TIDMRNWH

RNS Number : 8414H

Renew Holdings PLC

08 December 2020

8 December 2020

Renew Holdings plc

("Renew" or the "Group" or the "Company")

Final Results

Record results, well placed to benefit from increasing investment in UK infrastructure

Renew (AIM: RNWH), the leading Engineering Services Group supporting UK infrastructure, announces a set of record results for the year ended 30 September 2020, reflecting the core strengths and resilience of Renew's business model.

Financial Highlights

 
 Year ended 30 September 2020      2020    2019     Change 
                                    GBPm    GBPm 
 Group revenue(1)                  620.4   600.6    +3.3% 
                                  ------  -------  ------- 
 Adjusted operating profit(1)      39.6    38.3     +3.4% 
                                  ------  -------  ------- 
 Operating profit                  32.9    27.5     +19.3% 
                                  ------  -------  ------- 
 Adjusted operating margin(1)      6.4%    6.4%     0.0% 
                                  ------  -------  ------- 
 Profit before tax                 32.1    27.0     +18.9% 
                                  ------  -------  ------- 
 Adjusted earnings per share(1)    41.2p   40.4p    +2.0% 
                                  ------  -------  ------- 
 Full year dividend per share*     8.33p   11.50p   -27.8% 
                                  ------  -------  ------- 
 
   --      Group's order book at 30 September 2020 strengthened by c.20% to GBP692m (2019: GBP581m) 

-- Net cash(1) position at 30 September of GBP0.3m (2019: net debt GBP10.2m), supported by c.GBP17m VAT deferral and after funding the acquisition of Carnell during the year for GBP38m

   --      Post year end de-risking of balance sheet with completion of Lovell Pension Scheme buy-in 

Operational Highlights

-- Engineering Services, accounting for over 90 per cent of the Group's adjusted(1) operating profit, delivered revenue growth of 2.4% to GBP577.2m (2019: GBP563.8m)

   --      Engineering Services adjusted(1) operating profit increased to GBP40.8m (2019: GBP39.4m) 

-- Positive contribution from Carnell, acquired in January 2020, which provides specialist engineering services to the UK's strategic highways network

   --      Group continued to win and renew long-term framework appointments across its chosen markets 

Outlook

-- Group has continued to deliver uninterrupted, mission-critical services to clients through both UK lockdown periods

   --      Majority of activities now at pre-pandemic levels across Group's markets 
   --      Continue to evaluate a pipeline of acquisition opportunities 

-- Well positioned to capitalise on the UK Government's committed infrastructure investment and the increased focus on maintaining and renewing existing assets

Paul Scott, Chief Executive Officer of Renew, commented:

"During what has been a year without precedent, I have been humbled by the way our people have risen to the challenge of continuing to deliver the essential services that support the UK's critical infrastructure upon which we all rely, every day. Our priority at all times has been to ensure both the safety of our workforce and the continuous delivery of essential renewal and maintenance operations in our markets.

"The pandemic has demonstrated like never before the core defensive strengths and resilience of our high quality, low risk, value-accretive business model in providing 24/7 specialist engineering services to our clients in complex, challenging and regulated environments.

"Thanks to our differentiated and cash generative earnings model, we delivered a record trading performance, with a solid margin, strong cash flow and continued EPS growth. We continue to focus on bolstering our performance with highly selective, value enhancing acquisitions to strengthen our presence in key markets. Following the acquisition of Carnell earlier in the year, which facilitated our entry into the strategic highways network, I am very pleased with its positive contribution to the Group's results.

"The growth prospects within our industry are highly attractive, driven by non-discretionary Government spending in relation to UK infrastructure, a greater focus on sustainability and renewable energy, population growth, technological innovation driving a shift towards digital transport networks and smart cities, along with increased regulation. Renew's businesses operate in markets underpinned by sustainable, long-term structural growth dynamics and committed regulatory spend.

"Trading in the new financial year has started well and we are ideally positioned to play a significant role in the long-term recovery opportunities that will emerge across UK infrastructure, a sector that will play an important role in rebuilding the economy over the next decade and beyond."

(1) Renew uses a range of statutory performance measures and alternative performance measures when reviewing the performance of the Group against its strategy. Definitions of the alternative performance measures, and a reconciliation to statutory performance measures, are included in note 10.

(*) No interim dividend paid to shareholders during the period. Final dividend of 8.33p per share represents an increase of 8.6 per cent over the prior year final dividend of 7.67p.

Analyst & Investor Webinar

A virtual meeting for sell-side analysts and investors will be held at 10:30am today, 8 December 2020, the details of which can be obtained from FTI Consulting.

For further information, please contact:

 
 Renew Holdings plc                        www.renewholdings.com 
 Paul Scott, Chief Executive Officer          via FTI Consulting 
  Sean Wyndham-Quin, Chief Financial               020 3727 1000 
  Officer 
 Numis Securities Limited (Nominated 
  Adviser) 
  Stuart Skinner/ Kevin Cruickshank                020 7260 1000 
 FTI Consulting (Financial PR)                     020 3727 1000 
  Alex Beagley / James Styles            Renew@fticonsulting.com 
 

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) prior to its release as part of this announcement.

About Renew Holdings plc

Renew Holdings Group plc is a leading UK Engineering Services business, performing a critical role in keeping the nation's infrastructure functioning efficiently and safely. The Group operates through independently branded subsidiaries across its chosen markets, delivering non-discretionary maintenance and renewal tasks through its highly skilled, directly employed workforce.

Renew's activities are focused into two business streams. Specialist Engineering, which accounts for over 95 per cent of the Group's adjusted operating profit, focuses on the key markets of Rail, Infrastructure, Energy (including Nuclear) and Environmental which are largely governed by regulation and benefit from non-discretionary spend with long-term visibility of committed funding.

Specialist Building focuses on the High Quality Residential and Science markets in London and the Home Counties.

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

Chairman's Statement

Introduction

Despite the challenges of Covid-19, the Group is pleased to announce a record revenue performance, sustained profit growth and strong cash generation, all of which exceeded last year's performance and reflect the core defensive strengths and resilience of Renew's business model.

Following an excellent trading result in the first half of the year, the Group continued to make strong progress in the second half including winning and renewing long-term framework appointments across our markets. We expanded into the Highways market with the acquisition of Carnell, a company that delivers specialist engineering services across the strategic road network. We continue to focus on delivering essential asset maintenance and critical infrastructure renewals which are underpinned by non-discretionary regulatory requirements.

Results

Group revenue(1) increased to GBP620.4m (2019: GBP600.6m) with adjusted operating profit(1) increasing to GBP39.6m (2019: GBP38.3m). Statutory operating profit was GBP32.9m (2019: GBP27.5m). The adjusted EPS(1) was 41.22p (2019: 40.43p) and basic earnings per share was 26.78p (2019: 29.55p). The Group is also pleased to report a return to net cash(1) of GBP0.3m (2019: net debt GBP10.2m), in line with our expectations.

Covid-19

Covid-19 presented challenges across our entire business although it also served to highlight the importance of the mission-critical services we provide in the Rail, Infrastructure, Energy and Environmental sectors. The initial lockdown, and subsequent ongoing Government restrictions, have necessitated many changes to our working practices. Our priority from the start has been to ensure both the safety of our workforce and the continuous delivery of essential renewal and maintenance operations. Our employees continue to tirelessly implement Covid-19 precautions, often in extremely difficult environments. The Group's culture of robust governance, risk management and focus on health and safety have together provided a strong platform from which we have been able to continue to operate whilst delivering uninterrupted services for our customers.

People

Our employees are critical to the continued success of the Group and the Board would like to sincerely thank all its employees for their ongoing dedication and hard work in what have been, and remain, extremely difficult circumstances both at work and at home.

Differentiated business model

Our differentiated business model and the services we provide to support key infrastructure assets are more critical than ever, providing the Group with ongoing growth opportunities across our chosen markets. These markets enjoy committed funding which provides visible, reliable and resilient revenues via long-term maintenance and renewal programmes. We deliver non-discretionary maintenance and renewals tasks and have little exposure to the financial and contractual risks of larger enhancement schemes. Operating in complex, challenging and highly regulated environments, our markets have high barriers to entry and we directly employ a highly skilled workforce which enables us to be extremely responsive to our clients' needs.

Dividend

The Covid-19 pandemic saw the Board take a number of decisive actions to preserve cash and protect liquidity. One of the prudent measures, taken in April 2020, was the suspension of the Group's interim dividend which would ordinarily have been paid to shareholders in July 2020. We have continued to review our dividend policy whilst understanding the importance of the dividend to our shareholders. The Group's strong trading performance, cash position and positive outlook has given the Board the confidence to propose a final dividend of 8.33p per share, an increase of 8.6 per cent over the prior year final dividend of 7.67p. This will be paid on 5 March 2021 to shareholders on the register as at 29 January 2021, with an ex-dividend date of 28 January 2021. As no interim dividend was paid to shareholders, this will represent a full year dividend of 8.33p per share (2019: 11.50p). In the absence of unforeseen circumstances, or a material adverse impact on trading caused by a worsening of the Covid-19 situation, we expect dividend payments to continue in line with our pre-Covid dividend policy going forward.

Governance

We have continued to develop our approach to corporate governance in the year. As a Board, we are responsible for ensuring the effective application of high levels of governance within our business, balancing the interests of all our stakeholders. As a minimum, the Group complies with the QCA Corporate Governance Code, more details of which can be found in the corporate governance section of the Group's website.

Risk management

Risk management is led by the Board, which reviews the Group's risk profile on an ongoing basis alongside the Audit and Risk Committee. Subsidiary management teams are responsible for the effective embedding and monitoring of the Board's agreed risk management protocols and the Executive Directors provide regular updates to the Board on the principal risks and controls across the Group.

Board effectiveness

During the year, the Nomination Committee reviewed the Board's structure and composition and undertook a detailed effectiveness review, in order to ensure it continues to have the balance of skills and experience to deliver the Group's strategy. Diversity in its widest sense remains an area of focus as we move through 2021.

Board change

On 1 March 2020, we were pleased to announce the appointment of Stephanie Hazell as a Non-executive Director. Stephanie has over 20 years' relevant experience working in high profile businesses including PricewaterhouseCoopers LLP, Orange SA, Virgin Management Ltd and National Grid Plc where she held the position of director, strategy and corporate development. She is an industrial partner at Infracapital and a non-executive director for a number of its investments.

Future focus

The Board is committed to building on its track record of consistently creating shareholder value through the delivery of its strategic priorities whilst focusing on its environmental, social and governance responsibilities. The Group is supported in the delivery of its long-term strategy through its effective relationships with our directly employed workforce, customers, suppliers, shareholders, and wider stakeholders which are critical to the continued success of our business.

Renew is a leading provider of engineering services and operates in attractive markets underpinned by long-term growth drivers and non-discretionary Government spending. Growth, both organic and through strategic earnings-enhancing acquisitions, is focused on maintenance and renewals tasks in markets where non-discretionary spending programmes exist to maintain critical infrastructure. Our differentiated business model and the reliable long-term nature of the UK infrastructure markets give the Board continued confidence in the Group's future and the significant growth opportunities ahead.

David M Forbes

Chairman

8 December 2020

(1) Renew uses a range of statutory performance measures and alternative performance measures when reviewing the performance of the Group against its strategy. Definitions of the alternative performance measures, and a reconciliation to statutory performance measures, are included in note 10.

Chief Executive's Review

Introduction

Renew is a leading provider of essential engineering services to critical UK infrastructure networks, operating in regulated markets including rail, highways, telecommunications, civil nuclear, water and environmental. In March, the UK Government committed to a record GBP640bn(2) investment in the UK's infrastructure and we expect to benefit from an increased focus on maintaining and renewing assets. These markets are underpinned by regulatory requirements and therefore benefit from committed long-term spending cycles and a visible pipeline of opportunities. This exposure to non-discretionary, reliable and regulated expenditure fully supports our low risk, high quality and value accretive earnings model.

Covid-19

The pandemic has helped to fully demonstrate the core strengths of Renew's differentiated business model. Despite the many challenges presented by Covid-19, we have delivered extraordinary and record results for the Group and strengthened our position across our markets. This highlights our defensive characteristics and the importance of our role in keeping the nation's infrastructure functioning efficiently and safely at all times.

I am incredibly proud of the way our entire workforce continues to deliver uninterrupted, mission-critical infrastructure services to our clients despite challenging working environments and the introduction of stringent Covid-19 protection measures across all our sites. We remain focused on the health, safety and wellbeing of all our employees and stakeholders.

Operations across our key sectors were designated critical to the Covid-19 response and, as such, demand for our directly delivered maintenance and renewal services remained strong with over 80% of our operations continuing throughout the peak of the first lockdown period. Since then, the majority of the Group's operations have returned to levels similar to those experienced prior to the pandemic across all of our markets, with the exception of our nuclear operations at Sellafield where we do not expect the site to be fully operational until April 2021.

At the interim results in May, the Group announced the actions it had taken to preserve cash and protect liquidity. These included the deferral of all non-essential capital expenditure, a hiring freeze, deferral of VAT payments, utilisation of the Government's Coronavirus Job Retention Scheme ("CJRS") and a temporary 20% reduction in the salaries/fees of the Board and senior management, as well as the suspension of an interim dividend payment to shareholders. These measures, as well as the core defensive qualities of our operating model and our resilience, have proven to be extremely effective in responding to the challenges of Covid-19 whilst strengthening the Group's balance sheet.

As encouraged by the UK Government, we utilised the CJRS to protect and retain jobs when the initial lockdown restrictions came into force resulting in a temporary interruption to our services. Given the positive progress we have made since then, and the fact that the majority of our activities have returned to pre-pandemic levels, we are no longer utilising the scheme and it is our intention not to do so unless there are even tougher restrictions imposed which start to affect our markets.

Currently the Group's working capital facilities include a GBP44.2m revolving credit facility provided by HSBC UK Bank plc and National Westminster Bank plc, expiring in January 2024 and a GBP10m unsecured overdraft facility. The Group's cash generation continued to be very strong in the second half of the year and we returned to a small net cash position of GBP0.3m at the year end. Our available cash and bank facilities mean we had headroom of approximately GBP68m as at 30 September 2020. This position was bolstered by the deferment of c.GBP17m of VAT that will now be paid in the 2021 financial year.

Market drivers

Renew's businesses operate in markets underpinned by sustainable, long-term structural growth dynamics and committed regulatory spend. Increasing demand for the maintenance and renewal of existing UK infrastructure is driven by a number of long-term economic factors including:

   --      a commitment by the Government to invest GBP640bn(2) in the UK's infrastructure; 

-- greater focus on sustainability and climate change, the net zero target, flood risk and investment in renewables and electrification programmes;

-- population growth increasing the pressure on housing, energy, water and demand for natural resources;

-- technological innovation driving a shift towards digital roads, smart cities and the transformation of transport and telecommunications networks; and

   --      increased Government regulation. 

Our track record of growth and long-term value creation

Renew has a strong track record of sustainable value creation across the economic cycle. Over the past five years, we have delivered:

   --      adjusted earnings per share(1) growth of 58 per cent; 

-- an increase in our adjusted operating margin(1) growth from 3.9 per cent to 6.4 per cent; and

   --      revenue(1) growth of 19 per cent. 

Our track record of reliable revenue growth and cash generation has resulted in our ability to deliver highly predictable organic earnings growth and funding for the acquisition of complementary businesses that meet our strategic requirements.

Results

Despite the impact of Covid-19, the Group delivered an extraordinary and record trading performance, with strong cash flow and continued EPS growth. This performance reflects our industry-leading capabilities, the fundamental strengths of our differentiated, low-risk business model and the critical support services we provide to clients in complex, challenging and regulated environments.

Group revenue(1) increased to GBP620.4m (2019: GBP600.6m) with an adjusted(1) operating profit of GBP39.6m (2019: GBP38.3m) and a maintained adjusted(1) operating margin of 6.4% (2019: 6.4%). As at 30 September 2020 the Group had a net cash(1) position of GBP0.3m (2019: net debt GBP10.2m) reflecting the Group's continued focus on cash generation and conservative approach to gearing. These results include a contribution from Carnell, a leading provider of specialist engineering services on the strategic highways network. Acquired in January 2020, the business continues to perform in line with expectations. The Group's order book(1) at 30 September 2020 has strengthened to GBP692m (2019: GBP581m).

During the year, we conducted a detailed review of the remaining liabilities relating to Allenbuild Limited, a business that was sold in 2014. As a consequence of this review we have determined that an additional provision of GBP5.3m is required to enable us to deal with these legacy contractual issues. This is shown as a loss for the year from discontinued operations in the Group income statement.

We are pleased to report that after the end of the financial year, the Trustees of the Lovell Pension Scheme, in consultation with the Board of Renew, entered into a "buy-in" agreement with Rothesay Life plc. This transaction significantly de-risks the Group's balance sheet, further reduces the Group's pension exposure risks and improves its cashflow in the medium term.

Engineering Services

Our Engineering Services activities, which account for over 90 per cent of the Group's adjusted(1) operating profit, delivered revenue of GBP577.2m (2019: GBP563.8m) with an adjusted(1) operating profit of GBP40.8m (2019: GBP39.4m) resulting in an operating margin of 7.1% (2019: 7.0%). At 30 September 2020, the Engineering Services order book was GBP603m (2019: GBP542m). Continued positive momentum in our rail and telecommunications businesses helped drive this strong performance as well as a contribution from Carnell, which has performed well and leaves the Group ideally positioned to capitalise on the growth opportunity across the UK's strategic highways network.

Rail

Our largest customer, Network Rail, will invest GBP53bn(3) over Control Period 6 ("CP6"), the current five year investment cycle, which runs to 2024, with an increased focus on operational support and maintenance compared to the previous CP5 period. In addition, the Government is committed to its rail decarbonisation programme, including a significant investment in electrification programmes, as part of the overall UK target to deliver net zero by 2050.

As a major provider of multidisciplinary maintenance and renewals engineering services to Network Rail, we support the day-to-day operation of the rail network nationally, directly delivering essential asset maintenance through our long-term CP6 frameworks. The Group now holds in excess of fifty CP6 maintenance and renewals frameworks across all disciplines, covering the entire UK rail network.

During the year we secured new positions on the CP6 Wales and Western five year renewals frameworks across all five lots, where we will deliver a programme of engineering services to assets across the rail network including bridges, embankments, tunnels, signalling and electrification and plant. We were also awarded an additional rail drainage framework in Scotland, complementing our existing rail drainage framework positions. We have existing frameworks for the delivery of multidisciplinary maintenance and renewals, minor signalling, geotechnical and earthworks, devegetation, slab track, station information and security systems and telecoms. We also provide a 24/7 emergency support service across the rail network and during the period we responded to significant events at Stonehaven and Falkirk.

We remain committed to adding value through innovation. We have developed bespoke and unique solutions for devegetation, tunnel maintenance and drainage to deliver safer and more sustainable working practices that create high barriers to new entrants.

Since the lockdown restrictions were imposed in March, we have seen our planned work for our rail customers continue with minimal disruption, albeit with enhanced safety requirements in place to comply with the Government's Covid-19 guidelines.

Infrastructure

Highways

The UK Government has committed to an investment of GBP27.4bn(4) in the strategic road network over the next five years, as part of its second Road Investment Strategy ("RIS2"). GBP11.9bn of this funding will be ringfenced for operations, maintenance and renewals, a significant increase from the GBP5.1bn(5) invested in RIS1. This represents an attractive growth opportunity for Renew and in January 2020 we announced the acquisition of Carnell, a leading provider of specialist engineering services on the strategic road network. Carnell directly delivers non-discretionary renewals and maintenance through long-term framework agreements, employing plant-led technologies as part of its unique range of services deployed across the highways network.

Operating nationally, Carnell has built strong relationships with key public and private sector clients, including its largest customer, Highways England, for which it is one of only three suppliers working across all Asset Delivery Areas. During the period, Carnell performed in line with expectations and saw a number of its existing frameworks extended as well as securing a new Asset Delivery Framework for Highways England in the East Region.

Carnell works closely with its clients and suppliers to develop innovative solutions to improve safety, sustainability and value in the delivery of drainage, infrastructure, specialist surveys and highways technology across the strategic road network. In the last year it recycled 53,000m(3) of filter drain using its STONEmaster and STABLEdrain systems. This saved 62,000 litres of fuel and reduced HGV journeys saving over 500 tonnes of CO(2) and was recognised with an International Green Apple Award for environmental best practice. Carnell was also awarded the HRH Prince Michael International Road Safety Award for its mobile road worker protection system SAFETYcam.

During the Covid-19 restrictions, our activities in Highways have continued at levels similar to those seen prior to the pandemic. We remained operational across all Highways England areas which is reflective of the resilience of this new market sector for Renew.

Wireless Telecoms

The Wireless Telecoms market continues to grow significantly as 5G networks are rolled out. The Government is investing GBP5bn(2) to roll out gigabit broadband across the UK, a significant component of which is 5G. In addition, the four major UK network operators are also making significant investments in the deployment of 5G.

Delivering all aspects of wireless telecoms infrastructure, including 4G and 5G deployment, maintenance and decommissioning services, we have long-term relationships with all the main UK network operators, equipment vendors and managed service providers. In the period, we have seen a significant increase in work across all our frameworks as the 5G roll-out programme accelerates. We were awarded positions on both Telefonica's and MBNL's new three year 5G services frameworks as well as a contract to deliver Telefonica's microwave services for the next two years.

In March 2020, the Government announced it would also invest GBP500m(6) in the Shared Rural Network, a programme to extend 4G mobile coverage to 95% of the UK. Collaboration between the main network operators will see them provide 220 new sites in rural areas that are currently without coverage. We have already secured a large portion of the site search activities and this places us in a strong position to deliver a full acquire, design and construct turnkey programme.

Following the Government's announcement to remove Huawei equipment from the UK's 5G networks by 2027, we are currently working with EE and BT to deliver 95 trial sites in Hull, London and Cardiff, and we expect to see significant growth in this programme over the next three years.

Wireless telecoms was designated critical to the Covid-19 response and, as such, we continued to support the network operators where it remained safe for our employees to do so. Our multi-skilled, direct delivery teams have continued to provide a responsive service with limited interruption.

Energy

Nuclear

As a major mechanical, electrical and instrumentation ("ME&I") services contractor, our operations in the nuclear and chemical process environment focus on decontamination and decommissioning services, operational support and asset care. Working for over 75 years in civil nuclear, we deliver a multidisciplinary service through our large complement of highly skilled employees who operate to demanding nuclear standards.

The Nuclear Decommissioning Authority ("NDA") spends c.GBP3bn(7) per annum on its nuclear decommissioning programme across its 17 nuclear licensed sites in the UK and we continue to support sites that command approximately 90 per cent of this expenditure. The Government's total nuclear decommissioning provision is estimated at GBP124bn(8) over the next 120 years, with around 75% of the total spend allocated to Sellafield which is the largest of the NDA's sites and where we remain a principal ME&I contractor.

Operating on the major Decommissioning Delivery Partnership Framework, which runs to 2026, we deliver work across some of the most hazardous areas of Sellafield including waste retrieval from legacy storage ponds and silos. Our activities include decontamination, decommissioning and waste management. Our long-term frameworks include the SR&DP Asset Care, Magnox Swarf Storage Silo, Bundling Spares and Tanks and Vessels Frameworks. During the period, we were appointed to both lots of the four year Fabrication and Machining Spares Framework for the delivery of highly engineered nuclear components and we remain strongly positioned for future opportunities that will emerge from the major projects programme at the site.

In line with nuclear safety protocols, the Sellafield site suspended the majority of operations at the start of the Covid-19 lockdown in March. The mobilisation of work programmes and decommissioning at Sellafield continues to gain momentum; however, we do not expect to be fully operational until April 2021. At Springfields, where we deliver operational support and decommissioning activities, we have seen a significant increase in activity since the lockdown and we have recently been appointed to a major programme of works associated with the decommissioning of the Magnox Island.

We continue to build on our relationship with Rolls Royce to secure further opportunities since our appointment to the Diesel Generator Programme at Hinkley Point "C".

Thermal power and networks

Our essential engineering maintenance services continue at four of the UK's thermal power stations at near normal levels. We remain operational on the Minor Works Framework with National Grid as well as securing a Minor Civils Framework with Western Power Distribution in the period.

Environmental

Water

In the current five year investment period, AMP7 (which runs from 2020 to 2025), an estimated c.GBP50bn(9) will be spent, representing a 16% increase from AMP6, with higher expenditure committed to capital maintenance and asset optimisation. Additional investment is allocated to deliver supply resilience including dam safety and infrastructure refurbishment schemes. These long-term renewal programmes require sustained investment through our clients' operational expenditure budgets.

For D r Cymru Welsh Water ("DCWW"), we continue to operate across the region on the Pressurised Pipelines Framework, the Major Civils Framework and the Capital Delivery Alliance Civils & Pipeline Framework. In addition to ongoing maintenance and renewals tasks, we have provided extensive 24/7 emergency reactive works across the water network, in particular supporting the response to the disruption caused by severe storms early in 2020. During the year we were awarded seven schemes as part of DCWW's dam safety programme, enhancing our position as an approved dam safety contractor and providing ongoing opportunities.

Works continue with Wessex Water and Bristol Water as they develop their plans for AMP7. With our new client Yorkshire Water, we will carry out engineering works to existing assets on operational treatment and distribution facilities over the next five years through the AMP7 Minor Civils Framework where we have recently been awarded our first project. Additionally, we were appointed to a treatment works scheme for new client Thames Water.

The Government has committed record investment of GBP5.2bn(2) over a six year period to improve flood defences nationally. Our clients in this market include the Environment Agency and the Canal and River Trust where we deliver essential maintenance and improvement works nationally. We continue to build on our success with other water clients working for Scottish Canals, Peel Ports and Natural Resources Wales during the year.

Work continues for all our water clients with minimal disruption albeit with enhanced safety precautions in place to comply with the UK Government's strict Covid-19 safety guidelines. The essential nature of the maintenance and renewals tasks we undertake on the water network ensured we remained fully operational across all frameworks.

Land Remediation and Specialist Restoration

In Land Remediation during the year, we experienced significant disruption across our site activities due to the Covid-19 pandemic. This was particularly the case in Scotland where all of our schemes were suspended during the first lockdown. All activity had returned to pre-pandemic levels by July with enhanced safety protection measures in place in line with the UK Government's Covid-19 guidelines.

In Specialist Restoration, despite a temporary cessation of works, our operations at the Palace of Westminster have been at normal capacity since June. During the period we have also been appointed to a new five year conservation framework at this UNESCO World Heritage Site.

Specialist Building

We specialise in the High Quality Residential and Science markets in London and the Home Counties.

Revenue was in line with the Group's expectations at GBP43.2m (2019: GBP36.1m) reflecting a continued focus on contract selectivity and risk management. Operating profit was GBP1.0m (2019: GBP0.9m), with an operating margin of 2.3% (2019: 2.4%). In Specialist Building, the order book was GBP89m (2019: GBP39m).

During the initial lockdown period in March, we experienced some disruption in the High Quality Residential sector in London although operations returned to pre-pandemic levels by July. The Group continues to be selective in these markets where we have a long-established track record. During the period, work continued uninterrupted on our critical science schemes for Defra and the MRC London Institute of Medical Science where we continue to make good progress.

New and emerging markets

As part of the Group's growth ambition, we entered the Highways market with the acquisition of Carnell which delivers renewal and maintenance services across the strategic highways network. We also continue to explore opportunities for our existing portfolio of subsidiaries to work together and to leverage their skills and capabilities to enter adjacent market segments and exploit new emerging opportunities.

Health and safety

We continue to make health and safety a priority, ensuring safe working practices for the Group's employees and those who work with us.

Our progress during the year was overshadowed by an accident in April when our colleague Aden Ashurst was fatally injured in the performance of his duties as a Controller of Site Safety. This incident remains the subject of ongoing investigations and our thoughts remain with the family, friends and colleagues of Aden who lost his life in the conduct of delivering essential rail services.

In addition to our ongoing safety programmes, the Covid-19 pandemic has necessitated significant changes to working practices across all our operations to ensure we are able to continue to operate safely whilst implementing the Government's Covid-19 prevention guidelines.

Sustainability

At Renew, our vision is to safely and responsibly deliver essential engineering services to support and maintain the country's key infrastructure assets. Our specialist engineering services help to future-proof the critical infrastructure upon which millions of people rely as they go about their day-to-day business, from the rail network to roads and telecoms to the energy we use. A long-term approach to sustainability has therefore always been at the heart of our business.

We continue to align our business with the ESG requirements of our stakeholders and during the year we further developed our sustainability strategy which is now reported in five key areas: customer value, climate action, operating responsibly, engaging our people and supporting our local communities.

The pandemic has intensified the world's focus on climate change and during the year we have introduced a number of initiatives including trialling the use of electric powered plant. We have also been rolling out the installation of electric vehicle charging points at our offices and depots which supports our growing fleet of electric vehicles and reduces the carbon footprint of our operations.

This is our first year of reporting under the Streamlined Energy and Carbon Reporting ("SECR") regulations which will provide us with a baseline for future reporting and to ensure we continue to support the UK target to deliver net zero carbon by 2050.

Outlook

These results demonstrate the resilient and long-term nature of the UK infrastructure markets in which we operate and provide a solid platform for our continued growth ambitions. The UK Government remains committed to investing in infrastructure over the long-term, and the Group's market leading capabilities mean we are well positioned as a partner of choice in a number of infrastructure sectors to take advantage of this investment.

Since the Covid-19 societal restrictions were imposed, we have continued to demonstrate a safe and pro-active response to a continuous demand for our essential services. This situation has prevailed since the second lockdown was enforced on the 5 November 2020 and we have continued to operate safely, in compliance with the latest guidance and without any reduction in the levels of service demand. Given our positive progress, with the majority of our activities at pre-pandemic levels, we do not intend to further utilise the Government's Coronavirus Job Retention Scheme.

Our entry into the Highways market has broadened our offering into a compelling new growth area and we continue to seek opportunities in markets with similar characteristics of non-discretionary regulated investment, ongoing renewal and maintenance requirements and high barriers to entry. Our clients have clear spending plans underpinned by strategic national need, regulatory commitments and essential maintenance requirements delivered through long-term programmes of investment, providing visibility of spend over regulatory cycles.

Our differentiated and resilient business model, highly skilled directly employed workforce and proven track record provide us with a competitive advantage which is fundamental to the Group's success in its chosen markets.

The Board remains confident that Renew is strongly positioned to play a significant role in the long-term recovery opportunities that will emerge across UK infrastructure, a sector that will play an important role in rebuilding the economy over the next decade and beyond.

Paul Scott

Chief Executive

8 December 2020

References:

 
 1   Renew uses a range of statutory performance measures and 
      alternative performance measures when reviewing the performance 
      of the Group against its strategy. Definitions of the alternative 
      performance measures, and a reconciliation to statutory 
      performance measures, are included in Note 10 
 2   HM Treasury Budget 2020 12 March 2020 
 3   Network Rail Delivery Plan Control Period 6 High Level 
      Summary 26 March 2020 
 4   Department for Transport Road Investment Strategy 2: 2020-2025 
      March 2020 
 5   Department for Transport Road Investment Strategy: for 
      the 2015/16-2019/20 Road Period March 2015 
 6   UK Government press release 'GBP1bn deal to end poor rural 
      mobile coverage agreed' 9 March 2020 
 7   Nuclear Decommissioning Authority Business Plan 1 April 
      2020 to 31 March 2023 
 8   UK Government Nuclear Provision: the cost of cleaning up 
      Britain's historic nuclear sites 4 July 2019 
 9   Renew estimates from water companies' business plans 
 
 
Group income 
 statement 
for the year 
 ended 30 September 
                                           Before   Exceptional                    Before   Exceptional 
                                      exceptional     items and               exceptional     items and 
                                        items and  amortisation                 items and  amortisation 
                                                             of                                      of 
                                     amortisation    intangible              amortisation    intangible 
                                               of                                      of 
                                       intangible        assets                intangible        assets 
                                                      (see Note                               (see Note 
                                           assets            3)       Total        assets            3)      Total 
                                             2020          2020        2020          2019          2019       2019 
                               Note        GBP000        GBP000      GBP000        GBP000        GBP000     GBP000 
 
Revenue: Group 
 including share 
 of joint venture                         620,375             -     620,375       600,631             -    600,631 
Less share of 
 joint venture's 
 revenue                                        -             -           -         (709)             -      (709) 
Group revenue 
 from continuing 
 activities                       2       620,375             -     620,375       599,922             -    599,922 
Cost of sales                           (527,274)             -   (527,274)     (514,299)             -  (514,299) 
Gross profit                               93,101             -      93,101        85,623             -     85,623 
Administrative 
 expenses                                (53,453)       (6,741)    (60,194)      (47,390)      (10,788)   (58,178) 
Share of post-tax 
 result of joint 
 venture                                     (39)             -        (39)            96             -         96 
Operating profit                  2        39,609       (6,741)      32,868        38,329      (10,788)     27,541 
Finance income                                 44             -          44            50             -         50 
Finance costs                             (1,343)             -     (1,343)       (1,244)             -    (1,244) 
Other finance 
 income - defined 
 benefit pension 
 schemes                                      532             -         532           615             -        615 
Profit before 
 income tax                       2        38,842       (6,741)      32,101        37,750      (10,788)     26,962 
Income tax expense                5       (6,905)         1,146     (5,759)       (7,306)         2,601    (4,705) 
Profit for the 
 year from continuing 
 activities                                31,937       (5,595)      26,342        30,444       (8,187)     22,257 
Loss for the 
year from discontinued 
operations                        4                                 (5,590)                                      - 
Profit for the 
 year attributable 
 to equity holders 
 of the parent 
 company                                                             20,752                                 22,257 
 
Basic earnings 
 per share from 
 continuing activities            7                                  34.00p                                 29.55p 
Diluted earnings 
 per share from 
 continuing activities            7                                  33.72p                                 29.34p 
Basic earnings 
 per share                        7                                  26.78p                                 29.55p 
Diluted earnings 
 per share                        7                                  26.57p                                 29.34p 
 
 
  Group statement of comprehensive income 
for the year ended 30 September 
 
                                                                                               2020             2019 
                                                                                              GBP000          GBP000 
Profit for the year attributable to equity holders 
 of the parent company                                                                        20,752          22,257 
Items that will not be reclassified to profit or 
 loss: 
Movement in actuarial valuation of the defined benefit 
 pension schemes                                                                             (2,775)           3,543 
Movement on deferred tax relating to the pension 
 schemes                                                                                       971           (1,240) 
Total items that will not be reclassified to profit 
 or loss                                                                                     (1,804)           2,303 
Items that are or may be reclassified subsequently 
 to profit or loss: 
Exchange movement in reserves                                                                  (23)               28 
Total items that are or may be reclassified subsequently 
 to profit or loss                                                                             (23)               28 
Total comprehensive income for the year attributable 
 to 
equity holders of the parent company                                                          18,925          24,588 
 
 
 
Group statement of changes 
 in equity 
for the year ended 
30 September 
                                                                                      Share 
                                                   Share     Capital   Cumulative     based 
                                          Share  premium  redemption  translation  payments  Retained    Total 
                                        capital  account     reserve   adjustment   reserve  earnings   equity 
                                         GBP000   GBP000      GBP000       GBP000    GBP000    GBP000   GBP000 
At 1 October 2018                         7,527   51,684       3,896        1,311       698    10,355   75,471 
Transfer from income 
 statement for the year                                                                        22,257   22,257 
Dividends paid                                                                                (7,905)  (7,905) 
New shares issued                             6      220                                                   226 
Recognition of share 
 based 
 payments                                                                             (122)              (122) 
Exchange differences                                                           28                           28 
Actuarial movement recognised 
 in pension schemes                                                                             3,543    3,543 
Movement on deferred 
 tax relating to the 
 pension schemes                                                                              (1,240)  (1,240) 
At 30 September 2019                      7,533   51,904       3,896        1,339       576    27,010   92,258 
Transfer from income 
 statement for the year                                                                        20,752   20,752 
Dividends paid                                                                                (5,778)  (5,778) 
New shares issued                           323   14,474                                                14,797 
Recognition of share 
 based 
 payments                                                                               245                245 
Exchange differences                                                         (23)                         (23) 
Actuarial movement recognised 
 in pension schemes                                                                           (2,775)  (2,775) 
Movement on deferred 
 tax relating to the 
 pension schemes                                                                                  971      971 
At 30 September 2020                      7,856   66,378       3,896        1,316       821    40,180  120,447 
 
 
 
Group balance sheet 
At 30 September 
 
 
                                                         2020                2019 
                                                       GBP000              GBP000 
Non-current assets 
Intangible assets - goodwill                          124,691             105,282 
                           - other                     23,062               9,463 
Property, plant and equipment                          14,806              20,932 
Right of use assets                                    17,481                   - 
Investment in joint venture                                 -                 139 
Retirement benefit asset                               28,059              25,554 
Deferred tax assets                                     2,164               1,416 
                                                      210,263             162,786 
                                                  -----------  ------------------ 
Current assets 
Inventories                                             1,619               2,632 
Assets held for resale                                  1,500               1,500 
Trade and other receivables                           129,838             118,623 
Current tax assets                                      2,174                   - 
Cash and cash equivalents                              13,396              11,667 
                                                               ------------------ 
                                                      148,527             134,422 
                                                  -----------  ------------------ 
 
Total assets                                          358,790             297,208 
                                                  -----------  ------------------ 
 
Non-current liabilities 
Borrowings                                            (4,373)            (13,123) 
Lease liabilities                                     (9,347)                   - 
Obligations under finance leases                            -             (3,214) 
Deferred tax liabilities                             (14,252)            (10,598) 
Provisions                                              (441)               (452) 
                                                               ------------------ 
                                                     (28,413)            (27,387) 
                                                  -----------  ------------------ 
Current liabilities 
Borrowings                                            (8,752)             (8,752) 
Trade and other payables                            (192,370)           (164,450) 
Lease liabilities                                     (6,047)                   - 
Obligations under finance leases                            -             (2,546) 
Current tax liabilities                                     -             (1,804) 
Provisions                                            (2,761)                (11) 
                                                  -----------  ------------------ 
                                                    (209,930)           (177,563) 
                                                  -----------  ------------------ 
 
Total liabilities                                   (238,343)           (204,950) 
                                                  -----------  ------------------ 
 
Net assets                                            120,447              92,258 
                                                  -----------  ------------------ 
 
Share capital                                           7,856               7,533 
Share premium account                                  66,378              51,904 
Capital redemption reserve                              3,896               3,896 
Cumulative translation adjustment                       1,316               1,339 
Share based payments reserve                              821                 576 
Retained earnings                                      40,180              27,010 
Total equity                                          120,447              92,258 
                                                  -----------  ------------------ 
 
 
  Group cashflow statement 
for the year ended 30 September 
                                                                   2020      2019 
 
                                                                 GBP000    GBP000 
 
Profit for the year from continuing operating activities         26,342    22,257 
Share of post-tax trading result of joint venture                    39      (96) 
Impairment and amortisation of intangible assets                  5,529     6,528 
Defined benefit pension scheme guaranteed minimum 
 pension equalisation                                                 -     4,260 
Depreciation of property, plant and equipment and 
 right of use assets                                              9,672     5,561 
Profit on sale of property, plant and equipment                   (483)     (621) 
Decrease/(increase) in inventories                                  301     (210) 
Decrease in receivables                                           1,465     7,769 
Increase/(decrease) in payables and provisions                   17,010  (15,239) 
Current and past service cost in respect of defined 
 benefit pension scheme                                              69        46 
Cash contribution to defined benefit pension schemes            (4,747)   (5,279) 
Charge/(credit in) respect of share options                         245     (122) 
Finance income                                                     (44)      (50) 
Finance expense                                                     811       629 
Interest paid                                                   (1,343)   (1,244) 
Income taxes paid                                               (8,179)   (5,524) 
Income tax expense                                                5,759     4,705 
                                                               --------  -------- 
Net cash inflow from continuing operating activities             52,446    23,370 
Net cash (outflow)/inflow from discontinued operating 
 activities                                                       (592)        71 
Net cash inflow from operating activities                        51,854    23,441 
                                                               --------  -------- 
 
Investing activities 
Interest received                                                    44        50 
Dividend received from joint venture                                100        80 
Proceeds on disposal of property, plant and equipment               725       939 
Purchases of property, plant and equipment                      (3,756)   (2,619) 
Acquisition of subsidiaries net of cash acquired               (40,512)         - 
                                                               --------  -------- 
Net cash outflow from investing activities                     (43,399)   (1,550) 
                                                               --------  -------- 
 
Financing activities 
Dividends paid                                                  (5,778)   (7,905) 
Issue of share equity                                            14,797       226 
Loan repayments                                                 (8,750)   (8,750) 
Repayments of obligations under lease liabilities               (6,972)   (3,076) 
                                                               --------  -------- 
Net cash outflow from financing activities                      (6,703)  (19,505) 
                                                               --------  -------- 
 
Net increase in continuing cash and cash equivalents              2,344     2,315 
Net (decrease)/increase in discontinued cash and 
 cash equivalents                                                 (592)        71 
                                                               --------  -------- 
Net increase in cash and cash equivalents                         1,752     2,386 
Cash and cash equivalents at beginning of year                   11,667     9,179 
Effect of foreign exchange rate changes on cash and 
 cash equivalents                                                  (23)       102 
Cash and cash equivalents at end of year                         13,396    11,667 
                                                               --------  -------- 
 
Bank balances and cash                                           13,396    11,667 
                                                               --------  -------- 
 

Notes

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2020 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;

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

 
                                     Group revenue             Group 
                                                             revenue 
                                   from continuing   from continuing 
                                        activities        activities 
 Revenue is analysed                          2020              2019 
  as follows: 
                                            GBP000            GBP000 
 Engineering Services                      577,238           563,769 
 Specialist Building                        43,207            36,125 
 Inter segment revenue                     (2,025)           (1,461) 
                                  ----------------  ---------------- 
 Segment revenue                           618,420           598,433 
 Central activities                          1,955             1,489 
                                  ---------------- 
                                           620,375           599,922 
                                  ----------------  ---------------- 
 
 
                                            Before 
                                       exceptional     Exceptional 
                                         items and       items and 
                                      amortisation    amortisation 
                                     of intangible   of intangible 
                                            assets          assets 
                                              2020            2020      2020      2019 
                                            GBP000          GBP000    GBP000    GBP000 
 Engineering 
  Services                                  40,754         (6,741)    34,013    32,622 
 Specialist Building                         1,014               -     1,014       882 
 Segment operating profit                   41,768         (6,741)    35,027    33,504 
 Central activities                        (2,159)               -   (2,159)   (5,963) 
                                    --------------  --------------  --------  -------- 
 Operating profit                           39,609         (6,741)    32,868    27,541 
 Net financing 
  costs                                      (767)               -     (767)     (579) 
                                    --------------                  --------  -------- 
 Profit on ordinary activities 
  before income tax                         38,842         (6,741)    32,101    26,962 
                                    --------------  --------------  --------  -------- 
 

Engineering Services segment operating profit for the year ended 30 September 2019 is stated after charging exceptional costs of GBP260,000 and amortisation of GBP6,528,000, resulting in a total charge before taxation of GBP6,788,000. Central activities incurred GBP4,000,000 exceptional cost in the comparative year. Total amortisation and exceptional costs before taxation in the comparative year amounted to GBP10,788,000 (see Note 3).

3 Exceptional items and amortisation of intangible assets

 
                                                           2020      2019 
                                                         GBP000    GBP000 
 
 Defined benefit pension scheme 
  guaranteed minimum pension equalisation                     -     4,260 
 Acquisition 
 costs                                                    1,212         - 
                                                       --------  -------- 
 Total losses arising from 
  exceptional items                                       1,212     4,260 
 Amortisation of intangible 
  assets                                                  5,529     6,528 
                                                       --------  -------- 
 Total exceptional items and amortisation 
  charge before income tax                                6,741    10,788 
 Taxation credit on exceptional items 
  and amortisation                                      (1,146)   (2,601) 
                                                       --------  -------- 
 Total exceptional items and amortisation 
  charge                                                  5,595     8,187 
                                                       --------  -------- 
 
 
 

Acquisition costs relate to the acquisition of Carnell on 30 January 2020.

On 26 October 2018, the High Court handed down a judgment involving the Lloyds Banking Group's defined benefit pension schemes. The judgment concluded the schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pension benefits. The issues determined by the judgment arise in relation to many other defined benefit pension schemes. The impact of additional liabilities amounted to GBP260,000 for the Amco Pension Scheme and GBP4,000,000 for the Lovell Pension Scheme.

The Board has separately identified the charge of GBP5,529,000 (2019: GBP6,528,000) for the amortisation of the fair value ascribed to certain intangible assets, other than goodwill, arising from the acquisitions of Giffen Holdings Ltd, QTS Group Ltd and Carnell Group Holdings Ltd.

 
 4 Loss for the year from discontinued operations              2020     2019 
                                                             GBP000   GBP000 
 
 Revenue                                                          -        - 
 Expenses                                                   (5,590)        - 
                                                           --------  ------- 
 Loss before income tax                                     (5,590)        - 
 Income tax charge                                                -        - 
                                                           --------  ------- 
 Loss for the year from discontinued 
  operations                                                (5,590)        - 
                                                           --------  ------- 
 

During the year the group completed the closure of Lovell America Inc having incurred GBP271,000 additional costs in finalising historical taxation issues. Once any surplus cash has been repatriated, the group will no longer have any overseas exposure.

On 31 October 2014, the Board reached an agreement to sell Allenbuild Ltd to Places for People Group Ltd. As a term of the disposal Renew Holdings plc retained both the benefits and the obligations associated with a number of Allenbuild contracts which have resulted in the requirement for an additional GBP5,319,000 accrual. This is as a result of new latent defects coming to light during the financial year and a subsequent internal reassessment of the costs required to settle other known contractual disputes.

 
 5 Income tax expense 
 
 (a) Analysis of expense in 
  year                                                2020      2019 
                                                    GBP000    GBP000 
 Current tax: 
 UK corporation tax on profits 
  of the year                                      (5,732)   (5,291) 
 Adjustments in respect of previous 
  period                                               216       208 
                                                            -------- 
 Total current tax                                 (5,516)   (5,083) 
                                                  --------  -------- 
 Deferred tax - defined benefit pension 
  schemes                                          (1,848)     (556) 
 Deferred tax - other timing 
  differences                                        1,605       934 
                                                  --------  -------- 
 Total deferred tax                                  (243)       378 
                                                  --------  -------- 
 Income tax expense in respect of 
  continuing activities                            (5,759)   (4,705) 
                                                  --------  -------- 
 
 (b) Factors affecting income tax expense 
  for the year 
                                                      2020      2019 
 
                                                    GBP000    GBP000 
 Profit before income 
  tax                                               32,101    26,962 
                                                  --------  -------- 
 Profit multiplied by 
  standard rate 
 of corporation tax in the UK of 19% 
  (2019: 19%)                                      (6,099)   (5,123) 
 Effects of: 
 Expenses not deductible for 
  tax purposes                                       (297)     (114) 
 Timing differences not provided in 
  deferred tax                                         433       326 
 Change in tax rate                                   (12)       (2) 
 Adjustments in respect of previous 
  period                                               216       208 
                                                  --------  -------- 
                                                   (5,759)   (4,705) 
                                                  --------  -------- 
 

Timing differences not provided for in deferred tax arise principally from the utilisation of tax losses not previously recognised.

Deferred tax has been provided at a rate of 19% (2019: 17%) following the decision that the UK corporation tax rate should remain at 19% (effective from 1 April 2020) and substantively enacted on 17 March 2020. The Group has available further unused UK tax losses of GBP29.3m (2019: GBP31m) to carry forward against future taxable profits. A substantial element of these losses relates to activities which are not forecast to generate the level of profits needed to utilise these losses. A deferred tax asset has been provided to the extent considered reasonable by the Directors, where recovery is expected to be recognisable within the foreseeable future. The unrecognised deferred tax asset in respect of these losses amounts to GBP4.0m (2019: GBP4.5m).

 
 6 Dividends 
                                                              2020          2019 
                                                       Pence/share   Pence/share 
 
 Interim (related to the year ended 30 September 
  2020)                                                          -          3.83 
 Final (related to the year ended 30 September 
  2019)                                                       7.67          6.67 
                                                      ------------  ------------ 
 Total dividend 
 paid                                                         7.67         10.50 
                                                      ------------  ------------ 
 
                                                            GBP000        GBP000 
 Interim (related to the year ended 30 September 
  2020)                                                          -         2,885 
 Final (related to the year ended 30 September 
  2019)                                                      5,778         5,020 
                                                      ------------  ------------ 
 Total dividend 
 paid                                                        5,778         7,905 
                                                      ------------  ------------ 
 

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 8.33p per Ordinary Share be paid in respect of the year ended 30 September 2020. This will be accounted for in the 2020/21 financial year.

 
 7 Earnings per share 
                                                2020 
                                   Earnings      EPS     DEPS   Earnings   2019      DEPS 
                                     GBP000    Pence    Pence     GBP000   EPS       Pence 
                                                                           Pence 
 Earnings before exceptional 
  items and amortisation             31,937    41.22    40.89     30,444     40.43     40.13 
 Exceptional items 
 and amortisation                   (5,595)   (7.22)   (7.17)    (8,187)   (10.88)   (10.79) 
                                  ---------  -------  -------  ---------  --------  -------- 
 Basic earnings per 
  share - continuing 
  activities                         26,342    34.00    33.72     22,257     29.55     29.34 
 Loss for the year 
  from discontinued 
  operations                        (5,590)   (7.22)   (7.15)          -         -         - 
                                  ---------  -------  -------  --------- 
 Basic earnings 
  per share                          20,752    26.78    26.57     22,257     29.55     29.34 
                                  ---------  -------  -------  ---------  --------  -------- 
 
 Weighted average 
 number of shares                             77,480   78,114               75,308    75,856 
                                             -------  -------             --------  -------- 
 
 

The dilutive effect of share options is to increase the number of shares by 634,000 (2019: 548,000) and reduce basic earnings per share by 0.21p (2019: 0.21p).

8 Acquisition of subsidiary undertaking - Carnell Group Holdings Ltd (formerly Agger Ltd)

On 30 January 2020, the Company acquired the whole of the issued share capital of Carnell Group Holdings Ltd ("Carnell") for a cash free/debt free consideration of GBP38m, after excluding a locked-box working capital adjustment. The acquisition was funded by a placement of 3,157,894 new ordinary shares raising GBP15m gross and an expanded revolving credit facility provided by HSBC UK Bank plc and National Westminster Bank plc.

The provisional value of the assets and liabilities of Carnell at the date of acquisition were:

 
                                         Book value   Adjustments   Fair value 
                                             GBP000        GBP000       GBP000 
 Non-current assets 
 Intangible assets - goodwill                12,142         7,267       19,409 
                            - other               -        19,128       19,128 
 Property, plant and equipment                  905             -          905 
                                             13,047        26,395       39,442 
                                        -----------  ------------  ----------- 
 Current assets 
 Inventories                                     20             -           20 
 Trade and other receivables                 13,523             -       13,523 
 Current tax 
  asset                                         540             -          540 
 Cash and cash equivalents                    3,203             -        3,203 
                                             17,286             -       17,286 
                                        -----------  ------------  ----------- 
 Total assets                                30,333        26,395       56,728 
                                        -----------  ------------  ----------- 
 
 Non-current liabilities 
 Deferred tax liabilities                         -       (3,634)      (3,634) 
                                                  -       (3,634)      (3,634) 
                                        -----------  ------------  ----------- 
 Current liabilities 
 Trade and other payables                   (9,379)             -      (9,379) 
                                            (9,379)             -      (9,379) 
                                        -----------  ------------  ----------- 
 Total liabilities                          (9,379)       (3,634)     (13,013) 
                                        -----------  ------------  ----------- 
 
 Net assets                                  20,954        22,761       43,715 
                                        -----------  ------------  ----------- 
 

Goodwill of GBP19,409,000 arises on acquisition and will be reviewed annually for impairment. The goodwill is attributable to the expertise and workforce of the acquired business. Other intangible assets provisionally valued at GBP19,128,000, which represent customer relationships and contractual rights, were also acquired and will be amortised over their useful economic lives in accordance with IAS 38. Deferred tax has been provided on this amount. Amortisation of this intangible asset commenced from February 2020.

Fair value adjustments arising from the acquisition

In accordance with IFRS 3, the Board will review the fair value of assets and liabilities using information available up to 12 months after the date of acquisition. Fair value has been calculated using Level 3 inputs as defined by IFRS 13.

Deferred tax liabilities

A deferred tax liability has been recognised in relation to the amortisation of other intangible assets.

Goodwill impairment review

The Board has reviewed the goodwill arising on acquisition for impairment as required by IFRS 3. No such impairment was identified.

If the acquisition of Carnell had occurred on 1 October 2019, Group revenue would have been approximately GBP638m and profit before tax for the year ended 30 September 2020 would have been approximately GBP32.4m.

9 Preliminary financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2020 or 2019. Statutory accounts for 2019 have been delivered to the registrar of companies. The auditor has reported on those accounts; his reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2020 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

10 Alternative performance measures

Renew uses a variety of alternative performance measures ('APM') which, although financial measures of either historical or future performance, financial position or cash flows, are not defined or specified by IFRSs. The Directors use a combination of APMs and IFRS measures when reviewing the performance, position and cash of the Group.

The Directors believe that APMs provide a better understanding of the underlying trading performance of the business because they remove the impact of non-trading related accounting adjustments. Furthermore, they believe that the Group's shareholders use these APMs when assessing the performance of the Group and it is therefore appropriate to give them prominence in the Annual Report and Accounts.

The APMs used by the Group are defined below:

Net Cash/(Debt) - This is the cash and cash equivalents less bank debt. This measure is visible in Note 32 in the Annual Report & Accounts. The Directors consider this to be a good indicator of the financing position of the Group.

Adjusted operating profit (GBP39.609m) and adjusted profit before tax (GBP38.842m) - Both of these measures are reconciled to total operating profit and total profit before tax on the face of the consolidated income statement. The Directors consider that the removal of exceptional items and amortisation provides a better understanding of the underlying performance of the Group. The equivalent GAAP measures are operating profit (GBP32.868m) and profit before tax (GBP32.101m).

Adjusted operating margin (6.4%) - This is calculated by dividing operating profit before exceptional items and amortisation of intangible assets (GBP39.609m) by group revenue including share of joint venture (GBP620.375m) both of which are visible on the face of the income statement. The Directors believe that removing exceptional items and amortisation from the operating profit margin calculation provides a better understanding of the underlying performance of the Group. The equivalent GAAP measure is operating profit margin (5.3%) which is calculated by dividing operating profit (GBP32.868m) from

group revenue including share of joint venture (GBP620.375m).

Adjusted earnings per share (41.22p) - This measure is reconciled to the earnings per share calculation based on earnings before exceptional items and amortisation in Note 7. The Directors believe that removing exceptional items and amortisation from the EPS calculation provides a better understanding of the underlying performance of the Group.

Group Revenue (GBP620.375m) - This measure is visible on the face of the income statement as Revenue: Group including share of joint venture.

Group order book, Engineering Services order book and Specialist Building order book - This measure is calculated by the Directors taking a conservative view on secured orders and visible workload through long-term frameworks.

Engineering Services revenue (GBP577.238m) - This measure is visible in Note 2 business analysis as Engineering Services Revenue including share of joint venture. The Directors consider this to be a good indicator of the underlying performance of the Group's Engineering Services business.

Adjusted Engineering Services operating profit (GBP40.754m) - This measure is visible in Note 2 business analysis as Engineering Services operating profit before exceptional items and amortisation of intangible assets. The Directors consider this to be a good indicator of the underlying performance of the Group's Engineering Services business. The GAAP equivalent measure is engineering services operating profit (GBP34.013m) which is also visible in Note 2 part (a).

Adjusted Engineering Services operating profit margin (7.1%) - This is calculated in the same way as adjusted operating profit margin but based on the adjusted Engineering Services operating profit (GBP40.754m) and the Engineering Services revenue (GBP577.238m) figures as set out above. The equivalent GAAP measure is engineering services operating profit margin (5.9%) which is calculated by dividing engineering services operating profit (GBP34.013m) from engineering services revenue including share of joint venture (GBP577.238m).

11 Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 30 September 2020 will be posted to shareholders as soon as practicable and a copy will be made available on the Group's website:

www.renewholdings.com

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END

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(END) Dow Jones Newswires

December 08, 2020 02:00 ET (07:00 GMT)

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