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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Van Elle Holdings Plc | LSE:VANL | London | Ordinary Share | GB00BYX4TP46 | ORD 2P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-0.50 | -1.49% | 33.00 | 32.00 | 34.00 | 33.50 | 33.00 | 33.50 | 64,278 | 16:12:43 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Engineering Services | 148.73M | 4.68M | 0.0438 | 7.53 | 35.22M |
TIDMVANL
RNS Number : 4914G
Van Elle Holdings PLC
24 July 2019
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 Year ended % change 30 April 30 April 2018 2019 ------------------------------------ ----------- --------------- --------- Revenue (GBPm) 88.5 103.9 (14.8) Underlying* Operating Profit (GBPm) 5.2 11.1 (53.2) Reported Operating Profit (GBPm) 4.6 9.7 (52.6) Underlying* profit before taxation (GBPm) 4.7 10.6 (55.7) Reported profit before taxation (GBPm) 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 (GBPm) 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 GBP4.2m (2018: GBP5.9m)
-- 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 GBP32m, 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:
Instinctif Partners (Financial Public Tel: 020 7457 2020 Relations) Mark Garraway James Gray Rosie Driscoll Peel Hunt LLP (Nominated Adviser and Tel: 020 7418 8900 corporate broker) Charles Batten Mike Bell
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 GBP1.0m 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 GBP4.2m (FY19 GBP5.9m).
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 Phase 2 Predictable performance and margin improvement ---------------------------------------------- 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 GBP1.0m 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 GBP88.5m compared to FY18 (GBP103.9m) 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 GBP37.2m (2018: GBP44.1m), 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 GBP1.2m (2018: GBP5.4m).
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 GBP28.6m (2018: GBP38.1m). Approximately GBP4.5m, 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 GBP2.7m (2018: GBP3.6m). However, a recovery in gross margin performance enabled operating margins to be maintained despite a lower contribution to overhead.
Ground Engineering Services
Revenues of GBP22.6m represented a 4.6% increase on the prior year (2018: GBP21.6m).
Our integrated piling and Smartfoot foundation beam sales to the housebuilders increased by GBP1.8m (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 GBP4m; GBP0.4m 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 GBP1.3m, down from GBP2.1m 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 GBP88.5m (2018: GBP103.9m) 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 2018 Change 2019 2018 GBP'000 GBP'000 % % % --------- --------- --------- ------- ------ ------ 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 2018 Change 2019 2018 GBP'000 GBP'000 % % % ---------------- --------- --------- ------- ------ ------ 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 2018 Change 2019 2018 GBP'000 GBP'000 % % % ------------------------- --------- --------- ------- ------ ------ 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 GBP4.6m (2018: GBP9.7m)
2019 2018 Change GBP'000 GBP'000 % ----------------------------- --------- --------- ------- 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 GBP1.1m.
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 GBP559,000 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 GBP90,000 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 GBP527,000 (2018: GBP536,000) 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 GBP1,366,000 (2018: GBP1,768,000) 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 GBP3,788,000 (2018: GBP8,516,000). Underlying earnings are stated after adding back GBP559,000 of exceptional costs and GBP123,000 of share-based payment charges. Reported basic earnings per share was 4.0p (2018:9.2p).
Balance sheet summary
2019 2018 GBP'000 GBP'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 GBP0.7m to GBP42.1m (2018: GBP41.4m) during the year.
The Group only invested in one specialist rig with capital expenditure of only GBP3.6m (2018: GBP13.2m) in the year and a corresponding annual depreciation charge of GBP4.3m (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 2018 GBP'000 GBP'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 GBP1.7m to GBP4.2m 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 2018 GBP'000 GBP'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 GBP9.5m (2018: GBP13.2m), 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 GBP'000 GBP'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 GBP'000 GBP'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 236 5,580 270 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 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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:
Nature of change in accounting FY18 accounting policy Amended accounting policy policy ------------------------- ----------------------------------------------------------------- ------------------------ Financial assets On initial recognition, IFRS 9 removes the The Group classifies its a financial asset is previous financial assets into classified as measured IAS 39 categories for one of the categories at amortised cost, fair financial assets of held discussed below, value through other comprehensive to maturity and loans depending income ("FVOCI") or fair and receivables and on the purpose for which value through profit available the asset was acquired. or loss ("FVTPL"). Financial for sale. These are The Group has not liabilities are measured replaced classified at amortised cost or by the categories noted any of its financial FVTPL. in the amended assets The classification of accounting as held to maturity. financial assets is based policy for financial The Group's accounting on the way a financial instruments. policy for each category asset is managed and IFRS 9 retains the is as follows: its contractual cash existing Fair value through profit flow characteristics. requirements in IAS 39 or loss Financial assets are for the classification The Group does not have measured at amortised and measurement of any assets held for cost if both of the following financial trading conditions are met and liabilities. nor does it voluntarily the financial asset or classify any financial liability is not designated assets as being at fair as at FVTPL: value through profit or * the financial asset is held with the objective of loss. collecting or remitting contractual cash flows; and Loans and receivables These arise principally through the provision * its contractual terms give rise on specified dates to of goods and services cash flows that are solely payments of principal and to customers (e.g. trade interest on the principal amount outstanding. receivables), but also incorporate other types of contractual monetary A financial asset is asset. They are initially measured at FVOCI if recognised at fair value it meets both of the plus transaction costs following conditions that are directly and is not designated attributable as at FVTPL: to their acquisition or * the financial asset is held with the objectives of issue and are collecting contractual cash flows and selling the subsequently financial asset; and carried at amortised cost using the effective interest * its contractual terms give rise on specified dates to rate method, less cash flows that are solely payments of principal and provision interest on the principal amount outstanding. for impairment. Impairment provisions are recognised when there All financial assets is objective evidence not classified as measured (such as significant at amortised cost or financial FVOCI as described above difficulties on the part are measured at FVTPL. of the customer or The Group's principal default financial instruments or significant delay in comprise cash and cash payment) that the Group equivalents, trade receivables, will be unable to collect trade payables and interest all of the amounts due bearing borrowings. Based under the terms on the way these financial receivable instruments are managed and for trade and their contractual receivables, cash flow characteristics, which are reported net, all the Group's financial such provisions are instruments are measured recorded at amortised cost using in a separate allowance the effective interest account with the loss method. being recognised within The amortised cost of administrative expenses financial assets is reduced in the consolidated by impairment losses statement as described below. Interest of comprehensive income. income, foreign exchange On confirmation that the gains and losses, impairments trade receivable will and gains or losses on not be collectable, the derecognition are recognised gross carrying value of through the statement the asset is written off of comprehensive income. 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. ----------------------------------------------------------------- ------------------------ Financial liabilities Trade receivables and Cash and cash equivalents, The Group classifies its trade payables are held trade receivables, and financial liabilities at their original invoiced retentions held by customers into one of two categories, value, as the interest for contract work were depending on the purpose that would be recognised previously classified for which the liability from discounting future as loans and receivables was acquired. cash flows over the short under IAS 39 and were The Group's accounting credit period is not measured at amortised policy for each category considered to be material. cost. Trade payables and is as follows: Cash equivalents comprise interest bearing borrowings Fair value through profit short-term highly liquid were previously classified or loss investments that are as "other financial liabilities" The Group does not have readily convertible into under IAS 39 and were any liabilities held for known amounts of cash measured at amortised trading nor has it designated and which are subject cost. These financial any financial liabilities to an insignificant risk instruments are now classified as being at fair value of changes in value. as financial assets and through profit or loss. An investment with a liabilities at amortised Other financial liabilities maturity of three months cost under IFRS 9. Other financial liabilities or less is normally classified The adoption of IFRS 9 include the following as being short term. has therefore not had items: Cash and cash equivalents any impact on the measurement Bank borrowings are initially do not include other of the Group's financial recognised at fair value financial assets. assets and liabilities. net of any transaction Impairment losses against IFRS 9 replaces the incurred costs directly attributable financial assets carried loss model in IAS 39 with to the issue of the instrument. at amortised cost are the expected credit loss Such interest bearing recognised by reference model, which requires liabilities are subsequently to any expected credit that future events are measured at amortised losses against those considered when calculating cost using the effective assets. The simplified impairments to financial interest rate method, approach for calculating assets. which ensures that any impairment of financial Based on an assessment interest expense over assets has been used. of historical credit losses the period to repayment Lifetime expected credit on the Group's financial is at a constant rate losses are calculated assets and the likelihood on the balance of the by considering, on a of the occurrence of future liability carried in the discounted basis, the credit losses on existing consolidated statement cash shortfalls that financial assets, the of financial position. would be incurred in Directors consider that For the purposes of each various default scenarios any increase in impairment financial liability, interest over the remaining lives provision to be recognised expense includes initial of the assets and multiplying against the Group's financial transaction costs and the shortfalls by the assets on transition to any premium payable on probability of each scenario IFRS 9 is immaterial. redemption, as well as occurring. The allowance any interest or coupon is the sum of these probability payable while the liability weighted outcomes. 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.
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 Amended revenue accounting Nature of change in accounting policy policy policy ------------------------------- ----------------------------------- -------------------------------- Turnover represents the Revenue represents the The amended accounting total amounts receivable total amounts receivable policy complies with the by the Group for goods by the Group for goods "five-step" model required supplied and services supplied and services by IFRS 15. provided, excluding value provided, excluding value The Group's contracts added tax and trade discounts. added tax and trade discounts. with customers as defined The Group's turnover The Group's turnover arises under IFRS 15 correspond arises in the UK. in the UK. in almost In the case of contracts, In line with IFRS 15 Revenue all circumstances to when the outcome can from Contracts with Customers construction contracts be assessed reliably, the Group recognises revenue as previously defined contract revenue is recognised based on the application under IAS 11 Construction by reference to the stage of a principles-based Contracts. of completion of the "five-step" model. Only The transaction price contract activity at when the five steps are under the amended accounting the statement of financial satisfied is revenue recognised. policy corresponds to position date. General and Specialist the value of contract The stage of completion Piling revenue as measured under of the contract at the The performance obligations the previous accounting statement of financial and transaction price policy. position date is assessed are defined within signed The previous accounting regarding the costs incurred contracts between the policy used a percentage to date as a percentage customer and the Group. completion method, based of the total expected Each performance obligation on cost. The new accounting costs. represents a series of policy looks at the performance distinct goods that are obligations within each substantially the same contract type. and that have the same Under the previous accounting
pattern of transfer to policy revenue relating the customer. This is to mobilisation was recognised classified as a series at the time of mobilisation. as each distinct good Under IFRS 15 this is in the series meets the not a separate performance definition of a performance obligation. This revenue obligation satisfied over is now split between the time and the same method different performance would be used to measure obligations and recognised the entity's progress over time. This change towards complete satisfaction has not resulted in any of the performance obligation transitional adjustments. as to transfer each good Under the previous accounting to the customer. policy, where the outcome Mobilisation (moving the of a construction contract piling rig equipment to could be estimated reliably, the customer site) does revenue and costs were not represent a separate recognised by reference performance obligation. to the stage of completion Mobilisation revenue is of activity at the balance included within the transaction sheet date. This was normally price of the related performance measured by reference obligation and recognised to the proportion of contract over time. costs incurred for work The revenue for each performance performed to date to the obligation is recognised estimated total contract over time because each costs (the "cost to cost" pile enhances an asset input method). that the customer controls. Where the outcome of a Revenue is recognised construction contract as progress towards complete could not be estimated satisfaction of that performance reliably, contract revenue obligation over time occurs was recognised to the using the output method. extent of contract costs Progress is determined incurred that it is probable by completed pile logs. 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 Ground Engineering Services to assess the estimated For the Strata business outcome of each contract unit, the performance and recognise the revenue obligations and transaction and margin based upon price are defined within the stage of completion signed contracts between of the contract at the the customer and the Group. statement of financial For performance obligations position date. The assessment where the customer does of the outcome of each not simultaneously receive contract is determined and consume the benefits by regular review of (e.g. interpretative reports the revenues and costs and testing) the work to complete that contract. performed by the Group Consistent contract review does not create or enhance procedures are in place an asset that the customer in respect of contract controls. Revenue for forecasting. Revenue these performance obligations is recognised up to the is recognised at a point level of the costs which in time (e.g. on delivery are deemed to be recoverable of report). Costs relating under the contract. to these performance obligations The gross amount receivable are capitalised and fully from customers for contract amortised at the point work is presented as in time when the performance an asset for all contracts obligation is fully satisfied. in progress for which Contracts may also contain costs incurred, plus a series of distinct goods recognised profits (or or services that are substantially less recognised losses), the same and that have exceed progress billings. the same pattern of transfer The gross amount repayable to the customer (e.g. to or paid in advance bore hole drilling). This by customers for contract is classified as a series work is presented as as an asset is enhanced a liability for all contracts that the customer controls, in progress for which each distinct good in progress billings exceed the series meets the definition costs incurred plus recognised of a performance obligation profits (less recognised satisfied over time and losses). Full provision the same method would is made for losses on be used to measure the all contracts in the entity's progress towards year in which the loss complete satisfaction is first foreseen. of the performance obligation Margin associated with as to transfer each good contract variations is to the customer. only recognised when The revenue for each performance the outcome of the contract obligation is recognised negotiations can be reliably over time because each estimated. good enhances an asset Costs relating to contract that the customer controls. variations are recognised Revenue is recognised as incurred. 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 Under IAS 37 variable
or exclude in the application consideration was recognised certificate returned to when probable. Under IFRS the Group. 15 the requirement is At the point of making for revenue to be highly an application for LADs probable. For the Group the additional revenue the move from probable or the reduction in revenue to highly probable does is only recognised when not create a material it is highly probable change in the timing of that it will occur. 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 The amended accounting Trade receivables includes policy reflects the requirement applications to the extent under IFRS 15 to recognise that there is an unconditional all contract balances right to payment and the as contract assets or amount has been certified contract liabilities, by the customer. other than any unconditional Contract assets rights to consideration The recoverable amount which are presented as of applications that have receivables. Consequently, not been certified and this has led to the creation other amounts that have of a new category of asset not been applied for but ("contract assets") within represent the recoverable trade and other receivables value of work carried and a new category of out at the balance sheet liability ("contract liabilities") date are recognised as within trade and other contract assets within payables, which includes trade and other receivables amounts previously held on the balance sheet. as trade receivables or Contract liabilities payables. Both new categories Any payments received include amounts previously in advance of completing held as trade receivables the work are recognised or payables on the balance within contract liabilities. 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 GBP9,313,000, 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 GBP4,348,116 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 GBP197,050.
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 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'000 GBP'000 GBP'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 GBP'000 GBP'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 GBP90,000 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 GBP'000 GBP'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 GBP'000 GBP'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 GBP'000 GBP'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 GBP800,000 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.
GBP'000 GBP'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 GBP'000 GBP'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 Cash 2018 flows flows 2019 GBP'000 GBP'000 GBP'000 GBP'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 GBP1,250,181 (2018: GBP8,135,057) of fixed assets on hire purchase.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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July 24, 2019 02:01 ET (06:01 GMT)
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