Hercules (LSE:HERC) — Full Year Results

0:01 Good morning, and welcome to the HERCULES SITE Services PLC for your 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 received 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.

0:32 And I would now like to hand you over to CEO, Bruce Korkmast. Good morning to you. Good morning, Alex. Thank you. Good morning, everyone, and thank you so much for your time meeting us today. As you might have already seen from our announcement this morning, we had a fantastic year. So just to summarize, our year on year turnover increased by 28% to £102,000,000. Our adjusted profit before tax increased by 43% to £2,600,000, and our adjusted EPS increased also by a 173% to 3.47p compared to financial year ending 2023, which is an amazing achievement for us. In today's presentation, we will talk about our performance over the last financial year, and we will also share our future growth plans with you. So just to give you a brief introduction for our company, HERCULES PLC is a technology enabled labor supply company operating in the infrastructure sector.

1:39 The next slide is about our board members. I'm Bruce Krogmus. I'm the CEO for HERCULES. And today, I am joined by our CFO, Paul Whitcroft. Hi, everybody. Recently, we have got Martin Tethem joined our board in September as a nonexec direct director, and he has been a great addition to our team as well as being one of our main investors.

2:04 As you can see from this slide, we have a very strong and well respected board with both exec and nonexec directors with great land of experience in infrastructures, financials and banking, sales, PLC governance, and even starting and run running an aim listed company. Together, we believe that we can grow HERCULES even further.

2:27 This slide is about our 2024 achievements. As I mentioned before, we had a fantastic 2024, and yet again, we exceeded the market expectations. Our revenue, EBITDA, profit before tax, and our earnings per share all increased materially, which I'll talk about in detail on the next slide. We have achieved these strong results through growth in our labor supply and our civil projects division. As you might remember that we have completed our first acquisition over a year ago, a company called FutureBuild Recruitment, adding white collar supply to our successful blue collar labor supply business. And this added around £1,500,000 of revenue to our overall turnover. We are also pleased that the cross selling between the divisions and subsidiaries remained a key factor in 2024.

3:18 About a year ago, we secured a five year contract with Balfour Beatty Rail for our rail labor supply division. And since then, we have added more clients onto our portfolio. As you might remember from one of our previous announcements that we have established our HERCULES construction academy in January last year. And since then, we have started generating our first revenues while upskilling and crosskilling our workforce, which is very important for us. As you are aware that there's a huge skill skills gap in The UK, and we believe that by upskilling and cross skilling our workforce, we can meet the growing demand in The UK by supplying skilled workers for our for the key projects. We entered 2025 financial year with a strong balance sheet, which Paul will talk about in detail later on.

4:09 Last September, we raised £8,000,000 to invest in acquiring companies within the labor supply sector, enabling us to grow even further. Lastly, the first quarter of the financial year started really well. We have a strong pipeline of projects, and we are confident that all of our divisions will continue to grow organically.

4:36 This slide is about our record financial performance for 2024. I'm just gonna go through some of the numbers with you. Our revenue increased by 28%, £102,000,000 from £79,800,000. Our adjusted EBITDA grew 34% to £4,700,000. Our adjusted PBT also increased by 43% to £2,600,000, And our EPS, a huge growth, as you can see, 173% to 3.47p. And as Paul is gonna mention as well in detail that we have generated cash last year also, £7,500,000 comparison to last year was 3.3.

5:30 So as you can see, good good generation of cash as well. And we also paid dividends last year as well as the previous year of 1.72p per share. The next slide is about our business overview. At the bottom of slide, you can see some of our blue chip clients we work for in the infrastructure sector. As I mentioned before, we are mainly a labor supply company working for the blue chip infrastructure companies and complement complemented by our construction services division. Our labor supply division is our core business, and it's a significant part of our company, which currently contributes 83% of our turnover, and this percentage is still growing.

6:17 We have been supplying labor into UK's highways, rail, nuclear, energy, utilities, power and energy, and other infrastructure projects. Under the construction services division, we carry out civil projects in the water industry, and we operate our HERCULES construction academy. 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 cross selling has built strong client loyalty for us, and some of the clients that have been we have been working for over seventeen years, and we are continuing to grow our client base every year. The next slide is our revenue growth. As you can see on this slide, we have a very strong growth history. I set up HERCULES in 2008 from a family spare bedroom, and since then, we have been growing every year.

7:16 You can also see from this slide that there are several milestones we have achieved over the last seventeen years. Just to mention some of the significant milestones, winning the HS two labor supply framework in 2021 for the Birmingham section with Balfour Beatty and Vinci joint venture. At the beginning of February twenty twenty two, we listed HERCULES on the AIM market, this is a major milestone for us. And we are very excited about being on the AIM platform, and we believe that this will enable us to grow as we have ambitious plans for the next part of our journey.

7:52 I previously mentioned that we completed our first acquisition over a year ago, a company called Future Build Recruitment. They're a great company, and they specialize in supplying white collar personnel to the construction sites, making them great addition to our existing blue collar labor supply division. As you can see from this slide that our revenue has been growing since we started in 2008 apart from the COVID year, so we have a very we have a great history of growth over overachieving our targets. I just want to bring your attention to our compound annual growth rate, a CAGR for the last three years being 48%, so we are growing in the right direction. As you can see from the top right corner of this slide, some of the government's investment programs in rail, nuclear energy, renewable energy, and water sectors, we are ideally positioned to grow even further over the next ten years.

8:52 I think next slides are yours, Paul. This is our group statement and shows our continuing operations, I e, it excludes the suction excavated business, which you'll have you'll have seen is now treated as a discontinued operation. So we had a 28% increase in revenue, as Bruce just pointed out, 34% increase in adjusted EBITDA, and an operating profit of increased by 36%. PBT, adjusted PBT is 2.2 there. The the adjusted PBT was 2,600,000, and, that was a significant increase as well. You can see that there, 46%.

9:45 Profit after tax stabilized. That the only difference there was we had a credit on deferred tax in 2023 that fell away. And in 2024, we actually have a charge of just shy of 600 k, which is why you have that swing on the profit after tax. Nice summary down the bottom also shows you all operations, I. E, including the Sutchen excavator business. So you see that we actually achieved a 107,000,000 in turnover including that, 5.1 adjusted EBITDA, adjusted PBT of 1.3, and EPS of 3.5. So that's that's on the continuing basis.

10:31 And it is a little bit confusing between all and continuing, but, continuing is the key because that's what we're that's what we're going to be from now on.

10:42 Labor supply. Again, a very good increase in in revenue here, and I've put operating profit adjusted because we made a one off provision for possible issues with KPIs. So it's still a great result, but that's why you can see that we've that additional turnover has generated a significant amount of operating profit. We've got continued organic growth through execution of a strong project pipeline. And as happens every year and every time we do these presentations, we add more. We add more new clients. So we're now on the national framework for cost staying. Hill Group preferred supplier list, and that came to us via the future build acquisition that Bruce was talking about a little bit earlier.

11:32 And Balfour Beatty Kilpatrick, we've now got circa 1,600 operatives across all sites, a significant increase from previous years. You'll probably be aware that we have a a new recruitment app. This is one of the major selling points compared to our competitors. We've now got nearly 16,000 people on that site. And that same figure this time last year was about 12,000. Big increase.

12:05 Since up we've, introduction of of these, apps, we've come we've also got another app called onboarding. And since then, 7,000 operators have completed onboarding via this app. And, again, the comparator at the same time last year was 1,200, so significant increase.

12:27 Finally, labor supply really relies on training because every three or four years, all operatives have to be retrained or or upgraded. You can't just get trained, and then it's for life. That's not the way. So it's very important that we we keep this we do this training in a very, very efficient way. And to help us with that, you'll probably be aware that we opened our own construction academy in Naneton, which is close to most of the HS two operations. We opened that in January, and that's to be used to rather than sending our people outside to be upskilled or cross skilled, we send them to our own academy. But as well as that, we offer those services to our clients, other educational establishments.

13:20 That's labor supply. You can see overall 32% revenue growth. Civil projects is mostly us operating on fixed price basis in the water industry. You can see that we've got almost £2,000,000 added to the revenue and a nice increase in operating profit to go with it. So that's a revenue increase of 12.2%. The asset management program AMP seven has has driven growth and AMP eight actually starts in April 2025. These are five year programs. We did very well out of AMP seven. I think AMP seven overall was £51,000,000,000, and AMP eight for the next five years is about a £104,000,000,000.

14:11 So we're expecting to do an awful lot more in that with civil projects in the forthcoming five years. So far this financial year, we've already got in the bank, so to speak, projects that we've won of £7,500,000. So we're well on the way after three months to achieving at least the same revenue, if not more, in 2025.

14:42 Again, we talked about new clients in labor supply. Well, here we are. We've got them again in civil projects. Anglian, Seven Trent, Trent Engineering, and the Curio Group. All these clients and our new clients altogether helped us to actually deliver 43 projects, completed projects in 2024. It's a significant amount of work delivered to our clients. Balance sheet. This is now looks slightly different because we have to treat the assets held for for resell, I. The discontinued operations. We have to show a separate line for assets. You'll see there in the top section 11.8. And in liabilities, in the same way in the bottom section of 9.6.

15:33 So other than that, you can what that what that basically shows you quite clearly is the change

15:39 to support the decision to do divest ourselves of the suction excavator business. You can see how much difference that makes to the asset funding debt comes down from 11.4, including everything last year to just 1,000,000. The lease liabilities also come down because there was an actual lease included in the an excavated business. One of the other interesting things that's happened in the last year is we've been become quite successful in the way that we operate our invoice discounting facility. For people who aren't familiar with how this works, we effectively get 90% of all invoices paid to us as soon as the invoice is raised, and then we get the final 10% once the client pays.

16:28 It basically means it accelerates cash generation. So really, even though it's shown as a liability, it's really a reduction in debtors. But accounting standards say we treat it as debt, so that's where it is. But the key thing is, look, we've reduced it from 10,000,000 last year to 7.3. We're just not using it so much even though our revenues increased, and that's pretty good news.

16:54 Final one for me, cash flow. Operating cash flow about the same, but significant working capital changes. So we've now generated 7.5, as Bruce mentioned at the start of this presentation, 7,500,000 in 2024 compared to 3,300,000 in 2023. What have we spent that money on? Well, we spent 1,200,000 on the future build acquisition, a small amount of capital expenditure, net capital expenditure of 200 k. And, again, we've talked about the new equity raise that was completed in October. 6,000,000 of it came in in September. The other 2,000,000 isn't shown here because it came in in October.

17:41 The other financing activities are where we've effectively utilized repayments onto the existing debt. And finally, I've shown a line for the discontinued operations. Here, you can see the impact that that had. All in all, we've ended the year at 6,700,000, an increase from 5 point mill 1,000,000 this time last year. Dividends, again, Bruce mentioned this earlier. So we've paid our final dividend. Oh, sorry. We're going to pay our final dividend in March 2025. That's for the 2024 financial year. We already paid an interim dividend in August of last year.

18:28 So this will make overall a 1.72p per share paid to shareholders for the second year. So that's me on cash. Bruce, I think back to you. Thank you, Paul. This slide is about our current trading and our industry outlook. We had a fantastic start for this financial year also. Strong momentum has continued across all of our divisions into quarter one of the financial year ending 2025. Infrastructure remains buoyant with £750,000,000,000 of investment earmarked across our main markets, and they are nuclear energy, power and energy, rail, highways, and the water sectors.

19:15 The next AMP, which is AMP eight, in the water sector has a committed investment of £104,000,000,000 over the next five years. And so that is more than the double the 51,000,000,000 of investment in the current AMP seven. Network Rail c p seven investment plans representing a £44,000,000,000 of investment into the rail network is from last April 2024 over the next five years. In the rail sector, we are well positioned to maximize our revenue and and and profit. As you might have already seen recently in the news that UK government committed to major infrastructure projects throughout 2025 and beyond, including further investment in the nuclear energy such as Seiswell Sea in Ipswich and Vilfa in Wales along with a carbon capture project, which is called net zero t side, as well as major power and energy distribution projects in various part of The UK.

20:18 As you can see from from the list of these investments, we are well positioned in the market to grow over the next ten years. The next slide is about our growth strategy, and this is our final slide. As you can see from the slide that we have multiple growth opportunities for our future with regards to the many activity. As I mentioned previously, that we have raised around £8,000,000 successfully in September. So currently, we are already talking to identify acquisition targets in the labor supply sector. We have been growing across all of our divisions through a strong pipeline of projects into the financial year of 2025. And there are billions of pounds being invested in nuclear energy with over £11,000,000,000 committed to the Seizuasi nuclear energy project. We have already started supplying labor to this project, and we believe that there are significant growth opportunities in the coming years.

21:21 Regarding the power and energy distribution projects, the UK government has committed to ensuring energy security across the the country. Major power distribution projects are starting in Scotland and England and Wales, and we are already in a in a in a framework with our clients, blue chip clients. So we are well positioned to to to maximize our revenue and profits over the next ten years. This is the end of the slide, and and and thank you so much for listening to us today. And we really appreciate your feedback, and please feel free to ask any questions. Perfect. Bruce, Paul, thank you very much indeed for your presentation.

22:07 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 view 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 our investor dashboard. And, Bruce, Paul, as you can see, we have received a number of questions throughout today's presentation. And, Paul, if I may now hand back to you and kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you at the end. Thank you. Thank you very much. Yes. We've got some questions. Interesting. So the first two questions are both from Gary b. I'll take the first one, shall I, brisk? So the question from Gary b is, first one anyway, is how resilient is your business model to potential inflationary pressures or sustained high interest rates in financial year 2025?

23:02 Okay. This is a fairly straightforward one, for us to answer. So the debt that we have is all at fixed interest rates apart from the invoice discounting facility, which is based on a margin over base rates. That is really on that invoice discounting facility, which as I said in the presentation, we've been using less of. So it's not a high risk to us and the like and nobody really expects interest rates to shoot up dramatically in the next year. So I don't think there is any risk to that at all. In terms of general inflationary pressures, obviously, you've got the change coming with the national insurance in April of this year.

23:49 But we normally renegotiate our recharge levels to clients at least once a year, and this will be part of another negotiation because that will be passed on to clients. We've not had in the prior year, inflation has not been at the same levels as everybody knows, so it has not been so much of a problem as it was, say, in 2022 or part of 2023. Whatever, where you've got inflationary issues, that push up wage rates, that is all always effectively passed on to clients. So we're not at risk there at all, really. In terms of civil projects where we buy materials, we always quote prices on fixed price jobs where we've got materials. We make sure we get fixed prices on materials, and we own and we only quote to the client prices that cover that period of time. So if they don't do it till later, we would give them a new quote to cover any likely or possible material price increases.

24:56 So, yeah, it's a good question, but not one of any major concern to us. The second one, this is also from Gary B, as I say. So the question is, can you also shed a little more light on your acquisition pipeline? What it says what care. I think it means what type of companies or what sort of companies are you looking for. Bruce, do you wanna take that one? Yes. Sure. No problem. Great question again, and it's very important for us. We have raised, as I mentioned, around £88,000,000 from our new investors. And and our intention is to grow organically as well as acquiring other companies in the labor supply business.

25:43 Infrastructure is very fragmented and lots of projects coming up, lots of pipeline of work coming up in The UK. And and we believe that looking at potentially acquiring companies in labor supply sector, which can add value to us would be would be preferable. So we are already talking with some of the targets in order for us to be able to acquire them and and and and grow altogether. Yeah. Very, very ambitious plans that we have got. And in in 2025, our intention is to get one or two over the line. And, yeah, it's it's going well so far with the with the discussions. Thanks, Bruce. Thank you. Okay. The next question is from Richard l.

26:30 How has the diversification of the client base in the rail sector contributed to revenue stability and growth potential? Bruce, do you wanna take that one? Yes. Sure. So with regards to the rail opportunities, we only established our rail arm over a year ago. It's going really well for us. It's already turning over about a £1,000,000 for us. And and we started with Balfour Beatty, but we have got another couple of clients joining joining our client list. So it's going in the right in the in the right direction, but that that could be any you know, in in the future, some opportunities for us to be able to acquire other companies to be able to grow.

27:19 We are maximizing our opportunities at the moment, and and we establish our compliance team within the within the rail as well as our operations team. So, yeah, it's going really, really well, actually. So we should have another record year for us for our rail rail division to to to perform in 2025 also. Yeah. It's probably worth adding, as Richard mentioned in his question, contributed to revenue stability. Well, our revenue, as as Bruce said, it's it's we've only achieved £1,000,000 out of what our total of a 107 in in 2024. So it it doesn't really have any major major impact on our revenue stability. I think that's what you meant by the question, Richard. But anyway, and Brisk has covered off the growth potential point.

28:06 The next question is from Christian w. How do you see the labor demand from home building companies picking up during it's put the last months, but I think during the next few months, suspect is what the question is aimed at. But, Bruce, do you wanna take that one? Yeah. Sure. Great question again. We work mainly in the infrastructure business, and and and we don't supply any any labor to the house housing comp you know, in the housing industry. And and we we we are aware that housing at the moment is a bit quiet, and and it will sort of pick up in the next few years. But our attention is to make sure at the moment that we we we keep up with the demand in the infrastructure sector, which is which is gonna be huge, which is already huge as you can see from our organic growth numbers that that that we are we are maximizing it, but there are gonna be even further opportunities. So we wanna make sure that our constant we are concentrating, we are focusing on delivering the amount of work coming up in the infrastructure sector.

29:14 So, yeah, really exciting few years coming up for us. Okay. We've now got a question from David s. With significant projects exceeding £1,000,000 in value, what operational or financial challenges do you face in scaling further? I'll take this one then, Bruce. So we've been dealing with significant projects joining our queue of our pipeline for almost five years now. So we've had to and we knew all this was coming. We knew full well that there was going to be significant growth, And we had to build our our internal infrastructure, whether it be people, whether it be systems, procedures. We've had to to build that to get ourselves to be able to deal with all this growth and continued growth.

30:06 So, you know, we understand what those challenges are. We need to operate like a large company, not like a small companies, which is what we were five years ago. And, of course, we will evolve with our growth. But in terms of labor supply, labor supply is very scalable. You effectively you're you're you're delivering people to the client sites. You're paying them, and you're getting your margin. And, you know, all we have to make sure that we have an infrastructure behind it that will actually deal with that. Most of that infrastructure is is is being done. And you you'll probably notice if you look at our accounts that the growth in administrative expenses has been little or nothing in the last year, and that's indicative of how much we've built that, and it's now that any increases have have tailed off a little bit.

30:58 That will always you know, we will always need to to increase that that level because over time, you see opportunities, whether it be commercially or other forms of opportunities that we will want to take to make sure we can generate as much profit for shareholders as we can. So sometimes you make an overhead investment knowing that you're going to get something back, say, in the following year. And there will be areas like that to do. So operationally, I think we've got we're we're we're well trained at how we scale up with labor supply. We've been very careful with civil projects not to build that business too high too quickly. So again, I think we're I don't think we've got any operational challenges there. We've been doing it a long time. And financially, we've got the invoice discounting facility, which I meant I mentioned earlier on.

31:55 Where at the moment using less than half of the facility we have. So we've got considerable scope for for further work there. And, you know, we've also got the opportunity to go back and increase that if the increase in business accelerates materially. I suppose the other thing worth pointing out, we clearly have done the fundraise recently, and that's been very significant. And that doesn't mean to say that we will use all of that on possible acquisitions. I suspect some of it, we will we will keep to to to help us navigate normal working capital changes over the year or year couple of years ahead.

32:43 Okay. Thank you, David. The next one is we've got two questions from Christopher h. One for you, one for me by looks of it. Bruce, I'll let you have the first one. That is, what's the biggest opportunity to grow the company? There are a few opportunities. Organic growth is is is one of them as we'll be growing. The amount of work that that we have secured and coming up is is a great one. So we'll be growing profitably over the next, we believe, ten years. And also the other huge opportunity for us to be able to acquire companies which are which are gonna add value added value to to to to us and and for us to be able to grow altogether to maximize the opportunities in the in in The UK infrastructure markets. We already have got some plans with regards to the acquisition opportunities in the labor supply markets.

33:41 We have got a bit of a list and targeting certain companies, certain areas, and and and and that list is really, really good and and and powerful. And and we believe that we are gonna be, as as I mentioned before, getting one or two acquisition over the line in this year. And and and we wanna keep keep repeating that every year and and and and grow together really. Thank you. Okay. So one more question from Christopher H. Do you intend to grow dividends in line with profit? Or does M and A take priority over this re cash distribution? Well, I think the first thing to say is that we've obviously increased the number of shares that we have in the business. Film, it was about 62,000,000 at the start of, 2020, '4.

34:38 It now starts 2025 with 80,000,000 shares. So straight away, at the same level, of dividend at 1.72p per year that we've achieved in the last few years, that's going to make, that's a bigger payment for the the company to make. But we, see our shareholders as loyal, as very, very important and the bedrock of supporting us through this growth. So our our our strategy is very clearly to continue with dividends at least at the same rate. And depending on how much profitability moves along in the next few years, possibly increase that further, but that's not for this year. Do we have any plans to not do dividends and make m and I and a a priority? No. We don't have that plan. We're not going to sudden suddenly stop paying dividends and say we want to put that into other acquisitions.

35:33 We've raised money as you can see for acquisitions without needing to do that, and we believe we can, raise more for other acquisitions, when required. That's why we joined the AIM market, and that's why we build relationships with investors like some of the the guys that's joined us recently. They're great people to know. One of them, Martin Tethem, has in fact joined our our board, as a non executive director. So hopefully, that answers that question. And by the looks of it, that's the last of the questions. Thank you. That's great, Paul, Bruce. Thank you for addressing all those questions for investors today. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Me company platform. 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?

36:24 Yeah. Sure. Thank thank you, Alex. As I mentioned previously, there are huge opportunities in The UK infrastructure market, and we are well placed being on the a market and also being a framework supplier to our blue chip clients. We are ready to even grow further. Just to remind everyone, just only a ten ten years ago, we were a £7,000,000 turnover company just ten years ago. And now we are a 100 over a £100,000,000 turnover being on the London Stock Exchange listed on the Stock Exchange as well as being being one of the strategic suppliers for our clients. Now we we believe that I personally wanna see HERCULES becoming a £4,500,000,000 turnover company over the next five years by acquiring other companies as well as growing organically.

37:21 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 and other that the Board can better understand your views and expectations. 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 SITE Services PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you.