Final Results
Van Elle Holdings plc
|
For Immediate Release |
24 July 2019 |
A Year of Transition
Preliminary Results for the year ended 30 April 2019
Van Elle Holdings plc (the "Group"), the UK's largest independent ground engineering contractor, announces its preliminary results for the year ended 30 April 2019 ("FY19").
Financial Highlights
|
|
Year ended 30 April 2019 |
Year ended 30 April 2018 |
% change |
|
Revenue (£m) |
88.5 |
103.9 |
(14.8) |
|
Underlying* Operating Profit (£m) |
5.2 |
11.1 |
(53.2) |
|
Reported Operating Profit (£m) |
4.6 |
9.7 |
(52.6) |
|
Underlying* profit before taxation (£m) |
4.7 |
10.6 |
(55.7) |
|
Reported profit before taxation (£m) |
4.0 |
9.2 |
(56.5) |
|
Underlying* earnings per share (p) |
4.7 |
10.6 |
(55.7) |
|
Reported earnings per share (p) |
4.0 |
9.2 |
(56.5) |
|
Dividend per share (p) |
2.00 |
3.70 |
(45.9) |
|
Operating cash conversion (%) |
106.3% |
85.9% |
|
|
Return on capital employed (%) |
9.90% |
20.5% |
|
|
Net debt (£m) |
4.2 |
5.9 |
|
*Underlying measures exclude exceptional costs (note 6) and share based payment expenses.
Strategic & operational highlights
· Disappointing performance in FY19, with results impacted by challenging end-market conditions and operational weaknesses in Q3
· Despite weaker trading, good capital discipline resulted in a strong cash performance with net debt further reduced to £4.2m (2018: £5.9m)
· Management implementing a strategy to improve operational performance and establish a platform for long term, sustainable growth
· Progress being made under the transition plan, including:
o Strengthened leadership team
o Streamlined divisional structure and associated overhead improvements
o Consolidation of operations into a single site
o Improving engagement with strategic customers
o Improving business development focus and bidding success, evidenced by good contract win momentum
o Strengthened performance review and commercial processes
· Improved commercial focus and strategic engagement gaining traction, with success in securing positions on attractive, long term contracts resulting in an orderbook of £32m, materially ahead of last year
· The Board is recommending a final dividend of 1p per share (total dividend of 2p per share)
Mark Cutler, Chief Executive, commented:
"This has been a year of transition for the business, having taken action to strengthen the leadership team, refine the Group's commercial approach, streamline operations and re-focus on our customers.
"Whilst it is disappointing to report that performance across the year has been impacted by a combination of widely-reported market uncertainties and previously highlighted operational weaknesses, we are seeing tangible signs of operational improvement as a result of the transition plan we are implementing. Our strengthened commercial approach is gaining traction as evidenced by recent contract wins and an encouraging orderbook.
"Nevertheless, the Group is continuing to experience customer uncertainty as well as some heightened competitive pressure, resulting in a quiet start to the current year in some segments and increased volatility in month on month performance. Whilst the improved customer focused approach and positive order book development underpins the Board's confidence in the prospects for the Group in the medium term, the Board is mindful that challenging market conditions and the resultant volatility is persisting into the current financial year and impacting visibility.
"Whilst the benefits of our self-help initiatives should drive improved performance in the business, the ability to make overall progress in FY20 will require supportive market conditions as we progress through the year.
"Van Elle fundamentally remains a market-leading business with a clear strategy. Having seen the positive impact of the initial actions undertaken as part of phase one of the transition plan, we are confident that these steps, as well as the further commercial and operational initiatives that will be deployed in the current year, will leave us well placed to capture significant opportunities across our target markets today and into the future."
Enquiries:
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Instinctif Partners (Financial Public Relations) |
Tel: 020 7457 2020 |
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Mark Garraway James Gray Rosie Driscoll |
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Peel Hunt LLP (Nominated Adviser and corporate broker) |
Tel: 020 7418 8900 |
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Charles Batten Mike Bell |
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Chairman's Statement
Overview
This has been a year of transition for Van Elle as we seek to transform business performance and set the platform for future growth under our new CEO, Mark Cutler, and a strengthened leadership team.
Disappointingly, current year performance has been impacted by a combination of uncertainty which has affected a number of our most significant markets and, as previously highlighted, we experienced operational weaknesses in the General Piling division in Q3.
Since joining Van Elle, Mark Cutler has undertaken a thorough review of operations and is implementing a three-phase transition plan with the aim of improving operational performance and establishing a platform for growth.
Significant progress has already been made under phase one of the transition plan, supported by an enhanced and strengthened leadership team, including streamlining the divisional structure, improving engagement with strategic customers, fostering an improved commercial and business development focus, and strengthening performance review and commercial processes across the business. In addition, a high level of focus is being applied to staff engagement and retention.
Notwithstanding current market uncertainty, the Group remains a leader in the UK geotechnical engineering services market where significant opportunities exist across our target markets of Housing, Infrastructure and Commercial & Industrial, much of which remain well-funded and/or are underpinned by long-term structural growth dynamics. The Group finished the year with a strong order book, with particular focus on longer-term partnerships and building on existing client relationships.
Capital allocation
The Group's capital structure is kept under constant review, taking account of the need for, and the availability and cost of, various sources of finance. The Group's objective is to deliver long-term value to its shareholders whilst maintaining a balance sheet structure that safeguards the Group's financial position through economic cycles.
Given the current wider market uncertainties, the priority focus continues to be strong management of working capital and net debt reduction. Investment over recent years has positioned the Group strongly, with a large, modern rig fleet, capable of delivering a broad range of services efficiently. In the short term, capital expenditure on rig fleet expansion will continue to be considered on a selective basis where a compelling investment case exists. Bolt-on acquisitions are not currently a key priority for the Group, but we remain watchful for opportunistic situations that might arise from the current uncertain market conditions.
Cost reduction programmes are ahead of previous targets and ongoing, benefiting from the co-location of all operations to our main site in Kirkby.
Dividend
In light of the Group's performance and reflecting the importance of prudent management of cash reserves, the Board is recommending a final dividend of 1.0p (2018: 2.3p), making a total of 2.0p (2018: 3.7p). If approved, the final dividend is payable on 27 September 2019 to shareholders registered on 6 September 2019.
Board and governance
In August 2018, our new CEO Mark Cutler joined the Board following the retirement of Jon Fenton in May 2018 (and the intervening period with Steve Prendergast as interim CEO). Mark brings significant sector and leadership experience to the role, with a clear strategy to stabilise the business and build a platform to pursue sustainable profitable growth.
In May 2019, Paul Pearson resigned from his role as Chief Financial Officer and Director of the Company and so will leave the Company in November 2019. On behalf of the Board, I would like to reiterate our thanks to Paul for his many years' service, which included the successful IPO of Van Elle in 2016. The Company is progressing the process of finding a successor to Paul.
As a Board, we are committed to promoting the highest standards of corporate governance and ensuring effective communication with shareholders. We are committed to applying the Quoted Companies Alliance for Corporate Governance Code, complemented with other suitable governance measures appropriate for a company of its size.
People
During a year of significant transition, the senior leadership team has been strengthened to ensure we have the optimal mix of experience and capability as we build a platform from which to grow the business.
In the year, Peter Handley and Malcolm O'Sullivan joined the leadership team in key roles, both bringing significant industry experience to the business. On behalf of the Board I would like to welcome Peter, Malcolm and all new employees to the Group.
As a Company, we have worked hard to bring together a team that has the right combination of sector knowledge and corporate experience to enable us to deliver on our vision and strategy.
Van Elle remains a market-leading business with an outstanding group of employees. I would like to thank all employees for their hard work and ongoing contribution to the business.
Outlook
Despite the uncertain market conditions and impact on investment decisions due to the protracted Brexit negotiations, and a general slowdown in contract deployment, the improved customer focused approach and positive order book development underpins the Board's confidence in the prospects for the Group in the coming years.
As a Board, we are mindful that market uncertainty and the resultant volatility may persist further into the current financial year.
Van Elle fundamentally remains a market-leading business with a clear strategy. The Board is confident that with the benefits of our implementation plan, we are well placed to capture significant opportunities across our target markets today and into the future.
Adrian Barden
Non-Executive Chairman
24 July 2019
Chief Executive's Statement
Overview
This year has been a challenging year amidst a general slowdown in construction activity and uncertainties around investment decisions and project starts. The first half continued to see market uncertainty as a result of the liquidation of Carillion in January 2018 and delayed contract decisions arising from Brexit uncertainty.
Reflecting these more challenging market conditions and the need for internal performance and efficiency improvements, the business is in a transition period during which efficiencies are being delivered, improved processes are being implemented and enhanced capability is assembled. In parallel a strategic review of markets and customers has been undertaken to enable the actions for sustainable growth and margin enhancement to be delivered over time. As a key element in ensuring strong, long-term performance, the Group is now far more focussed on closer customer relationships in its core sectors.
Part of the streamlining of the Group has seen the number of operating divisions reduced from eight to five and the integration of all staff previously spread across four separate offices into a single co-located office in Kirkby during Q4. In addition, the size of the total rig fleet has been reduced while future capex is more selectively considered, although Van Elle continues to hold the broadest and most modern range of specialist piling rigs in the market. In parallel, efficiencies to the overhead have been delivered in excess of £1.0m on an annualised basis, part of which has been reinvested in key hires, and further opportunities continue to be delivered, including the benefits of co-location on a single site.
Notwithstanding the difficult backdrop, the business continues to innovate and develop new products and services to ensure we remain competitive and diversified, as well as to meet opportunities in its core sectors. During the year new rigs have been built in-house for Vibro stone columns (VSC) in support of the Housing sector, a unique award-wining, road-rail geotechnical investigation vehicle, the VEmog has been commissioned and excellent progress has been made with our patented track bed stabilisation (TBS) system applicable to the Rail sector. FY19 has also seen the effective deployment of the three large rotary rigs procured in FY18 on several important case study projects.
Our diversified business model continues to be focussed on mid-sized projects (once again delivering circa 1000 projects in the year) across three core sectors where we believe there is sustainable demand for our services. In addition, our commercial risk remains relatively low as we complete projects quickly after typically short lead-times and this approach rarely leads to commercial disputes. Progress is indicated by our improved cash conversion of 106% (FY18 86%) which has supported our year-end net-debt reduction to £4.2m (FY19 £5.9m).
Significant focus has been put into staff engagement and retention, particularly during the challenging times described above and while streamlining and cost reduction programmes are being delivered. These initiatives include strengthened internal communications, priority training and development programmes and recognition programmes. Our first company awards event will be held in December 2019.
Strategic Approach
Since joining Van Elle in August 2018, I have undertaken a thorough review of the business and identified a range of opportunities to enhance the performance of the Group both in terms of operational performance and commercial development.
The Group remains a leader in the UK geotechnical engineering services market and our strategy is predicated on simultaneously:
1. Enhancing the performance and profitability of the business through a range of business improvement activities; and
2. Accelerating growth by increasing our market share in our targeted sectors, maximising our integrated solutions offering, broadening our range of products and services and extending our geographical footprint into high growth markets across the UK.
At the half year we described the three phases of our transition plan (below). The phase one activities commenced in FY2019 and will continue throughout FY2020. Progress is measured against medium term key performance indicators and supported by annual objectives across the leadership team, which are cascaded through the business via individual personal appraisals and linked to individual incentive arrangements.
|
Phase 1 |
Business review and performance stabilisation |
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Phase 2 |
Predictable performance and margin improvement |
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Phase 3 |
Sustainable annual growth |
At the half year we reported on a range of immediate actions to help deliver improvements under phase one. For the year as a whole, significant progress has been made with actions undertaken including:
· 'Back to basics' operational improvement programme and introduction of strengthened commercial processes;
· Significantly strengthened leadership team;
· Streamlining and simplifying the Group's operational structure;
· Consolidation of the Group's operations into a single site at Kirkby;
· Increasing engagement with strategic customers;
· Re-focused work winning approach;
· Initiatives to improve asset (rig) utilisation; and,
· Improved employee engagement
The Group is beginning to generate a stronger pipeline of opportunities, particularly larger projects with an increasingly strategic customer base which integrate several of its specialist capabilities and enable early involvement.
Strengthened commercial processes are expected to support consistent contract margin delivery, tighter risk management at bid stage and improved cashflows. The streamlined divisional structure has already reduced unnecessary complexity in the Group as well as reducing overhead costs, including anticipated annualised cost savings of over £1.0m for FY2020.
The co-location of all personnel formerly dispersed across four offices in Pinxton and Kirkby has further improved internal collaboration and efficiency. This will be further enhanced when all plant and maintenance operations are also co-located at the same site later in FY2020.
Target markets
As a Group we operate a diversified business model, targeted at growth markets where there is sustainable demand for our services. We see significant continued opportunity across our core target markets, being Housebuilding, Infrastructure and Industrial & Commercial, which are supported by favourable long-term trends and where Van Elle's range of services are of critical importance. Across each of these markets our work mix is carefully monitored to ensure we retain the essential regional strength of the business across mid-sized projects but blended with carefully selected larger schemes that deliver greater utilisation and margin certainty and meet our cashflow and risk management criteria.
· Housebuilding remains the most important end market for Van Elle, making up the majority of the Group's revenues and continues to be a key target market. As widely reported, the UK has a structural under supply of new-build housing with cross-party support to increase housing output. With strong levels of demand, Van Elle expects to see increasing opportunities to support the delivery of homes quickly and efficiently, particularly with growing pressure to build on brownfield and marginal land.
· Infrastructure investment in the UK continues to grow as major spending plans are underpinned by national demand and essential maintenance requirements. Van Elle is well-positioned having delivered numerous case study projects across all major infrastructure segments and is able to meet the increasingly complex and technical requirements of these projects.
· Industrial & Commercial is supported by the Government's industrial strategy to increase productivity across the country. The market is seeing significant growth, particularly in distribution and logistics, as an increasing amount of industrial and warehouse space is needed to support demand from online retailers to sort and distribute orders efficiently. Large-scale projects have increasingly complex and technical requirements.
Operating performance
As previously reported, during FY19 the business experienced operational weaknesses in General Piling which were addressed by operational review and management changes in late 2018. The 'back to basics' imperative that emerged from this review is applicable to all divisions and has been a continuous feature of leadership focus through FY19 and into FY20. The introduction of our Perfect Delivery performance model, incorporating eight simple and transparent measures is intended to consistently ensure the highest standards are achieved on every project in the Group.
In terms of FY19 performance, revenue reduced by 15% to £88.5m compared to FY18 (£103.9m) against a backdrop of challenging market conditions. Underlying operating margins reduced from 10.7% to 5.9% and reported operating margin from 9.3% to 5.2% from a combination of lower contribution to overhead from reduced sales and weaker operational performance from some divisions.
Markets
In our end markets we saw a broadly balanced exposure to our core sectors. Performance across our markets has been impacted by a combination of lower customer confidence, delayed decision making and in turn, increased competition and pricing pressures.
The Rail market is currently experiencing a lull in activity following the completion of electrification schemes and reduced spend towards the end of the current funding period CP5, and ahead of the start of CP6.
Highways remains a buoyant market, where the Group continues to have significant bid success, but which has also been impacted by delays to project start dates.
In Commercial & Industrial, the period saw a notable slowdown in London, which has driven competition further afield outside the capital. However, the Industrial market presents a significant growth opportunity with the wide-spread development of 'big shed' logistics capacity which the Group's Vibro techniques will help us to capture.
The reduced proportion of sales to the housing sector is explained primarily by fewer large projects in General Piling to multi-story developments. However, we have seen notable continued success with our integrated piling and Smartfoot foundations offering.
The Group is developing a more strategic approach to work winning, focussed on longer term customer partnerships. This focus has resulted in the Group securing positions on attractive, long term contracts which underpin a portion of FY20 performance whilst setting firm foundations for future growth across our markets.
Fleet and operating structure
Rig investment in the year has been modest with no new rigs procured but instead the business has concentrated on actions required to improve utilisation, reliability and self-build of new VSC rigs, the benefits of which will be seen in FY20. We have also disposed of nine rigs, with a net reduction to our total feel size from 123 to 115. The Group continues to benefit from a well-invested and modern fleet with significant flexibility to redirect resources to reflect short-term trends in our markets; a key strength of the business.
This year we report our operating performance in three segments rather than the previous four. This better reflects our streamlined divisional structure. The three segments, all on a national basis, are as follows:
· General Piling: open site, larger projects; key techniques being large diameter rotary and CFA piling as well as larger precast driven piling
· Specialist Piling: restricted access, rail, smaller rigs and engineering techniques; including soil nails and anchors and drill and grout projects
· Ground Engineering Services: modular foundation solutions (e.g. Smartfoot) and geotechnical services (trading as Strata)
The former Ground Engineering Products segment has been discontinued as a standalone reporting segment as the in-house production of pre-cast piles and Smartfoot beams are now considered as a cost centre in support of the above three segments as required; catering solely for our internal needs. Our production facilities continue to operate from three sites in Glasgow, Kirkby and Dereham, supplemented by external supply as necessary to meet peaks in demand.
General Piling
The General Piling division has the largest fleet within the Group and offers a wide variety of ground engineering solutions for open-site construction projects.
Revenue contracted by 15.6% in the year to £37.2m (2018: £44.1m), suffering from the uncertainties in the markets for the reasons described above.
The subdued markets resulted in low utilisation of our large diameter rotary and CFA piling rigs that not only supressed revenue, but also impacted on margin mix as these techniques command higher gross margins. Weaker than anticipated operational execution of contracts, particularly in Q3, further compounded gross margin performance, resulting in a reduction in operating profit to £1.2m (2018: £5.4m).
The causes for the poor operational delivery were identified and actions taken in November 2018 to resolve the issues, which included a change of divisional leadership with the appointment of Malcolm O'Sullivan, former managing director of Balfour Beatty Ground Engineering, as the new General Piling director just after year-end.
Specialist Piling
Revenue was approximately 24.9% lower at £28.6m (2018: £38.1m). Approximately £4.5m, or 45%, of this reduction reflects the decision to cease exposure to lump sum drill & grout activities following poor margins from works delivered in 2018. The remaining reduction in revenue, as with General Piling, reflects the impact of lower levels of confidence and demand in our end markets, particularly in the infrastructure sector and the non-repeat of a small number of very large projects in FY18.
Rail-specific revenues fell by 10.9% over the year, with major electrification programmes coming to an end and reduced spend towards the end of the current funding period CP5 and ahead of the start of CP6, which is expected to see momentum in spend.
In the second half of the year, whilst Rail saw strong demand for its services over the Christmas and Easter periods, other Specialist Piling contracts had contract start dates delayed, particularly on several highways projects that were due to start in Q4 FY19.
As a consequence of the reduction in revenue, operating profit fell to £2.7m (2018: £3.6m). However, a recovery in gross margin performance enabled operating margins to be maintained despite a lower contribution to overhead.
Ground Engineering Services
Revenues of £22.6m represented a 4.6% increase on the prior year (2018: £21.6m).
Our integrated piling and Smartfoot foundation beam sales to the housebuilders increased by £1.8m (9.8%). As the housing sector moves increasingly to modern methods of construction the time and resource savings of modular foundations are becoming better appreciated. In parallel our relationships with national housebuilders are maturing. As a Group; rigs and personnel have been deployed effectively to meet the increased demand.
Our in-house pre-cast concrete pile and beam production facilities at Kirkby are working to maximum capacity such that we procured strategic supply chain partners to service the internal demand for our concrete products.
Strata, our Geotechnical division, reported revenues of £4m; £0.4m down on last year, primarily impacted by reduced pile testing volumes as a result of the Piling division's lower revenues and maturing external business development activity. We delivered our first contract with our new, first in class VeMog, which provides on-track site investigation capabilities to the rail infrastructure.
Operating profit for the year was £1.3m, down from £2.1m due to additional costs associated with scaling up operations to meet the demand for Smartfoot-related sales.
Summary & outlook
This has been a year of transition for the business, having taken action to strengthen the leadership team, refine the Group's commercial approach, streamline operations and re-focus on our customers.
Whilst it is disappointing to report that performance across the year has been impacted by a combination of widely-reported market uncertainties and previously highlighted operational weaknesses, we are seeing tangible signs of operational improvement as a result of the transition plan we are implementing. Our strengthened commercial approach is gaining traction as evidenced by recent contract wins and an encouraging orderbook.
Nevertheless, the Group is continuing to experience customer uncertainty as well as some heightened competitive pressure, resulting in a quiet start to the current year in some segments and increased volatility in month on month performance. Whilst the improved customer focused approach and positive order book development underpins the Board's confidence in the prospects for the Group in the medium term, the Board is mindful that challenging market conditions and the resultant volatility is persisting into the current financial year and impacting visibility.
Whilst the benefits of our self-help initiatives should drive improved performance in the business, the ability to make overall progress in FY20 will require supportive market conditions as we progress through the year.
Van Elle fundamentally remains a market-leading business with a clear strategy. Having seen the positive impact of the initial actions undertaken as part of phase one of the transition plan, we are confident that these steps, as well as the further commercial and operational initiatives that will be deployed in the current year, will leave us well placed to capture significant opportunities across our target markets today and into the future.
Mark Cutler
Chief Executive Officer
24 July 2019
Financial Review
Revenue
The Group saw a decline in revenue during the year, with turnover falling to £88.5m (2018: £103.9m) against a backdrop of a subdued market post Carillion's demise in January 2018 and a nervousness to commence new contracts until Brexit arrangements have been finalised.
|
|
2019 £'000 |
2018 £'000 |
Change % |
2019 % |
2018 % |
|
H1 |
42,921 |
52,642 |
(18.5) |
48.5 |
50.7 |
|
H2 |
45,547 |
51,230 |
(11.1) |
51.5 |
49.3 |
|
Revenue |
88,468 |
103,872 |
(14.8) |
100.0 |
100.0 |
|
|
|
|
|
|
|
Group results are traditionally seasonally weighted to H2 due to work patterns over the Christmas and Easter holiday periods, particularly in the infrastructure sector and this year reverted back to this trend after last year when H1 performance was marginally ahead of H2. Turnover in FY19 H1, and a quiet start to the first quarter of FY19, were impacted by the demise of Carillion and continuing Brexit uncertainty affecting investment decisions by clients to defer commencement of larger projects. FY19 H2 turnover saw revenue run rates increasing but despite encouraging progress in work winning, some contract awards and start dates were delayed by customers.
Our strategy is to direct our resources and investment into growth markets and, by tracking enquiry levels by end market, this acts as a barometer for identifying trends and targeting our activities into the growth areas. The mix of revenue by end markets is shown below:
|
|
2019 £'000 |
2018 £'000 |
Change % |
2019 % |
2018 % |
|
Housebuilding |
38,807 |
51,884 |
(25.2) |
43.8 |
49.9 |
|
Infrastructure |
27,670 |
32,343 |
(14.4) |
31.3 |
31.1 |
|
Commercial and industrial |
20,532 |
16,357 |
25.5 |
23.2 |
15.7 |
|
Public sector |
1,378 |
2,149 |
(35.9) |
1.6 |
2.1 |
|
Other |
81 |
1,139 |
(92.9) |
0.1 |
1.1 |
|
Revenue |
88,468 |
103,872 |
(14.8) |
100.0 |
100.0 |
|
|
|
|
|
|
|
New housing and infrastructure continued to dominate revenues this year although housebuilding has fallen to 43.8% of total turnover, with a swing in sales mix reflecting a strong uptick in commercial and industrial revenues to 23.2% of our total with several significant hotel, retail and education contracts delivered.
The mix of revenue by our divisions is shown below:
|
|
2019 £'000 |
2018 £'000 |
Change % |
2019 % |
2018 % |
|
General Piling |
37,201 |
44,100 |
(15.6) |
42.1 |
42.5 |
|
Specialist Piling |
28,630 |
38,136 |
(24.9) |
32.3 |
36.7 |
|
Ground Eng'ing Services |
22,637 |
21,636 |
4.6 |
25.6 |
20.8 |
|
|
|
|
|
|
|
|
Revenue |
88,468 |
103,872 |
(14.8) |
100.0 |
100.0 |
|
|
|
|
|
|
|
The changing mix across divisions reflects the impacts on General Piling and Specialist Piling of uncertainties around investment decisions and project starts caused by the delays in finalising Brexit.
Ground Engineering Services grew revenues from increased Smartfoot-related sales following expansion of our production capabilities last year, to meet increasing demand for our modular beams.
Gross profit
The gross margin of the Group has reduced to 31.9% (2018: 33.1%), primarily the result of operational weaknesses in delivering contracts during Q3 of the year in General Piling division as well as the adverse mix impacts described above.
Operating profit
The 14.8% reduction in revenues year on year and weaker operational performance delivering lower contribution to overheads which translated into operating profit for the year ended 30 April 2019 of £4.6m (2018: £9.7m)
|
|
2019 £'000 |
2018 £'000 |
Change % |
|
Operating profit |
4,562 |
9,710 |
(53.0) |
|
|
|
|
|
|
Underlying operating margin |
5.9% |
10.7% |
|
|
Operating margin |
5.2% |
9.3% |
|
|
|
|
|
|
Our underlying operating margin has decreased to 5.9% (2018: 10.7%) and our reported operating margin to 5.2% (2018: 9.3%). Estimates for plant and machinery depreciation rates and residual values were changed reducing the change in the year by £1.1m.
Exceptional costs
Exceptional items, by their size, incidence or nature, are disclosed separately to allow a better understanding of the underlying performance of the Group. During the year, exceptional items of £559,000 were incurred principally in respect of:
· Restructuring including redundancy and related consultancy costs as the Group was streamlined from eight to five divisions;
· Also included in the year is a one-off loss of £90,000 following a settlement the Company reached with a supplier relating to non-compliant plant and machinery.
The Board believes that the underlying performance measures for operating profit, PBT and EPS, stated before the deduction of exceptional items and share-based payment charges, give a clearer indication of the actual performance of the business.
Net finance costs
Net finance costs were £527,000 (2018: £536,000) and interest was covered 8.7 times (2018: 18.1 times). The slight reduction in costs reflects the low capital investment in the year (requiring only one new financing agreement for the only new addition to the rig fleet) and the reducing financial liabilities as hire purchase contracts reach their term. HP agreements are at fixed rates of interest and normally for a five-year term.
Taxation
The effective tax rate for the year was 18.0% (2018: 18.9%).
The Group paid £1,366,000 (2018: £1,768,000) of corporation tax during the year.
Dividends
On 6 March 2019, the Company paid an interim dividend of 1.0p per share.
In light of the Group's performance and ensuring a strong focus on cash management in the short-term, the Board is recommending a final dividend of 1.0p (2018: 2.3p), making a total of 2.0p (2018: 3.7p) and reflecting the Board's continued confidence in the long-term prospects for the business.
Subject to approval at our Annual General Meeting of shareholders on 12 September 2019, the recommended final dividend will be paid on 27 September 2019 to shareholders who are on the register on 6 September 2019.
The Board fully recognises the importance of dividends to shareholders and the creation of shareholder value.
Earnings per share
The underlying basic earnings per share was 4.7p (2018: 10.6p), based on underlying earnings of £3,788,000 (2018: £8,516,000). Underlying earnings are stated after adding back £559,000 of exceptional costs and £123,000 of share-based payment charges. Reported basic earnings per share was 4.0p (2018:9.2p).
Balance sheet summary
|
|
2019 £'000 |
2018 £'000 |
|
Fixed assets (including intangible assets) |
40,775 |
41,826 |
|
Net working capital |
7,052 |
7,437 |
|
Net debt |
(4,232) |
(5,905) |
|
Taxation and provisions |
(1,534) |
(1,992) |
|
Net assets |
42,061 |
41,366 |
|
|
|
|
The Group has increased net assets by £0.7m to £42.1m (2018: £41.4m) during the year.
The Group only invested in one specialist rig with capital expenditure of only £3.6m (2018: £13.2m) in the year and a corresponding annual depreciation charge of £4.3m (2018: 5.7m), this fall in charges following the change in estimates for depreciating plant and machinery (refer to notes to the accounts, Property, plant and equipment for details).
The ROCE has decreased in the period to 9.9% at 30 April 2019 (2018: 20.5%), reflecting the impact of reduced operating profits.
Analysis of net debt
|
|
2018 £'000 |
2018 £'000 |
|
Bank loans |
(975) |
(1,125) |
|
Other loans |
(15) |
(109) |
|
Finance leases |
(11,239) |
(15,551) |
|
Total borrowings |
(12,229) |
(16,785) |
|
Cash and cash equivalents |
7,997 |
10,880 |
|
Net debt |
(4,232) |
(5,905) |
|
|
|
|
Net debt has decreased by £1.7m to £4.2m at 30 April 2019, reflecting the reduction in finance lease liabilities serviced in the year and maximising the bank balance through robust working capital management against the backdrop of the reduction in operating profits.
Cash flow summary
|
|
2019 £'000 |
2018 £'000 |
|
Operating cash flows before working capital |
8,995 |
15,417 |
|
Working capital movements |
468 |
(2,173) |
|
Cash generated from operations |
9,463 |
13,244 |
|
Net interest paid |
(527) |
(536) |
|
Income tax paid |
(1,366) |
(1,768) |
|
Net cash generated from operating activities |
7,570 |
10,758 |
|
Capital expenditure |
(2,007) |
(4,732) |
|
Financing activities |
(8,446) |
(8,186) |
|
Net increase in cash and cash equivalents |
(2,883) |
(1,978) |
The Group has always placed a high priority on cash generation and the active management of working capital. Cash generated from operations was £9.5m (2018: £13.2m), representing an operating cash conversion of 106.3% (2018: 85.9%).
Paul Pearson
Chief Financial Officer
24 July 2019
Consolidated statement of comprehensive income
For the year ended 30 April 2019
|
|
|
|
|
2019 |
2018 |
|
|
|
|
|
£'000 |
£'000 |
|
|
Revenue |
|
|
88,468 |
103,872 |
|
|
Cost of sales |
|
|
(60,281) |
(69,480) |
|
|
Gross profit |
|
|
28,187 |
34,392 |
|
|
Administrative expenses |
|
|
(23,625) |
(24,682) |
|
|
Operating Profit |
|
|
4,562 |
9,710 |
|
|
Operating profit before share based payments, Carillion bad-debt write-off and exceptional costs |
|
|
5,244 |
11,097 |
|
|
Share based payments |
|
|
(123) |
(148) |
|
|
Carillion bad-debt write-off |
|
|
- |
(956) |
|
|
Exceptional costs |
|
|
(559) |
(283) |
|
|
Operating profit |
|
|
4,562 |
9,710 |
|
|
Finance expense |
|
|
(579) |
(561) |
|
|
Finance income |
|
|
52 |
25 |
|
|
Profit before tax |
|
|
4,035 |
9,174 |
|
|
Income tax expense |
|
|
(823) |
(1,835) |
|
|
Total comprehensive income for the year |
|
|
3,212 |
7,339 |
|
|
Earnings per share (pence) |
|
|
|
|
|
|
Basic |
|
|
4.0 |
9.2 |
|
|
Diluted |
|
|
4.0 |
9.2 |
All amounts relate to continuing operations. There was no other comprehensive income in either the current or preceding year.
Consolidated statement of financial position
As at 30 April 2019
|
|
|
|
2019 |
2018 |
||
|
|
|
|
£'000 |
£'000 |
||
|
Non-current assets |
|
|
|
|
||
|
Property, plant and equipment |
|
|
38,486 |
39,502 |
||
|
Intangible assets |
|
|
2,289 |
2,324 |
||
|
|
|
|
40,775 |
41,826 |
||
|
Current assets |
|
|
|
|
||
|
Inventories |
|
|
2,882 |
2,565 |
||
|
Trade and other receivables |
|
|
20,558 |
22,225 |
||
|
Corporation tax receivable |
|
|
118 |
- |
||
|
Cash and cash equivalents |
|
|
7,997 |
10,880 |
||
|
|
|
|
31,555 |
35,670 |
||
|
Total assets |
|
|
72,330 |
77,496 |
||
|
Current liabilities |
|
|
|
|
||
|
Trade and other payables |
|
|
16,506 |
17,353 |
||
|
Loans and borrowings |
|
|
4,695 |
5,580 |
||
|
Provisions |
|
|
|
270 |
||
|
Corporation tax payable |
|
|
- |
753 |
||
|
|
|
|
21,437 |
23,956 |
||
|
Non-current liabilities |
|
|
|
|
||
|
Loans and borrowings |
|
|
7,534 |
11,205 |
||
|
Deferred tax |
|
|
1,298 |
969 |
||
|
|
|
|
8,832 |
12,174 |
||
|
Total liabilities |
|
|
30,269 |
36,130 |
||
|
Net assets |
|
|
42,061 |
41,366 |
||
|
Equity |
|
|
|
|
||
|
Share capital |
|
|
1,600 |
1,600 |
||
|
Share premium |
|
|
8,633 |
8,633 |
||
|
Retained earnings |
|
|
31,810 |
31,115 |
||
|
Non-controlling interest |
|
|
18 |
18 |
||
|
Total equity |
|
|
42,061 |
41,366 |
Consolidated statement of cash flows
For the year ended 30 April 2019
|
|
|
|
2019 |
2018 |
|
|
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Cash generated from operations |
|
|
9,463 |
13,244 |
|
Interest received |
|
|
52 |
25 |
|
Interest paid |
|
|
(579) |
(561) |
|
Income tax paid |
|
|
(1,366) |
(1,768) |
|
Net cash generated from operating activities |
|
|
7,570 |
10,940 |
|
Cash flows from investing activities |
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(2,390) |
(5,053) |
|
Disposal of property, plant and equipment |
|
|
393 |
321 |
|
Purchases of intangibles |
|
|
(10) |
- |
|
Net cash absorbed in investing activities |
|
|
(2,007) |
(4,732) |
|
Cash flows from financing activities |
|
|
|
|
|
Repayment of bank borrowings |
|
|
(150) |
(150) |
|
Repayments of Invest to Grow loan |
|
|
(95) |
(95) |
|
Payments to finance lease creditors |
|
|
(5,561) |
(5,421) |
|
Dividends paid |
|
|
(2,640) |
(2,520) |
|
Net cash absorbed in financing activities |
|
|
(8,446) |
(8,186) |
|
Net decrease in cash and cash equivalents |
|
|
(2,883) |
(1,978) |
|
Cash and cash equivalents at beginning of year |
|
|
10,880 |
12,858 |
|
Cash and cash equivalents at end of year |
|
|
7,997 |
10,880 |
Consolidated statement of changes in equity
For the year ended 30 April 2019
|
|
|
|
Non- |
|
|
|
|
Share |
Share |
controlling |
Retained |
Total |
|
|
capital |
premium |
interest |
earnings |
equity |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 1 May 2017 |
1,600 |
8,633 |
18 |
26,070 |
36,321 |
|
Total comprehensive income |
- |
- |
- |
7,339 |
7,339 |
|
Share-based payment expense |
- |
- |
- |
225 |
225 |
|
Total changes in equity |
- |
- |
- |
7,564 |
7,564 |
|
Dividends paid |
- |
- |
- |
(2,520) |
(2,520) |
|
Balance at 30 April 2018 |
1,600 |
8,633 |
18 |
31,115 |
41,366 |
|
Total comprehensive income |
- |
- |
- |
3,212 |
3,212 |
|
Share-based payment expense |
- |
- |
- |
123 |
123 |
|
Total changes in equity |
- |
- |
- |
3,335 |
3,335 |
|
Dividends paid |
- |
- |
- |
(2,640) |
(2,640) |
|
Balance at 30 April 2019 |
1,600 |
8,633 |
18 |
31,810 |
42,061 |
1. Basis of preparation
The consolidated financial statements and preliminary announcement of Van Elle Holdings plc for the year ended 30 April 2019 were authorised for issue by the Board of Directors on 24 July 2019.
The financial information included within this preliminary announcement does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 (the "Act"). The financial information for the year ended 30 April 2019 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued.
The financial statements for the year ended 30 April 2019 will be posted to shareholders on 8 August 2019 and copies will be available from that date from the company secretary at the registered office of the Company, Southwell Lane Industrial Estate, Summit Close, Kirkby-in-Ashfield, Nottinghamshire, NG17 8GJ. The statutory accounts for the year ended 30 April 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The consolidated financial statements of Van Elle Holdings plc and its subsidiaries have been prepared in accordance with International Financial Reporting Standards as endorsed by the European Union ("IFRS"), International Financial Reporting Standards Interpretation Committee ("IFRS IC") interpretations and those provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The Group financial statements have been prepared on the going concern basis and adopting the historical cost convention. The accounting policies adopted are consistent with those of the previous financial year except as set out in note 2.
2. Adoption of new and revised standards
New standards, interpretations and amendments effective from 1 May 2018
IFRS 9 Financial Instruments
The Group has initially adopted IFRS 9 Financial Instruments from 1 May 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.
The most significant area of change which potentially impacts the Group's reported results is the introduction of an "expected loss" model for impairment provisioning, which now also includes contract assets recognised under the adoption of IFRS 15 Revenue from Contracts with Customers.
Based on an assessment of historical credit losses and the likelihood of the occurrence of future credit losses on existing financial assets, the Directors consider that there are no further material impairment losses to be recognised against the Group's financial assets as a result of the transition to IFRS 9.
In line with the below amended accounting policy, the financial assets and liabilities held by the Group at 30 April 2019 are classified at amortised cost under IFRS 9 which is in line with treatment under IAS 39. As the basis of measurement has not changed there have been no changes to the carrying amount of the financial instruments as a result of the transition from IAS 39 to IFRS 9. In addition, there have been no modifications to loans that have to be reconsidered as a result of adopting IFRS 9.
The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's adoption of IFRS 9 Financial Instruments are set out below:
|
FY18 accounting policy |
Amended accounting policy |
Nature of change in accounting policy |
|
Financial assets The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity. The Group's accounting policy for each category is as follows:
Fair value through profit or loss The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
Loans and receivables These arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the customer or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable and for trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents include cash in hand, deposits held at call with banks, and, for the statement of cash flows, bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of financial position. |
On initial recognition, a financial asset is classified as measured at amortised cost, fair value through other comprehensive income ("FVOCI") or fair value through profit or loss ("FVTPL"). Financial liabilities are measured at amortised cost or FVTPL. The classification of financial assets is based on the way a financial asset is managed and its contractual cash flow characteristics. Financial assets are measured at amortised cost if both of the following conditions are met and the financial asset or liability is not designated as at FVTPL: · the financial asset is held with the objective of collecting or remitting contractual cash flows; and · its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: · the financial asset is held with the objectives of collecting contractual cash flows and selling the financial asset; and · its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. The Group's principal financial instruments comprise cash and cash equivalents, trade receivables, trade payables and interest bearing borrowings. Based on the way these financial instruments are managed and their contractual cash flow characteristics, all the Group's financial instruments are measured at amortised cost using the effective interest method. The amortised cost of financial assets is reduced by impairment losses as described below. Interest income, foreign exchange gains and losses, impairments and gains or losses on derecognition are recognised through the statement of comprehensive income.
|
IFRS 9 removes the previous IAS 39 categories for financial assets of held to maturity and loans and receivables and available for sale. These are replaced by the categories noted in the amended accounting policy for financial instruments. IFRS 9 retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities.
|
|
Financial liabilities The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired. The Group's accounting policy for each category is as follows:
Fair value through profit or loss The Group does not have any liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss.
Other financial liabilities Other financial liabilities include the following items: Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. |
Trade receivables and trade payables are held at their original invoiced value, as the interest that would be recognised from discounting future cash flows over the short credit period is not considered to be material. Cash equivalents comprise short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. An investment with a maturity of three months or less is normally classified as being short term. Cash and cash equivalents do not include other financial assets. Impairment losses against financial assets carried at amortised cost are recognised by reference to any expected credit losses against those assets. The simplified approach for calculating impairment of financial assets has been used. Lifetime expected credit losses are calculated by considering, on a discounted basis, the cash shortfalls that would be incurred in various default scenarios over the remaining lives of the assets and multiplying the shortfalls by the probability of each scenario occurring. The allowance is the sum of these probability weighted outcomes.
|
Cash and cash equivalents, trade receivables, and retentions held by customers for contract work were previously classified as loans and receivables under IAS 39 and were measured at amortised cost. Trade payables and interest bearing borrowings were previously classified as "other financial liabilities" under IAS 39 and were measured at amortised cost. These financial instruments are now classified as financial assets and liabilities at amortised cost under IFRS 9. The adoption of IFRS 9 has therefore not had any impact on the measurement of the Group's financial assets and liabilities. IFRS 9 replaces the incurred loss model in IAS 39 with the expected credit loss model, which requires that future events are considered when calculating impairments to financial assets. Based on an assessment of historical credit losses on the Group's financial assets and the likelihood of the occurrence of future credit losses on existing financial assets, the Directors consider that any increase in impairment provision to be recognised against the Group's financial assets on transition to IFRS 9 is immaterial.
|
IFRS 15 Revenue from Contracts with Customers
The Group has initially adopted IFRS 15 Revenue from Contracts with Customers from 1 May 2018 and this has not been applied retrospectively. The cumulative effect method has been used to calculate any required adjustment as at 1 May 2018. The Group has elected to apply IFRS 15 retrospectively only to contracts that are not completed contracts at the date of initial application.
For all contract modifications that occur before the date of initial application, the Group has applied the following expedient:
• for contracts that were modified before the beginning of the earliest period presented, an entity need not retrospectively restate the contract for those contract modifications in accordance with IFRS 15 paragraphs 20-21. Instead, an entity shall reflect the aggregate effect of all of the modifications that occur before the beginning of the earliest period presented; and
• for all reporting periods presented before the date of initial application, the Group has not disclosed the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the entity expects to recognise that amount as revenue:
• identifying the satisfied and unsatisfied performance obligations;
• determining the transaction price; and
• allocating the transaction price to the satisfied and unsatisfied performance obligations.
The only significant change in adopting IFRS 15 is that revenue relating to mobilisation of rig equipment to the customer site is now recognised over time. Under the previous accounting policy this revenue was recognised at the time of mobilisation. Costs relating to mobilisation under IFRS 15 are now capitalised and amortised over time at the same rate as revenue is recognised. Management has performed a detailed review of relevant contracts and calculated the required adjustments and concluded that no material transitional adjustment is required.
IFRS 15 provides a single, principles-based five-step model to be applied to all sales contracts, based on the transfer of control of goods and services to customers. It replaces the separate models for goods, services and construction contracts previously included in IAS 11 Construction Contracts.
The following details the amended accounting policy.
|
FY18 revenue accounting policy |
Amended revenue accounting policy |
Nature of change in accounting policy |
|
Turnover represents the total amounts receivable by the Group for goods supplied and services provided, excluding value added tax and trade discounts. The Group's turnover arises in the UK. In the case of contracts, when the outcome can be assessed reliably, contract revenue is recognised by reference to the stage of completion of the contract activity at the statement of financial position date. The stage of completion of the contract at the statement of financial position date is assessed regarding the costs incurred to date as a percentage of the total expected costs.
|
Revenue represents the total amounts receivable by the Group for goods supplied and services provided, excluding value added tax and trade discounts. The Group's turnover arises in the UK. In line with IFRS 15 Revenue from Contracts with Customers the Group recognises revenue based on the application of a principles-based "five-step" model. Only when the five steps are satisfied is revenue recognised.
General and Specialist Piling The performance obligations and transaction price are defined within signed contracts between the customer and the Group. Each performance obligation represents a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. This is classified as a series as each distinct good in the series meets the definition of a performance obligation satisfied over time and the same method would be used to measure the entity's progress towards complete satisfaction of the performance obligation as to transfer each good to the customer. Mobilisation (moving the piling rig equipment to the customer site) does not represent a separate performance obligation. Mobilisation revenue is included within the transaction price of the related performance obligation and recognised over time. The revenue for each performance obligation is recognised over time because each pile enhances an asset that the customer controls. Revenue is recognised as progress towards complete satisfaction of that performance obligation over time occurs using the output method. Progress is determined by completed pile logs. |
The amended accounting policy complies with the "five-step" model required by IFRS 15. The Group's contracts with customers as defined under IFRS 15 correspond in almost The transaction price under the amended accounting policy corresponds to the value of contract revenue as measured under the previous accounting policy. The previous accounting policy used a percentage completion method, based on cost. The new accounting policy looks at the performance obligations within each contract type. Under the previous accounting policy revenue relating to mobilisation was recognised at the time of mobilisation. Under IFRS 15 this is not a separate performance obligation. This revenue is now split between the different performance obligations and recognised over time. This change has not resulted in any transitional adjustments. Under the previous accounting policy, where the outcome of a construction contract could be estimated reliably, revenue and costs were recognised by reference to the stage of completion of activity at the balance sheet date. This was normally measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs (the "cost to cost" input method). Where the outcome of a construction contract could not be estimated reliably, contract revenue was recognised to the extent of contract costs incurred that it is probable would be recoverable. Due to the nature of the Group's contracts there is a direct correlation between costs being incurred and a series of performance obligations being satisfied. There is no financial impact associated with adopting the output method to calculate progress under IFRS 15. |
|
Industry practice is to assess the estimated outcome of each contract and recognise the revenue and margin based upon the stage of completion of the contract at the statement of financial position date. The assessment of the outcome of each contract is determined by regular review of the revenues and costs to complete that contract. Consistent contract review procedures are in place in respect of contract forecasting. Revenue is recognised up to the level of the costs which are deemed to be recoverable under the contract. The gross amount receivable from customers for contract work is presented as an asset for all contracts in progress for which costs incurred, plus recognised profits (or less recognised losses), exceed progress billings. The gross amount repayable to or paid in advance by customers for contract work is presented as a liability for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses). Full provision is made for losses on all contracts in the year in which the loss is first foreseen. Margin associated with contract variations is only recognised when the outcome of the contract negotiations can be reliably estimated. Costs relating to contract variations are recognised as incurred.
|
Ground Engineering Services For the Strata business unit, the performance obligations and transaction price are defined within signed contracts between the customer and the Group. For performance obligations where the customer does not simultaneously receive and consume the benefits (e.g. interpretative reports and testing) the work performed by the Group does not create or enhance an asset that the customer controls. Revenue for these performance obligations is recognised at a point in time (e.g. on delivery of report). Costs relating to these performance obligations are capitalised and fully amortised at the point in time when the performance obligation is fully satisfied. Contracts may also contain a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (e.g. bore hole drilling). This is classified as a series as an asset is enhanced that the customer controls, each distinct good in the series meets the definition of a performance obligation satisfied over time and the same method would be used to measure the entity's progress towards complete satisfaction of the performance obligation as to transfer each good to the customer. The revenue for each performance obligation is recognised over time because each good enhances an asset that the customer controls. Revenue is recognised as progress towards complete satisfaction of that performance obligation over time using the output method. Progress is determined by completed logs. |
|
|
|
For the provision of services to house-builders each performance obligation represents a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. Mobilisation (moving the piling rig equipment to the customer site) does not represent a separate performance obligation. Mobilisation revenue is included within the transaction price of the related performance obligation and recognised over time. The revenue for each performance obligation is recognised over time because each pile enhances an asset that the customer controls. Revenue is recognised as progress towards complete satisfaction of that performance obligation over time using the output method. Progress is determined by completed pile logs.
|
|
|
|
Variable consideration The following types of income are variable consideration and are only recognised when management determines them to be highly probable. Highly probable represents amounts the client has approved or the Company has detailed evidence supporting the amounts recognised.
Liquidated damages ("LADs") These are included in the contract for both parties. The customer can reduce the amount paid to the Group if it is deemed the Group has caused unnecessary delays or additional work. The Group is also able to claim LADs where it can be proved that the customer has caused unnecessary delays or disruption. The method for claiming this revenue is to include it within the application to the customer, or for the customer to include or exclude in the application certificate returned to the Group. At the point of making an application for LADs the additional revenue or the reduction in revenue is only recognised when it is highly probable that it will occur. |
Under IAS 37 variable consideration was recognised when probable. Under IFRS 15 the requirement is for revenue to be highly probable. For the Group the move from probable to highly probable does not create a material change in the timing of revenue recognition.
|
|
|
Standing time Within the contracts a penalty charge can be made where work is delayed, and the Group assets must stand idle. These charges can be disputed by the customer where blame may not be clear. The revenue for these charges is not recognised until it is highly probable that it will be received.
Adjustments to invoiced variable consideration Where revenue relating to variable consideration is invoiced to the customer, revenue is adjusted to remove revenue that is not highly probable. This is subsequently recognised only once it becomes highly probable. |
|
|
|
Trade receivables Trade receivables includes applications to the extent that there is an unconditional right to payment and the amount has been certified by the customer.
Contract assets The recoverable amount of applications that have not been certified and other amounts that have not been applied for but represent the recoverable value of work carried out at the balance sheet date are recognised as contract assets within trade and other receivables on the balance sheet. Contract liabilities Any payments received in advance of completing the work are recognised within contract liabilities. |
The amended accounting policy reflects the requirement under IFRS 15 to recognise all contract balances as contract assets or contract liabilities, other than any unconditional rights to consideration which are presented as receivables. Consequently, this has led to the creation of a new category of asset ("contract assets") within trade and other receivables and a new category of liability ("contract liabilities") within trade and other payables, which includes amounts previously held as trade receivables or payables. Both new categories include amounts previously held as trade receivables or payables on the balance sheet. |
New standards, interpretations and amendments not yet effective
The Group has not early adopted the following new standards, amendments or interpretations that have been issued but are not yet effective:
• IFRS 16 Leases (effective 1 January 2019)
• Annual Improvements to IFRSs (2015-2017 Cycle) (effective 1 January 2019)
• IFRIC 23 Uncertainty over Income Tax Treatments (effective 1 January 2019)
• Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective 1 January 2019)
• Amendments to IAS 28: Long-term interests in Associates and Joint Ventures (effective 1 January 2019)
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (effective 1 January 2019)
• Amendments to References to the Conceptual Framework in IFRS Standards (effective 1 January 2020)
• Amendments to IFRS 3 Business Combinations - Definition of a Business (effective 1 January 2020)
• Definition of Material - Amendments to IAS 1 and IAS 8 (effective 1 January 2020)
Adoption of IFRS 16 will result in the Group recognising right of use assets and lease liabilities for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the Group does not recognise related assets or liabilities, and instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the total commitment.
The standard is effective for accounting periods beginning on or after 1 January 2019, as adopted by the European Union.
The Board has decided it will apply the modified retrospective adoption method in IFRS 16, and, therefore, will only recognise leases on balance sheet as at 1 May 2019. In addition, it has decided to measure right-of-use assets by reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net assets on that date. At 30 April 2019 operating lease commitments amounted to £9,313,000, which is not expected to be materially different to the anticipated position on 30 April 2020 or the amount which is expected to be disclosed at 30 April 2020. Assuming the Group's lease commitments remain at this level, the effect of discounting those commitments is anticipated to result in right-of-use assets and lease liabilities of approximately £4,348,116 being recognised on 1 May 2019.
Instead of recognising an operating expense for its operating lease payments, the Group will instead recognise interest on its lease liabilities and amortisation on its right-of-use assets. This will increase reported EBITDA by the amount of its current operating lease cost, which for the year ended 30 April 2019 was approximately £197,050.
3. Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Contracts
The Group's approach to key estimates and judgements relating to construction contracts is set out in the revenue recognition policy above. The main factors considered when making those estimates and judgements include the assessment of variable income, the estimate of the recoverable value of work carried out at the balance sheet date shown under contract assets and the outcome of claims raised against the Group by customers or third parties.
In addition to the aforementioned, the Group recognises impairment provisions in respect of bad and doubtful trade debtors. The judgements and estimates necessary to calculate these provisions are based on historical experience. The simplified approach for calculating impairment of financial assets has been used. Lifetime expected credit losses are calculated by considering, on a discounted basis, the cash shortfalls that would be incurred in various default scenarios over the remaining lives of the assets and multiplying the shortfalls by the probability of each scenario occurring. The allowance is the sum of these probability weighted outcomes.
Useful lives of property, plant and equipment
Property, plant and equipment are depreciated over their estimated useful economic lives based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for appropriateness. During the year, plant and machinery estimates have been reviewed and depreciation has been rebased from five to ten years with nil residual value, to five to twelve years with 10% residual value, on a straight-line basis.
4. Segment information
The Group evaluates segmental performance based on profit or loss from operations calculated in accordance with IFRS but excluding non-recurring losses, such as goodwill impairment, and the effects of share-based payments. Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of Group resources at a rate acceptable to local tax authorities. Loans and borrowings, insurances and head office central services costs are allocated to the segments based on levels of turnover. Details of the types of products and services for each segment are given in the operational review on pages 26 to 31. All turnover and operations are based in the UK.
Operating segments - 30 April 2019
|
|
|
|
Ground |
|
|
|
|
General |
Specialist |
Engineering |
Head |
|
|
|
Piling |
Piling |
Services |
office |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Revenue |
37,201 |
28,630 |
22,637 |
- |
88,468 |
|
Underlying operating profit |
1,238 |
2,697 |
1,309 |
- |
5,244 |
|
Share-based payments |
- |
- |
- |
(123) |
(123) |
|
Exceptional item |
- |
- |
- |
(559) |
(559) |
|
Operating profit |
1,238 |
2,697 |
1,309 |
(682) |
4,562 |
|
Finance expense |
- |
- |
- |
(579) |
(579) |
|
Finance income |
- |
- |
- |
52 |
52 |
|
Profit before tax |
1,238 |
2,697 |
1,309 |
(1,209) |
4,035 |
|
Assets |
|
|
|
|
|
|
Property, plant and equipment |
11,033 |
12,434 |
5,465 |
9,554 |
38,486 |
|
Inventories |
1,142 |
890 |
828 |
22 |
2,882 |
|
Reportable segment assets |
12,175 |
13,324 |
6,293 |
9,576 |
41,368 |
|
Intangible assets |
- |
- |
- |
2,289 |
2,289 |
|
Trade and other receivables |
- |
- |
- |
20,676 |
20,676 |
|
Cash and cash equivalents |
- |
- |
- |
7,997 |
7,997 |
|
Total assets |
12,175 |
13,324 |
6,293 |
40,538 |
72,330 |
|
Liabilities |
|
|
|
|
|
|
Loans and borrowings |
- |
- |
- |
12,229 |
12,229 |
|
Trade and other payables |
- |
- |
- |
16,506 |
16,506 |
|
Provisions |
- |
- |
- |
236 |
236 |
|
Deferred tax |
- |
- |
- |
1,298 |
1,298 |
|
Total liabilities |
- |
- |
- |
30,269 |
30,269 |
|
Other information |
|
|
|
|
|
|
Capital expenditure |
1,310 |
656 |
793 |
879 |
3,638 |
|
Depreciation/amortisation |
1,249 |
1,588 |
581 |
918 |
4,336 |
Operating segments - 30 April 2018 (restated)
|
|
|
|
Ground |
|
|
|
|
General |
Specialist |
Engineering |
Head |
|
|
|
Piling |
Piling |
Services |
office |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Revenue |
44,100 |
38,136 |
21,636 |
- |
103,872 |
|
Underlying operating profit |
5,361 |
3,612 |
2,124 |
- |
11,097 |
|
Share-based payments |
- |
- |
- |
(148) |
(148) |
|
Exceptional item |
- |
(956) |
- |
(283) |
(1,239) |
|
Operating profit |
5,361 |
2,656 |
2,124 |
(431) |
9,710 |
|
Finance expense |
- |
- |
- |
(561) |
(561) |
|
Finance income |
- |
- |
- |
25 |
25 |
|
Profit before tax |
5,361 |
2,656 |
2,124 |
(967) |
9,174 |
|
Assets |
|
|
|
|
|
|
Property, plant and equipment |
11,278 |
13,577 |
4,990 |
9,657 |
39,502 |
|
Inventories |
1,482 |
520 |
553 |
11 |
2,566 |
|
Reportable segment assets |
12,760 |
14,097 |
5,543 |
9,668 |
42,068 |
|
Intangible assets |
- |
- |
- |
2,324 |
2,324 |
|
Trade and other receivables |
- |
- |
- |
22,225 |
22,225 |
|
Cash and cash equivalents |
- |
- |
- |
10,880 |
10,880 |
|
Total assets |
12,760 |
14,097 |
5,543 |
45,097 |
77,497 |
|
Liabilities |
|
|
|
|
|
|
Loans and borrowings |
- |
- |
- |
16,785 |
16,785 |
|
Trade and other payables |
- |
- |
- |
18,106 |
18,106 |
|
Provisions |
- |
- |
- |
270 |
270 |
|
Deferred tax |
- |
- |
- |
969 |
969 |
|
Total liabilities |
- |
- |
- |
36,130 |
36,130 |
|
Other information |
|
|
|
|
|
|
Capital expenditure |
4,731 |
3,910 |
2,882 |
1,627 |
13,150 |
|
Depreciation/amortisation |
1,536 |
2,555 |
806 |
852 |
5,749 |
The business was streamlined during the year by merging eight operating units into five within three operating divisions, General Piling, Specialist Piling and Ground Engineering Services. Segmental results for the prior year have been restated to reflect this change.
There are no individual customers accounting for more than 10% of Group revenue in either the current or preceding year.
5. Revenue from contracts with customers
Disaggregation of revenue - 30 April 2019
|
|
|
|
Ground |
|
|
|
General |
Specialist |
Engineering |
|
|
|
Piling |
Piling |
Services |
Total |
|
End market |
£'000 |
£'000 |
£'000 |
£'000 |
|
New housing |
16,076 |
2,687 |
20,044 |
38,807 |
|
Infrastructure |
5,549 |
20,576 |
1,545 |
27,670 |
|
Commercial and industrial |
14,494 |
5,143 |
895 |
20,532 |
|
Public |
1,001 |
224 |
153 |
1,378 |
|
Other |
81 |
- |
- |
81 |
|
Total |
37,201 |
28,630 |
22,637 |
88,468 |
Disaggregation of revenue - 30 April 2018
|
|
|
|
Ground |
|
|
|
General |
Specialist |
Engineering |
|
|
|
Piling |
Piling |
Services |
Total |
|
End market |
£'000 |
£'000 |
£'000 |
£'000 |
|
New housing |
26,768 |
6,774 |
18,342 |
51,884 |
|
Infrastructure |
5,227 |
25,459 |
1,657 |
32,343 |
|
Commercial and industrial |
9,565 |
5,668 |
1,124 |
16,357 |
|
Public |
1,863 |
235 |
51 |
2,149 |
|
Other |
677 |
- |
462 |
1,139 |
|
Total |
44,100 |
38,136 |
21,636 |
103,872 |
6. Exceptional costs
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Carillion bad debt write-off |
- |
956 |
|
Exceptional costs |
559 |
283 |
|
|
559 |
1,239 |
Exceptional costs
Current year exceptional costs primarily relate to restructuring including redundancy and related consultancy costs as the Group was streamlined from eight to five divisions.
Also included in the year is a one-off loss of £90,000 following a settlement the Company reached with a supplier relating to non-compliant plant and machinery.
The prior year exceptional item relates to costs associated with an EGM held on 15 December 2017, and due diligence fees for an aborted acquisition.
7. Income tax expense
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Current tax expense |
|
|
|
Current tax on profits for the year |
537 |
1,647 |
|
Adjustment for (over)/under provision in the prior period |
(43) |
(3) |
|
Total current tax |
494 |
1,644 |
|
Deferred tax expense |
|
|
|
Origination and reversal of temporary differences |
329 |
188 |
|
Recognition of previously unrecognised deferred tax assets |
- |
3 |
|
Effect of decreased tax rate on opening balance |
- |
- |
|
Total deferred tax |
329 |
191 |
|
Income tax expense |
823 |
1,835 |
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Profit before income taxes |
4,085 |
9,174 |
|
Tax using the standard corporation tax rate of 19% (2018: 19%) |
767 |
1,743 |
|
Adjustments for (over)/under provision in previous periods |
(43) |
- |
|
Expenses not deductible for tax purposes |
94 |
81 |
|
Non-qualifying depreciation |
5 |
11 |
|
Short-term timing differences |
- |
- |
|
Total income tax expense |
823 |
1,835 |
During the year ended 30 April 2019, corporation tax has been calculated at 18.0% of estimated assessable profit for the year (2018: 18.9%).
The Finance (No 2) Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017 and to 18% effective from 1 April 2020, was substantively enacted on 26 October 2015. Subsequently, the Finance Act 2016, which provides for a further reduction in the main rate of corporation tax to 17% effective from 1 April 2020, was substantively enacted on 6 September 2016. These rate reductions have been reflected in the calculation of the deferred tax at the statement of financial position date. The closing deferred tax liability at 30 April 2019 has been calculated at 17%, reflecting the tax rate at which the deferred tax is expected to be utilised in future periods.
8. Dividends
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Final dividend - year ended 2018 |
|
|
|
2.3p per ordinary share paid during the year (2018: 1.75p) |
1,840 |
1,400 |
|
Interim dividend - year ended 2019 |
|
|
|
1.0p per ordinary share paid during the year (2018: 1.40p) |
800 |
1,120 |
|
|
2,640 |
2,520 |
The proposed final dividend for the year ended 30 April 2019 of 1.0p per share amounting to £800,000 and representing a total dividend of 2.0p per share for the full year will be paid on 27 September 2019 to the shareholders on the register at the close of business on 6 September 2019. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
The Board of the subsidiary company will pay a dividend to the company in advance of the final proposed dividend being paid to ensure that the company has sufficient distributable reserves in order to pay the dividend.
9. Earnings per share
The calculation of basic and diluted earnings per share is based on the following data:
|
|
2019 |
2018 |
|
|
'000 |
'000 |
|
Basic weighted average number of shares |
80,000 |
80,000 |
There is no dilutive effect of the share options as performance conditions remain unsatisfied or the share price was below the exercise price or the dilution effect is less than 0.1p.
|
|
£'000 |
£'000 |
|
Profit for the year |
3,212 |
7,339 |
|
Add back/(deduct): |
|
|
|
Share-based payments |
123 |
148 |
|
Exceptional costs |
559 |
1,239 |
|
Tax effect of the above |
(106) |
(210) |
|
Underlying profit for the year |
3,788 |
8,516 |
|
|
Pence |
Pence |
|
Earnings per share |
|
|
|
Basic |
4.0 |
9.2 |
|
Diluted |
4.0 |
9.2 |
|
Basic - excluding exceptional costs and share-based payments |
4.7 |
10.6 |
|
Diluted - excluding exceptional costs and share-based payments |
4.7 |
10.6 |
The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders and on 80,000,000 ordinary shares (2018: 80,000,000) being the weighted average number of ordinary shares.
The underlying earnings per share is based on profit adjusted for exceptional operating costs and share-based payment charges, net of tax, and on the same weighted average number of shares used in the basic earnings per share calculation above. The Directors consider that this measure provides an additional indicator of the underlying performance of the Group.
10. Cash generated from operations
|
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Operating profit |
4,562 |
9,710 |
|
Adjustments for: |
|
|
|
Depreciation of property, plant and equipment |
4,291 |
5,705 |
|
Amortisation of intangible assets |
45 |
44 |
|
Profit on disposal of property, plant and equipment |
(26) |
(267) |
|
Share-based payment expense |
123 |
225 |
|
Operating cash flows before movement in working capital |
8,995 |
15,417 |
|
Increase in inventories |
(317) |
(142) |
|
Decrease/(increase) in trade and other receivables |
1,666 |
(3,429) |
|
(Decrease)/increase in trade and other payables |
(847) |
1,470 |
|
Decrease in provisions |
(34) |
(72) |
|
Cash generated from operations |
9,463 |
13,244 |
11. Analysis of cash and cash equivalents and reconciliation to net debt
|
|
|
|
Non-cash |
|
|
|
2018 |
Cash flows |
flows |
2019 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash at bank |
10,832 |
(2,879) |
- |
7,953 |
|
Cash in hand |
48 |
(4) |
- |
44 |
|
Cash and cash equivalents |
10,880 |
(2,883) |
- |
7,997 |
|
Bank loans secured |
(1,125) |
150 |
- |
(975) |
|
Other loans secured |
(110) |
95 |
- |
(15) |
|
Finance leases |
(15,550) |
5,561 |
(1,250) |
(11,239) |
|
Net debt |
(5,905) |
2,923 |
(1,250) |
(4,232) |
Significant non-cash transactions include the purchase of £1,250,181 (2018: £8,135,057) of fixed assets on hire purchase.
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