,000, which represent customer relationships
and contractual rights, were also acquired and will be amortised over their
useful economic lives in accordance with IAS 38 and as defined within
accounting policy Note 1 (v) Intangible assets of the Annual Report &
Accounts. Amortisation of this intangible asset commenced from December 2022.
Deferred tax has been provided on this amount.
Right of use assets and obligations under finance leases
The Group measured the acquired lease liabilities using the present value of
the remaining lease payments at the date of acquisition.
The right of use assets were measured at an amount equal to the lease
liabilities.
Fair value adjustments arising from the acquisition
In accordance with IFRS 3, the Board reviewed the fair value of assets and
liabilities using information available during the 12 months after the date of
acquisition. Fair value has been calculated using Level 3 inputs as defined by
IFRS 13. No impairment was identified.
The fair value of trade and other receivables was £7.4m. The gross amount of
trade and other receivables was £7.4m and it is expected that the full
contractual amounts will be collected.
From the date of acquisition, Enisca has contributed £31.5m to revenue and
£1.8m to profit before tax from continuing operations of the Group. If the
acquisition of Enisca had occurred on 1 October 2022, Group revenue from
continuing operations would have been approximately £925.0m and profit before
tax for the year ended 30 September 2023 would have been approximately £58.2m
Transaction costs of £0.6m were expensed and are included in exceptional
items (please see Note 3).
11 Post balance sheet event
Acquisition
On 26 October 2023, West Cumberland Engineering Ltd, a wholly-owned subsidiary
of Renew Holdings Plc, acquired the whole of the issued share capital of TIS
Cumbria Ltd ("TIS") for a gross cash consideration of £4.7m less a net
working capital adjustment of £(0.6)m. The net £4.1m acquisition cost was
funded from cash resources. There is no deferred consideration payable.
Based in Cumbria, TIS is a leading nuclear manufacturing and fabrication
specialist. In line with the Group's strategy, the acquisition enhances
Renew's nuclear services offering by immediately doubling manufacturing
capacity and strengthening Renew's position in the growing nuclear
decommissioning and new build markets.
This acquisition will allow the Group to continue to support its existing
clients and take advantage of increasing demand across the decommissioning and
new nuclear build programmes. The added manufacturing capacity will allow
Renew to better support its existing clients, as well as
strengthening its broader market position. TIS represents an excellent
strategic fit with the Group's existing multidisciplinary nuclear capability,
which offers attractive long term structural growth opportunities underpinned
by highly visible committed regulatory spend in a sector where the Group has
extensive experience.
The principal asset category acquired is tangible fixed assets with a net book
value of c.£4m including freehold land and buildings externally valued at
£3.1m. All cash and loans, with the exception of two small hire purchase
agreements, were settled prior to acquisition. The fair value exercise
continues for net working capital categories. The acquisition will be reported
in more detail in the Interim results for the six months ending 31 March 2024.
12 Posting of Report & Accounts
The Group confirms that the annual report and accounts for the year ended 30
September 2023 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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