Hercules Site Services plc (LON:HERC), a leading technology enabled labour supply company for the UK infrastructure and construction sector, has announced its unaudited interim results for the six months ended 31 March 2024.
Financial highlights:
- Record revenues, EBITDA and PBT in H1 for Hercules
- Revenue increased by 32% to £48.8m (H1 2023: £37.0m)
- Gross profit increased by 21% to £8.1m (H1 2023: £6.7m)
- Adjusted EBITDA* increased by 91% to £2.1m (H1 2023: £1.1m)
- PBT of £0.2m compared with a loss of £0.2m in H1 2023
- Strong operational cash generation of £5.8m in the period
- Interim dividend of 0.6p declared (H1 2023: 0.6p)
Operational highlights:
| Significant organic growth in all areas of the business, combined with the first contribution from the Future Build Recruitment Ltd (“Future Build”) acquisition has helped the Company achieve another period of record growth in H1 2024 |
| The Construction Academy opened on 31 January 2024 and has already started to generate significant interest and initial revenues from colleges, clients, and the industry in general |
| Our first acquisition, Future Build, a white collar supplier to the construction industry, completed on 30 November 2023 |
| The Rail business has started well (commenced October 2023), steady growth continuing |
| Labour supply to HS2 Phase 1 (Northern Section) has increased to 450 operatives at 31 March 2024 (H1 2023: 400) |
| Other labour supply sites increased to 550 operatives at 31 March 2024 (31 March 2023: 500) |
| New framework contracts signed with Costain and Hill Group (Future Build client), providing further cross-selling opportunities |
| Initial work commenced on the Sizewell C nuclear plant. This is expected to be in construction for up to 20 years with an estimated cost of £30bn. This is the Company’s first engagement in the nuclear industry |
| Civil Projects division has now won £14m of project contracts for FY 2024, up from £10m at 31 March 2023 |
*Adjusted EBITDA definition – earnings before interest, tax, depreciation, amortisation, profit/loss on sale of fixed assets, exceptional items and R&D expenditure.
Brusk Korkmaz, Hercules Site Services Chief Executive Officer, commented:
“The start of the year has been very positive indeed, with revenue growing by 32% and a 21% increase in gross profit over H1 2023 levels. In addition, we grew EBITDA to £2.1m in H1 2024, up from £1.1m in H1 2023, and completed our first acquisition in line with our growth strategy.
“This continued success has been achieved by a great management team which has a desire to over-achieve. Our supply of skilled operatives to both the HS2 Northern Section and other infrastructure sites has increased during the period. In addition, we have added further new labour supply frameworks, including Costain and Hill Group, which will stand us in good stead in the years to come.
“The civil projects division has won a significant number of tenders, new clients include Trant Engineering and Curio Group, and is well on the way to achieving its targets in 2024.
“We are on track to meet market expectations for the full year, as the strong momentum in the construction and infrastructure sectors continues.”
Chairman’s statement
Hercules has delivered further record growth in H1 2024. Revenues are 32% ahead of the comparative 2023 period and trading is in line with market expectations. This growth has been achieved organically across all areas of our business, as well as through our first acquisition, and our key labour supply division has further ramped up deployment of operatives across our cornerstone projects.
Market dynamics remain strong
The infrastructure sector remains buoyant and this underpins the Company’s growth. With expected improvements in the economy including lower inflation and interest rates, we believe the construction sector is likely to experience growth in the years ahead.
There is still a shortage of skilled operatives in the labour sector, but this has not yet impacted our ability to recruit the operatives our clients require. We have the digital tools to help us locate and place operatives to local jobs, so we are well placed to benefit from growth in the months and years ahead. Demand continues to grow for our range of complementary services, and our pipelines in both labour supply and construction services are robust.
Financial results show strategic progress in line with expectations
Revenue for the period grew by 32% to £48.8m (H1 2023: £37.0m). Gross profit increased 21% to £8.1m (H1 2023: £6.7m).
Adjusted EBITDA was £2.1m (H1 2023: £1.1m). In line with expectations, H1 2024 delivered growth in profits compared to H1 2023, with the increased suction excavator fleet (now 28 vehicles), as well as further considerable labour supply growth, particularly on the HS2 project, driving profitability. In addition, the growth in administrative expenses is now showing signs of levelling off, as expected.
PBT per share up to 0.28p (H1 2023 a loss of 0.42p).
EPS 0.28p per share, compared to 0.59p in H1 2023, a period which had benefitted from a deferred tax credit of approximately £0.6m. However, after adjusting for a non-recurring loss on sale of fixed assets of £0.2m, the EPS in H1 2024 would also be 0.59p.
£1.7m cash was held at 31 March 2024 (H1 2023: £2.6m).
Outlook
The team has continued to win and manage increasing amounts of work in H1 2024, and with demand for our services expected to remain strong given the market backdrop, we look forward to executing on our current pipeline and delivering on our strategy in H2. The Company’s financial performance is traditionally H2 weighted, so we are pleased with trading to date.
The opening of the construction academy, the steady growth in the new rail business, as well the development of the commercial possibilities from Future Build, all give us confidence we will match market expectations for the whole of FY2024.
Interim dividend and timetable
The Board is pleased to declare an interim dividend of 0.6p per share (2023: 0.6p). The interim dividend will be paid on 22 August 2024 to shareholders on the register at close of business on 19 July 2024. The shares will go ex-dividend on 18 July 2024.
Labour supply
We provide labour to some of the top construction and infrastructure projects in the country and this core business has experienced continued growth in H1 2024, up 28% on H1 2023. A key driver of this has been the multi-year HS2 Phase 1 (Northern Section) contract, which is one of the largest construction projects in Europe. Our work on site continues to expand and, at the time of writing, we currently have c. 550 Hercules operatives on site (31 May 2023: 400). We are providing additional labour every week in response to increasing demand, leveraging our digital platform as a source of labour supply.
Our new rail business started October 2023 and we are increasing the number of operatives working each month. Initial growth from a standing start in H1 2024 is in line with expectations. This new business stream started with the winning of a contract with Balfour Beatty Rail, but work is also ongoing with other companies as we become better known in the sector.
In anticipation of a significant number of years work in and around the Sizewell C site in the Ipswich area, we have taken a small office in Saxmundham. This will be a major area of activity in the UK for up to 20 years, and of a similar size to HS2. Following the Government’s recently announced acquisition of another nuclear site in Wylfa, Wales, this is likely to be another area of significant focus over the next few years.
Construction Services
Suction excavator services
Following the delivery of 14 more suction excavators towards the end of H1 2023, the high utilisation we were experiencing dipped for a number of months in H2 2023. The team has worked hard to identify and commence trading with new customers and it has increased supply of vehicles to a number of existing customers.
Demand is strong but the key is focusing on profitable work, and so a number of changes relating to the way we select jobs have been made to ensure we are as efficient as possible. During the period, our revenues were up 41% year on year, benefitting from the enlarged fleet. These recent acquisitions complete our fleet for the foreseeable future, and our enlarged group of 28 vehicles makes us one of the largest providers of suction excavator services in the UK.
Civil Projects
The well-documented issues within the water treatment sector have led to increased levels of demand for our Civil Projects team over the last year. They have responded incredibly well and have had a very successful H1 2024, with revenues up 43% year on year. We have achieved this despite this being year 5 of the 5 year AMP7 period (ending March 2025), when work tends to be quieter.
Additional Growth Initiatives
Hercules Construction Academy
We launched the Construction Academy at the end of January 2024. The academy, which is in Nuneaton, is close to the HS2 northern section sites. Nuneaton is designated as a deprived area and we aim to attract clients, competitors, further education colleges as well individuals who wish to join the construction industry. Given the skills shortage in the UK this is a long term strategic project for Hercules, to help us maintain our reputation with our blue chip clients well into the future.
Future Build
Hercules Site Services first acquisition was completed on 30 November 2023. Future Build operates mostly in the permanent fee white collar construction sector and was purchased to help us achieve another long term goal of being both a key blue collar and white collar supplier to blue chip construction companies. Integration is going well and we look forward to achieving commercial synergies in the year ahead.
Henry Pitman
Non-executive Chairman
