REG - Hercules Site Svcs - Final Results
15/01/2024 07:00
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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 £84.7m (2022: £49.5m)
· Gross profit increased 67% to £16.3m (2022: £9.8m)
· Adjusted EBITDA* increased 79% to a record £4.1m (2022: £2.3m)
· Pre-tax profit of £641,321 (2022: £160,685)
· EPS increased to 1.27p (2022: 0.58p) - increase of 119%
· Cash at year end of £4.2m (2022: £1.2m)
· 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
(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) +44 (0) 20 3470 0470
Matthew Johnson / Adam Cowl / Harry Davies-Ball (Corporate Finance)
Grant Barker / Rob Rees (Sales and Broking)
Cavendish Securities plc (Joint Broker) +44 (0) 20 7397 8900
Adrian Hadden / Charlie Combe / Dale Bellis (Sales and Broking)
SEC Newgate (Financial Communications) +44 (0) 20 3757 6882
Elisabeth Cowell / Ian Silvera / Matthew Elliott 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 YEAR ENDED 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 £44bn 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 £14.2bn 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 £15m 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 YEAR ENDED 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 £84.7m (2022: £49.5m) and
Adjusted EBITDA for the year was well above market expectations at £4.1m
(2022: £2.3m), 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 £3.8m
compared with cash absorbed of £5.3m 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 £4.9m
(2022: £3.6m). 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 £15.6m (2022: £12.4m),
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 £1m 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 £160,107 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 YEAR ENDED 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 £84,664,536 (2022:
£49,549,487) representing a 70% increase year-on-year.
Year ended 30 September
2023 2022
£ £
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 £14,274,828 (2022: £9,073,415) - 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
£12,455,715 (2022: £7,981,571). 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 £641,321 (2022: £160,685)
Pre-tax profit before exceptional nonrecurring items - increased by 38% to
£872,564 (2022: £631,949)
Adjusted EBITDA (see below) increased by 79% to £4,139,491 (2022:
£2,308,579).
Net cash generated from operations of £3.8m 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
£
£
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 £8,657,202 (2022:
£6,838,092) of which £4,151,564 (2022: £1,211,554) were cash and cash
equivalents.
Non-current assets at 30 September 2023 were £20,799,145 (2022:
£14.642.396). Current assets at 30 September 2023 were £26,833,353 (2022:
£19,253,174).
Net current assets at 30 September 2023 were £1,512,958 (2022 net assets:
£3,362,064).
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 £9,959,646 as at 30 September 2023 (2022:
£6,528,750). This is the balance on a working capital facility with Investec
that was introduced in May 2021 - this was an £11m facility. This has been
replaced in November 2023 with a £15m 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 £ £
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 £ £
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
47,682,497 33,895,572
TOTAL EQUITY AND LIABILITIES
STATEMENT OF CHANGES IN EQUITY
Share capital Share premium Share based payment reserve Retained earnings Total equity
£ £ £ £ £
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 £562,144 were paid during the year in two instalments, a final
dividend for the year ended 30 September 2022 of £187,576, 1.12p per share
(FY 2022, 284,715), and an interim dividend for the year ended 30 September
2023 of £374,568, 0.6p per share (interim 2022 £100,487).
Year ended 30 September
STATEMENT OF CASH FLOWS
2023 2022
Note £ £
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 - -
3,825,856 (5,333,785)
Net cash from operating activities
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 September 2022 Cash flow Non-cash movement At 30 September 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 £15m (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 £1.6m 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 £4,151,565 (FY2022
£1,211,554), 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 £ £
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 £11,928,050
(2022: £6,040,600) of right-of-use assets, and £9,890,628 (2022:
£5,364,237) 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:
Labour supply Civil projects Suction excavator services Other Total
£ £ £ £ £
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:
Labour supply Civil projects Suction excavator services Other Total
£ £ £ £ £
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
£ £
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%
(£33,660,426) of revenue (2022 one customer 17% (£8,437,682)), and another
customer represented 8% (£7,872,934) of revenue (2022 one customer 11%
(£5,404,125)). 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
£6,739,637 (2021 : £3,362,862)
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 £9,948,670 (2022 : £6,739,637).
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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
£ £
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 differences Fixed asset temporary differences Total
£ £ £ £
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 equipment Right-of-use assets Total
£ £ £ £
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 2023 30 September 2022
Amounts falling due within one 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 £91,577 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 £129,140 in respect of changes in the dispute provision.
As at 30 September 2023 the balance of the dispute provision was £170,429
(2022: £41,289).
The maturity analysis of trade receivables is:
< 1 month 1-2 months 2-3 months > 3 months Total
£ £ £ £ £
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 2023 30 September 2022
Amounts falling due within 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
£ £
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 £(0) 2022 : £304,951), 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 2023 30 September 2022
£ £
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 £11m 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 property Plant and machinery Motor vehicles Total
£ £ £
£
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
£ £
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
£ £
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
£ £
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 2023 30 September 2022
Financial assets held at amortised 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 2023 30 September 2022
Financial liabilities held at 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 £65,000
and £100,000 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 £15m. The only relevant covenant is the Company needs to keep
a minimum headroom of £0.5m.
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 £691,000 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 2023 30 September 2022
£
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 2023 30 September 2022
Allotted, called up and fully paid Number Number
Ordinary shares of 0.1p each (2022: 0.1p each) 62,427,984 58,650,206
As at As at
30 September 2023 30 September 2022
Allotted, called up and fully 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 £1,700,000, which amounted to
£1,582,224 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 average exercise price Number Weighted average exercise price
At 1 October 2022 2,932,504 50.5p 716,379 50.5p
Issued on 6 February 2023 293,250 56.0p - -
3,225,754 51.0p 716,379 50.5p
At 30 September 2023
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 £26,986 £121,489
Charged to profit and loss in year £4,498 £24,297
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 £23,575. 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 £503,035 (2022 - £265,586). Contributions totalling
£195,709 (2022 - £5,766) 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
£ £
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 £38,938 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 £74,028
(2022: £6,506,472).
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 £1,001,000 in cash and
£250,000 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 £15m,
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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