Hercules (LSE:HERC) — Acquisition of Advantage NRG Ltd Investor Update Q&A

0:01 Good morning, and welcome to the HERCULES PLC Acquisition of Advantage Energy Limited Investor Update and Q and A. Throughout this recorded meeting, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today on published responses, which is appropriate to do so. Before we begin, I would like to submit the following poll. And I

0:33 would now like to hand you over to CEO, Bruce Korkmass. Good morning to you. Thank you, Alex. Good morning. Good morning, everyone, and thank you so much for your time meeting us today for our short update regarding the recent acquisition that we carried out last week, Friday. Before I start, I was going to ask everyone to submit their question as early as possible, please. Is this only a short update regarding our acquisition, and there's no presentation on this? So we're gonna have a chat about that and and answer the questions afterwards. Well, it has been really busy few weeks for us months for us for for for for HERCULES PLC, and and we wanted to take this opportunity to speak to you directly outside of our usual interim and and full full year results updates because it's a huge and and massive major milestone for us, and we are very excited about that.

1:35 Paul and I want to share this amazing news by highlighting our latest announcement, the acquisition of Advantage Energy Limited, and why we believe that it's a major and strategic step forward for the company. We believe that this acquisition is a huge milestone in our growth journey. As you may know, The UK is about to enter huge phase of infrastructure investment. The government plans to spend at least £725,000,000,000 over the next ten years. As you can see from this number, it's it's huge, and we wanna be part of this spend. We have already seen the government's new ten year infrastructure plan, and the national infrastructure pipeline is about to be announced, I think, in July time. So and that is going to be also expected to be a a major announcement.

2:23 These investments will span in the infrastructure sectors that we operate in, and they are transport, power and energy, water, and transmission and distribution networks. In the power and energy sector alone, National Grid has committed to £58,000,000,000 of investment to meet 64% increase in electricity demand by 2035. As you might be aware that UK's high voltage power network already covers around 20,000 kilometers, and it will need thousands more kilometers of transmission lines to meet the future demand. As you just heard from these numbers, huge amount of transmission lines to be to be built in The UK network.

3:11 Also, might have heard from announcement, I think it was two days ago on Tuesday, that further £24,200,000,000 worth of investments announced, and £8,900,000,000 of that will be will will be spent in the transmission upgrade network where Advantage Energy vastly operates. So great opportunity for us and for Advantage Energy. So over the next ten years, we believe that we'll be very busy, both us and Energy, to delivering for these projects. As you might already aware that there's already strong demand for the skilled workers, especially overhead linesman that operates in the overhead transmission network. And this demand is expected to grow rapidly.

4:00 However, The UK faces, you know, huge skill shortage. I know we have been talking about it in the previous announcements as well and and huge skill shortage in qualified workers to meet the the demand coming up on the infrastructure.

4:19 And that is why we see this as a moment of real opportunity and why we are positioning HERCULES to be at the heart of this once in a generation transformation of The UK's power infrastructure. By acquiring Advantage Energy specialist provider of overhead linesman, we are entering the the power and energy sector in a meaningful and strategic way. We are genuinely excited about this opportunity, and and we believe that we'll be growing within this sector also. This acquisition also strengthens our HERCULES ACADEMI. As you might be aware, we have opened our HERCULES ACADEMI over one and a half years ago, and we have trained over 1,500 people. So having

5:06 bought another training company called Quality Transport Training Limited, I think, in June, and it it will only help us to to to to strengthen our our HERCULES construction academy. QTT's team now joined the academy, which will help us to broaden our training offering and deliver more courses to upscale and cross skill the the the workforce in the infrastructure and construction industries.

5:34 Now I will hand it over to Paul to to go through the numbers key numbers behind the advantage energy deal. Thank you, Paul. Thanks, Bruce. Thanks, Bruce. So, yeah, as Bruce says, very, very exciting times. We're all buzzing here. So let's be clear. HERCULES is acquiring a 100% of the share capital of Advantage NRG. This will be for an initial cash consideration of £10,200,000. Plus there is a deferred payment of approximately 1,500,000. And on top of that, there's a one year earnout. Altogether, this could result in a maximum total consideration of up to 15,700,000.

6:22 So the earnout is based on a multiple of the average, EBITDA for the year ending, 02/28/2025 and the year ending 02/28/2026, so the average of the two years. Crucially, and this is very important to us, the acquisition is expected to be margin and earnings enhancing as well as as being cash generative. To give you an idea, in terms of the most recent history, Advantage NRG posted revenues of more than £11,000,000 in the year ending 02/28/2025, and a profit before tax of £1,700,000.

7:13 So, these are the, main financial elements, behind this, exciting and important acquisition. I'll now just hand you back to Bruce to to run through some to further run through our strategic rationale. Thank you, Paul. As I mentioned at the start, it has been very busy few months for the company. In June, we have announced our interim results and that that we had a record six months since we got HERCULES established achieving £54,600,000 turnover and EBITDA of £2,600,000. And on top of the that second half of the year is is is also looking great. We are trading in line with the market expectations.

7:59 We got two acquisitions over the line, as I mentioned, QTT and advantage NRG, and these two companies will help us with our HERCULES training academy as well as supplying of overhead linesman for the transmission lines for the key grid and power upgrade projects. We also changed our name to HERCULES PLC

8:18 rather than HERCULES PLC just to kind of make it more simple, more sort of, you know, to the point. And this was to simplify our brands to reflect the business which is focused on a labor supply and and expanding our blue collar and white collar supply and services into construction infrastructure sectors in the in The UK. From now on, we'll be simply known as HERCULES. Our commitment to our shareholders, clients, and employees will be unchanged, but our ambition for HERCULES will continue to grow. I think that's it from us. Just this this short update about the the NRG, and we we love to hear some questions. And if you if you want us to expand on the certain points, yeah, you you are more more than welcome to us. So thank you.

9:11 Okay. So, we've got some questions. So let's, the some of them, perhaps can be merged together. So, Bruce, here's one, I'm sure you'll you'll like to talk about. There has been a lot of talk from the government about infrastructure spend. Which areas, are we most interested in and excited about? And where do you see further growth coming for HERCULES? I I think great great question, and this really aligns with our our growth plans in the in The UK. First of all, if if I can just start with the water sector. Water sector AMP seven, when you look at the AMP seven, there's asset management program number seven, was £51,000,000,000, and that finished April just last April. And the new one started, which is AMP eight in the water industry, and then that is £104,000,000,000.

10:11 So as you're aware, there there are, you know, in in the news, the sewage is being spilled into the rivers and into the seas. And in order to stop that, government is spending more more money in the in the water and sewage infrastructure sector. And and we are the part of we have been working in the in in the water sector since the m five.

10:33 We we work in the Angi Water Area, Thames Water Area, Southern Water Area, 7th Rand Water Area. We just started the West six water and United Utilities. So we believe we'll be twice as busy minimum of that over the next five years. So huge opportunities in the water sector. On top of that, the the the the Ukrainian, you know, conflict has taught us that we need to be self sufficient with the electricity production as well as the distribution. And we are a bit behind of that with regards to nuclear energy as well as renewable energy. So huge push on on those sort of investments coming up in The UK. And by acquiring NRG, we wanna be part of that. We already started working on the size of our senior player plants and size of our seas, as you are aware of it, has got a committed investment of 14 points, £14,500,000,000 over the next, you know, few years. But this only the initial investment, we believe that it's gonna top up to £40,000,000,000.

11:38 So that would be the biggest project in the country, and we are already working that, and we are we believe that we are gonna be part of that. And I'm gonna move on from that to the to to some of the road projects coming up. Lower Thames Crossing is a is another one. Northern section of the Lower Thames Crossing, which is, again, have got a committed investment from government, is is gonna be delivered by by for by for BT. And the southern part of it is gonna be delivered by Skanska, and those two projects are

12:07 so those two clients are are we we are a strategic supplier to them. So so we are gonna be part of them, part of the projects also. On top of that, there are other projects that are coming up. A 66 is is one and another, you know, the road road improvements projects. Paul, have I missed anything that that think you've got all the big ones, Bruce. Yes. And and and and, obviously, there will be other ones like NetZeroT side has been announced recently. I think it's 900,000,000 to to bow for a bit to grow, and and and I believe cost team will be part of that as well. So, anyway, huge amount of projects that are coming up, and and this is our strategy. And we wanna be acquiring other labor supply companies within these sectors as well as organically growing. Thank you. Okay.

12:53 Well, this is a simple one, I think, I can answer. This is from Adam c. Will there be any brand consolidation, or will Advantage NRG continue to operate under its own name? Okay. So Advantage NRG has got a really good name. It's been in business for some years. It's very, very well thought of. At this time, Advantage NRG is their is their training name, and that's what they will continue to trade us. Of course, where we can add value as the HERCULES group to their trading, we will do our utmost to do that. And we we're looking forward to finding cross selling opportunities between us and how we can, grow the two businesses together. So that's simple answer to that one.

13:41 The next one, Bruce, I think I'll leave to you. This is from Stuart d. What portion of Advantage NRG's operatives are UK based versus internationally sourced, and how does that mix affect long term workforce strategy? Yeah. Sure. So most of the advanced energy workforce, I I we we believe they they come from Philippines, very skilled workforce, very trained, great, great people. And they've been delivering in The UK this sort of work over the last eleven years. And our by using our academy, by by working with the advantage energy management team, and and and Nick Adams who is who is the who is the the the MD for the business. Great people, by the way.

14:35 We would like to offer this sort of training in The UK to our workforce, our current workforce to be able to up skill and put them to work. So we believe that we we might be able to scale this up by by bringing some UK workforce into the into the mix. I think having a mix having a bit of, you know, approach mix approach between the Filipino workers as well as the the people from The UK, we would be able to sort of scale scale this up in a in in a big way. Thank you. Okay. Okay. So next one. There's two from George s. Bruce, I'll let you do one. I'll do the second one. Yeah. So first one from George s. Have you experienced any regional labor availability challenges challenges that could limit scalability?

15:31 And how do you address these operationally? Thank you, George. Great question. So we are a bit different than our competitors. We have developed in 2019 our our apps. It's it's called HERCULES construction recruitment app. So how does it work? The the the the people so so we we can focus on an area where where the where the project coming up. We can advertise through online, Facebook, LinkedIn, etcetera. We can create excitement that work opportunities coming up in the area. And our workers go go go our potential workers download the app. They can enter their data. They can enter their the location, and our software matches them jobs closer to their homes as well as appropriate for the for the skill. So that helps us a lot, actually.

16:32 And that that makes us a bit bit bit unique and and and and makes us, you know, respond faster than our our competitors. So so regionally, we are not worried. We are going to deliver it, but there will be challenges, certain challenges in certain areas, potentially in Scotland, huge huge amount of work coming up there and not enough people there. We already started establishing ourselves there, already started with the local, you know, workforce sort of engagements. And we wanna also be we we will be bringing some, you know, moving some workforce from England to to to Scotland as well for short periods of time to be able to to deliver those projects and and and and and and bit of a mixture of, you know, delivery method. Otherwise, certain areas, unfortunately, not enough enough people in in those areas to to to deliver it. But we've got a bit of a a solution both using our technology as well as current workforce to be able to deliver these key projects.

17:42 Thanks, Bruce. Okay. So I'll take George as a second question, which is, with the second half of our financial year historically stronger, can you quantify how much of that is seasonal versus contract driven? Well, George, let's first start off with that seasonal element. We work in the construction industry, and you'll be aware of what the weather is like in Britain, and the Christmas period is a notoriously quiet period for the construction industry in Britain. Always has been, I suspect it always will be. So, that means the first half of year, which also, can include, Easter depending on on when it falls, can be relatively quiet.

18:31 Or you have the pre Christmas rush, and then it goes really quiet, and then it picks up again into February and into March. So that's always been the case. So the difference in the second half of the year is, well, weather. The weather, and it's not Christmas. So from April to September, hopefully, the the sun shines, and everybody wants to get the guys on the site doing as much work as possible. Now assuming the weather is is really, really good this year, we'll we'll we'll do we'll benefit from that. We certainly have been in recent years, but I can't predict the weather, so I won't even try. In terms of contract driven, well, I think Russ has already referred to there's a significant number of contracts that we're going to be on that we know are coming up. And, of course, we're not the people who plan the start dates.

19:25 But they will start, and there will be lots of work. So we can't say for certain when they will start, but they may some of these large projects may impact the second half of this year. Some of them may go into the first half of next year. We don't really know that, but there's lots of other projects that we're still working on that aren't just going to stop. They will continue for some time. You know, there's lots of the quite well known ones. So I think Bruce mentioned that sizable sea, we've we've started there already, but it's the early days, you know, that we would expect that to step up considerably from the amount of people, that's on there currently. But exactly when, can't tell you at the moment. So that, I think, hopefully, answers the question.

20:10 And at the moment, I've said I don't think we've got any more questions. That's correct, Paul, Bruce. Thank you for addressing those questions for investors today. But, Bruce, before I redirect investors to provide you with their feedback, which I know is particularly important to the company, can I please ask you for a few closing comments? Yes. Sure. No problem. Thank you, Alex. We started this journey I started this journey eighteen years ago on my own, and now eighteen years later, we are over a £100,000,000 turnover company. Now we are listed on the stock exchange and working for our blue chip clients and huge investments coming up in the infrastructure, and there's a huge skill shortage and demand. And and and we believe that we are gonna be growing over the next ten years because of these opportunities that we got a really good good reputation.

20:58 And we wanna get the 500,000,000 in in in and 25,000,000 part EBITDA in five years. We call it road to 500, and we are very committed to delivering that. We believe that 100,000,000 of that will come through the organic growth and another £300,000,000 to come through acquisitions. And and even even though if you get to 400,300,400, we'll be still happy. But, yeah, we wanna we we are ambitious company, and we wanna grow. And we are in the we have got the right platform, right team, and we believe that we are gonna achieve that. Thank you. Fantastic. Bruce, Paul, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the team can better understand your views and expectations.

21:46 This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of HERCULES PLC, we would like to thank you for attending today's presentation, and good morning to you all.