TIDMHERC
RNS Number : 6088Z
Hercules Site Services PLC
15 January 2024
15 January 2024
Hercules Site Services plc
("Hercules" or "the Company")
Final Results
Hercules Site Services plc (AIM: HERC), a leading technology
enabled labour supply company for the UK infrastructure sector, is
pleased to announce its audited results for the year ended 30
September 2023.
Financial Highlights
-- Growth across all areas of the business and results exceeding market expectations
-- Revenues increased 71% to a record GBP84.7m (2022: GBP49.5m)
-- Gross profit increased 67% to GBP16.3m (2022: GBP9.8m)
-- Adjusted EBITDA* increased 79% to a record GBP4.1m (2022: GBP2.3m)
-- Pre-tax profit of GBP641,321 (2022: GBP160,685)
-- EPS increased to 1.27p (2022: 0.58p) - increase of 119%
-- Cash at year end of GBP4.2m (2022: GBP1.2m)
-- Proposed final dividend of 1.12p per share (2022: 1.12p)
*Adjusted EBITDA excludes research and development, share based
payments, profit/(loss) on sale of assets and exceptional items
Operational Highlights
-- Labour supply operatives have increased to over 1,000 (2022: 750) over the period
-- Labour supply to HS2 (Birmingham section) increased to c.425 operatives (2022: 280)
-- App downloads (Recruitment and Onboarding) increased to c.12,000 (2022: 8,100)
-- New client wins include Balfour Beatty Rail, Galliford Try PSL and Octavius
-- Agreed a five-year contract with Balfour Beatty Rail through
Hercules' new "live tracks" rail offering
-- New contract wins with Thames and Anglian Water, numerous contracts completed within the year
-- Post year end, the Company completed its first acquisition,
Future Build Recruitment Limited, expanding Hercules' exposure to
the white-collar construction market
-- Construction of Hercules' training Academy has been
completed, ready for launch in January 2024
Outlook
The Board and the Company's wider senior management team remain
committed to Hercules' growth strategy and the business has a
strong pipeline of projects heading into 2024. Hercules is now well
positioned to take advantage of secular trends in both the
infrastructure and construction sectors. Management will continue
to pursue a disciplined approach to M&A to help further
accelerate the growth of the Company. The launch of Hercules'
training academy in 2024 will help future-proof the business and
expand upskilling opportunities, as the Company continues to
strengthen relationships throughout the construction and
infrastructure industries.
Brusk Korkmaz, Hercules' Chief Executive Officer, commented:
"2023 was a truly transformative year for Hercules. We saw
significant growth across all areas of our business and we are
delighted to have exceeded market expectations and achieved record
revenue and EBITDA figures.
"As the infrastructure and construction sectors continued to
face labour supply and skills shortages, we were able to deliver
for our clients, including a range of blue-chip companies including
Galliford Try, Balfour Beatty, Costain and Vinci. During the year,
we also agreed a five-year contract with Balfour Beatty alongside
numerous new contracts with both Thames and Anglian Water. The
addition of these new contracts has further accelerated growth
within both our Labour Supply and Construction Services
divisions.
"With our digital edge (total app downloads have now reached
12,000), our new training academy and our recent acquisition of
Future Build, Hercules is increasingly well prepared for the future
and continues to ingrain itself into the heart of the UK
infrastructure and construction market."
Retail Investor Webinar
CEO Brusk Korkmaz and CFO Paul Wheatcroft will deliver a live
presentation regarding the Company's Final Results via the Investor
Meet Company platform today at 9:30 a.m (GMT).
The presentation is open to all existing and potential
shareholders. Questions can be submitted pre-event via the Investor
Meet Company dashboard up until 9.00 a.m. today or at any time
during the live presentation.
Although the Company may not be in a position to answer every
question it receives, it will address the most prominent within the
confines of information already disclosed to the market. Responses
to the Q&A from the live presentation will be published at the
earliest opportunity on the Investor Meet Company platform.
Investor feedback can also be submitted directly to management
post-event to ensure the Company can understand the views of all
interested parties.
Investors can sign up to Investor Meet Company for free and add
to meet Hercules Site Services plc via:
https://www.investormeetcompany.com/hercules-site-services-plc/register-investor
Investors who already follow Hercules Site Services plc on the
Investor Meet Company platform will automatically be invited.
For further information and enquiries, please contact:
Hercules Site Services plc c/o SEC Newgate
Brusk Korkmaz (CEO)
Paul Wheatcroft (CFO)
SP Angel (Nominated Adviser and Joint Broker)
Matthew Johnson / Adam Cowl / Harry Davies-Ball
(Corporate Finance) +44 (0) 20 3470
Grant Barker / Rob Rees (Sales and Broking) 0470
Cavendish Securities plc (Joint Broker)
Adrian Hadden / Charlie Combe / Dale Bellis +44 (0) 20 7397
(Sales and Broking) 8900
SEC Newgate (Financial Communications) +44 (0) 20 3757
Elisabeth Cowell / Ian Silvera / Matthew Elliott 6882
Hercules@secnewgate.co.uk
About Hercules Site Services PLC
Hercules is a leading tech enabled labour supply company for the
UK infrastructure sector. Founded in 2008, Hercules has an
established track record of profitability and fast-growth and has
built a blue-chip customer base which includes Balfour Beatty,
Costain, Kier, Skanska, Dyer & Butler and Volker Fitzpatrick.
The Company has been appointed to provide labour for a range of
high-profile infrastructure projects, such as HS2, due to its
agile, innovative, digital first approach and complete service
offering. It is well-placed to benefit from any government increase
in infrastructure spending and its experienced management team has
identified multiple opportunities for growth.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 which has been
incorporated into UK law by the European Union (Withdrawal) Act
2018.
CHAIRMAN'S REPORT FOR THE YEARED 30 SEPTEMBER 2023
Hercules has had another very busy and successful year with
revenue increasing by 71% and we are also pleased to report that we
have surpassed market expectations.
We are delighted with this result, particularly given that this
is the first set of full year results that cover an entire 12
months as an AIM listed company. I would like to thank our original
investors, those who took part in our fundraise in the spring of
last year and our other investors for their support. We are
anticipating another busy financial year ahead with exciting
opportunities and initiatives for the company to focus on.
We have achieved growth across all areas of our business, which
is testament to the strong demand for our suite of services.
Cross-selling between all our business units has continued to be a
feature, demonstrating the complementary and integrated nature of
our offering.
Strong market dynamics
The UK has been living with high inflation and interest rates
for a good period of time now, but pleasingly the infrastructure
sector is still forging ahead. Access to labour continues to be a
core priority for the industry and we have built an excellent
reputation as a tier 1 provider due to our technological edge and
our experienced management team.
With our Balfour Beatty Rail contract win in 2023, and Network
Rail's CP7 investment plans, representing a GBP44bn investment into
the rail network from April 2024 across 5 years through to 2029, we
are well placed to significantly grow our presence in the Rail
labour market. In addition, National Highways strategic business
plan set aside GBP14.2bn for road enhancement schemes between 2020
- 2025.
The Water Industry delivers work in 5-year cycles called AMP
(Asset Management Plan) periods where budgets are pre-agreed with
Ofwat (Office of Water Services Regulation Authority). AMP 7 (2020
- 2025) had a slow start due to Covid and the work is now
continuing at an increased pace to cope with growth demands and to
meet legislative requirements. AMP 8 (2025-2030) is planned to be
an even greater period of investment (almost double AMP 7) with the
industry expecting a step change in performance to clean rivers and
coastlines and to meet the challenges of climate change.
Hercules will continue to benefit from significant investment in
government-backed infrastructure spending. The result of which
means that the cancellation of HS2 (Manchester section) has had no
impact to our existing contracts and our outlook for 2024 and
beyond continues to look positive.
Inflation pressures affected the business in FY22, particularly
pay levels, but in FY23 the pressures have reduced, and we have
continued to demonstrate our ability to regularly renegotiate
increased pay levels with our clients.
Dividend
The Board is pleased to propose a final dividend of 1.12 pence
per share (2022: 1.12 pence). The dividend will be paid on 22 March
2024 to shareholders on the register at close of business on 23
February 2024. The shares will go ex-dividend on 22 February
2024.Brusk Korkmaz, CEO, via his company Hercules Real Estate Ltd,
took the interim dividend in August 2023 and will be taking the
final dividend as well. This is the first year he has taken a
dividend since the IPO.
Outlook
After a year of significant growth, the outlook for Hercules
remains very positive. Revenue growth has averaged 55% over the
last three years, and while the Directors don't expect such high
levels of organic growth to continue, our pipeline for 2024 looks
robust across all our business units and we have experienced
positive trading across all areas for the first three months of our
current financial year.
We entered the 2024 financial year with additional financial
firepower, having secured a new debt facility with IGF Business
Credit Limited. The three-year invoice discounting debt facility
for up to GBP15m will fund our continued organic growth and ongoing
working capital needs. We believe that this increased funding
capacity will provide the headroom required to support continued
growth.
We continue to develop new revenue streams which will come to
the fore in FY 2024. We will be very shortly launching our Training
Academy, which will also secure and enhance our supply chain of
highly trained employees, and our new "live track" rail offering is
expected to continue building steam.
Post period end, Hercules began to implement its acquisition
strategy, acquiring 60% of Future Build Recruitment Ltd ("Future
Build") in November 2023, a profitable specialist white-collar
recruitment company operating in the UK construction sector. Having
tested the market opportunity in white-collar recruitment through
organic growth initiatives, this deal expands our footprint in the
white-collar recruitment market by bringing a highly regarded
business and team into the Company. It also provides an array of
compelling cross-selling opportunities.
With respect to further potential acquisitions, and partnership
arrangements, we are progressing positively with a number of
discussions and we look forward to updating the market at the
appropriate time.
Once again, I would like to thank our shareholders and advisers
for their support during the year, and the Hercules team for
continuing to successfully deliver a range of operational growth
milestones.
Henry Pitman, Non-executive Chairman
Date: 12.01.2024
CHIEF EXECUTIVE OFFICER'S REVIEW FOR THE YEARED 30 SEPTEMBER
2023
To have exceeded the market's expectations against the backdrop
of a year of high inflation and interest rates is an extraordinary
achievement.
Revenue has increased by 71% year on year to GBP84.7m (2022:
GBP49.5m) and Adjusted EBITDA for the year was well above market
expectations at GBP4.1m (2022: GBP2.3m), representing growth of
79%.
Revenue growth was accompanied by strong cash conversion and
effective credit management.Net cash generated from operations
during the year was GBP3.8m compared with cash absorbed of GBP5.3m
in FY22.
This has been achieved through growth across all areas of our
business: Labour Supply and Construction Services. Hercules offers
a "one stop shop" service to contractors within the UK
infrastructure sector and our complementary suite of services
enables us to cross-sell and create strong relationships with blue
chip companies. This takes determination and coordination across
our talented teams and given the challenges that all businesses
have had to navigate this year, the entire Hercules team have shown
incredible hard work and dedication throughout the year, and for
that they have my sincere thanks.
On top of this, we have also built foundations for future growth
and recurring revenue. We completed our first acquisition post
period end, in November 2023, providing us with exposure to the
growing white-collar and permanent recruitment market, and we have
made excellent progress towards launching our Training Academy,
which will open its doors imminently.
The infrastructure and construction sectors are experiencing
continued buoyancy providing a supportive backdrop for our growth,
and recent research demonstrates that this is continuing post
period end.
Given the labour shortages experienced by the sector, and the
effectiveness of our digital tools in placing operatives on
projects, we are well placed to benefit from this growth in the
months and years ahead. Demand for our range of complementary
services has been strong and our pipeline is very robust. Although
there is a possibility of a change of government in the UK during
this year, we do not have any reason to believe there will be any
significant change in infrastructure investment in the next few
years.
Labour Supply
Labour Supply is our core business and we have a strong track
record of working in partnership with blue chip construction
companies to deliver key infrastructure, civil engineering,
utilities, groundworks, highway and railway projects. It
represented 75% of Hercules' revenue for the year ended 30
September 2023 (FY 2022: 67%).
This is our second year working with the Beatty Vinci JV on the
HS2 (Birmingham section). This is our largest ever contract and the
Company is now playing a huge part in the delivery of one of modern
history's greatest legacy projects. We are the leading labour
supplier on the six-supplier labour desk, now with circa 425
operatives on site. This growth is expected to continue for the
next 5-7 years with FY2024 requirements expected to be greater than
those in 2023.
Our strong, blue chip client base continues to provide repeat
business for Hercules and during the period these relationships
have delivered contracts such as the A47 with Galliford Try and the
A428 with Skanska. In the last 12 months, on average, the Company
has been supplying between 625 and 980 personnel to projects each
day (average of around 850), which is up year on year by circa 77%.
We have won new contracts for NEAR (National Emergency Areas
Retrofit) schemes on the M25, M4 and M3 and we also continue to
supply labour for RDP (regional development programme) projects
including the A12, A30 and A63.
Relationships built with our clients have been the cornerstone
of the Company's success. These clients have either won or are
bidding for major projects such as Net Zero Teesside, Sizewell C,
Heathrow Expansion and various national rail frameworks.
As per the contracts referenced above, we have traditionally
supplied blue collar personnel and have been successful in doing so
due to our innovative mobile recruitment and onboarding apps which
ensure that we supply the right person to the right location on
time to fulfil client requirements. We have built upon this strong
track record by expanding into white-collar and security
recruitment. The success of our organic growth in the white-collar
space motivated us to focus on this area, and post period end, we
acquired specialist white-collar recruitment company Future Build.
With minimal overlap between clients, the acquisition will enhance
the service offering we are able to provide our existing customer
base, while Hercules' current offering will provide complementary
services to Future Build clients.
A third new revenue stream has also been added through the
launch of our "live tracks" Rail offering, which kicked-off with a
five-year contract with Balfour Beatty Rail Limited. The Board of
Hercules is confident that these new services will drive additional
revenue and EBITDA moving forward.
Our technology gives us a strong competitive edge, enabling us
to quickly meet our clients' labour needs and to source local
labour, which often is a stipulation in government-funded projects.
Indeed, our 'Hercules Construction Jobs' recruitment app, launched
in October 2019, has more than 11,500 downloads and more than 6,250
registered users at the time of writing (FY 2022: 8,100 and 4,700
respectively).
I am pleased to report that we have a healthy pipeline which
extends beyond 2024, so we look forward to delivering further
growth in our Labour Supply business.
Construction Services
Specialist Plant Services
Since Hercules commenced business in this space, growth of our
suction excavator business has been impressive. We almost doubled
the size of our fleet to 30 vehicles during the year (post year end
we sold the two oldest suction excavators), which saw revenue from
this division rise to GBP4.9m (2022: GBP3.6m). During the period,
this business unit accounted for 6% (2022: 7%) of total revenue.
The 14 new vehicles acquired during the period were all delivered
in time for Hercules to benefit from the government's super
deduction tax relief scheme, before it expired.
As part of this expansion, we now have our first three Triple
Fan Excavators, providing extra capability for our clients, as
these units can work at distance above the 70m efficient limit of
the twin fan. In addition to this, we now offer a custom tracked
satellite unit to offer our clients. These remote units are a vital
piece of equipment to work in locations where the main truck unit
cannot get to.
Utilisation of vehicles is key to this division and following
the delivery of the vehicles in March 2023 this reduced temporarily
from its previous high position (averaging 85%) to circa 66%. A key
challenge has and will no doubt continue to be the availability of
suitable operators. However, the team has worked well on business
development, developed a new approach to recruitment which is
working well, and utilisation is already back up to circa 75% and
rising. We have delivered an increase in the client base during the
year, with Amey, Keltbray, RSK and Tideway are now all working with
our Specialist Plant Services division. We have also increased
utilisation through a number of existing clients, including M&J
Evans, Anglian Water, Costain, Skanska, Milestone, Tilbury Douglas
and Kier.
Hercules developed the 'Zero-Trim' piles method, which uses a
vacuum excavator to suck out excess concrete from a concrete pile
while still wet. We successfully trialled this for the Balfour
Beatty Vinci JV on HS2 (Birmingham section), and now have a
significant programme of piling work upcoming in 2024.
Civil Projects
Hercules' Civil Projects division partners with some of the UK's
top contractors to provide end-to-end project delivery for civil
engineering contracts. Turnover for Civil Projects grew to GBP15.6m
(2022: GBP12.4m), accounting for approximately 18% of company
revenue for the year ended 30 September 2023 (2022: 25%).
With the water industry facing enormous challenges, as has been
well documented in the media, our Civil Projects team has leveraged
its experience in this space to win significant levels of repeat
work, mainly for key delivery partners for AMP7 (Asset Management
Programme 7). The Anglian Water Civils Framework gained momentum,
with some sizeable projects being allocated to Hercules. Six of
these schemes were completed in the year. Activity levels remained
high this year, with an increase in size of project having a
positive impact on the turnover. Eight projects with a value over
GBP1m were started or completed at various sites for clients such
as Galliford Try, Mott Macdonald Bentley and the @one Alliance. In
addition to this, the division also completed two projects in the
gas industry for TGE and SGN.
Additional site management staff were recruited to supplement
the existing teams to cover the larger, more complex projects. The
division operated with an average of 150 operatives across all
their sites, the largest number to date. They work closely with the
Labour Supply division to cope with variances in workload.
This year the Civils team also introduced a Hercules Suction
Excavator into its equipment fleet. This provides the Civils team
with access to this extremely useful equipment for use across all
of its projects and having it available full time has promoted its
use on some sites and is an added benefit for our clients.
Additional growth initiatives
Hercules provides a range of services for its clients, which
increases the total value of the Company to the client and provides
the business with a diversified range of revenue streams.
Hercules Digital
We have a licence agreement regarding the SEE (Skills, Education
and Employment) Everything Portal's full implementation and use at
the Old Oak Common regeneration project in west London. We are
hoping to expand this further in 2024, as we believe we are well
positioned to progress a pipeline of licensing opportunities across
the public and private sectors in the years to come.
Training Academy
The Company leased an industrial site in Nuneaton (West
Midlands, circa 15 miles from the HS2 (Birmingham section) in
August 2022 from Hercules Real Estate Limited ("HRE"). Since then
we have been executing plans so that this site can house Hercules'
first Training Academy. Following a period of development and
refurbishment the Academy is now operational and a new lease
agreement has been entered into with HRE.
The training academy has been built on the foundations of our
business and values to provide the very best services to the
construction industry. As the skills shortages throughout the UK
continue to rise, our academy has been established to address them
and to provide a solution to attract new talent and upskill the
current workforce. By providing excellent facilities, in a
strategic location, the Academy will not only serve the Hercules
workforce (and thus reduce external training costs) but will also
deliver specific training for clients across the infrastructure and
construction industries. The Academy will deliver training to all
of the existing Hercules clients, as well as new clients who are
currently not using our other services.
Our Training Academy will deliver a diverse range of accredited
courses that cater to aspiring professionals and industry personnel
alike. It will provide specialised technical training in areas such
as plant operation, health and safety, utilities and other bespoke
courses. The facilities replicate the modern construction site
giving learners a safe environment to train and qualify to be site
ready. As well as short duration courses, the Academy will run and
manage NVQ assessments and apprenticeships. Providing
apprenticeships will allow us to assist the wider Hercules client
base meet their commitments in this regard and our facility will
help attract new talent to the industry. A further strategy is to
work closely with local authorities and central government to
obtain funding for the delivery of training of new entrants to the
construction industry, with a focus on skills bootcamps and
upskilling.
With further areas for development available at the site, the
Academy facilities have an opportunity to grow and evolve as the
industry develops and introduces further use of technology. This
will allow Hercules to continually upskill its current workforce
for the future.
The official opening of the Academy is planned for 31st January
2024.
Health Trailer
In the last twelve months the Hercules Health Screening Trailer
has been provided to clients including Skanska, Balfour Beatty,
Galliford Try, Blackwell Earthmoving, Taylor Woodrow and Hitachi
Energy. Nurses can be provided to carry out health and wellbeing
screening to the workforce on site. Depending on the client
requirements, the trailer can also be utilised to provide safety
critical medicals, drug and alcohol testing, and deliver flu jabs.
With repeat bookings already secured for FY2024, the medical
trailer is set for another busy year.
Creating positive social value
Apart from our core business, we continue to help deliver
positive social value outcomes in and around our clients' projects
often working collaboratively to achieve the best results. The
culture at Hercules is one which is very much centred around
teamwork and we are all guided by our Core Values and Mission
Statement, dedicated to delivering a world class service to our
clients, workforce and now our investors.
Our team strives to encourage the next generation into our
industry, so engagements in schools and further education colleges
are vitally important. We also endeavour to source candidates from
diverse channels such as ex-military, ex-offenders, BAME and other
hard to reach communities. Our success with hiring from the
ex-military community has been rewarded with the coveted ERS MOD
Gold Award.
Additionally, our ownership of a bespoke, fully equipped mobile
health screening trailer, enhances our commitment to employee
wellbeing, in an industry which has high mental and physical health
challenges.
The trailer has been deployed to provide a range of medical
services, including vision and hearing tests, safety critical
medicals, heart and blood pressure testing and lung function
testing to on-site operatives. The medical screening facility also
provides mental health awareness support, discreet monitoring of
modern slavery related issues and a platform for raising awareness
of health, safety and wellbeing issues to workers.
The health screening trailer provides a number of advantages to
site workers, including faster turnaround for medical certificates,
increased awareness of health and safety matters, reduction in
downtime away from sites for General Practitioner visits and
reduced carbon emissions.
Outlook
We enter 2024 with an excellent foundation for further growth,
having exceeded market expectations and developed an array of
accretive commercial workstreams which will expand our business and
deliver additional revenue and profits.
The first quarter of FY 2024 has been successful, with our first
acquisition completed and strong pipeline of new business across
our divisions, and the outlook for the infrastructure sector
remains buoyant.
As well as driving our core business, we will advance some
exciting new avenues, such as our Hercules Training Academy, our
rail, white collar and site security divisions and other
acquisition and new business opportunities, to complement the
organic growth we continue to achieve.
As we move through and beyond the next reporting period, we will
maintain that growth mindset which has served us well over the past
16 years.
Brusk Korkmaz, Chief Executive Officer
Date: 12.01.2024
Nuneaton Lease Agreement - Related Party Transaction
As referenced in the Chief Executive Officer's Review, the
Company has entered into a new 15-year lease agreement ("New
Lease") for the Hercules Training Academy site in Nuneaton. The New
Lease replaces the original lease agreement, details of which were
notified on 31 August 2022. Under the terms of the New Lease, the
new rent payable by the Company is GBP160,107 per annum commencing
on 1 February 2024.
The terms of the New Lease reflect the development and
refurbishment of the site by Hercules Real Estate Limited ("HRE"),
a substantial shareholder and related party of the Company. Brusk
Korkmaz, the Company's Chief Executive Officer, is a director of
HRE and the majority shareholder.
The New Lease is being treated as a related party transaction
for the purposes of Rule 13 of the AIM Rules for Companies. The
directors independent of the New Lease (being all directors except
Brusk Korkmaz) consider, having consulted with SP Angel Corporate
Finance LLP, the Company's Nominated Adviser, that the terms of the
New Lease are fair and reasonable in so far as Hercules'
shareholders are concerned.
CHIEF FINANCIAL OFFICER'S REVIEW FOR THE YEARED 30 SEPTEMBER
2023
Introduction
Inflation is expected to fall gradually in 2024 but is currently
not anticipated to be back to normal levels until the end of 2025.
The Company has procedures in place to seek rate increases from our
Labour Supply clients where applicable and we ensure that quotes
for our Civil Projects work are only valid for a minimum period to
mitigate the impact of inflation on our operations.
The Directors anticipate continued growth for the Company driven
by further significant investment in infrastructure as outlined by
the UK Government.
Financial Performance
In the year ended 30 September 2023, revenue increased to
GBP84,664,536 (2022: GBP49,549,487) representing a 70% increase
year-on-year.
Year ended 30 September
2023 2022
GBP GBP
Labour Supply 63,818,639 33,250,617
Civil Projects 15,656,407 12,370,937
Suction excavator services 4,895,671 3,645,934
Other 293,820 281,999
------------------------- -------------------------
84,664,536 49,549,487
========================= =========================
Administrative costs rose to GBP14,274,828 (2022: GBP9,073,415)
- an increase of more than 57% compared to the prior year.
Excluding depreciation, loss on sale of fixed assets, and R&D
costs (see Note 8), administrative costs were GBP12,455,715 (2022:
GBP7,981,571). The increases reflected the growth in all business
areas during the year, including :
1) Suction excavator services expanded from 16 to 30 vehicles
during the year requiring further management and administration
provision. Depreciation, maintenance, insurance and operative
training costs all rose in direct proportion to the number of
vehicles in use.
2) Civil projects had a record year requiring more project managers and site supervision.
3) Labour supply has had to boost management structures (both in
operational and commercial administration areas) in the last few
years in readiness for what has turned out to be very significant
growth in 2021, 2022, 2023, and FY 2024. Successful delivery of
large projects is the key to future success, and this requires more
senior experienced managers and administrators. The growth seen out
on sites has also required more training.
During the year the Company delivered:
Pre-tax profit - increased by 299% to GBP641,321 (2022:
GBP160,685)
Pre-tax profit before exceptional nonrecurring items - increased
by 38% to GBP872,564 (2022: GBP631,949)
Adjusted EBITDA (see below) increased by 79% to GBP4,139,491
(2022: GBP2,308,579).
Net cash generated from operations of GBP3.8m in the year (2022:
5.3m absorbed) and labour supply debtor days reduced to 40 (2022:
75) days.
Year ended Year ended
30 September 30 September
2023 2022
GBP GBP
Profit from operations 2,060,340
705,698
Added back
Depreciation 1,771,890
1,034,071
Research & development 4,098 36,554
Loss on sales of assets 43,124 21,218
Exceptional items (see below) 231,243 471,264
Share based payment expense 28,796 39,774
Adjusted EBITDA 4,139,491 2,308,579
Exceptional items related to:
Cost relating to AIM admission -
443,264
Employment settlement 7,550
28,000
HMRC Consultancy 7,088
-
Bad Debt 91,577
-
CID planning 36,750
-
Partnership preparation 16,801
-
Adjudication 71,477
-
Total 231,243
471,264
The Company categorises non-operational and development costs
such as those above as exceptional.
R&W Civil Engineering Ltd went into administration in August
2023, hence the bad debt provided for above.
Statement of Financial Position
As of 30 September 2023, the Company's net assets were
GBP8,657,202 (2022: GBP6,838,092) of which GBP4,151,564 (2022:
GBP1,211,554) were cash and cash equivalents.
Non-current assets at 30 September 2023 were GBP20,799,145
(2022: GBP14.642.396). Current assets at 30 September 2023 were
GBP26,833,353 (2022: GBP19,253,174).
Net current assets at 30 September 2023 were GBP1,512,958 (2022
net assets: GBP3,362,064).
The change in assets in 2023 over 2022 was due to significant
increases in plant & equipment (financed mostly through asset
financing), and trade debtors.
Company loans & borrowings were GBP9,959,646 as at 30
September 2023 (2022: GBP6,528,750). This is the balance on a
working capital facility with Investec that was introduced in May
2021 - this was an GBP11m facility. This has been replaced in
November 2023 with a GBP15m facility with IGF, to facilitate future
growth.
Fourteen more suction excavators were added to the fleet during
the year, all are financed with conventional asset funding from a
number of different providers.
Paul Wheatcroft, CFO
Date: 12.01.2024
STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
30 September 2023 30 September 2022
Continuing operations Note GBP GBP
Revenue 6 84,664,536 49,549,487
Cost of sales (68,339,572) (39,770,374)
-------------------------- --------------------------
Gross profit 16,324,964 9,779,113
Other operating income 7 10,204 -
Administrative expenses (14,274,828) (9,073,415)
Profit from operations 8 2,060,340 705,698
Fair value gains - 691
Finance income 326 4,634
Finance costs 12 (1,419,345) (550,338)
-------------------------- --------------------------
Profit before tax expense 641,321 160,685
Tax credit on profit 13 128,914 160,167
-------------------------- --------------------------
Net profit for the year 770,235 320,852
========================== ==========================
Total comprehensive income
for the year 770,235 320,852
========================== ==========================
Earnings per share
Basic and diluted 4 1.27p 0.58p
========================== ==========================
There are no further items of comprehensive income other than
those shown above.
STATEMENT OF FINANCIAL POSITION
30 September 2023 30 September 2022
Note GBP GBP
Non-current assets
Property, plant and equipment 15 20,799,144 14,642,398
20,799,144 14,642,398
------------------------- -------------------------
Current assets
Inventories 50,753 51,772
Trade and other receivables 16 22,598,144 17,906,957
Current tax receivable 82,891 82,891
Cash and cash equivalents 4,151,565 1,211,554
------------------------- -------------------------
Total current assets 26,883,353 19,253,174
TOTAL ASSETS 47,682,497 33,895,572
========================= =========================
Equity and liabilities
Share capital 23 62,428 58,650
Share premium 4,995,514 3,417,068
Share based payment reserve 68,569 39,774
Retained earnings 3,530,691 3,322,600
------------------------- -------------------------
Total equity 8,657,202 6,838,092
========================= =========================
Non-current liabilities
Deferred tax liabilities 14 158,506 287,420
Lease liabilities 20 13,496,394 10,878,950
------------------------- -------------------------
Total non-current liabilities 13,654,900 11,166,370
------------------------- -------------------------
Current liabilities
Trade and other payables 17 11,921,928 7,005,102
Provisions 18 - 304,951
Loans and borrowings 19 9,959,646 6,528,750
Lease liabilities 20 3,488,821 2,052,307
Total current liabilities 25,370,395 15,891,110
------------------------- -------------------------
TOTAL LIABILITIES 39,025,295 27,057,480
------------------------- -------------------------
TOTAL EQUITY AND LIABILITIES 47,682,497 33,895,572
========================= =========================
STATEMENT OF CHANGES IN EQUITY
Share Share Share Retained Total
capital premium based earnings equity
payment
reserve
GBP GBP GBP GBP GBP
Balance at
1 October
2021 50,000 - - 3,386,950 3,436,950
Profit for
the year - - - 320,852 320,852
Proceeds
from
issue of
shares 8.650 4,359,704 - - 4,368,354
Share
issue
costs - (942,636) - - (942,636)
Share
based
payment - - 39,774 - 39,774
Dividends
paid - - - (385,202) (385,202)
---------------- ----------------- --------------- ----------------- -----------------
Balance at
30
September
2022 58,650 3,417,068 39,774 3,322,600 6,838,092
Profit for
the year - - - 770,235 770,235
Proceeds
from
issue of
shares 3,778 1,578,446 - - 1,582,224
Share
based
payment - - 28,795 - 28,795
Dividends
paid - - - (562,144) (562,144)
----------------- ---------------
Balance at
30
September
2023 62,428 4,995,514 68,569 3,530,691 8,657,202
================ ================= =============== ================= =================
Share premium represents the amount raised on the proceeds of
share issues in excess of the par value of those shares, net of
issue costs.
The share based payment reserve represents the accumulated
entries to equity arising from the recognition of share-based
payments in accordance with IFRS 2.
Retained earnings represent the accumulated profits and losses
of the Company, less distributions and similar items, since its
incorporation.
Dividends of GBP562,144 were paid during the year in two
instalments, a final dividend for the year ended 30 September 2022
of GBP187,576, 1.12p per share (FY 2022, 284,715), and an interim
dividend for the year ended 30 September 2023 of GBP374,568, 0.6p
per share (interim 2022 GBP100,487).
Year ended 30 September
STATEMENT OF CASH FLOWS
2023 2022
Note GBP GBP
Cash flows from operating
activities:
Profit after taxation 770,235 320,852
Taxation credit 13 (128,914) (160,167)
Finance income (326) (4,634)
Finance costs 12 1,419,345 550,338
Fair value movements gain - (691)
Share based payment charge 28,795 39,774
Depreciation of property
plant and equipment 15 1,771,890 1,034,071
Loss on disposal of property,
plant and equipment 43,124 21,218
Decrease/(increase) in inventories 1,019 (49,799)
Increase in trade and other
receivables (4,691,187) (9,614,731)
Increase in trade and other
payables and provisions 4,611,875 2,529,984
Cash generated from / (used
in) operations 3,825,856 (5,333,785)
Tax paid - -
------------------- ---------------------
Net cash from operating
activities 3,825,856 (5,333,785)
------------------- ---------------------
Cash flows from investing
activities:
Purchase of tangible assets 15 (380,420) (228,184)
Proceeds from disposal of
tangible assets 172,478 240,755
Proceeds from disposal of
other assets - 272,141
Interest received 326 4,634
Net cash from investing
activities (207,616) 289,346
------------------- ---------------------
Cash flows from financing
activities:
Payment of lease liabilities 20 (4,402,874) (1,406,611)
Interest paid (726,331) (232,491)
Bank loan advances 3,430,896 3,389,287
Dividends paid (562,144) (385,202)
Net proceeds of share issues 1,582,224 3,425,718
Net cash from financing
activities (678,229) 4,790,701
------------------- ---------------------
Net increase/(decrease)
in cash and cash equivalents 2,940,011 (253,738)
Cash and cash equivalents
at start of year 1,211,554 1,465,292
------------------- ---------------------
Cash and cash equivalents
at end of year 4,151,565 1,211,554
=================== =====================
NOTES TO THE FINANCIAL STATEMENTS
Net debt
At 30 At 30
September Non-cash September
2022 Cash flow movement 2023
Cash and cash equivalents
Cash 1,211,554 2,940,011 - 4,151,565
Debt
Bank loans (6,528,750) (3,430,896) - (9,959,646)
Lease liabilities (12,931,257) 4,402,874 (8,456,832) (16,985,215)
(19,460,007) 971,978 (8,456,832) (26,944,861)
------------- ------------ ------------ -------------
Net debt (18,248,453) 3,911,989 (8,456,832) (22,793,296)
============= ============ ============ =============
Non-cash movements represent new liabilities and interest
recognised under IFRS 16 in respect of leases.
1 General Information
The Company is a public company limited by share capital
incorporated and domiciled in England and Wales. The principal
activity of the Company is that of general construction and civil
engineering.
The address of its registered office and principal place of
business is:
Hercules Court
Lakeside Business Park
Broadway Lane
South Cerney
Cirencester
GL7 5XZ
The immediate and ultimate parent undertaking of the Company is
Hercules Real Estate Limited, the financial statements of which can
be obtained from the above address.
2 Basis of preparation & Summary of significant accounting policies
The financial information set out in this preliminary
announcement does not constitute statutory accounts for the
purposes of the Companies Act 2006.
The statement of financial position at 31 December 2023 and
Statement of comprehensive income, statement of changes in equity,
statement of cash flows and associated notes for the year ended 31
December 2023 have been extracted from the Company's 2023 financial
statements upon which the auditor opinion is unqualified.
The financial information in this preliminary statement has been
prepared in accordance with the accounting policies, and on the
basis set out, in the Company's 2023 financial statements and as
set out below.
The 2023 Annual Report and Accounts will be available on the
Company's website: www.hercules-construction.co.uk Copies may be
obtained by contacting the Company Secretary at
paul.wheatcroft@hercules-construction.co.uk
Changes in accounting policy and disclosures
(a) New and amended accounting standards
New Standards applicable for the year were as follows:
- Narrow scope amendments to IFRS 3, IAS 16 and IAS 37 (1 January 2022)
- Annual improvements to IFRS 1, IFRS 9, IAS 41 and IFRS 16 (1 January 2022)
- Amendments to IAS 12 : International Tax Reform
- IFRIC Agenda decision affecting IFRS 9 and IFRS 16 : Lessor Forgiveness of Lease Payments
None of these amendments to Standards had a material impact on
the Company's results for the year.
(b) Future standards
At the date of authorisation of the financial statements, the
Company has not early adopted the following amendments to Standards
and Interpretations that have been issued but are not yet
effective:
- Amendments to IFRS 17 Insurance Contracts (1 January 2023)
- Amendments to IAS 1 and IFRS Practice Statement 2 : Disclosure
of Accounting Policies (1 January 2023)
- Amendments to IAS 8 : Definition of Accounting Estimates (1 January 2023)
- Amendments to IAS 12 : Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (1 January 2023)
- Amendments to IFRS 16 : Lease Liability in a Sale and Leaseback (1 January 2024)
- Amendments to IAS 1 : Non-current Liabilities with Covenants (1 January 2024)
- Amendments to IAS 12 : International tax reform (1 January 2023 for disclosure requirements)
- Amendments to IAS 7 and IFRS 7 Supplier Finance (1 January 2024)
- Amendments to IAS 21 : Lack of Exchangeability (1 January 2025)
These Standards and amendments are effective from accounting
periods beginning on or after the dates shown above. The directors
do not expect any material impact as a result of adopting the
standards and amendments listed above in the financial year they
become effective.
Going concern
The directors have prepared a forecast using prudent
assumptions. The financial information has been prepared assuming
the Company will continue as a going concern. Under the going
concern assumption, an entity is ordinarily viewed as continuing in
business for the foreseeable future. In assessing whether the going
concern assumption is appropriate, management has considered the
Company's existing working capital and management are of the
opinion that the Company has adequate resources to undertake its
planned programme of activities for a period of at least 12 months
from the date of approval of these financial statements. The
Company's new working capital facility is now capped at GBP15m (but
the directors believe could be extended if required), and is on a 3
month notice period on either side. This new facility was
implemented November 2023, and has started to operate well. A good
relationship exists between the Company and the provider, therefore
the Directors do not believe the facility will be terminated within
the going concern assessment period.
The directors have taken a view of the Company as a whole over
the 12 months January 2024 to January 2025. Assessments have been
made of revenue streams from key contracts, growth in a number of
areas, overheads, cash levels, cash facilities where required, tax
projections etc. A further scenario test with 5% lower sales,
margins reduced in the key areas by 0.5%, and worse debt collection
days has been undertaken, without reducing planned headcount
increases, and sufficient (but reduced) cash levels are forecast in
the 12 months ahead.
The Company increased its turnover by 70% in the year and
exceeded its forecast turnover and EBITDA (before extraordinary
items). The Company is one of six labour suppliers selected for the
Northern Section of HS2 (Birmingham section), which is currently
the largest construction project in Europe. This will continue to
underpin and grow turnover over the next few years. In addition,
the Company raised funds to purchase another fourteen suction
excavators, which further boosted turnover. Civil projects are
expected to be similarly busy, due to the requirements of AMP7
being squeezed into three years rather than five, and the well
documented pressures on the water industry.
A net GBP1.6m was raised from the AIM market in March 2023.
Based on the current status, the Directors have a reasonable
expectation that the Company will be able to execute its plans in
the medium term such that the Company will have adequate resources
to continue in operational existence for the foreseeable future.
This provides the Directors with assurance on the Company's ability
to continue as a going concern, and therefore adopt the going
concern basis of accounting in preparing the annual financial
statements. Cash at the end of FY2023 was GBP4,151,565 (FY2022
GBP1,211,554), so a considerable increase in liquidity has been
achieved during the year.
Hercules acquired 60% of FutureBuild Recruitment Ltd in November
2023. The is the first partnership arrangement (which kicks in
following the acquisition) the Company has entered in to, and it is
cash generative.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the executive directors that make
strategic decisions. The Company operates from one location but, in
the Directors' opinion, has four reportable segments: Labour
supply, civil projects, the provision of suction excavator services
and other activities.
Revenue
Revenue arises from the provision of construction and civil
engineering services under fixed price contracts, as well as the
hire of suction excavators under hire contracts. Contract duration
can vary and can range from the supply of labour only to the
provision of fully managed construction and engineering projects.
Where variations are requested, prices are agreed as soon as
practically possible. Variations are exactly that - changes or
additions to initial requests. Discounts, rebates, refunds,
credits, price concessions, incentives, performance bonuses,
penalties are rarely encountered, but if any of them are, they are
not material.
To determine whether to recognise revenue, the Company follows
the 5-step process as set out within IFRS 15:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are satisfied
Certain fixed price contracts span more than one accounting
period and can have a duration of more than one year. The Company's
accounting policies for these projects require revenue and costs to
be allocated to individual accounting periods and the consequent
recognition at period-end of contract assets or liabilities for
projects still in progress. Management apply judgement in
estimating the total revenue and total costs expected on each
project. Such estimates are revised as a project progresses to
reflect the current status of the project and the latest
information available to management. The project teams regularly
review contract progress to ensure the latest estimates are
appropriate. The carrying amounts of contract assets and
liabilities are stated in Note 17.
The key judgements and policies in respect of revenue from the
Company's various activities are described further below.
Labour Supply
This represents the provision of labour to customers. The amount
of revenue is based on agreed contractual hourly rates with
customers. The customer simultaneously receives and consumes the
benefits provided by the Company's performance under these
contracts and the performance obligation (being the provision of
labour) is therefore satisfied over time. In the majority of cases,
the Company invoices customers monthly in arrears for the hours of
labour supplied during that month. Amounts invoiced but unpaid at
the balance sheet date are included within trade receivables.
In some cases, the monthly invoice will not correspond with a
calendar month, and the Company is therefore required to include an
amount within contract assets in the Statement of Financial
Position, for revenue relating to periods for which labour has been
provided but not yet invoiced.
Civil Projects
This represents work performed under contracts with customers to
undertake construction and/or civil engineering works. These
contracts contain a number of individually identified services.
However, the directors consider that the services being provided
are highly interdependent and interrelated and therefore should not
be considered to be separate performance obligations under IFRS 15.
Furthermore, the services provided by the Company either enhance an
asset that the customer controls and/or do not create an asset with
alternative use to the Company and there is an enforceable right to
payment for performance completed to date. The Company therefore
considers the delivery under these contracts to be a single
performance obligation that is satisfied over time.
Each contract has its own assessed view. Contract modifications
are recognised when the Company considers that they have been
approved. The estimation of final contract value includes the
assessment of the recovery of variations, claims and compensation
events. The estimate made is constrained in accordance with IFRS 15
so that it is highly probable not to result in a significant
reversal of revenue in the future. Where the change in scope
results in an increase to the work to be performed that is distinct
and reflects the stand-alone selling price of the good/service, it
is treated as a separate contract.
Under these contracts, the Company produces a monthly
'application' to the customer detailing the work performed to date
and requesting payment accordingly. Within a period of one to two
months (in the majority of cases) the customer will confirm
agreement to the 'application' and remit the necessary funds to the
Company. Historically, the Company's experience is that instances
of customers materially disagreeing with the 'application' are rare
and that this is therefore a reliable method by which to recognise
revenue earned ("output method"). There have been no new 'output'
method projects started since March 2021, and internal valuations
made under this method in the year ending 30 September 2023 would
not change the position in any material way.
At the balance sheet date, the Company includes a balance in
receivables for the amount of revenue receivable on contracts based
on the work performed. The Company used the output method for all
projects still in operation at the end of March 2021 (until those
projects are completed), but all new projects since then use the
input method, based on costs incurred to date, to estimate the
amount of revenue earned and includes an amount in contract assets
within receivables. The input method is based on costs incurred at
the balance sheet date compared to expected costs to be incurred
throughout the life of the contract.
Suction excavators
Revenue from the provision of suction excavator's services
represents the supply of equipment to customers for an agreed
period of time. Revenue is recognised on a straight line basis over
the term of the relevant contracts/sale agreements. Labour &
material costs are recognised as they occur. Payment terms are
typically 30 days.
Other
Revenue from the sale of software products is recognised at a
point in time, being when the software is delivered to the end
customer. Likewise, the revenue from the health trailer (where
nursing services are provided) is recognised, at a point in time,
when the services have been delivered to the end customer. Payment
terms are typically 30 days.
Other operating income
Work done for Hercules Real Estate Ltd and reclaims of training
costs from ex employees are included here.
Taxation
The tax expense or credit for the period comprises current and
deferred tax. Tax is recognised in the income statement, except
that a change attributable to an item of income or expense
recognised as other comprehensive income is also recognised
directly in other comprehensive income.
The current tax charge or credit is calculated on the basis of
tax rates and laws that have been enacted or substantively enacted
by the reporting date in the United Kingdom, where the Company
operates and generates taxable income.
Deferred tax is recognised on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the financial statements and on unused tax losses or tax
credits available to the Company. Deferred tax is determined using
tax rates and laws that have been enacted or substantively enacted
by the reporting date and that are expected to apply in the period
when the liability is settled or the asset realised.
Deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. The carrying
amounts of deferred tax assets are reviewed at each reporting date
and a valuation allowance is set up against deferred tax assets so
that the net carrying amount equals the highest amount that is more
likely than not to be recovered based on current or future taxable
profit.
Deferred tax assets and liabilities are only offset against each
other when there is a legally enforceable right to set off current
taxation assets against current taxation liabilities and the
deferred tax assets and liabilities relate to income taxes levied
by the same tax authority on either (a) the same taxable entity, or
(b) different taxable entities which intend to settle these on a
net basis, or to realise the assets and settle the liabilities
simultaneously. In the Company's accounts all taxes are levied by H
M Revenue and Customs. Management review the offset of deferred tax
assets and liabilities to ensure such an offset is appropriate.
Property, plant, and equipment
Property, plant and equipment is stated in the statement of
financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly
attributable incremental costs incurred in its acquisition and
installation.
Depreciation
Depreciation is charged so as to write off the cost of assets
over their estimated useful lives, as follows:
Asset class Depreciation method and rate
Plant and machinery 10% reducing balance
Fixtures, fittings and equipment 20% reducing balance
Right-of-use assets
Cars Straight line over the term of the lease
Vans 10% reducing balance
Property Straight line over the term of the lease
Plant & Machinery 8.3% reducing balance
Impairment of non-financial assets
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately independent cash
inflows (CGU). All non-financial assets or CGUs are tested for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment charge is recognised for the amount by which the
assets or CGUs carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market
conditions less costs to sell, and value in use. All assets are
subsequently reassessed for indications that an impairment loss
previously recognised may no longer exist.
Value in use is assessed by discounting the estimated future
cash flows that the asset is expected to generate throughout its
useful life.
Financial instruments
The Company classifies financial instruments, or their component
parts, on initial recognition as a financial asset, a financial
liability, or an equity instrument in accordance with the substance
of the underlying contractual arrangement. Financial instruments
are recognised on the date when the Company becomes a party to the
contractual provisions of the instrument. Financial instruments are
initially recognised at fair value. Financial instruments cease to
be recognised at the date when the Company ceases to be party to
the contractual provisions of the instrument.
Financial assets are included on the balance sheet as trade and
other receivables or cash and cash equivalents. Financial
liabilities include borrowings, trade payables and accruals.
(a) Trade receivables
Trade receivables are amounts due from customers for services
performed in the ordinary course of business. They are recognised
initially at the amount of consideration that is unconditional. The
Company holds the trade receivables with the objective of
collecting the contractual cash flows and therefore measures them
subsequently at amortised cost using the effective interest method,
less provision for impairment. A provision for impairment of trade
receivables is established based on the expected credit loss. The
Group applies the IFRS 9 simplified approach to measure expected
credit losses that uses a lifetime expected loss allowance for all
trade receivables, which are grouped based on shared credit risk
characteristics and the days past due. The amount of the provision
is recognised in the balance sheet within trade receivables.
Movements in the provision are recognised in the profit and loss
account in administrative expenses. Any change in their value
through impairment or reversal of impairment is recognised in the
income statement. Default is defined as non-payment - there is no
specific write off policy, but disputes are settled by discussion
as is common in the industry.
(b) Borrowings
All borrowings are initially recorded at fair value. Borrowings
are subsequently carried at amortised cost, with the difference
between the proceeds, net of transaction costs, and the amount due
on redemption being recognised as a charge to the income statement
over the period of the relevant borrowing. Interest expense is
recognised on the basis of the effective interest method and is
included in finance costs.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
(c) Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if the company does not have an unconditional right, at the end of
the reporting period, to defer settlement of the creditor for at
least twelve months after the reporting date. If there is an
unconditional right to defer settlement for at least twelve months
after the reporting date, they are presented as non-current
liabilities.
Trade payables are recognised initially at fair value, and all
are repayable within one year and hence are included at the
undiscounted amount of cash expected to be paid.
(d) Contract assets
A contract asset is recognised within receivables where the
Company has earned the right to revenue through performance under
contracts. Contract assets are also potentially subject to credit
losses and are therefore subject to a provision for expected credit
losses in the same way as trade receivables as described above.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call
deposits, and other short-term highly liquid investments that have
a maturity date of 3 months or less, are readily convertible to a
known amount of cash and are subject to an insignificant risk of
change in value.
Provisions
Provisions are recognised when the Company has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Company will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the reporting date
and are discounted to present value where the effect is
material.
Leases
The Company as lessee
Short term leases or leases of low value are recognised as an
expense on a straight-line basis over the term of the lease.
The Company recognises right-of-use assets under lease
agreements in which it is the lessee. The underlying assets
comprise property, plant and machinery and motor vehicles, and are
used in the normal course of business. The right-of-use assets
comprise the initial measurement of the corresponding lease
liability payments made at or before the commencement day as well
as any initial direct costs and an estimate of costs to be incurred
in dismantling the asset. Lease incentives are deducted from the
cost of the right-of-use asset. The corresponding lease liability
is included in the statement of financial position as a lease
liability.
The right-of-use asset is depreciated on a straight-line basis
over shorter of the asset's useful life and the lease term and if
necessary impaired in accordance with applicable standards. The
lease liability shall initially be
measured at the present value of the lease payments that are not
paid at that date, discounted using the rate implicit in the lease
or, where this cannot be determined, the Company's incremental
borrowing rate. The lease liability is subsequently measured by
increasing the carrying amount to reflect interest on the lease
liability (application of the effective interest method) and by
reducing the carrying amount to reflect the lease payments
made. No lease modification or reassessment changes have been
made during the reporting period from changes in any lease terms or
rent charges.
Share capital
Ordinary shares are classified as equity. Equity instruments are
measured at the fair value of the cash or other resources received
or receivable, net of the direct costs of issuing the equity
instruments. If payment is deferred and the time value of money is
material, the initial measurement is on a present value basis.
Defined contribution pension obligation
A defined contribution plan is a pension plan under which fixed
contributions are paid into a pension fund and the Company has no
legal or constructive obligation to pay further contributions even
if the fund does not hold sufficient assets to pay all employees
the benefits relating to employee service in the current and prior
periods.
Contributions to defined contribution plans are recognised as
employee benefit expense when they are due. If contribution
payments exceed the contribution due for service, the excess is
recognised as a prepayment.
Share-based payment
The Company applies IFRS 2 to share-based payments. The Company
operates a share-based payment compensation plan, under which the
entity grants key employees the option to purchase shares in the
Company at a specified price maintained for a certain duration. The
Company has also issued warrants to certain key suppliers with
similar characteristics which are accounted for in the same way as
the options.
The fair value of the services received in exchange for the
grant of the options is recognised as an expense. The total amount
to be expensed is determined by reference to the fair value of the
options granted:
-- including any market performance conditions (e.g., an entity's share price);
-- excluding the impact of any service and non-market
performance vesting conditions (e.g., profitability, sales growth
targets and remaining an employee of the entity over a specified
time period), and
-- including the impact of any non-vesting conditions (e.g., the
requirement for employees to save).
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied. At the end of each financial period, the Group
revises its estimates
of the number of options that are expected to vest based on the
non-market vesting conditions. It recognises the impact of the
revision to original estimates, if any, in the Consolidated
Statement of Comprehensive Income, with a corresponding adjustment
to equity. When the options are exercised, and the Group issues new
shares to meet that obligation, the proceeds received net of any
directly attributable transaction costs are credited to share
capital (nominal value) and share premium.
3 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company's accounting policies,
management is required to make judgements, estimates and
assumptions about the carrying value of assets and liabilities that
are not readily apparent from other sources. The estimates and
underlying assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of revision and future periods if the revision affects
both current and future periods. The key sources of estimation
uncertainty that have a significant effect on the amounts
recognised in the financial statements are described below. The
impact of climate change are at present considered to be not
material.
The Company has considered the nature of the estimates involved
in deriving balances on long term contracts, and concluded that it
is possible that outcomes within the next financial year may be
different from the Company's assumptions applied as at 30 September
2023 and could require an adjustment (but not considered to be
material) to the carrying amounts of these assets and liabilities
in the next financial year.
However, due to the level of uncertainty, combination of cost
and income variables and timing across the Company's portfolio of
contracts at different stages of their contract life, it is
impracticable to provide a quantitative analysis of the aggregated
judgements that are applied at a portfolio level.
Key judgements
Lease discount rate
IFRS 16 requires the carrying value lease liabilities and the
corresponding right of use assets to be calculated using the net
present value of future lease payments. This calculation inherently
requires a discount rate to be applied, which requires judgement.
The Directors have used the Company's incremental borrowing rate
for property leases where the rate implicit in the lease cannot be
determined. The incremental borrowing rate applied is based on the
interest rate applied to the bank loan disclosed in note 20.
Key sources of estimation uncertainty
Revenue recognition (Civil projects)
In order to determine the profit and loss that the Company is
able to recognise on its Civil projects in the accounting period,
the Company has to estimate the total costs expected to be incurred
under each project. While the costs incurred to date are known, the
estimation of costs to complete for each project requires
judgement. Management assess the degree of completion by measuring
the value of costs incurred as a percentage of the estimated total
costs of the project. This is considered the most appropriate
measure of completion of projects as revenue is invoiced based on
the value of work performed. This represents an 'input method'
under IFRS 15. Such estimates are revised as a project progresses
to reflect the current status of the project and the latest
information available to management. The project teams regularly
review contract progress to ensure the latest estimates are
appropriate. Further information is disclosed in note 2 under
'Revenue' and the carrying amounts of contract assets are stated in
Note 6. There will always be some estimation uncertainty in the
recognition of revenue owing to the estimate of cost to
complete.
The Group recognises recoveries of claims from clients as
revenue where clear entitlement has been established, such as
through dispute-resolution processes. This includes the recovery of
costs (such as delays to the contract programme) to the extent it
is highly probable not to result in a significant reversal of
revenue in the future.
Provision
As disclosed in note 18, a provision is included in this
financial statements relating to the potential underpayment of
National Insurance Contributions under the Construction Industry
Scheme. There is a level of uncertainty in the quantum and timing
of future payments related to this liability.
4 Earnings per share
Year ended 30 September
2023 2022
Basic and diluted GBP GBP
Earnings used in calculation of earnings per share:
Total profits attributable to equity holders 770,235 320,852
==================== ===================
Weighted average number of shares in issue 60,803,022 55,640,408
==================== ===================
Earnings per share
On total profits attributable to equity holders 1.27p 0.58p
====== ======
The Company has share options and warrants in issue as disclosed
in note 25. However, the average share price during the period
since issue was lower than the exercise price, therefore the
potential shares arising are not dilutive.
5 Segmental reporting
The Company's management have identified four operating
segments: labour supply, civil projects, suction excavator
services; and other services. The segments are monitored by the
Company's chief operating decision maker and strategic decisions
are made based on the segments' operating results.
In total, at 30 September 2023 suction excavators accounted for
GBP11,928,050 (2022: GBP6,040,600) of right-of-use assets, and
GBP9,890,628 (2022: GBP5,364,237) of lease liabilities. All other
assets and liabilities relate to other business segments.
Segment information for the year ended 30 September 2023 is as
follows:
Suction
Labour Civil excavator
supply projects services Other Total
GBP GBP GBP GBP GBP
Revenue (all from external
customers) 63,818,639 15,656,406 4,895,671 293,820 84,664,536
Cost of sales (53,191,736) (12,409,711) (2,642,434) (95,691) (68,339,572)
----------------- --------------- ------------- ------------ ---------------
Gross profit 10,626,903 3,246,695 2,253,237 198,129 16,324,964
Administrative expenses (1,961,416) (1,455,333) (1,620,355) (225,673) (5,262,777)
Other operating income 10,204 10,204
----------------- --------------- ------------- ------------ ---------------
Operating profit from
segments 8,665,487 1,791,361 632,882 (17,340) 11,072,391
================= =============== ============= ============
Administrative expenses
not attributable to
segments (9,012,051)
---------------
Profit from operations 2,060,340
Finance income 326
Finance costs (1,419,345)
---------------
Profit before tax 641,321
===============
Other services include digital products, health trailer service
and vehicle investment sales.
All suction excavators belong to and are used by the Suction
Excavator Services segment outlined above.
Segment information for the year ended 30 September 2022 is as
follows:
Suction
Labour Civil excavator
supply projects services Other Total
GBP GBP GBP GBP GBP
Revenue (all from external
customers) 33,250,617 12,370,937 3,645,934 281,999 49,549,487
Cost of sales (27,719,436) (10,355,715) (1,517,541) (177,682) (39,770,374)
------------- ------------- ------------ ---------- -------------
Gross profit 5,531,181 2,015,222 2,128,393 104,317 9,779,113
Administrative expenses (1,284,275) (810,482) (1,085,008) 0 (3,179,765)
------------- ------------- ------------ ---------- -------------
Operating profit from
segments 4,246,906 1,204,740 1,043,385 104,317 6,599,348
============= ============= ============ ==========
Administrative expenses
not attributable to
segments (5,893,650)
-------------
Profit from operations 705,698
Fair value gains 691
Finance income 4,634
Finance costs (550,338)
-------------
Profit before tax 160,685
=============
6 Revenue
The total turnover of the Company has been derived from
activities wholly undertaken in the United Kingdom, being the
provision of service through supply of labour and the operation of
construction and engineering contracts, the hire of suction
excavators and other services.
The Company's revenue from each activity is shown below and is
all derived in the United Kingdom.
Year ended 30 September
2023 2022
GBP GBP
Labour Supply 63,818,639 33,250,617
Civil projects 15,656,406 12,370,937
Suction excavator
services 4,895,671 3,645,934
Other 293,820 281,999
------------ ------------
84,664,536 49,549,487
============ ============
Other than suction excavator and other services, the Company
derives its income from two main activities, both of which are
linked to the principal activity of the delivery of construction
and civil engineering services, being the provision of labour and
services provided under construction and/or civil engineering
contracts. These are referred to internally as 'labour supply' and
'civil projects' respectively.
Significant customers
In the year ended 30 September 2023 one customer represented 36%
(GBP33,660,426) of revenue (2022 one customer 17% (GBP8,437,682)),
and another customer represented 8% (GBP7,872,934) of revenue (2022
one customer 11% (GBP5,404,125)). These customers were primarily
labour supply customers. No other customers represented more than
8% of revenue in either year.
Contracts with customers
The Company has contract assets relating to revenue earned from
the supply of labour and construction services. Due to the nature
of this revenue, balances defined as contract assets will vary and
depend on the number, timing and nature of the contracts in
progress at the balance sheet date. The relevant balances are shown
as contract assets in note 17. The increase in contract assets
compared to the prior year represents the increased level of
activity at the year end.
Revenue from contract assets
Revenue in the year relating to previously recognised contract
assets was GBP6,739,637 (2021 : GBP3,362,862)
Contract balances
The nature of the Company's revenue recognition is such that the
only contract balances arising relate to accrued income, which is
shown as a contract asset. The balance at 30 September 2023 was
GBP9,948,670 (2022 : GBP6,739,637).
Significant changes in contract assets
The Company has many contracts for services and underway at any
point in time, and these are a mix of large and small contracts,
generally with monthly invoicing. The level of contract assets
therefore fluctuates depending on the mix of contracts and the
stage of contract completion at the balance sheet date by reference
to costs incurred to date.
7 Other operating income
Year ended 30 September
2023 2022
GBP GBP
Inter-company sales 3,102 -
Reclaim of training costs 7,102 -
10,204 -
========================================= =============================
Other operating income comprises amounts recognised as income
that not considered to be part of the main revenue generating
activities, the Company presents this income separately from
revenue.
8 Profit from operations
Year ended 30 September
GBP GBP
2023 2022
Operating profit 2,060,340 705,698
Operating profit is stated in the income statement after
charging:
Depreciation - owned assets 168,356 146,472
Deprecation - right-of-use assets 1,603,534 887,599
Loss on disposal of fixed assets 43,124 21,218
Research and development costs 4,098 36,555
9 Auditors' remuneration
No non-audit services have been provided in the year.
Year ended 30 September
2023 2022
GBP GBP
For audit of the financial statements 80,000 66,340
============================== ==============================
10 Staff costs
The aggregate employee benefit expenses were as follows:
Year ended 30 September
2023 2022
GBP GBP
Wages and salaries 29,276,624 13,375,145
Social security costs 3,143,116 1,506,878
Pension costs 515,400 265,586
32,935,140 15,147,609
================================= =================================
The average monthly number of employees during the year was as
follows:
Year ended 30 September
2023 2022
Site based operatives 422 212
Administrative and Managerial 138 63
------------------------------------------------------------------- ------
560 275
=================================================================== ======
11 Directors' remuneration
Key management of the Company are the members of the board of
directors. Key management personnel remuneration includes the
following expenses:
Year ended 30 September
2023 2022
GBP GBP
Salaries 628,937 517,646
Benefits 11,693 14,331
Pension contributions 93,750 70,500
----------------------------------- ----------------------------------
734,380 602,477
=================================== ==================================
During the year retirement benefits were accruing to 2 directors
(2022: 4) in respect of defined contribution pension schemes.
Amounts paid to the highest paid director were as follows:
Year ended 30 September
2023 2022
GBP GBP
Salary and benefits 277,894 164,861
Pension contributions 60,000 40,000
----------------------------------- ----------------------------------
337,894 204,861
=================================== ==================================
12 Finance costs
Year ended 30 September
2023 2022
GBP GBP
Lease finance costs 693,014 317,847
Interest on loans measured at amortised cost 683,812 230,552
Other interest 42,519 1,939
1,419,345 550,338
============== ==========
13 Income taxes
Year ended 30 September
2023 2022
GBP GBP
Current tax:
UK corporation tax - -
Adjustments to prior periods - -
Total current tax charge - -
------------ ------------
Deferred tax:
Origination and reversal of timing differences (62,378) (114,925)
Adjustments in respect of prior periods (66,536) (45,242)
Effect of tax rate change on opening balance - -
------------ ------------
(128,914) (160,167)
------------ ------------
Tax on profit on ordinary activities (128,914) (160,167)
============ ============
Tax on profit on ordinary activities for the year is lower than
the standard rate of corporate tax in the UK of 22%, (2022:
19%).
On 1 April 2023 the rate of corporation tax in the UK increased
from 19% to 25%. As a result, the effective tax rate applied to the
Company's profits for the year is 22%, being six months at 19% and
six months at 25%.
The differences are reconciled below:
Year ended 30 September
Continuing operations 2023 2022
GBP GBP
Profit on ordinary activities before taxation 641,320 160,685
------------ ------------
Tax at the UK rate of 22% (2022: 19%) 141,143 30,530
Effect of:
Expenses not deductible for tax purposes 45,960 112,796
Fixed asset differences (242,016) (230,669)
Adjustments in respect of prior periods (66,536) (45,242)
Remeasurement of deferred tax for change in tax rates (7,465) (27,582)
Total tax credit (128,914) (160,167)
============ ============
14 Deferred tax
Deferred tax balances are analysed as follows:
Deferred tax balances before offset 30 September 2023 30 September
2022
GBP GBP
Deferred tax liability (3,833,399) (1,998,219)
Deferred tax asset 3,674,893 1,710,799
------------------ -------------
Total deferred tax liability (158,506) (287,420)
------------------ -------------
Deferred tax balances after offset 30 September 2023 30 September
2022
GBP GBP
Deferred tax asset - -
Deferred tax liability (158,506) (287,420)
------------------ -------------
Total deferred tax liability (158,506) (287,420)
------------------ -------------
The amounts reflect the differences between the carrying and tax
amounts of the following balance sheet headings as at each year
end.
Credits/(charges) during each year are as follows:
Tax losses Short term temporary Fixed asset temporary Total
differences differences
GBP GBP GBP GBP
At 1 October 2021 -
asset/(liability) 645,946 143 (1,093,676) (447,587)
Tax credit/(charge) in
respect of current year 1,063,412 1,298 (904,543) 160,167
----------- --------------------------- --------------------------- ----------
At 30 September 2022 -
asset/(liability) 1,709,358 1,441 (1,998,219) (287,420)
Tax credit/(charge) in
respect of current year 1,892.999 71,095 (1,835,180) 128,914
----------- --------------------------- --------------------------- ----------
At 30 September 2023 -
asset/(liability) 3,602,357 72,536 (3,833,399) (158,506)
----------- --------------------------- --------------------------- ----------
In May 2021 an increase in the main corporation tax rate to 25%
was enacted, and has been applied to the deferred tax provisions
and assets shown above.
15 Property, Plant and Equipment
Plant and machinery Fixtures & office Right-of-use assets Total
equipment
GBP GBP GBP GBP
Cost
At 1 October 2021 1,347,502 426,198 9,131,491 10,905,191
Additions 67,710 160,475 6,474,034 6,702,219
Disposals (438,917) - - (438,917)
-------------------- -------------------- -------------------- -----------
At 30 September 2022 976,295 586,673 15,605,525 17,168,493
Additions 159,279 221,141 7,763,818 8,144,238
Disposals (259,872) (21,909) (122,821) (404,602)
-------------------- -------------------- -------------------- -----------
At 30 September 2023 875,702 785,905 23,246,522 24,908,129
-------------------- -------------------- -------------------- -----------
Depreciation
At 1 October 2021 370,769 265,598 1,032,601 1,668,968
Charge 85,683 60,748 887,640 1,034,071
Disposals (176,944) - - (176,944)
-------------------- -------------------- -------------------- -----------
At 30 September 2022 279,508 326,346 1,920,241 2,526,095
Charge 68,754 99,602 1,603,534 1,771,890
Disposals (107,334) (21,909) (59,757) (189,000)
-------------------- -------------------- -------------------- -----------
At 30 September 2023 240,928 404,039 3,464,018 4,108,985
-------------------- -------------------- -------------------- -----------
Net book value
At 30 September 2023 634,774 381,866 19,782,504 20,799,144
==================== ==================== ==================== ===========
At 30 September 2022 696,787 260,327 13,685,284 14,642,398
==================== ==================== ==================== ===========
At 30 September 2021 976,733 160,600 8,098,890 9,236,223
==================== ==================== ==================== ===========
Certain right-of-use assets are pledged as security on the lease
agreements to which they relate.
16 Trade and other receivables
As at As at
30 September 30 September
2023 2022
Amounts falling due within one GBP GBP
year:
Trade receivables 12,017,411 9,395,331
Other receivables 49,414 812,251
Contract assets 9,948,670 6,739,637
Prepayments 582,649 959,738
22,598,144 17,906,957
===================== =====================
Trade and other receivables and contract assets above are stated
net of expected credit loss ('ECL') provisions where necessary,
which are calculated using the simplified approach grouping trade
receivables and contract assets on the basis of their shared credit
risk characteristics.
Trade receivables are regularly reviewed for bad and doubtful
debts. The Company's policy is to include a provision for
impairment based on estimated credit losses. This includes an
assessment where relevant of forward-looking information on
macroeconomic factors that may affect the ability of customers to
settle receivables. Trade receivables are written off where there
is no reasonable expectation or recovery, for example where the
customer has entered insolvency proceedings or where a customer has
failed to make contractual payments for an extended period. As part
of this assessment, the Company also considers the likelihood of
any credit losses occurring in future based on previous experience
and knowledge of the respective customers.
Trade and other receivables are all current and any fair value
difference is not material. Trade and other receivables are
assessed for impairment based upon the expected credit losses
model. In order to manage credit risk, the Directors set limits for
customers based on a combination of payment history and third party
credit references. Credit limits are reviewed on a regular basis in
conjunction with debt ageing and collection history.
At 30 September 2023 an amount of GBP91,577 was included as an
ECL provision. This was in respect of a single customer, which had
gone into administration, and was considered by the Directors to be
a fairly exceptional event. It was therefore excluded when
considering any further provision required under the expected
credit loss model. The company believe the credit risk attached to
its customer base is minimal, as such have taken the ECL percentage
as nil.
In addition to any provisions required for ECL, the Company also
includes a provision against trade receivables and contract assets
for disputed items. During the year ended 30 September 2023 the
Company recorded a credit to the income statement of GBP129,140 in
respect of changes in the dispute provision.
As at 30 September 2023 the balance of the dispute provision was
GBP170,429 (2022: GBP41,289).
The maturity analysis of trade receivables is:
< 1 month 1-2 months 2-3 months > 3 months Total
GBP GBP GBP GBP GBP
30 September
2023 6,320,261 4,728,343 440,014 528,793 12,017,411
30 September
2022 4,920,487 1,013,039 1,509,228 1,993,866 9,436,620
The expected credit loss rate on all ageing columns above has
been assessed as being immaterial.
17 Trade and other payables
As at As at
30 September 30 September
2023 2022
Amounts falling due within GBP GBP
one year:
Trade payables 2,019,417 2,257,614
Amounts owed to parent undertaking 38,938 -
Social security and other
taxes 4,629,718 2,353,042
Other payables 4,781,476 2,216,235
Accrued expenses 452,379 178,211
--------------------- ---------------------
11,921,928 7,005,102
===================== =====================
Trade payables are all current and any fair value difference is
not material.
18 Provisions
2022 2022
GBP GBP
At 1 October 304,951 259,537
Payments made (304,951) -
Additional provision for year - 45,414
At 30 September - 304,951
========== ========
The Directors have identified a potential underpayment of
National Insurance contributions in respect of payments made to
subcontractors. Following extensive professional consultation and
advice, the Directors considered the roles for all subcontractors
provided by the Company. Whilst the Directors consider that many of
the roles were outside the scope of the Agency legislation, there
were several that were potentially considered within the scope of
the rules.
The Company has commenced the process of voluntary disclosure to
HM Revenue & Customs in this regard. The provision of GBP(0)
2022 : GBP304,951), based on those roles that the Directors deemed
were inside the scope of the Agency legislation, was recognised as
at 30 September 2022, and the amounts provided have now been repaid
to HMRC in full. Any adjustment to this settlement however,
currently remains uncertain. The directors have not provided for a
penalty which may be between 0% and 30% of any liability arising
from the disclosure, on the basis that they are making a voluntary
disclosure to HM Revenue & Customs. The Directors have used
their best estimate based on the advice provided and their analysis
of the potential underpayments.
The provision stated above is subject to uncertainty in both
amount and timing of cash flows due to the fact that the Company
has submitted voluntary disclosure to HM Revenue & Customs but
is yet to receive any substantive response. It is possible that,
following the voluntary disclosure exercise, HM Revenue &
Customs may challenge that more of the roles should be caught by
the Agency rules and therefore the final liability may be higher.
The risks of this liability being higher fall into two
categories:
1) HMRC may conclude, after investigation into the relevant
contractors self assessment tax returns, that their tax and/or NIC
has been underpaid, and that the right of "set off" is not
applicable. This may require the Company to make good any underpaid
amounts the contractors can't pay.
2) HMRC may decide at some point in the future that they wish to
consider the roles the Company deems are outside of the Agency
legislation.
However, the amounts stated above are, in the Directors opinion,
reflective of the best estimate and are confident of having a
robust position to defend their judgements to which the Company is
exposed.
During the year the Company made a number of payments on account
in anticipation of a final settlement with HMRC and, as such, there
was no remaining balance on the provision at the balance sheet
date.
19 Loans and borrowings
As at As at
30 September 30 September
2023 2022
GBP GBP
Included within current liabilities
Bank loans 9,959,646 6,528,750
===================== =====================
The bank loan is secured by guarantees from the Company's major
shareholder, Hercules Real Estate Limited. The loan is a revolving
facility with a rolling 3 month notice period, is secured on trade
receivables and attracts interest at a rate of 2.25% over base
rate. The facility was capped at GBP11m and replaced post period
end by a new, larger facility (see note 28).
20 Leases
The Company leases properties and certain items of plant and
machinery. With the exception of short-term leases and leases of
low value underlying assets, each lease is reflected on the balance
sheet as a right-of-use asset (Note 15) and a lease liability.
The Company had recognised 4 property leases in 2023 (2022 - 4),
56 vehicle leases (2022 - 65) and 28 plant and machinery leases
(2022 -17).
All future cashflows are included. The property leases are
subject to rent reviews every five years. The nature of the rent
reviews is such that annual rentals are adjusted to prevailing
market rates unless that would lead to a reduction. In accordance
with IFRS 16, any future increases in annual rentals arising from
rent reviews are not included in the calculation of the lease
liabilities. Any future increases in annual rentals will result in
prospective adjustments to the lease liabilities at the point of
the rent review.
Amounts recognised in the Statement of Financial Position
relating to leases, categorised by underlying type of asset,
are:
Leasehold Plant Motor Total
property and vehicles
GBP machinery GBP GBP
GBP
Net book value
At 1 October 2021 4,231,347 3,713,061 154,482 8,098,890
New leases recognised
in the year 1,251,157 3,840,541 1,382,337 6,474,035
Depreciation charge
for the year (234,968) (444,072) (208,559) (887,599)
----------------- ------------------ ----------------- -------------------
At 30 September 2022 5,247,536 7,109,530 1,328,260 13,685,326
Adj to PY (1) (2,871) (2,872)
New leases recognised
in the year 85,829 6,539,653 1,138,336 7,763,818
Leases terminated
in the year (37,752) - (22,482) (60,234)
Depreciation charge
for the year (309,786) (922,908) (370,840) (1,603,534)
----------------- ------------------ ----------------- -------------------
At 30 September 2023 4,985,826 12,723,404 2,073,274 19,782,504
================= ================== ================= ===================
Maturity analysis
2023 2022
GBP GBP
Due within one year 3,488,821 2,483,527
Due within two to five
years 10,562,511 7,045,096
Due after five years 6,260,133 5,784,982
Future finance charges (3,326,250) (2,382,348)
16,985,215 12,931,257
============ ============
Amounts recognised in the Statement of Comprehensive Income
The statement of comprehensive income shows the following
amounts relating to leases:
2023 2022
GBP GBP
Depreciation charge of
right of use asset 1,603,534 887,599
Interest expenses (within
finance costs) 693,014 317,848
2,296,548 1,205,447
========== ==========
Amounts recognised in the Statement of Cash Flows
The statement of cash flows shows the following amounts relating
to leases:
2023 2022
GBP GBP
Cash outflows 4,402,874 1,406,611
============== ==========
Low value leases and short-term leases
The Company has no leases for which the low value or short-term
exemptions of IFRS 16 has been applied.
21 Financial instruments
As at As at
30 September 30 September
2023 2022
Financial assets held at amortised GBP GBP
cost:
Trade receivables 12,017,411 9,395,331
Other receivables 49,414 812,251
Cash and cash equivalents 4,151,565 1,211,554
16,218,390 11,419,136
===================== =====================
As at As at
30 September 30 September
2023 2022
Financial liabilities held at GBP GBP
amortised cost:
Bank borrowings 9,959,646 6,528,750
Trade payables 2,019,417 2,742,981
Amounts owed to parent undertaking 38,938 -
Other payables 4,781,476 2,216,235
Accrued expenses 452,379 178,211
Lease liabilities 16,985,215 12,931,257
34,237,071 24,597,434
===================== =====================
22 Financial Risk management
The Company uses various financial instruments. These primarily
include bank borrowings, cash and various items, such as trade
receivables and trade payables that arise directly from its
operations. The main purpose of these financial instruments is to
finance the Company's operations.
The existence of these financial instruments exposes the Company
to a number of financial risks, which are described in more detail
below.
a) Market risk
Market risk encompasses three types of risk, being currency
risk, interest rate risk and price risk.
Exposure to interest rate risk is considered further below.
There is no exposure to currency risk as the Company operates
entirely with the United Kingdom and all transactions are
denominated in Pounds Sterling.
Interest rate risk is limited to interest paid on the Company's
variable rate bank borrowings and interest received on cash
deposits. Due to the relatively low level of borrowings and the low
rates of interest on cash deposits, the impact of any changes in
interest rate is not considered significant.
A change in interest rates of 1% would add additional cost of
between GBP65,000 and GBP100,000 per year depending on the likely
average level of the use of the invoice discounting facility.
b) Liquidity risk
The Company seeks to manage financial risk by ensuring
sufficient liquidity is available to meet foreseeable needs by
closely managing its cash balance. The Company has significant
levels of cash reserves available and continues to generate profit
before taxation. In this context, liquidity risk is therefore
considered to be low.
The Company's borrowing facilities are continually monitored
against forecast requirements and timely action is taken to put in
place, renew or replace credit lines.
A new invoice discounting facility was implemented in November
2023, with an initial cap of GBP15m. The only relevant covenant is
the Company needs to keep a minimum headroom of GBP0.5m.
The Company acquires items of property, plant, and equipment on
lease agreements where appropriate to assist in managing liquidity
risk by avoiding the depletion of cash on large capital purchases.
The Company also manages its liquidity needs by carefully
monitoring cash outflows due on a day-to-day basis.
The Company's financial liabilities comprise bank borrowings,
trade payables, other payables, accruals, amounts due to related
parties and lease liabilities. The maturity of lease liabilities is
disclosed in note 21 above. All other financial liabilities are
expected to be settled within 12 months of the balance sheet
date.
Where the balances are due within 12 months the contractual
undiscounted cash flow is considered to be their carrying value as
the impact of discounting is not significant.
c) Credit risk
The Company's principal financial assets are cash and trade
receivables. Credit risk is also attached to contract assets that
represent accrued income. The credit risk associated with cash is
limited, as the counterparties have high credit ratings assigned by
international credit-rating agencies. The credit risk associated
with trade receivables is minimal as invoices are based on
contractual agreements with long-standing customers. Debt levels
with all customers are closely monitored, and a process involving
informal and then formal communications is used where payments a re
delayed. New customers are carefully assessed using the usual
credit risk agencies.
Credit losses historically incurred by the Company have
consequently been immaterial, other than two bad debts incurred in
the years ended 30 September 2021 and September 2023 of
approximately GBP691,000 that the directors consider to be fairly
exceptional. These arose due to the unexpected business failures of
one major and one minor customer.
Notwithstanding the lack of historical credit losses, the
Company maintains a credit note provision against receivables.
However, this is not necessarily linked to credit risk and the
ageing of receivables is not the most relevant indicator to
determine the potential impairment of a receivable. The nature of
the Company's operations is such that misunderstandings or minor
disagreements may arise during the course of contracts, which may
sometimes require an adjustment to be made to achieve
settlement.
The Company's provision is broadly on the basis of any
receivables that remain outstanding after 6 months. The Company had
no material individual receivables past due or impaired at 30
September 2023 or 30 September 2022, other than the exceptional
amount referred to above.
Further details regarding expected credit losses can be found in
note 17.
Capital management
The Company's capital comprises total equity and net debt. The
Company's capital management objectives are:
- To ensure its ability to trade as a going concern; and
- To provide an adequate return to shareholders.
The Company monitors capital based on the carrying amount of
equity and net debt. Adjustments are made as necessary based on the
Directors' assessment of the needs of the business and external
factors such as the Company's industry and the wider economy. The
Company has traded profitably and therefore generally levels of
debt have been low. More recently a revolving credit facility has
been utilised to assist with working capital, and debt has also
been increased by the leasing of a number of capital items,
particularly suction excavators which are expected to be a
significant future source of income and profitability.
Therefore, whilst the Company appears to be relatively highly
geared, this is in line with the Directors' strategy to grow the
business.
The Directors are able to maintain and adjust the capital
structure by adjusting dividends, issuing new shares or selling
assets to reduce debt.
A summary of the Company's gearing is shown below.
30 September 30 September
2023 2022
GBP
Total equity 8,657,202 6,838,092
Net debt 22,793,296 18,248,453
------------- -------------
Total capital 31,450,498 25,086,545
------------- -------------
Gearing ratio (net debt / capital) 72% 73%
============= =============
23 Share capital
Issued capital
As at As at
30 September 30 September
2023 2022
Allotted, called up and fully Number Number
paid
Ordinary shares of 0.1p each
(2022: 0.1p each) 62,427,984 58,650,206
===================== =====================
As at As at
30 September 30 September
2023 2022
Allotted, called up and fully GBP GBP
paid
Ordinary shares of 0.1p each
(2022: 0.1p each) 62,428 58,650
===================== =====================
Share rights
The ordinary shares have attached to them full voting, dividend
and capital distribution rights (including on winding up). They do
not confer any right of redemption.
In March 2023, the Company issued a further 3,777,778 ordinary
shares of 0.1p each for total gross consideration of GBP1,700,000,
which amounted to GBP1,582,224 after issue costs.
24 Share based payments
As part of its flotation on the AIM Market of the London Stock
Exchange on 4 February 2022, the Company issued a number of share
options and warrants to key employees and suppliers. 293,250
further options were granted during the year.
The number of options and warrants granted is shown in the table
below.
Options Warrants
---------------------- --------------------
Number Weighted Number Weighted
average average
exercise exercise
price price
At 1 October 2022 2,932,504 50.5p 716,379 50.5p
Issued on 6 February 2023 293,250 56.0p - -
At 30 September 2023 3,225,754 51.0p 716,379 50.5p
---------- ---------- -------- ----------
Options
The weighted average remaining contractual life of the share
options outstanding at 30 September 2022 was 6 years and 4 months.
The options have a fixed exercise price based on the market price
at the time of grant.
The options may be exercised between 4 February 2027 and 3
February 2029. No specific criteria is involved other than to be on
the payroll for the period up to the start of the expected life of
the options (see below). Any option holder leaving the employment
of the Company before then forfeits the options. The issue of these
options is not part of the remuneration package for the individuals
concerned.
The fair value of the options is estimated at the grant date
using a Black-Scholes option-pricing model that uses assumptions
noted in the table below. All options were granted on 6 February
2022 and were valued using the following assumptions:
Date of grant of option 6 Feb 2023 4 Feb 2022
Expected life of options
(years) 5 years 6 years
Exercise price 56.0p 50.5p
Market value of share at
date of grant 56.5p 50.5p
Risk free rate 3.15% 1.43%
Expected share price volatility 42% 20%
Expected dividend yield 6.31% 3.36%
Fair value per option 9.20p 5.18p
Total fair value of options GBP26,986 GBP121,489
Charged to profit and loss
in year GBP4,498 GBP24,297
Expected life of options
The expected life of the options was estimated based on the
average of the minimum and maximum life under the option
agreements.
Risk-free rate
A risk free rate of 3.15% (2022 options: 1.43%) was assumed in
the option pricing model, based on the yield from dividend strip
government bonds with a similar life to the options issued as close
as possible to date of grant.
Dividend yield
This is based on the level of dividends paid by the Company in
the period since listing on AIM.
Exercise price
The exercise price was fixed at the market price at the date of
grant.
Volatility
Volatility was assumed to be 42% on average (2022 options: 20%).
The directors based this assumption on the share price of the
Company throughout the year. The Directors consider this the most
appropriate method of assessing expected volatility as there is no
comparable listed company from which to draw data. Taking into
account factors such as liquidity and performance, this is expected
to be a reasonable reflection of the expected volatility throughout
the expected life of the options.
The cost that has been charged to profit and loss in respect of
share options is shown above and was included in staff costs. The
total fair value of the options as shown above is being spread over
the vesting period of 5 years in each case.
Warrants
The weighted average remaining contractual life of the warrants
outstanding at 30 September 2022 was 2 years and 4 months. The
options have a fixed exercise price based on the market price at
the time of grant.
The warrants may be exercised at any time from the date of grant
(31 January 2022) to 31 January 2025 at the option of the warrant
holder.
The fair value of the warrants was estimated at the grant date
using a Black-Scholes option-pricing model that uses assumptions
noted in the table below. All options were granted on 4 February
2022 and were valued using the following assumptions:
Expected life of warrants
(years) 3 years
Exercise price 50.5p
Market value of share at
date of grant 50.5p
Risk free rate 1.43%
Expected share price volatility 20%
Expected dividend yield 3.36%
Fair value per option 4.11p
Expected life of warrants
The estimate for the expected life of the warrants was based on
the warrant's contractual life.
Risk-free rate
A risk free rate of 1.43% was assumed in the option pricing
model, based on the yield from dividend strip government bonds with
a similar life to the options issued as close as possible to date
of grant.
Dividend yield
This was based on the level of dividends paid by the Company in
the year.
Exercise price
The exercise price was fixed at the market price at the date of
grant, being 50.5p.
Volatility
Volatility was assumed to be 20% on average. The directors based
this assumption on the share price of the Company throughout the
year. Taking into account factors such as liquidity and
performance, this is expected to be a reasonable reflection of the
expected volatility throughout the expected life of the
options.
The cost that was charged to profit and loss in the prior year
in respect of share options was GBP23,575. The charge was included
within administrative expenses. The warrants vested immediately,
therefore this charge represented the full calculated fair value of
the instruments and no further charge to profit and loss will be
required.
25 Defined contribution pension scheme
The Company operates defined contribution pension schemes. The
pension cost charge for the year represented contributions payable
by the Company to the schemes and amounted to GBP503,035 (2022 -
GBP265,586). Contributions totalling GBP195,709 (2022 - GBP5,766)
were payable to the schemes at the end of the year and are included
in other payables.
26 Related party transactions
Ultimate controlling party
During the historical financial period, the Company was
controlled by B K Korkmaz and Mrs N Korkmaz by virtue of their
shareholding in the parent undertaking, Hercules Real Estate
Limited.
Key management personnel compensation
Key management personnel remuneration has been set out in note
11 to the financial statements.
Transactions with parent entity
The following transactions occurred with the Company's ultimate
controlling party, Hercules Real Estate Limited:
2023 2022
GBP GBP
Rental payments 390,000 379,156
Work done & insurance recharged 3,102 -
======== ========
Hercules Real Estate Limited has provided a guarantee against
the borrowings disclosed in note 19.
Outstanding balances arising from sales/purchases of goods and
services
At 30 September 2023 the Company owed GBP38,938 to Hercules Real
Estate Limited. There were no outstanding balances as at 30
September 2022.
27 Capital commitments
At 30 September 2023, the Company had orders committed to a
value of GBP74,028 (2022: GBP6,506,472).
28 Post Balance Sheet Events
Hercules acquired 60% of Future Build Recruitment Ltd in
November 2023, and as part of the acquisition a partnership
arrangement was entered into with the owners of the remaining 40%.
The consideration was GBP1,001,000 in cash and GBP250,000 satisfied
through the issue of 994,431 shares. Future Build Recruitment Ltd
are a business operating in the construction sector specialising in
white collar placements.
Hercules sold two of the oldest suction excavators in October
2023, as they were of the "floppy arm" design, not the "power arm"
design that most customers now expect. The Company now has 28
suction excavators in its fleet.
A new replacement invoice discounting facility was entered into
in November 2023, with IGF Business Credit Limited and provides a
facility up to GBP15m, further supporting Hercules' growth plans in
the years ahead. The guarantee given by Hercules Real Estate
Limited at that point became null and void.
The Board is pleased to propose a final dividend of 1.12 pence
per share for the year ended 30 September 2023. The dividend will
be paid on 22 March 2024 to shareholders on the register at close
of business on 23 February 2024. The shares will go ex-dividend on
22 February 2024.
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END
FR QKBBDKBKBADD
(END) Dow Jones Newswires
January 15, 2024 02:00 ET (07:00 GMT)
Hercules Site Services (LSE:HERC)
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から 3 2024 まで 4 2024
Hercules Site Services (LSE:HERC)
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から 4 2023 まで 4 2024
