Hercules (LSE:HERC) — Interim Results

0:02 Good afternoon, and welcome to the HERCULES PLC Interim Results Investor Presentation. Throughout this recorded presentation, 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 it receives during the meeting itself. However, the company can review all questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll.

0:33 And I would now like to hand you over to CEO Bruce Cortmaz. Good afternoon to you. Good afternoon, Alex. Thank you so much. Good afternoon, everyone, and thank you so much for joining us today. As you might have already seen from our announcement today, we had a fantastic first six months. Just to summarize, our results,

1:08 Sorry. Sorry, Bruce, to jump in, but what your audio seems to have gone very quiet. Not sure. Oh, there you go. Can you hear me? Yeah. Perfect. Thank you very much. Sorry. I don't know what happened there. So yeah. You're you're but you're good now. You're good. Please go Cool. So everyone so, yeah, I was just saying that our for the first six months, we had a really fantastic first six months, and our turnover increased 32% to £48,800,000, and our EBITDA increased by 91% to to £2,100,000, which is a great great achievement for us. In today's presentation, we'll talk about our performance over the last six months, and we will also share our future growth plans with you. Just to give you a brief introduction for our company, HERCULES PLC is a technology enabled labor supply company operating in the infrastructure sector.

2:06 The next slide, is about disclaimer, and the third slide is about our board, and our board members. I'm Bruce Korkmaz. I'm the CEO for HERCULES, and I'm joined today by our CFO, Paul Whitcroft. Hi, everybody. As you can see from this slide, we have very strong and well respected board with both exec and nonexec directors with great blend of experience in infrastructure, sales, financials, and banking, PLC, governance, and even starting and running an AIM listed company. Together, we believe that we can grow HERCULES even further. This slide is about our business overview. On the top right of this slide, you can see some of our blue chip chip clients that we work in the infrastructure sector.

2:56 As I mentioned before, we are mainly a labor supply company working for the blue chip infrastructure companies and complemented by our construction services division. On the left hand side, you can see, about our labor supply division, which is our core business, and it's a significant part of

3:15 our company, which currently contributes to 75% of our turnover, and this percentage is still growing. We have been supplying labor into UK's highways, rail, utilities, energy, and other infrastructure projects. Under the construction services division, from the from the right hand of this slide, we carry out civil projects in the water industry. We also hire out our suction excavator services under the same umbrella. The biggest USP we have got is that we can supply all of these services by cross selling opportunities to our clients under the same umbrella. Our clients prefer dealing with only one reputable supplier, who is in this case us, HERCULES, rather than dealing with different suppliers as it is more efficient and less paperwork involved for them to do so. Having our construction services division and cross selling opportunities also help us to retain our clients as we have high retention rates with our clients that we started working with sixteen years ago, and we have been adding on to this list every year.

4:26 The next slide is about our achievements for the the the six months. And as I mentioned, we had a first fantastic first six months for 2024. Turnover h one year on year increased by 32% to £48,800,000, and our EBITDA growth was 91% to £2,100,000. And we are trading in line with the market expectations. As you might remember, our end of year growth for last year was around 71%, and the growth for 2022 was 50%. This year, we'll also be growing again, which is great news for our shareholders. We have seen growth across all of our divisions. And with regards to the labor supply arm, we have established a new rail division, and we won the Balfour Beatty Rail framework, which started really well. There will be growth in the first year as well for our rail division straight away.

5:31 In December, we have acquired FutureBuild Recruitment, and they're an excellent and high performing company operating in the white collar recruitment in the construction industry. This will add significantly to our exposure in the white collar sector for the infrastructure and construction industries. As you might have already seen from the media that we launched our HERCULES CONSTRUCTION ACADEMY end of January, which is around four months ago, as you might be aware that there are lots of investments being made in the infrastructure sector. There's also a huge skill shortage in The UK, and it is important for us to have a sustainable approach, which is finding local people for local projects, putting them to work, and upskilling and crosskilling our workforce in order to deliver these projects.

6:24 Therefore, our training academy plays an important role in the sustainable approach. We also would like to monetize our academy by selling construction related training to our clients, colleges, as well as to the individuals. With regards to the last bullet point, we have been paying dividends since we got HERCULES listed on stock exchange. And for this year also, dividends continue to be paid to our shareholders. Paul, I think next slides are yours.

6:59 Thanks, Bruce. Yeah. So this is our group statement, and and you can see it shows the changes between the first half of last year and the first half of last of this year. So 32% increase in revenue and a 91% increase in EBITDA.

7:22 We've also got just jumping down a 134% increase in operating profit. Worthwhile just explaining a few things. I've appeared on some of these presentations in the past, and and we've promised that the growth in overheads will start to level off. And this you can see here that this is the first sign of it. So what was 5,600,000 in the first half last year was only 6,000,000 this year. So as an example of what that means, both in the suction excavator business and in the, the people required to run the HS two operation, Since a year ago, we've not added anybody of any significance to that list.

8:12 So we're controlling our costs, we're managing to put more throughput through the business with the same level of resources. So we're pleased that we're being able to see that change coming through. So the other thing worth pointing out here is that we we had a 200 k loss on sale of fixed assets. This was basically two of the, very first suction excavators that we bought back in 2020. The reason we sold them is that, they are what would be called now old technology and that they were called floppy arms rather than power arms. All the rest of our fleet were all power arms, and our clients clearly only now want to deal with power arms.

9:00 So rather than them not being utilized, we took the view to sell them, completely eliminate any debt outstanding, and therefore reduce cash going out the door. And that was a one off change, and that occurred in October, of twenty twenty three. If it wasn't for that, that operating profit would have been even higher as would the PBT and the PAT. Hence, that brings that profit after tax of 200 k, unnecessarily down, whereas the same figure last year was boosted by a 600 k, deferred tax credit. So whichever way you look at it, that's a good increase all around on the same period, last year, and we're obviously very pleased with that. We're on course to, achieve, our market

9:57 And those of you who who have noticed the share price changes today, the last time I looked, we'd had a very, very considerable increase, and and the share price was actually about 40 p. Huge increase from where it was. So we're very pleased with that. We do think it's undervalued, even at that level, and you can see from our results why we think that. Looking at the three key areas of the business, the first one is our primary business, labor supply. So we got a very good increase in in that. So 28% revenue growth to 35,900,000 and an increase in operating profit to 4,000,000.

10:44 We've got where where does this come from?

10:46 Well, we've got continued organic growth because we've got a strong project pipeline. We're doing really well with this. We've we're now on two new frameworks that we weren't on at the start of the year. Costanes national framework and via our future build acquisition, we've gained the blue color framework for the Hill Group, which is a a future build client originally. We've now got approximately 1,200 operatives across all sites.

11:19 And our recruitment app, which those of you who will be familiar with us will have heard about before, we now have over 13,000 people registered and downloaded the app from us. At this time last year, it was only just over 8,000, so a huge change in the last year indicative of the amount of work that's out there and the number of people who are looking for it. Since we introduced, the other, app, we've got the onboarding app. We've, now got 7,000 operatives who have been completed onboarding through that app. And that, again, that same figure this time last year was 1,200. So nearly everybody now is onboarded via electronically with a completely paperless way.

12:07 And final point on this slide, one of the key things about labor supply is that you have to keep your operatives up to date with their training. So we every time we we we we have to renew a certificate, we make sure we we take the opportunity to upskill and or cross skill them through and now, in particular, we do that through our construction academy.

12:34 Civil projects. Civil projects had a very, very successful first half. Again, 26 projects were completed in the first half year, 43 increase in revenue, very much driven by the asset management program as as their work has primarily always been. This is in the water and the sewage sector. Worth pointing out that this time this year, we've actually got over 14,000,000 projects won and on the books, if you like, which will hopefully all be completed in this financial year. The same figure for this time last year was 10,000,000, so that's a nice increase.

13:23 We've doubled the operating profit, in the in the in the half year, and we've gained a couple of two new clients, Trans Engineering and the Curio Group. Our suction excavator services business, benefited from, almost doubling of the fleet that we had at the end of March of last year. You and we now have, 28 suction excavators. That's a 40% increase in revenue, and, obviously, that wouldn't have happened if we'd not got the doubling of the fleet. We also now have, some triple fan technology, which basically is more power, and a lot of our clients are very interested in this. So this has improved our capability and and our attractiveness to clients in the in the marketplace.

14:20 Balance sheet. One of the key things that's happened here is that, since this point last year, is that we've managed to reduce, asset related debt by 2,400,000, and at the same time, we're on the way to, reducing the amount of money that we, owe on our confidential invoice discounting facility. That's actually reduced in the half year by, 4,000,000. That's my next slide, and you will see that here.

14:59 So, final dividend, of course, was paid, to shareholders, of 1.12p. That was paid in March,

15:10 And that was we've also just declared another interim dividend to be paid in August of this year of 0.6p. So our cash flow generation, which was very successful in this first half year, £5,800,000 compared to effectively a net zero in the same period last year, and that has helped us repay 4,000,000 of that invoice discounting debt. So overall, very, very

15:42 good use of working capital during the the the period. Worth adding before I come off the number slides is that we're at an interesting time. What were the changes in interest rates, hopefully, due to come along such a great reduction in inflation? It all bodes well for the industry that we're in, which has got huge amounts of work in the years to come. Prosco will talk a bit more about that in a minute. So this underpins the fact that we think our share price, as I mentioned earlier, is undervalued. We continue to grow the business and to grow the earnings per share.

16:24 No doubt in the years to come. Over to you. Thank you, Paul. This slide is about our current trading and our industry outlook. As I as I had mentioned before, we had a fantastic first six months. Also, momentum has continued across all divisions into the second half of this year. Our aim is under is to underpromise and over deliver as we have been adopting this strategy since we got listed two and a half years ago. We are also on track to deliver our results. Our labor supply division, which is our core business, have been growing this year also, and we have got over 1,200 people on our payroll, which is brilliant. It shows that we have been we have been growing.

17:13 Infrastructure remains buoyant with £750,000,000,000 investment earmarked across our main markets, including highways, HS two, and other rail infrastructure projects. The next asset management program, which is called AMP eight, where we are operating in the water sector, has committed investment of £98,000,000,000 over the next five years, which is nearly double the amount of £51,000,000,000 investment in the current m seven. Current m m seven will be finishing

17:47 by April next year, and then the AMP eight is gonna kick kick off from from April onwards. So we are well positioned to to take advantage and grow in the water sector. Network rail c p seven investment plans of £44,000,000,000 investment into the rail network will be from last April, a month ago, over the next five years. As I mentioned before, in November last year, we established our rail division to supply labor in the rail industry, and we became became a framework supplier to Balfour Beatty Rail. So we are well positioned again to maximize our revenue and profit over the next five years. As you might have already seen recently in the news that the UK government committed to major infrastructure projects throughout 2024 and beyond, including further investment in the in the nuclear energy such as Seiswell c in Ipswich and Wilfa in Wales. So we are a strategic labor supplier to Balfour Beatty, and they have been awarded this project in Seiswell C to deliver £30,000,000,000 worth of works.

18:58 Balfour, BT are in touch with us about this project, and we believe that in mobilizing on-site over the next few months. As you can see from the list of these investments in the infrastructure sector, we are well positioned in the market to further grow over the next twenty years. The next slide so this is our final slide, and it's about our growth strategy. As you can see from this slide, we have got multiple growth opportunities for our future. We have been growing across all divisions through strong pipeline of projects into second half of this financial year. There are billions of pounds of investment being made in the nuclear energy, renewable energy, and the rail sectors. Therefore, we are strategically moving into these sectors to supply labor and white collar staff to bolster our future growth.

19:51 As I explained that we have completed our first acquisition in December, currently, we are successfully integrating future build team under our umbrella. Both companies now started to cross sell and upsell our services to each other, which is great news. This means that we are all working together to expand our reach, maximize the opportunities. This also shows that it was successfully identified acquisition, so it's going really well. With regards to the m and a activity, we are already talking to identify acquisition targets in the labor supply sector. Yes. This is the end of the slides, and thank you so much for listening to us. And we really appreciate appreciate your your feedback. And please feel free to ask any questions. So thank you.

20:41 That's great, Bruce Paul. Thank you very much indeed for your presentation. I will now bring your cameras back up. Perfect. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. And Bruce, Paul, as you can see, we have received several questions throughout today's presentation. And Paul, if I may now hand back to you to chair the Q and A and read out the questions where appropriate, and I'll pick up from you at the end. Thanks, Alex. Of course. Okay. Let's kick off. So we've got a question, the very first question from Gary D. Good afternoon, Bruce Paul. How do you intend to finance future growth opportunities?

21:29 That good question. And we are the sort of business as a labor supply business, that does need finance to to help us achieve future growth opportunities. So we have a a what's called an invoice discounting facility, which we upgraded in November of last year. It's a 15,000,000 facility with a company called IGF. As at the end of the first half period that we're just reporting on, we actually had used 7,500,000 of that 15,000,000. So it's a revolving facility, and the more work that we achieve, we put that, the invoices through that facility, and we get paid mostly 90%, of that upfront.

22:16 So that's basically how, how we would mostly, finance future growth opportunities. The next question is from Max h. Matt h. Max asks, can you discuss FutureBuild's client base and the opportunity for cross selling following the Hill Group win? Bruce, do you wanna take this one? Of course. No problem. Thank you, Paul. Thank you, Max. A great question. FutureBuild mainly operates supply white collar stuff in the construction sector, which is brilliant. And they've got a good client base in the in in their housing sector mainly, and we don't, you know, supply any, you know, labor in in the housing sector.

23:05 So first time, Hill's group Hill Group was future builds client. And as you can see, we already started supplying we we won the framework, so we start supplying labor to Hill Group. And that means also we will be opening up our client base to future build to supply a white collar stuff as well. This this has all already started as well. We we have been having meetings with our clients in size one c, buffer b, etcetera. So, yeah, our future will will be growing will be growing, which is good. We'll be all growing in the right direction by cross selling opportunities.

23:54 Thanks, Bruce. So the next question is from Oliver c. He asks with the recent acquisition, what metrics and vertices do you look to target? Are there any transactions which would really upscale the business further? Yeah. Oliver, this is an interesting one, and it's something we we think about as you would expect quite frequently. We are a public company. We've been on AIM two and a half years, so we've got past that initial growth phase. So we're now very much focused on long term earnings per share for our shareholders. You'd expect us to be. So, when we're looking at, businesses in the future, possible acquisitions, then and that's what I think you mean by transactions.

24:46 Then, you know, we're looking for labor supply businesses that would complement and increase the earnings per share of the group overall, I. E, add value for our shareholders. That's not a particularly a surprise answer, but that's exactly what we're looking for. But it is in the labour supply space, not anywhere else. The next question I've got, I think, is from Oliver C again. He asks, how are you managing the labor supply and those that you are bringing through the academy? Is retention a challenge? Bruce, do you wanna take this one? Yeah. Yes. Sure. Definitely. So there are, as I mentioned, huge projects coming up in The UK and also current projects huge projects are mega projects are carrying on as well. So if I can give you examples, HS two will be will be will be built over the next seven years between London and Birmingham, and we are in the Birmingham section. That so that will be carrying on.

25:51 On the 846 so 866 in Newcastle over a billion pound project will be starting soon. 08/12 over a billion project will be starting. We we started working on the enabling works, £1,200,000,000 worth of works will be starting on the 812. There's Lower Thames Crossing there as well, over a few billion pounds. Northern section is won by buffer. Southern section is won by Skanska. They are both our strategic clients. A four two eight, Black Ketra, the Bhat Skanska is delivering 1,300,000,000 project. Next AMP is, as I mentioned, £98,000,000,000. On top of that, size of LC and the pop and the small modular reactors.

26:36 So huge projects coming up. And there's a huge a huge skill shortage as well in The UK. So our main aim is to by using our training academy to upscale and cross skill our workforce so we can give them a career for life because they're huge projects, and we wanna deliver these projects as well. And, also, we would like to monetize this opportunity by by selling construction related training to our clients, colleges, as well as individuals. So win win for everyone. So we believe that by providing a training to our workforce and keep upskilling and crosskilling our workforce, not only will help us to find local people in the first place, but also we can grow organically by having a sustainable approach.

27:28 And, of course, to help that that will help retain them as well, which is the the last part of the question. So thank you, Oliver. Okay. The, next one is Christopher h. Thanks, Christopher. Good afternoon. What do you anticipate will be the key growth area going forward for the company? Well, I think just answered that a minute ago. It's clearly labor supply. That's the our primary business, and it will be in the future. We expect it to become at least up to 90% of our business moving forward. And the only thing that will, I suppose, change about that is the sectors that we migrate into. So we've already started into the rail sector, and we've also, as Bruce was saying, by the FutureBuild acquisition, we've added a white collar element into construction as well.

28:25 We see huge opportunities in the existing sectors of highways, but lots more in energy and nuclear and renewables in the in the years ahead. With with everything that we talked about that Brisk has talked to you about at Wilford in Wales and Sizwell Sea in particular, they're huge, huge mega projects. And you've got lots of mini projects on nuclear as well. So we would see that some of those areas as as the years progress ahead, those areas will come into it. So they're all quite key growth areas because they're all going to be very, very busy, which is good news for us and and our shareholders. And just to add as well, Paul, we will we won't be buying any more suction excavators. So currently, we got 28 and we are we are our aim is to maximize it. We are doing really well.

29:14 We are over 70% utilization rate now. So it's it's going every week up and up. So we wanna make sure that we maximize that and and and and and get utilization rate up over 80%, and we are getting there. Sure. So last one I've got on the screen here is from Max h. Positive that you haven't seen a slowdown in the year prior to AMP eight. Have you seen any disruption elsewhere like c p seven? Bruce, do you take that one? Sure. Of course. So AMP page so AMP seven have been so busy, is the current AMP, especially the the as you might have seen on the news that Suji is being spilled into the rivers and into the seas, And that's why m seven hasn't slowed down. It has been going full belt.

30:06 And now AMP8 is going to start soon as well, even bigger, twice nearly twice as big as m seven being 98,000,000. We operate in four areas, which is Thames Water, Southern Water, and Lean Water, and Seven Trent Water for our for our clients, and we believe that we'll be growing in these areas. And we haven't seen anywhere else any slowdown in the in the infrastructure sector. CP seven, there was a bit of a disruption. But because we started our, you know, business only in November, I'm talking about the the the rail side of it, So we haven't seen any any any disruption. We have been growing really since November. So with with the investments being made in the rail, nuclear energy, renewable energy, highways, and water, we believe that we are well positioned to grow further.

30:58 Thanks, Bruce. And another question from Christopher h. The company is very under the radar in The UK market. How do you intend to address this and raise the company's profile within The UK investor community? Thanks. Well, Christopher, we're very conscious of this, and you're you're stating very much an obvious fact. We're we're on the AIM market, and, you know, we're we're seen as comparatively a small a small public company. So the long term the the easy answer and the most applicable answer to your question is we aim to keep delivering for shareholders. The key thing is that we under promise, we over deliver, everybody can see what we're doing regardless of what the market's doing and the share price is doing. We're convinced that if we keep doing that, the share price will catch up. And, hey, here's another example of it today where last last time I looked, it was 40p.

31:59 So it's come up quite considerably from the start of the year. And we'll continue to work along those lines. We obviously talk to brokers. We talk to our investors and prospective investors all the time. And we know what they think we should do, and we listen to them. We'll continue to listen to them and do everything we can to, to raise the company's profile. So I hope that answers your question. And I think that is the last question, Alex. That's correct, Paul. Thank you very much, and Brosk, as well for addressing all those questions for investors today. And, of course, the company can review all questions submitted today, and we will publish those responses on the investor meet company platform.

32:44 But before we direct the investors to provide you with their feedback, which I know is particularly important to the company, Bruce, could I please ask you for a few closing comments? Oh, thank you, Alex. Yes. So I started HERCULES sixteen years ago, and we have been growing every year. So I would like to thank, first of all, our HERCULES employees, HERCULES management team, and our boards for us to be for them to be working really, really hard and really appreciate it. And I would like to thank our shareholders as well as our clients as well for their trust in us. So thank you. Thank you, Bruce Paul, once again for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations?

33:32 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'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you. Thank you.