TIDMRNWH

RNS Number : 0395V

Renew Holdings PLC

09 December 2021

9 December 2021

Renew Holdings plc

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

Final Results

Record year underpinned by strong organic growth; uniquely positioned to capitalise on compelling growth opportunities in our end markets

Renew (AIM: RNWH), the leading Engineering Services Group supporting UK infrastructure, announces its preliminary results for the year ended 30 September 2021 ("the period").

Financial Highlights

 
 Year ended 30 September 2021         FY2021      FY2020   Change 
                                        GBPm        GBPm 
 Group revenue(1)                  GBP791.0m   GBP620.4m   +27.5% 
                                  ----------  ----------  ------- 
 Adjusted operating profit(1)       GBP51.2m    GBP39.6m   +29.3% 
                                  ----------  ----------  ------- 
 Operating profit                   GBP41.1m    GBP32.9m   +25.2% 
                                  ----------  ----------  ------- 
 Adjusted operating margin(1)           6.5%        6.4%   +10bps 
                                  ----------  ----------  ------- 
 Profit before tax                  GBP40.8m    GBP32.1m   +26.9% 
                                  ----------  ----------  ------- 
 Adjusted earnings per share(1)        50.5p       41.2p   +22.5% 
                                  ----------  ----------  ------- 
 Final dividend per share             11.17p       8.33p   +34.1% 
                                  ----------  ----------  ------- 
 
   --      Group order book of GBP749m (2020: GBP692m) 

-- Strong organic revenue growth of 19 per cent, underpinned by continued positive momentum in Rail business, along with framework wins and operational progress across diverse Engineering Services business

-- Full year dividend of 16.0p per share reflects Group's strong cash generation and positive outlook

   --      De-risking of balance sheet with completion of Lovell Pension Scheme buy-in 

Operational Highlights

-- Acquisition of Browne for GBP29.5m in March 2021, adding material scale to the Group's water business in line with strategic objectives

   --      Added Thames Water, Affinity Water and Southern Water as new clients during the period 

-- Acquisition of REL in May 2021 adding a unique skillset to the Group with a view to supporting the Government's rail decarbonisation programme

   --      Engineering Services adjusted operating profit(1) of GBP51.5m (2020: GBP40.8m) 

-- Good progress made against our quantitative sustainability targets outlined in our interim results in May

   --      Proud holder of London Stock Exchange's Green Economy Mark 

Current Trading & Outlook

   --      Positive trading momentum carried into new financial year 
   --      Strong forward order book underpins confidence in achieving further progress in 2022 

-- Confident in our future prospects and well positioned to capitalise on our strengths to target new opportunities in attractive markets

Paul Scott, CEO of Renew, commented:

"2021 was another record year for the Group and I am pleased with the progress that has been made across all divisions. The essential nature of our work combined with the resilience of our low-risk, high-quality operating model has been a key driver for growth, as we continued to operate through the numerous lockdown and tiering scenarios experienced during the year. The two acquisitions that we completed have strengthened our offering in water and rail and both are delivering to plan.

"I am pleased to report that we have carried forward this positive trading momentum into the new financial year and have a strong forward order book which underpins our confidence in achieving further progress in 2022. As we look further ahead, we are committed to building on our strengths to target new opportunities in attractive markets where we have the skillset to deliver mission-critical engineering infrastructure solutions for a sustainable future."

(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 11.

Analyst & Investor Webinar

A virtual meeting for sell-side analysts and investors will be held at 11:15am today, 9 December 2021, the details of which can be obtained from FTI Consulting using the contact details below.

For further information, please contact:

 
 Renew Holdings plc                                   via FTI Consulting 
  Paul Scott, Chief Executive Officer                      020 3727 1000 
  Sean Wyndham-Quin, Chief Financial Officer 
 Numis Securities Limited (Nominated Adviser 
  & Broker) 
  Stuart Skinner / Kevin Cruickshank                       020 7260 1000 
 Peel Hunt LLP (Joint Broker) 
  Mike Burke / Harry Nicholas / Charles 
  Batten                                                   020 7418 8900 
 FTI Consulting (Financial PR)                             020 3727 1000 
  Alex Beagley / Sam Macpherson / Rafaella       Renew@fticonsulting.com 
  de Freitas 
 

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. Engineering Services, 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

The Group is pleased to announce a record financial performance, with continued growth in revenue and profit and strong operating cash generation, which reflects the core strengths of the Group and our well-established positions in attractive and sustainable growth markets as well as the resilience of Renew's business model.

In addition to good organic growth, the Group continued to make strategic progress during the year, expanding our presence in the water market with the acquisition of Browne, a respected provider of specialist engineering services across the water infrastructure network. We also acquired REL, a specialist provider of rail overhead line electrification, in order to support the Government's rail decarbonisation programme.

Differentiated business model

Our differentiated business model and the services we provide continue to support key infrastructure assets in regulated markets. Our markets enjoy committed funding which p rovides visible, reliable and resilient revenues via long-term 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.

Results

Group revenue (1) increased to GBP791.0m (2020: GBP620.4m) with adjusted operating profit (1) increasing to GBP51.2m (2020: GBP39.6m) and an adjusted (1) operating margin of 6.5% (2020: 6.4%). Statutory operating profit was GBP41.1m (2020: GBP32.9m). The adjusted EPS (1) was 50.51p (2020: 41.22p) and b asic earnings per share was 38.73p (2020: 26.78p). The Group had a net debt (1) position of GBP13.7m (2020: net cash GBP0.3m), in line with our expectations.

Dividend

The Group's strong trading performance, cash position and positive outlook give the Board the confidence to propose a final dividend of 11.17p (2020: 8.33p) per share, an increase of 34 per cent. This will be paid on 4 March 2022 to shareholders on the register as at 28 January 2022, with an ex- dividend date of 27 January 2022. This will represent a full year dividend of 16.0p (2020: 8.33p) per share.

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.

Safety

Our priority remains to ensure both the safety of our workforce and continued delivery of essential renewal and maintenance operations. The Group's culture of robust governance, risk management and a focus on health and safety has together provided a strong platform from which we have been able to continue to operate over the last twelve months whilst delivering uninterrupted services for our customers.

ESG

Environmental

We understand the role we must play as a business in taking action to address the emissions we produce. We are committed to achieving net zero by no later than 2040, ahead of the 2050 target date set by the Government.

We are pleased to maintain our London Stock Exchange's Green Economy Mark which recognises those companies that derive more than 50 per cent of revenue from products and services that are contributing to environmental objectives. Renew plays an important role in helping to achieve government aims for greater sustainable infrastructure.

Social

As a business we strive to leave a lasting positive impact in the work we undertake. During the year our businesses have engaged with local schools and education providers, supported their local communities and undertook a range of charity events.

Governance

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

Risk management is led by the Board, which reviews the Group's risk profile on an ongoing basis alongside the Audit and Risk Committee. 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.

Further details of the Group's ESG progress and strategy are set out in the 2021 Annual Report and Accounts.

Board changes

At the same time as our annual results, we announced the appointment of Louise Hardy as a Non-executive Director. Louise will augment the breadth of skills and experience on the Board as the Group continues to grow. Further details of Louise's experience are included in that announcement and in the Annual Report.

Having served on the Board for just over ten years and in accordance with best practice, I have decided that it is time to step down as Chairman and from the Board. I have worked with my fellow Directors to identify the skills and experience required of a prospective Chairman and the Board has undertaken an exercise to find my replacement. That exercise is largely complete and the Board remains confident that this process will conclude in the new year and that a strong candidate will be appointed.

At the request of the Board, I have agreed to remain as Chairman until that appointment is finalised which I expect to be no later than Spring 2022, at which point I will step down from the Board.

In accordance with the Group's normal rules, a resolution approving my re-election as a Director will be put to shareholders at the forthcoming Annual General Meeting. On the basis that this is only for a short transitional period, I hope that the shareholders will vote in favour of these arrangements.

I have been fortunate to serve on this Board during a time of substantial growth in profitability and shareholder value. In most part this has been down to an exceptional, focused and diligent management team, past and present, who have implemented sound strategic thinking aimed at looking after the interests of all stakeholders including employees, shareholders, creditors and pensioners. I am proud of what has been achieved over my time with the Group.

Future focus

The Group is supported in the delivery of its long-term strategy through effective relationships with our directly employed workforce, customers, suppliers, shareholders, and wider stakeholders and these are critical to the continued success of the business. Building on our track record of consistently creating shareholder value we will continue to deliver our strategic priorities whilst focusing on our environmental, social and governance responsibilities. Our approach to equality, diversity and inclusion will also be a focus area as we move through 2022 and beyond.

The Board expects to continue to deliver growth, both organic and through strategic earnings-enhancing acquisitions. We remain focused on markets with high barriers to entry and 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

9 December 2021

(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 11.

Group Chief Executive Officer's Review

Building on positive momentum

The Group's impressive outperformance over the year reflects the underlying qualities and differentiated nature of our high-quality, low-risk business model combined with the strong demand we have seen in our chosen end markets as the UK's infrastructure-led economic recovery gathers pace.

At Renew, we are committed to delivering engineering infrastructure solutions for a sustainable future. We perform a critical role in keeping the nation's infrastructure functioning efficiently and safely as a leading provider of essential maintenance and renewals-led engineering services, operating in regulated markets including rail, highways, mobile telecommunications, civil nuclear, water and environmental.

As part of the UK Government's pledge to level up the economy and reach net-zero carbon emissions by 2050, it has committed to a record GBP650bn(2) investment in transforming the UK's infrastructure and we are already benefiting from an increased focus on maintaining and renewing assets as part of this shift. Renew has a vital role to play in supporting the green and sustainable infrastructure of the future and we have made good progress on our own sustainability targets this year.

Once again the Group demonstrated its resilience during the year, where two national lockdowns had no material impact on trading. This highlights Renew's ability to deliver consistently, thanks to our differentiated business model, the critical nature of our work and the committed, long-term, highly visible spending cycles that underpin our end markets.

We delivered a further improvement in organic growth, which, combined with our robust balance sheet and strong cash generation, gives us the firepower and flexibility to invest in selective value-accretive M&A opportunities. During the period we acquired Browne, a water-focused engineering services business based in London, which strengthens our exposure to the GBP51bn(3) water sector, bringing new clients into the Group, including Thames Water, Southern Water, Affinity Water and South East Water. Our wholly owned subsidiary, QTS Group Limited, acquired Rail Electrification Limited ("REL") which complements Renew's existing rail offering and enables the Group to support the Government's commitment to a net-zero rail network by 2050.

As we reflect on another successful performance and look to the future with confidence, underpinned by our strong order book, I would like to place on record my gratitude, on behalf of the Board, to all our dedicated colleagues who made these results possible by delivering an uninterrupted, highly responsive service for clients at all times.

Renew's strengths

Renew has a number of core strengths which provide distinct competitive advantages in our chosen markets and leave us well placed to build on our strong track record of long-term value creation:

-- The health, safety and wellbeing of our people remains our number one priority and we have implemented safe working practices for the Group's employees.

-- We operate a differentiated, diversified, low-risk, low-capital operating model, providing critical asset maintenance and renewals services that are not dependent on large, high-risk, capital-intensive contract awards.

-- Our directly employed workforce enables us to provide a more efficient and valuable service to our clients, reducing our exposure to sub-contractor pricing volatility and being able to deliver extremely responsive solutions.

-- Our businesses are well established in complex, challenging and highly regulated markets with significant barriers to entry, which demand a highly skilled and experienced workforce and a proven track record of safe delivery.

-- We work in markets underpinned by resilient, long-term growth dynamics and highly visible, reliable, committed regulatory spending periods, providing predictable cashflows.

-- We have a proven track record of sustainable value creation, reliable revenue growth and strong returns on capital thanks to our highly cash generative earnings model and clearly defined strategy.

-- We are committed to growing the business both organically and through selective complementary acquisitions while maintaining a disciplined approach to capital allocation and risk underpinned by a strong balance sheet

-- Our high-quality model of compounding earnings through the redeployment of internally generated cashflows enables us to execute on our strategy of delivering reliable and consistent growth for all our stakeholders.

-- We have strong relationships in place with all our stakeholders, from our workforce to our customers, suppliers, communities and shareholders.

Compelling market drivers

Our businesses are exposed to attractive long-term, non-discretionary structural growth drivers. Increasing demand for the maintenance and renewal of existing UK infrastructure is driven by a number of factors including:

   --    a commitment by the Government to level up the economy by investing GBP650bn(2) in a green infrastructure-led recovery, two-thirds of which will be in the transport and energy sectors, with fiscal stimulus measures likely to flow through to lower cost infrastructure maintenance programmes ahead of larger, more capital-intensive enhancement schemes; 

-- greater focus on sustainability and climate change as part of the UK's target of reaching net-zero carbon emissions by 2050, together with flood risk prevention measures and investment in nuclear projects, renewables and 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 to improve safety, efficiency and resilience of key infrastructure assets leading to more demanding maintenance, renewal and upgrading requirements.

Our track record of growth and long-term value creation

Renew has a strong track record of sustainable value creation through the economic cycle thanks to the Group's high-quality, value-accretive compounding earnings model. Over the past five years, we have delivered:

   --    adjusted(1) earnings per share growth of 84 per cent; 
   --    an increase in our adjusted(1) operating margin from 4.2 per cent to 6.5 per cent; 
   --    group revenue growth of 50 per cent; and 
   --    five acquisitions supported by our strong free cash flow. 

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

Results overview

During the period, Group revenue increased to GBP791.0m (2020: GBP620.4m), with organic growth of 19% and the Group achieved an adjusted operating profit of GBP51.2m (2020: GBP39.6m). Adjusted operating profit margin was 6.5% (2020: 6.4%). As at 30 September 2021, the Group had pre-IFRS 16 net debt of GBP13.7m (30 September 2020: net cash GBP0.3m), reflecting the acquisition of Browne and REL along with the Group's strong operating cash generation and conservative approach to gearing.

These results include contributions from both Browne and REL, acquired in March 2021 and May 2021 respectively. Both businesses have performed in line with management expectations and are integrating well. Underpinned by long-term framework positions, the Group's order book at 30 September 2021 has strengthened to GBP749m (2020: GBP692m).

During the 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 has significantly de-risked the Group's balance sheet, further reduced its pension exposure risks and improves our cashflow in the medium term. Following the success of this transaction, the Group continues to investigate the opportunity of fully buying-in its liabilities with the Amco Scheme to further reduce the Group's pension exposure in line with our strategy.

Dividend

The Group's strong trading performance, cash position and positive outlook gives the Board the confidence to propose a final dividend of 11.17p per share, an increase of 34 per cent over the prior year final dividend of 8.33p. This will be paid on 4 March 2022 to shareholders on the register as at 28 January 2022, with an ex-dividend date of 27 January 2022. This will represent a full year dividend of 16p (2020: 8.33p) per share.

Engineering Services

Our Engineering Services activities account for over 95 per cent of the Group's adjusted operating profit(1) and delivered revenue of GBP706.7m (2020: GBP577.2m) with an adjusted operating profit of GBP51.5m (2020: GBP40.8m) resulting in an operating margin of 7.3% (2020: 7.1%). At 30 September 2021, the Engineering Services order book was GBP679m (2020: GBP603m). The Group's strong organic growth performance was driven by continued positive momentum in our Rail business, along with framework wins and operational progress across our diverse Engineering Services business.

Rail

Network Rail, a significant strategic customer for the Group, is investing GBP53bn(4) over the current Control Period (CP6), which runs to 2024. This increased focus on operational support, renewal and maintenance plays to our strengths, as does the Government's commitment to its rail decarbonisation programme. This includes a significant investment in electrification programmes, as part of the overall UK target to deliver net-zero by 2050. With a view to supporting the Government's rail decarbonisation programme, the Group acquired Rail Electrification Limited ("REL") during the period, a leading provider of high-quality services and Road Rail Vehicles associated with the installation and commissioning of overhead line electrification. This acquisition further strengthens and expands the Group's existing multidisciplinary maintenance and renewals engineering services.

During the period, we continued to add new positions including the Southern Buildings and Civils Framework and the Structures Integrity Framework in the South, while also securing further fencing and vegetation management work under CP6.

As the largest provider of multidisciplinary maintenance and renewals engineering services to Network Rail, we support the day-to-day operation of the rail network nationally, directly delivering essential asset maintenance through our long-term CP6 frameworks. The Group assists Network Rail through our mission-critical renewals and maintenance services supporting assets including bridges, earthworks, embankments, tunnels, drainage systems, signalling, electrification and rail plant. The Group now holds in excess of 50 CP6 maintenance and renewals frameworks across all disciplines, covering the entire UK rail network.

We continue to develop industry-leading innovations in order to deliver value-add services within our Rail business. These include bespoke solutions built around the needs of our clients, including "one of a kind" equipment deployed across geotechnical, earthworks and vegetation management.

Overall, we saw planned work for our rail customers continue with minimal disruption, despite significant periods of time where we operated under Government imposed restrictions. The compelling maintenance-focused structural growth drivers within this sector, and Renew's high-quality engineering expertise, leave the Group ideally positioned to deliver long-term, profitable growth in Rail, particularly as we see opportunities present themselves under the next Control Period 7 ("CP7").

Infrastructure

Highways

The Group successfully entered the Highways market during January 2020 through its acquisition of Carnell, a leading provider of specialist engineering services on the strategic road network. We made good operational and strategic progress within the Highways segment during the period, delivering essential asset maintenance and critical infrastructure renewals underpinned by non-discretionary regulatory requirements.

With the UK Government committing to an investment of GBP24bn(5) in the strategic road network over a five year period, as part of its second Road Investment Strategy ("RIS2"), GBP11.9bn of this funding will be ringfenced for operations, maintenance and renewals. This represents a significant market opportunity for Renew. Carnell continues to leverage its innovative technological solutions to support the needs of major clients such as National Highways.

During the period, Carnell was awarded five lots on National Highways SDF framework the maximum amount of lots available across civil engineering, road restraint systems and drainage disciplines, worth GBP147m over six years, with work set to begin in January 2022. Three of those lots will be delivered through a collaboration between Carnell and AmcoGiffen which represents a successful collaboration between different parts of the Group. Post period end, Carnell were awarded two lots on the 7 year Technical Surveys and Testing Framework.

We remain well placed to seize the attractive growth and market share opportunities within Highways with increased spending forecast over the next ten years and with the Group investing to take advantage of opportunities in the electric vehicle charging market.

Wireless telecoms

The wireless telecoms sector contains many attractive growth drivers, not least of all an estimated GBP30bn(6) required to upgrade the nation's broadband networks to gigabit-capable speeds which includes the UK Government's GBP5bn(7) investment in 5G. Additional investment includes the Shared Rural Network, the Government's GBP500m(8) programme to extend 4G mobile coverage to 95% of the UK.

Through our Clarke Telecom subsidiary, which is a leading infrastructure services provider in the wireless telecommunications market, we have exposure to all of these opportunities, holding long-term relationships with the main UK network operators, equipment vendors and managed service providers.

During the period, we continued to build on the operational and strategic progress made previously, consolidating our position on VM02's 5G services frameworks, and securing new frameworks with Cornerstone and 3UK. We also saw further growth delivered in our work for the Government, alongside EE and BT, to remove Huawei equipment from the UK's 5G networks by 2027.

With faster internet connectivity becoming ever more critical in the digital age and a key part of the Government's levelling up agenda, we expect to benefit from these trends thanks to our specialist engineering expertise and mission-critical solutions.

Energy

Nuclear

Having worked for over 75 years in civil nuclear, we provide a multidisciplinary service through our large complement of highly skilled employees who operate to demanding nuclear standards, including decontamination and decommissioning services, operational support and asset care, as well as waste retrieval in high-hazard areas such as legacy storage ponds and silos.

The Government's total nuclear decommissioning provision is estimated at GBP124bn(9) over the next 120 years, with around 75% of the total spend allocated to Sellafield, which is the largest of the Nuclear Decommissioning Authority's ("NDA's") sites and where we remain a principal mechanical, electrical and instrumentation ("M,E&I") services contractor. The NDA has an annual expenditure of GBP3bn(10) on its nuclear decommissioning programme and Renew is involved in activities representing 90% of the allocated expenditure.

On Sellafield, we operate across a number of frameworks including the Decommissioning Delivery Partnership Framework on both Lot 1 (Remediation) and Lot 3 Magnox Swarf Storage Silo, Aligned partner - Remediation Redundant Asset programme, Tanks and Vessels Framework and the Fabrication and Machining Spares Framework. Our performance at Sellafield is strong evidence of the Group's capabilities, and we are well-positioned for opportunities in the Major Projects Programme.

We are collaborating with the Programme and Project Partners ("PPP") to secure further growth opportunities at Sellafield. PPP is a 20-year framework for the delivery of a broad range of major projects for the site, with GBP7bn allocated for seven projects that require multidisciplinary services including civil M,E&I.

Outside of Sellafield, 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". We also deliver operational support and decommissioning activities at Springfield and continue to widen our network, targeting key sites such as Magnox and Dounreay where we have a position on the Decommissioning Services Framework.

New nuclear is an essential component of the UK Government's plans to deliver a sustainable, low-carbon energy future, and we expect continued and sustained growth in the area. We continue to see a sustainable increase in demand for our specialist manufacturing capabilities and remain well placed to capitalise on trends in new nuclear and legacy decommissioning.

As part of the UK Government's commitment to net-zero, decarbonisation of our energy supply is a key challenge. The anticipated increase in energy demand is expected to drive significant long-term investment. Changes in the UK's energy landscape will provide opportunities for the Group's multidisciplinary infrastructure engineering capabilities.

Environmental

Water

In Water, we continue to benefit from the UK Government's spending of GBP51bn(3) over AMP7 into 2025 and have seen further investment through our clients' strong operational expenditure budgets. Our offer of scheduled maintenance and renewals tasks, in addition to extensive 24/7 emergency reactive works, remains one of our key strengths, providing specialised, mission-critical services for clients around the UK.

During the period, the Group acquired J Browne, a water-focused engineering services business based in Enfield, North London, operating throughout the South of England for Thames Water, Southern Water, Affinity Water and South East Water. This acquisition further strengthens our position in a key attractive infrastructure sector, is proceeding to plan and continues to trade in line with management's expectations.

For D r Cymru Welsh Water ("DCWW"), we continue to operate across the region on the Pressurised Pipelines Framework, Major Civils Framework and Capital Delivery Alliance Civils & Pipeline Framework. The Group is advancing with mains renovation work for Bristol Water and recently secured a place on the P Removal Programme for Wessex Water, while maintaining and renewing existing assets on operational treatment and distribution facilities for Yorkshire Water through the AMP7 Minor Civils Framework. We were also successful in securing a position on Water and Wastewater Network Construction and Engineering Framework for Northumbrian Water.

Renew is well positioned to benefit from trends in the Water market as companies increase expenditure on capital maintenance, asset optimisation and supply resilience including dam safety and infrastructure refurbishment schemes.

We are pleased to have commenced services for a number of new clients including the Capital Delivery Framework for Thames Water, Affinity Water and Southern Water, adding to a strong client base that includes Scottish Canals and Peel Ports.

With the Group's extensive experience and expertise in flood defence , working with the Environment Agency and Canal & River Trust to deliver the EA Flood and Coastal Erosion Framework, the UK Government's commitment to invest GBP5.2bn(11) over six years to improve flood defence presents a strong opportunity for the Group.

Specialist restoration

We are progressing well with works at the Palace of Westminster, now entering the new flat roofs phase at the site, through the award of a five year Conservation Framework.

Specialist Building

Revenue was in line with the Group's expectations at GBP84.4m (2020: GBP43.2m) reflecting a continued focus on contract selectivity and risk management. Operating profit was GBP1.6m (2020: GBP1.0m). In Specialist Building, the order book was GBP70m (2020: GBP89m).

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

Our essential work continued uninterrupted on critical science schemes for Defra and the Medical Research Council. The Group has also recently been awarded a landmark scheme for one of the London Palaces.

The road to net zero

Our purpose is to provide essential engineering services to maintain and renew critical infrastructure networks. It is well recognised that investment into low-carbon infrastructure will be fundamental in delivering the Government's Green Industrial Revolution and getting to net-zero emissions in the UK by 2050. It is the Board's ambition that the Group will achieve net zero by no later than 2040.

From the rail network and digitally assisted roads to high-speed telecoms and clean energy, Renew has a key enabling role to play on the frontline of efforts to decarbonise the economy. Our long-term approach to sustainability, which has always been at the heart of our business, is more relevant now than ever before.

In recognition of this, at the Group's interim results in May 2021, we introduced quantitative targets to embed our own ESG strategy within our wider business operations and to continuously monitor the progress we are making across five key areas:

   --      customer value; 
   --      climate action; 
   --      operating responsibly; 
   --      engaging our people; and 
   --      supporting our local communities. 

These objectives are designed to complement and enhance the Group's overall strategy of driving long-term sustainable growth and shareholder value creation.

We continue to make good progress against each of these areas in the year, including diverting 88% of our eligible waste away from landfill and improving on our targeted number of mental health first aiders across our business to 1 for every 20 employees (2021 target 1:50). More details of the initiatives and ESG targets will be included in the Group's 2021 Annual Report and Accounts.

2020 was the first year in which the Group reported under the Streamlined Energy and Carbon Reporting ("SECR") regulations which provided us with a baseline for ongoing reporting. Renew also continues to hold the London Stock Exchange's Green Economy Mark, which recognises companies that derive 50 per cent or more of their total annual revenue from products and services that contribute to the global "Green Economy".

Opportunities for growth

Our high-quality compounding earnings model enables the Group to redeploy internally generated cashflow in a disciplined manner, creating value through highly selective and strategically complementary M&A opportunities that supplement our profitable organic growth. Our track record of successfully identifying, acquiring and integrating value-enhancing acquisitions in growing markets with ongoing renewal and maintenance requirements and high barriers to entry, has been a key driver of Renew's long-term growth. The M&A landscape remains dynamic and we continue to look at opportunities in existing and new markets that are aligned with our acquisition criteria.

Delivering value through innovation and technology

Adding value and delivering a superior service for our customers through technology and innovation remains one of our key goals. We continuously seek to develop and implement innovative working techniques to improve operational performance and support the evolving needs of our clients across all of our sectors.

During the year in Rail, we launched the innovative Mega Vac, a bespoke Road Rail Vehicle which allows track drainage to be unblocked in record time and provides time and cost efficiencies for tasks including specialist jetting operations. We also developed and introduced the first rail mounted vegetation compactor on the UK rail infrastructure. A number of our businesses are also trialling sustainable hydrotreated vegetable oil ("HVO") fuel and battery power to significantly reduce the carbon emissions produced by site operations. We continue to make progress with the introduction of electric powered plant innovations and with the roll out of more electric vehicle charging points across our site and office locations.

Outlook - moving forward with confidence

On the back of another strong year for the Group, we are well positioned moving forward to capitalise on the compelling growth opportunities that exist across our end markets by leveraging Renew's unique low-risk, capital-light, high-quality operating model.

As the UK Government makes progress on its plans to level up the economy and reach net-zero by 2050 through long-term, record levels of committed investment in low-carbon infrastructure, the structural growth drivers in our end markets have never been more attractive.

The spending plans of our clients are underpinned by strategic national needs and regulatory commitments. Our strong and well-established market positions across key infrastructure sectors with visible, long-term, non-discretionary spending cycles, from rail to nuclear energy, give us confidence in the Group's prospects.

We have carried forward this positive trading momentum into the new financial year and have a strong forward order book which underpins our confidence in achieving further progress in 2022. As we look further ahead, we are committed to building on our strengths to target new opportunities in attractive markets where we have the skillset to deliver mission-critical engineering infrastructure solutions for a sustainable future.

Paul Scott

Chief Executive Officer

9 December 2021

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 11

2. Infrastructure and Projects Authority, Analysis of the National Infrastructure and Construction Pipeline 2021, August 2021

   3.   Ofwat PR19 final determinations, December 2019 
   4.   Network Rail Delivery Plan, Control Period 6, High Level Summary, 26 March 2020 
   5.   HM Treasury, Autumn budget and spending review 2021, October 2021 

6. Department for Digital, Culture, Media & Sport, Delivering a gigabit-capable UK: Gigabit Infrastructure Subsidy, 1 June 2021

7. Department for Digital, Culture, Media & Sport, Project Gigabit, Phase One Delivery Plan, 19 March 2021

8. Gov.uk press release, Government breakthrough on GBP500 million support package to boost rural mobile coverage, 11 March 2021

9. Nuclear Decommissioning Authority, Nuclear Provision: the cost of cleaning up Britain's historic nuclear sites, 4 July 2019

10. Nuclear Decommissioning Authority, Draft Business Plan, 1 April 2021 to 31 March 2024, 7 December 2020

11. HM Government, Flood and coastal erosion risk management, Policy Statement, July 2020

 
 Group income statement 
 for the year ended 30 September 
                                        Before     Exceptional                      Before     Exceptional 
                                   exceptional       items and                 exceptional       items and 
                                     items and    amortisation                   items and    amortisation 
                                  amortisation   of intangible                amortisation   of intangible 
                                 of intangible          assets               of intangible          assets 
                                        assets    (see Note 3)       Total          assets    (see Note 3)       Total 
                                          2021            2021        2021            2020            2020        2020 
                          Note          GBP000          GBP000      GBP000          GBP000          GBP000      GBP000 
 
 Revenue: Group 
  including share of 
  joint ventures                       790,995               -     790,995         620,375               -     620,375 
 Less share of joint 
  ventures' revenue                   (15,356)               -    (15,356)               -               -           - 
                                --------------  --------------  ----------  --------------  --------------  ---------- 
 Group revenue from 
  continuing activities      2         775,639               -     775,639         620,375               -     620,375 
 Cost of sales                       (666,454)               -   (666,454)       (527,274)               -   (527,274) 
                                --------------  --------------  ----------  --------------  --------------  ---------- 
 Gross profit                          109,185               -     109,185          93,101               -      93,101 
 Administrative 
  expenses                            (57,985)        (10,070)    (68,055)        (53,453)         (6,741)    (60,194) 
 Share of post-tax 
  result of joint 
  ventures                                  11               -          11            (39)               -        (39) 
                                                --------------  ----------  --------------  --------------  ---------- 
 Operating profit            2          51,211        (10,070)      41,141          39,609         (6,741)      32,868 
 Finance income                             19               -          19              44               -          44 
 Finance costs                           (836)               -       (836)         (1,343)               -     (1,343) 
 Other finance income - 
  defined benefit 
  pension schemes                          428               -         428             532               -         532 
                                --------------  --------------  ----------  --------------  --------------  ---------- 
 Profit before income 
  tax                        2          50,822        (10,070)      40,752          38,842         (6,741)      32,101 
 Income tax expense          5        (11,096)           2,427     (8,669)         (6,905)           1,146     (5,759) 
                                --------------  --------------  ----------  --------------  --------------  ---------- 
 Profit for the year 
  from continuing 
  activities                            39,726         (7,643)      32,083          31,937         (5,595)      26,342 
                                --------------  --------------              --------------  -------------- 
 Loss for the year from 
  discontinued 
  operations                 4                                     (1,620)                                     (5,590) 
                                                                ----------                                  ---------- 
 Profit for the year 
  attributable to 
  equity holders of the 
  parent company                                                    30,463                                      20,752 
                                                                ----------                                  ---------- 
 
 Basic earnings per 
  share from continuing 
  activities                 7                                      40.79p                                      34.00p 
 Diluted earnings per 
  share from continuing 
  activities                 7                                      40.46p                                      33.72p 
                                                                ----------                                  ---------- 
 Basic earnings per 
  share                      7                                      38.73p                                      26.78p 
 Diluted earnings per 
  share                      7                                      38.41p                                      26.57p 
                                                                ----------                                  ---------- 
 
 
 Group 
  statement 
  of 
  comprehensive 
  income 
 for 
  the 
  year 
  ended 
  30 
  September 
 
                       2021      2020 
                     GBP000    GBP000 
 Profit 
  for 
  the 
  year 
  attributable 
  to 
  equity 
  holders 
  of 
  the 
  parent 
  company            30,463    20,752 
 Items 
  that 
  will 
  not 
  be 
  reclassified 
  to 
  profit 
  or 
  loss: 
 Movement 
  in 
  actuarial 
  valuation 
  of 
  the 
  defined 
  benefit 
  pension 
  schemes          (25,672)   (2,775) 
 Movement 
  on 
  deferred 
  tax 
  relating 
  to 
  the 
  pension 
  schemes             9,026       971 
                  ---------  -------- 
 Total 
  items 
  that 
  will 
  not 
  be 
  reclassified 
  to 
  profit 
  or 
  loss             (16,646)   (1,804) 
                  ---------  -------- 
 Items 
  that 
  are 
  or 
  may 
  be 
  reclassified 
  subsequently 
  to 
  profit 
  or 
  loss: 
 Exchange 
  movement 
  in 
  reserves              (8)      (23) 
                  ---------  -------- 
 Total 
  items 
  that 
  are 
  or 
  may 
  be 
  reclassified 
  subsequently 
  to 
  profit 
  or 
  loss                  (8)      (23) 
                  ---------  -------- 
 Total 
  comprehensive 
  income 
  for 
  the 
  year 
  attributable 
  to 
 equity 
  holders 
  of 
  the 
  parent 
  company            13,809    18,925 
                  ---------  -------- 
 
 
Group statement of changes in 
equity 
for the year ended 30 
September 
                                       Share     Capital   Cumulative  Share based 
                              Share  premium  redemption  translation     payments  Retained     Total 
                            capital  account     reserve   adjustment      reserve  earnings    equity 
                             GBP000   GBP000      GBP000       GBP000       GBP000    GBP000    GBP000 
At 1 October 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 
Transfer from income 
 statement 
 for the year                                                                         30,463      30,463 
Dividends paid                                                                      (10,354)    (10,354) 
New shares issued                12                                                      647         659 
Recognition of share based 
 payments                                                                      258                   258 
Exchange differences                                              (8)                                (8) 
Actuarial movement 
 recognised 
 in pension schemes                                                                 (25,672)    (25,672) 
Movement on deferred tax 
 relating 
 to the pension schemes                                                                9,026       9,026 
At 30 September 2021          7,868   66,378       3,896        1,308        1,079    44,290     124,819 
                            -------  -------  ----------  -----------  -----------  --------  ---------- 
 
 
 
 
   Group balance sheet 
 At 30 September 
 
 
                                            2021        2020 
                                          GBP000      GBP000 
 Non-current assets 
 Intangible assets - goodwill            139,698     124,691 
                            - other       29,241      23,062 
 Property, plant and equipment            16,254      14,806 
 Right of use assets                      17,247      17,481 
 Investment in joint ventures              5,708           - 
 Retirement benefit asset                    661      28,059 
 Deferred tax assets                       2,301       2,164 
                                         211,110     210,263 
                                      ----------  ---------- 
 Current assets 
 Inventories                               2,078       1,619 
 Assets held for resale                    1,250       1,500 
 Trade and other receivables             157,416     129,838 
 Current tax assets                        1,382       2,174 
 Cash and cash equivalents                   881      13,396 
                                                  ---------- 
                                         163,007     148,527 
                                      ----------  ---------- 
 
 Total assets                            374,117     358,790 
                                      ----------  ---------- 
 
 Non-current liabilities 
 Borrowings                                    -     (4,373) 
 Lease liabilities                       (9,421)     (9,347) 
 Retirement benefit obligation             (152)           - 
 Deferred tax liabilities                (8,067)    (14,252) 
 Provisions                                (441)       (441) 
                                                  ---------- 
                                        (18,081)    (28,413) 
                                      ----------  ---------- 
 Current liabilities 
 Borrowings                             (14,609)     (8,752) 
 Trade and other payables              (207,667)   (192,370) 
 Lease liabilities                       (6,180)     (6,047) 
 Provisions                              (2,761)     (2,761) 
                                      ----------  ---------- 
                                       (231,217)   (209,930) 
                                      ----------  ---------- 
 
 Total liabilities                     (249,298)   (238,343) 
                                      ----------  ---------- 
 
 Net assets                              124,819     120,447 
                                      ----------  ---------- 
 
 Share capital                             7,868       7,856 
 Share premium account                    66,378      66,378 
 Capital redemption reserve                3,896       3,896 
 Cumulative translation adjustment         1,308       1,316 
 Share based payments reserve              1,079         821 
 Retained earnings                        44,290      40,180 
 Total equity                            124,819     120,447 
                                      ----------  ---------- 
 
 
 Group cashflow statement 
 for the year ended 30 September 
                                                                 2021       2020 
 
                                                               GBP000     GBP000 
 
 Profit for the year from continuing operating 
  activities                                                   32,083     26,342 
 Share of post-tax trading result of joint 
  ventures                                                       (11)         39 
 Impairment and amortisation of intangible 
  assets                                                        6,463      5,529 
 Defined benefit pension scheme G.M.P. equalisation/past 
  service deficit                                               2,805          - 
 Depreciation of property, plant and equipment 
  and right of use assets                                      10,504      9,672 
 Profit on sale of property, plant and equipment                (649)      (483) 
 (Increase)/decrease in inventories                             (405)        301 
 (Increase)/decrease in receivables                          (15,289)      1,465 
 Increase in payables and provisions                            3,996     17,080 
 Current and past service cost in respect 
  of defined benefit pension scheme                                61         69 
 Cash contribution to defined benefit pension 
  schemes                                                       (560)    (4,817) 
 Charge in respect of share options                               258        245 
 Finance income                                                  (19)       (44) 
 Finance expense                                                  408        811 
 Interest paid                                                  (836)    (1,343) 
 Income taxes paid                                            (7,335)    (8,179) 
 Income tax expense                                             8,669      5,759 
                                                            ---------  --------- 
 Net cash inflow from continuing operating 
  activities                                                   40,143     52,446 
 Net cash outflow from discontinued operating 
  activities                                                    (976)      (592) 
 Net cash inflow from operating activities                     39,167     51,854 
                                                            ---------  --------- 
 
 Investing activities 
 Interest received                                                 19         44 
 Dividend received from joint venture                              60        100 
 Proceeds on disposal of property, plant 
  and equipment                                                 1,263        725 
 Purchases of property, plant and equipment                   (4,042)    (3,756) 
 Acquisition of subsidiaries net of cash 
  acquired                                                   (33,343)   (40,512) 
                                                            ---------  --------- 
 Net cash outflow from investing activities                  (36,043)   (43,399) 
                                                            ---------  --------- 
 
 Financing activities 
 Dividends paid                                              (10,354)    (5,778) 
 Issue of share equity                                            659     14,797 
 New loan                                                      10,000          - 
 Loan repayments                                             (18,752)    (8,750) 
 Repayments of obligations under lease liabilities            (7,410)    (6,972) 
                                                            ---------  --------- 
 Net cash outflow from financing activities                  (25,857)    (6,703) 
                                                            ---------  --------- 
 
 Net (decrease)/increase in continuing cash 
  and cash equivalents                                       (21,757)      2,344 
 Net decrease in discontinued cash and cash 
  equivalents                                                   (976)      (592) 
                                                            ---------  --------- 
 Net (decrease)/increase in cash and cash 
  equivalents                                                (22,733)      1,752 
 Cash and cash equivalents at beginning 
  of year                                                      13,396     11,667 
 Effect of foreign exchange rate changes 
  on cash and cash equivalents                                   (18)       (23) 
 Cash and cash equivalents at end of year                     (9,355)     13,396 
                                                            ---------  --------- 
 
 Bank balances and cash                                           881     13,396 
 Bank overdraft                                              (10,236)          - 
                                                            ---------  --------- 
 Cash and cash equivalents at end of year                     (9,355)     13,396 
                                                            ---------  --------- 
 

Notes

1 International Financial Reporting Standards

The consolidated financial statements for the year ended 30 September 2021 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 leasing and sub-leasing of some UK properties and the provision of central services to the operating subsidiaries.

 
                                    Group                 Group revenue             Group 
                                including        Less                             revenue 
                                    share       share   from continuing   from continuing 
                                 of joint    of joint 
                                 ventures    ventures        activities        activities 
 Revenue is analysed                 2021        2021              2021              2020 
  as follows: 
                                   GBP000      GBP000            GBP000            GBP000 
 Engineering Services             706,682    (15,356)           691,326           577,238 
 Specialist Building               84,425           -            84,425            43,207 
 Inter segment revenue            (2,250)           -           (2,250)           (2,025) 
                              -----------  ----------  ----------------  ---------------- 
 Segment revenue                  788,857    (15,356)           773,501           618,420 
 Central activities                 2,138           -             2,138             1,955 
                              -----------  ----------  ---------------- 
                                  790,995    (15,356)           775,639           620,375 
                              -----------  ----------  ----------------  ---------------- 
 
 
                                            Before 
                                       exceptional     Exceptional 
                                         items and       items and 
                                      amortisation    amortisation 
                                     of intangible   of intangible 
                                            assets          assets 
                                              2021            2021      2021      2020 
                                            GBP000          GBP000    GBP000    GBP000 
 Engineering 
  Services                                  51,526         (9,070)    42,456    34,013 
 Specialist Building                         1,613               -     1,613     1,014 
 Segment operating profit                   53,139         (9,070)    44,069    35,027 
 Central activities                        (1,928)         (1,000)   (2,928)   (2,159) 
                                    --------------  --------------  --------  -------- 
 Operating profit                           51,211        (10,070)    41,141    32,868 
 Net financing costs                         (389)               -     (389)     (767) 
                                    --------------                  --------  -------- 
 Profit on ordinary activities 
  before income tax                         50,822        (10,070)    40,752    32,101 
                                    --------------  --------------  --------  -------- 
 

Engineering Services segment operating profit for the year ended 30 September 2020 is stated after charging exceptional costs of GBP1,212,000 and amortisation of GBP5,529,000, resulting in a total charge before taxation of GBP6,741,000 (see Note 3).

3 Exceptional items and amortisation of intangible assets

 
                                                       2021      2020 
                                                     GBP000    GBP000 
 Defined benefit pension scheme guaranteed 
  minimum pension equalisation                        1,107         - 
 Amco defined benefit scheme past service 
  cost deficit                                        1,698         - 
 Acquisition 
 costs                                                  802     1,212 
                                                   --------  -------- 
 Total losses arising from 
  exceptional items                                   3,607     1,212 
 Amortisation of intangible 
  assets                                              6,463     5,529 
                                                   --------  -------- 
 Total exceptional items and amortisation 
  charge before income tax                           10,070     6,741 
 Taxation credit on exceptional items 
  and amortisation                                  (2,427)   (1,146) 
                                                   --------  -------- 
 Total exceptional items and amortisation 
  charge                                              7,643     5,595 
                                                   --------  -------- 
 

As referred to in last year's Annual Report as a post balance sheet event, on 20 November 2020 the High Court handed down a further judgment in the Lloyds Banking case regarding equalising guaranteed minimum pension benefits. The judge found that pension schemes do have a liability to pay top-ups to members who transferred out in the past. The effect of this for the schemes has been estimated by the actuaries as an additional liability of GBP1,107,000.

The Amco defined benefit scheme recognised an actuarial estimate of GBP1,698,000 additional liabilities from extending the Barber window to be in line with recent legal advice received by the Trustee as part of a potential "buy-in" transaction to remove the scheme's investment and funding risk. This legal advice indicates that the scheme may not have equalised normal pension age (NPA) as previously assumed in the early 1990's, and that the NPA for members in service in May 1991 may be 60 for a higher proportion of their service.

Acquisition costs relate to the acquisition of J Browne Group Holdings Ltd and Rail Electrification Ltd on 26 March 2021 and 28 May 2021 respectively.

The Board has separately identified the charge of GBP6,463,000 (2020: GBP5,529,000) 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, Carnell Group Holdings Ltd. J Browne Group Holdings Ltd and Rail Electrification Ltd.

 
 4 Loss for the year from discontinued operations           2021      2020 
                                                          GBP000    GBP000 
 Revenue                                                       -         - 
 Expenses                                                (1,620)   (5,590) 
                                                        --------  -------- 
 Loss before income tax                                  (1,620)   (5,590) 
 Income tax charge                                             -         - 
                                                        --------  -------- 
 Loss for the year from discontinued operations          (1,620)   (5,590) 
                                                        --------  -------- 
 

During the previous 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 GBP1,620,000 (2020:GBP5,319,000) accrual. This is as a result of the settlement of historic claims during the financial year and a subsequent internal reassessment of the likely costs required to settle other known contractual disputes.

 
 5 Income tax expense 
 
 (a) Analysis of expense in 
  year                                                2021      2020 
                                                    GBP000    GBP000 
 Current tax: 
 UK corporation tax on profits 
  of the year                                      (8,719)   (5,732) 
 Adjustments in respect of previous 
  period                                                25       216 
                                                            -------- 
 Total current tax                                 (8,694)   (5,516) 
                                                  --------  -------- 
 Deferred tax - defined benefit pension 
  schemes                                              601   (1,848) 
 Deferred tax - other timing 
  differences                                        (576)     1,605 
                                                  --------  -------- 
 Total deferred tax                                     25     (243) 
                                                  --------  -------- 
 Income tax expense in respect of 
  continuing activities                            (8,669)   (5,759) 
                                                  --------  -------- 
 
 (b) Factors affecting income tax expense 
  for the year 
                                                      2021      2020 
 
                                                    GBP000    GBP000 
 Profit before income 
  tax                                               40,752    32,101 
                                                  --------  -------- 
 Profit multiplied by 
  standard rate 
 of corporation tax in the UK of 19% 
  (2020: 19%)                                      (7,743)   (6,099) 
 Effects of: 
 Expenses not deductible for 
  tax purposes                                       (837)     (297) 
 Timing differences not provided in 
  deferred tax                                       1,476       433 
 Change in tax rate                                (1,590)      (12) 
 Adjustments in respect of previous 
  period                                                25       216 
                                                  --------  -------- 
                                                   (8,669)   (5,759) 
                                                  --------  -------- 
 

Deferred tax has been provided at a rate of 25% (2020: 19%) following the decision that the UK corporation tax rate should increase to 25% (effective from 1 April 2023) and substantively enacted on 24 May 2021. The deferred tax asset and liability at 30 September 2021 has been calculated based on these rates, reflecting the expected timing of reversal of the related temporary timing differences (2020: 19%). The Group has available further unused UK tax losses of GBP25.3m (2020: GBP29.3m) 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 GBP5.2m (2020: GBP4.0m).

 
 6 Dividends 
                                                              2021          2020 
                                                       Pence/share   Pence/share 
 
 Interim (related to the year ended 30 September 
  2021)                                                       4.83             - 
 Final (related to the year ended 30 September 
  2020)                                                       8.33          7.67 
                                                      ------------  ------------ 
 Total dividend 
 paid                                                        13.16          7.67 
                                                      ------------  ------------ 
 
                                                            GBP000        GBP000 
 Interim (related to the year ended 30 September 
  2021)                                                      3,800             - 
 Final (related to the year ended 30 September 
  2020)                                                      6,554         5,778 
                                                      ------------  ------------ 
 Total dividend 
 paid                                                       10,354         5,778 
                                                      ------------  ------------ 
 

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 11.17p per Ordinary Share be paid in respect of the year ended 30 September 2021. This will be accounted for in the 2021/22 financial year.

 
 7 Earnings per share 
                                             2021                       2020 
                                Earnings      EPS     DEPS   Earnings   EPS       DEPS 
                                  GBP000    Pence    Pence     GBP000   Pence     Pence 
 
 Earnings before exceptional 
  items and amortisation          39,726    50.51    50.09     31,937     41.22     40.89 
 Exceptional items and 
  amortisation                   (7,643)   (9.72)   (9.63)    (5,595)    (7.22)    (7.17) 
                               ---------  -------  -------  ---------  --------  -------- 
 Basic earnings per 
  share - continuing 
  activities                      32,083    40.79    40.46     26,342     34.00     33.72 
 Loss for the year from 
  discontinued operations        (1,620)   (2.06)   (2.05)    (5,590)    (7.22)    (7.15) 
                               ---------  -------  -------  --------- 
 Basic earnings per 
  share                           30,463    38.73    38.41     20,752     26.78     26.57 
                               ---------  -------  -------  ---------  --------  -------- 
 
 Weighted average number 
  of shares                                78,655   79,304               77,480    78,114 
                                          -------  -------             --------  -------- 
 

The dilutive effect of share options is to increase the number of shares by 649,000 (2020: 634,000) and reduce basic earnings per share by 0.32p (2020: 0.21p).

8 Acquisition of subsidiary undertaking - J Browne Group Holdings Ltd

On 26 March 2021 the Company acquired the whole of the issued share capital of J Browne Group Holdings Ltd ("J Browne") for a cash consideration of GBP29.5m plus a net cash and working capital adjustment of GBP12.0m. The GBP12.0m represents J Browne's surplus cash held in an escrow account at completion which was subsequently paid to the vendors. The net acquisition cost was funded by a combination of cash and the Group's existing facility provided by HSBC UK Bank plc and National Westminster Bank plc.

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

 
                                         Book value   Adjustments   Fair value 
                                             GBP000        GBP000       GBP000 
 Non-current assets 
 Intangible assets - goodwill                 2,674         8,726       11,400 
                            - other               -        12,236       12,236 
 Property, plant and equipment                  453             -          453 
 Right of use assets                            176           317          493 
 Investments in joint ventures                  259         5,632        5,891 
                                              3,562        26,911       30,473 
                                        -----------  ------------  ----------- 
 Current assets 
 Inventories                                     35             -           35 
 Trade and other receivables                 24,310             -       24,310 
 Cash and cash equivalents                      293             -          293 
                                             24,638             -       24,638 
                                        -----------  ------------  ----------- 
 Total assets                                28,200        26,911       55,111 
                                        -----------  ------------  ----------- 
 
 Non-current liabilities 
 Lease liabilities                                -         (244)        (244) 
 Deferred tax liabilities                         -       (2,671)      (2,671) 
                                                  -       (2,915)      (2,915) 
                                        -----------  ------------  ----------- 
 Current liabilities 
 Trade and other payables                   (9,976)             -      (9,976) 
 Lease liabilities                             (72)          (73)        (145) 
 Current tax liability                        (575)             -        (575) 
                                           (10,623)          (73)     (10,696) 
                                        -----------  ------------  ----------- 
 Total liabilities                         (10,623)       (2,988)     (13,611) 
                                        -----------  ------------  ----------- 
 
 Net assets                                  17,577        23,923       41,500 
                                        -----------  ------------  ----------- 
 

Goodwill of GBP11,400,000 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 GBP12,236,000, 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 April 2021.

Investment in joint ventures

Goodwill of GBP3,812,000 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 GBP1,820,000, 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 April 2021.

Right of use assets

J Browne's statutory accounts are reported under FRS 102. The group has made an adjustment for operating leases obtained on acquisition whereby the leases are capitalised based on discounted future lease payments together with an equivalent leasing liability to be consistent with IFRS 16 "Leases".

Trade and other receivables include GBP12,000,000 held in an escrow account and represents the part of the acquisition self-funded by J Browne.

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 J Browne had occurred on 1 October 2020, Group revenue would have been approximately GBP825.1m and profit before tax for the year ended 30 September 2021 would have been approximately GBP53.4m.

9 Acquisition of subsidiary undertaking - Rail Electrification Limited

On 28 May 2021 QTS Group Limited, a wholly owned Group subsidiary, acquired the whole of the issued share capital of Rail Electrification Limited ("REL") for a cash consideration of GBP3m plus a net cash and working capital adjustment of GBP0.6m. GBP1.32m deferred consideration has also been provided which is performance related. The acquisition cost was funded entirely by the subsidiary's cash reserves.

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

 
                                         Book value   Adjustments   Fair value 
                                             GBP000        GBP000       GBP000 
 Non-current assets 
 Intangible assets - goodwill                     -         3,607        3,607 
                            - other               -           272          272 
 Property, plant and equipment                  120             -          120 
 Right of use assets                              5             -            5 
                                                125         3,879        4,004 
                                        -----------  ------------  ----------- 
 Current assets 
 Inventories                                     19             -           19 
 Trade and other receivables                    800             -          800 
 Current tax asset                               61             -           61 
 Cash and cash equivalents                    1,080             -        1,080 
                                              1,960             -        1,960 
                                        -----------  ------------  ----------- 
 Total assets                                 2,085         3,879        5,964 
                                        -----------  ------------  ----------- 
 
 Non-current liabilities 
 Lease liabilities                              (1)             -          (1) 
 Deferred tax liabilities                      (31)          (52)         (83) 
                                               (32)          (52)         (84) 
                                        -----------  ------------  ----------- 
 Current liabilities 
 Borrowings                                   (250)             -        (250) 
 Trade and other payables                     (658)             -        (658) 
 Lease liabilities                              (6)             -          (6) 
                                              (914)             -        (914) 
                                        -----------  ------------  ----------- 
 Total liabilities                            (946)          (52)        (998) 
                                        -----------  ------------  ----------- 
 
 Net assets                                   1,139         3,827        4,966 
                                        -----------  ------------  ----------- 
 

Goodwill of GBP3,607,000 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 GBP272,000, 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 June 2021.

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 REL had occurred on 1 October 2020, Group revenue would have been approximately GBP793.6m and profit before tax for the year ended 30 September 2021 would have been approximately GBP50.9m.

10 Preliminary financial information

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2021 or 2020. Statutory accounts for 2020 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 2021 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.

11 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 (GBP51.211m) and adjusted profit before tax (GBP50.822m) - 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 (GBP41.141m) and profit before tax (GBP40.752m).

Adjusted operating margin (6.5%) - This is calculated by dividing operating profit before exceptional items and amortisation of intangible assets (GBP51.211m) by group revenue including share of joint venture (GBP790.995m) 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 (5.2%) which is calculated by dividing operating profit (GBP41.141m) from

group revenue including share of joint venture (GBP790.995m).

Adjusted earnings per share (50.51p) - 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 (GBP790.995m) - 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 (GBP706.682m) - 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 (GBP51.526m) - 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 (GBP42.456m) which is also visible in Note 2.

Adjusted Engineering Services operating profit margin (7.3%) - This is calculated in the same way as adjusted operating profit margin but based on the adjusted Engineering Services operating profit (GBP51.526m) and the Engineering Services revenue (GBP706.682m) figures as set out above. The equivalent GAAP measure is engineering services operating profit margin (6.0%) which is calculated by dividing engineering services operating profit (GBP42.456m) from engineering services revenue including share of joint venture (GBP706.682m).

12 Posting of Report & Accounts

The Group confirms that the annual report and accounts for the year ended 30 September 2021 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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