24 November 2015

Renew Holdings plc

("Renew" or the "Group")

Preliminary results

Renew (AIM: RNWH), the Engineering Services Group supporting critical UK infrastructure, announces record preliminary results for the year ended 30 September 2015. The Company continues to demonstrate strong cash generation and has increased the full year dividend by 40%.

Financial Highlights

Adjusted results are shown prior to exceptional items, amortisation and discontinued operations.

Operational Highlights

·     Engineering Services revenue up 15% to £440.5m (2014: £382.5m)

§ 22% underlying organic growth excluding the effect of acquisitions and non-recurring revenue

·     Engineering Services adjusted operating profit up 23% to £20.1m (2014: £16.3m)

§ Engineering Services operating margin now 4.6% (2014: 4.3%)

·     Order book up 14% to £502m (2014: £439m)

·     Substantial reduction in net debt to £4.8m (2014: £16.1m)

§ Expected net cash position by the end of 2015/16 financial year

R J Harrison OBE, Chairman said: "These results highlight another record year for Renew as a leading provider of engineering services supporting critical infrastructure within the UK.

In 2014 we set our 2017 targets of total revenues of over £500m, a Group operating margin of 4.5% and growth in adjusted earnings per share of at least 40% from the 20.8p reported last year. We have achieved our revenue target ahead of schedule. With an 11% improvement in adjusted Group operating margin to 3.9% and a 25% increase in adjusted EPS in these results, the Board is confident that Renew is on track to deliver these strategic targets by 2017."

About Renew Holdings plc

Engineering Services, which accounts for 85% of Group revenue and 90% of operating profit, focuses on the key markets of Energy (including Nuclear), Environmental and Infrastructure, 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 market in London and the Home Counties.

For more information please visit the Renew Holdings plc website: www.renewholdings.com                

         Chairman's Statement

Results

Record results for the year ended 30 September 2015 demonstrate that the Group continues to progress as a leading provider of engineering services, supporting critical UK infrastructure.

Group revenue increased by 12% to £519.6m (2014: £464.5m) with operating profit prior to exceptional items and amortisation increasing by 24% to £20.4m (2014: £16.4m). Earnings per share on this basis increased by 25% to 26.03p (2014: 20.80p) with basic earnings per share on continuing activities up 27% to 21.34p (2014: 16.83p).

The Engineering Services business has seen growth of 15% across its Energy, Environmental and Infrastructure markets with revenue of £440.5m (2014: £382.5m). When the effect of acquisitions and non-recurring Rail revenue is eliminated, the underlying organic growth in Engineering Services is 22%.

Engineering Services now accounts for 85% of Group revenue (2014: 82%). Engineering Services operating profit was up 23% to £20.1m (2014: £16.3m) with a margin of 4.6% (2014: 4.3%). 

Specialist Building remains focused on the High Quality Residential market in London and the Home Counties. Revenue was £79.5m (2014: £82.1m) with an operating profit of £2.3m (2014: £2.2m) resulting in an improved margin of 2.9% (2014: 2.6%).

Dividend

The Board is proposing a final dividend of 4.75p per share, increasing the full year dividend by 40% to 7.0p (2014: 5.0p). The dividend will be paid on 1 March 2016 to shareholders on the register as at 29 January 2016. The Board continues to grow dividends progressively.

Order Book

The Group's contracted order book at 30 September 2015 stood at £502m (2014: £439m), a 14% increase, with the Engineering Services order book up 11% to £400m (2014: £361m). The order book reflects our established position in attractive markets with long-term visibility of revenue.

Cash

Cash generation has been good with a year-end cash position of £10.7m (2014: £5.6m) giving a net debt of £4.8m (2014: £16.1m). The Board expects the Group to report a net cash position by the end of the 2015/16 financial year.

People

We are pleased to report our commitment to providing a safe working environment which has seen the Group continue to record an Accident Incidence Rate substantially lower than the industry average. These results and the success of the Group demonstrate the skills and commitment of all our employees for which the Board would like to extend its gratitude.

Strategy

In Specialist Building, the Group concentrates on the High Quality Residential market in London and the Home Counties. Our expertise is in refurbishment of prestigious private residential projects where we specialise in engineering solutions for major structural alterations. 

In Engineering Services, the Group continues to develop its position as a leading provider of engineering services to support critical UK assets in the Energy, Environmental and Infrastructure markets. The markets we operate in are mainly governed by regulation. Our operations focus on the long-term programmes of essential maintenance spending in these markets, which provide good visibility of future opportunities and more sustainable earnings streams.

It remains the Board's strategy to continue the growth of its Engineering Services business, both organically and through selective acquisitions. Over the last nine years, Renew has completed six major acquisitions without recourse to shareholders for funding. Substantial, profitable growth has been generated from this strategy which, complemented by organic growth, has enabled the Board to deliver a six fold increase in market capitalisation since 2006. In recent weeks, the Board has seen a number of good quality, potential acquisitions across all market sectors of our Engineering Services business and we continue to pursue appropriate earnings enhancing additions to the Group.

Outlook

The Group enters the 2015/16 financial year in a strong position.

The Board previously published targets for 2017 of Group revenue in excess of £500m, Group operating profit margin prior to exceptional items and amortisation of 4.5% and growth in EPS on that basis of at least 40% from the reported level of 20.8p in 2014. The Group revenue target has been achieved with these results. The Group has also delivered an 11% improvement in Group operating margin to 3.9% and a 25% increase in EPS giving the Board confidence that the Group is on track to deliver on these strategic targets.

 R J Harrison OBE

Chairman

24 November 2015

         Chief Executive's Review

Renew delivers engineering support services to the UK's critical infrastructure assets. The Group has strong, long-term relationships built on responsiveness with a range of clients in the Energy, Environmental and Infrastructure markets. The Group operates in mainly regulated markets which have high barriers to entry. Integrated engineering services are delivered through our strong, independently branded UK subsidiary businesses which directly employ a highly skilled workforce. Our operations support the day-to-day running of key operational assets including nuclear and traditional power generation sites, water and gas pipes along with the rail and wireless telecoms networks. The Group also has a Specialist Building operation focusing on the High Quality Residential market in London and the Home Counties.

Engineering Services

Revenue in Engineering Services increased by 15% to £440.5m (2014: £382.5m) and accounted for 85% (2014: 82%) of Group revenue and 90% (2014: 88%) of Group operating profit prior to exceptional items, amortisation and central activities. This generated an improved margin of 4.6% (2014: 4.3%). The Engineering Services order book has grown 11% to £400m (2014: £361m).

Energy

In Energy, the Group provides integrated engineering support to assets in the nuclear, traditional and renewable energy markets and in the gas infrastructure market.

During the year, we were appointed by the UK's largest nuclear decommissioning company, Magnox, as the sole provider on the £30m Electrical, Controls & Instrumentation framework, which runs to 2019, across 10 UK sites. The Group now delivers multidisciplinary engineering services at 15 nuclear licenced sites, where we support operational plant associated with long-term waste treatment and processing, decommissioning and the clean-up of redundant facilities. The Nuclear Decommissioning Authority's expenditure continues at approximately £3bn per year, of which 67% is allocated to the Sellafield site in Cumbria where the majority of our work is undertaken. The Group has operated at Sellafield for over 70 years and remains the largest mechanical, electrical and instrumentation employer on site. 

As part of the high hazard risk reduction programme at Sellafield, work on the Evaporator D project has again grown materially ahead of expectation. During the year, the Group increased its resources to complete critical milestones as the project moves towards commissioning. This increased scope is now expected to deliver up to £100m of work over the duration of the project.

Work on the Multi Discipline Site Works ("MDSW") framework continues and our operations remain focused on the largest scope of work, Production Operations Support. The MDSW framework, where we operate as one of three participants, has been extended for two years to early 2017 and is advertised to deliver £70m annually. Other framework extensions during the year include the Bundling Spares, Site Remediation & Decommissioning Project and Bulk Sludge Retrievals Facility frameworks.

The Group also operates in the traditional and renewable energy markets for clients including E.ON, SSE, Scottish Water and Dwr Cymru Welsh Water ("DCWW") where work includes long-term maintenance and asset renewal services. Achievements in the year include good progress on the hydroelectric scheme at Tyn Y Waun Water Treatment Works for DCWW, reappointment to the maintenance framework at Deucheran Hill Wind Farm by E.ON and the refurbishment of the Cuaich Aqueduct on the Tummel hydroelectric scheme for SSE.

In the gas infrastructure market work continues for National Grid and Southern Gas Networks on the 30/30 Iron Mains Replacement programme as well as on the London Medium Pressure Strategic Gas Mains Replacement programme. New frameworks for the delivery of these programmes have been slow to gain momentum and as a result this business has not performed to our expectations, however the addressable market is both substantial and visible with the national programme for iron mains replacement running to 2032 with an estimated value of £1bn per annum.

Environmental

The Group provides operational support to the water industry where the focus remains on maintaining and renewing infrastructure assets as well as the flood alleviation and river and coastal defence programmes.

In the year, we continued our long-standing relationships with our clients Northumbrian Water, Wessex Water and Welsh Water. Awards included Northumbrian Water's AMP6 Sewerage Repairs and Maintenance Framework where we operate as one of two suppliers; the framework has an advertised value of over £14m per annum to 2024.

Work for Wessex Water continued on the Workstream framework during the year with new awards including the AMP6 Minor Civils framework. Major projects completed included the Taunton Grid Scheme. 

Revenue for the Environment Agency has doubled in the year where our relationship was extended with the award of a £10m MEICA framework in 2014. This exclusive framework, which runs to March 2018, covers flood and water management sites throughout the Northern region. The appointment follows our success on the existing four Minor Works frameworks which were extended for a further two years.

In Land Remediation, we operate for National Grid on a number of frameworks nationally. Other frameworks include the Land Quality Services framework with Magnox to remediate the sites of former nuclear power generation across the UK and a new Landfill Engineering framework with Viridor for the North of England and Scotland regions.

Infrastructure

The Group delivers nationally a wide range of off-track asset renewal and maintenance engineering services as well as providing a 24/7 emergency service to the rail network. These services are provided through Infrastructure Projects and Asset Management support for Network Rail where we are a top four supplier.

Following the award in 2014 of a number of infrastructure renewal frameworks for Network Rail, which run to 2019, we have good visibility of future workflow. During the year, works were undertaken to enhance the Dawlish lower sea wall following our successful operation in 2014 to reinstate the wall after severe storms. Further to our work at Dawlish we have been appointed to undertake another coastal line protection scheme at Saltcoats in Scotland. We are now established as the major structures renewals & maintenance contractor in Scotland.

In Asset Management our frameworks have been extended by two years to 2017. We carry out infrastructure maintenance works to bridges, viaducts, tunnels, culverts, embankments, level crossings and line side structures. During the year, we have delivered over 5,000 individual schemes ranging from minor brickwork repairs to major sea defence works and our responsiveness was recognised at the National Rail Awards where we were presented with "Maintenance Team of the Year".

In the wireless telecoms infrastructure delivery market, the Group works for the major cellular network operators and original equipment manufacturers. This market has seen major corporate M&A activity during the year which has caused volatility and a performance below our expectations. The attraction of this market remains as demand for 4G mobile internet access and communications is outstripping current capacity, requiring additional infrastructure, upgrading of existing networks and decommissioning of redundant assets.

Specialist Building

In Specialist Building revenue of £79.5m (2014: £82.1m) and an operating profit of £2.3m (2014: £2.2m) generated an improved margin of 2.9% (2014: 2.6%). Our Specialist Building order book stands at £102m (2014: £78m). In the High Quality Residential market in London and the Home Counties our subsidiary, Walter Lilly, is a market leading luxury brand. It focuses on major structural engineering works including extending properties below ground. In excess of £85m of new projects has been secured in the period.

Discontinued Operation

On 31 October 2014, the Board reached an agreement to sell Allenbuild Ltd to Places for People Group Ltd ("PFP") for a total consideration of £2.75m payable in cash. PFP paid the initial 50% of the consideration on 31 October 2014 and will pay the balance on 31 January 2016. Allenbuild Ltd is a business focused on the new build affordable housing market and as such was not core to the Group's strategy to develop its Engineering Services business. In accordance with IFRS 5, the results of Allenbuild Ltd have been treated as a discontinued business. During the transition period, Renew retains the cost and benefit of certain contracts. These were secured during the recession and subsequently supply chain prices have risen markedly resulting in post-tax losses of £7.3m in the discontinued business.

Summary

In Specialist Building, our business operates in the consistently robust High Quality Residential market and continues to improve its quality of earnings with an emphasis on risk mitigation.

In Engineering Services, we have strengthened our position in our chosen, mainly regulated markets, undertaking essential work on critical assets where funding is derived from clients' operational expenditure budgets.  Our key markets' characteristics combined with the Group's integrated engineering support services model will continue to provide opportunities for further profitable growth.

B W May

Chief Executive

24 November 2015

Group income statement

For the year ended 30 September 2015

Group balance sheet                              

At 30 September 2015

Group cash flow statement

For the year ended 30 September

Notes

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2015 have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These preliminary results are extracted from those financial statements.

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 and:

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 sale of land for development, the leasing and sub-leasing of some UK properties and the provision of central services to the operating subsidiaries.

On 31 October 2014, the Group entered into a contract to dispose of part of its Specialist Building segment.

The results of that business are shown as a discontinued operation. 

Segment operating profit for the year ended 30 September 2014 is stated after charging exceptional items and amortisation charges totaling £3,055,000.

3 Exceptional items and amortisation of intangible assets

The Board has determined that certain charges to the income statement should be separately identified for better understanding of the Group's results. In 2014 the Company acquired Forefront Group Ltd and Clarke Telecom Ltd and incurred £824,000 of costs associated with the acquisitions. 

The Board has also separately identified the charge of £3,536,000 (2014: £2,231,000) for the amortisation of the fair value ascribed to certain intangible assets other than goodwill arising from the acquisitions of Amco Group Holdings Ltd, Lewis Civil Engineering Ltd, Clarke Telecom Ltd and Forefront Group Ltd.

Discontinued operation analysis

On 31 October 2014, the Board reached an agreement to sell Allenbuild Ltd to Places for People Group Ltd ("PFP") for a total consideration of £2.75m payable in cash. PFP paid the initial 50% of the consideration on 31 October 2014 and will pay the balance on 31 January 2016. The trading result for this business has therefore been included within the loss for the year from discontinued operations.

Discontinued expenses include the following exceptional items:

The provision of £1,755,000 (2014:£2,528,000) relates to settling final accounts and contractual issues on old contracts.

A further £800,000 (2014:£1,500,000) of costs have been recognised following the exceptional storm damage experienced in 2013. 

4 Income tax expense

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 4.75p per Ordinary Share be paid in respect of the year ended 30 September 2015.  This will be accounted for in the 2015/16 financial year.

6 Earnings per share

The dilutive effect of share options is to increase the number of shares by 815,000 (2014: 882,000) and reduce basic earnings per share by 0.13p (2014: 0.12p).

7 Restatement of 2014 Balance Sheet

The Balance sheet for 2014 has been restated following a hindsight fair value adjustment to Forefront Group Ltd. The impact was to reduce Property, plant and equipment by £1.1m, to reduce Trade receivables by £0.3m, to increase Trade and other payables by 2.1m, to increase the deferred tax asset by £0.7m and to increase Goodwill by £2.8m.

8 Preliminary financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 September 2015 or 2014 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 will be delivered in due course. The auditor has reported on those accounts; their 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.

9 Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 30 September 2015 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.renewholdings.com