Hercules (LSE:HERC) — Full Year Results

0:01 Good morning, and welcome to the HERCULES SITE Services PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and 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 will review all questions submitted today and publish responses where appropriate to do so. Before we begin, I would like to submit the following poll.

0:32 I would now like to hand you over to CEO, Bruce. Good morning, sir. Good morning, Alex. Thank you. Thank you everyone for your time dialing in and listening to our announcements. We are very pleased to let you know that we had a a a fantastic year. To in today's presentation, we will talk about our full year results for 2022. We are very excited to share this with you all, and we will also talk about future growth plans. Just before we start, just to give you a brief introduction for our company, HERCULES SITE Services PLC is a technology enabled labor supply company operating in the infrastructure sector.

1:21 Slide two is about the disclaimer. I'll just move on to to to our presentation team. I'm Bruce Korkmaz. I'm the CEO of of HERCULES. And today, I'm joined by our CFO, Paul Whitcroft. Paul, I think this is your slide. Just bear with me, Brisk. Let me just, bring Paul back in, if I may. Just give me two seconds. Yeah. No problem. Thank you, sir. Hi, Paul. If I could just bring in your microphone, that'd be great.

2:10 Hi there, Paul. Can you hear us okay?

2:12 I can hear you fine. Lovely, sir. Over to you, sir, for slide achievements since IPO. Thank you. Yeah. It's been an amazing year for HERCULES. We floated on the AIM stock market in February of last year and raised 4,000,000 gross. We beat our forecast in '22, both both in in revenue, and EBITDA, so it's been a record year for us. In fact, the revenue increased over 50% for the second year in succession. And according to SBA Angel's forecast for 2023, we'll increase again by over 50%.

2:49 This this growth has been spread across all our three main divisions, and we have now started a fourth income stream with our first digital product. The h h two northern section and many other projects are driving the increase in labor supply turnover, 45% increase, actually. In terms of civil projects, that's being driven similar growth by the AMP seven water industry program. We've got added seven more suction excavators in the in the latter part of the year fulfilling significant demand, and we're still maintaining an average utilization rate of 87%. Since the IPO, we've paid both our first dividend for 2021 and an interim for 2022, and we're now proposing final dividend for 2022 to be paid in March of this year, all in line, with, our expectations.

3:44 Also, very importantly for the future, we signed a lease, on a site in Dunedin where we intend to create our very first training academy. We hope the first of many. And this this is to help bridge the skills gap in the industry and add another income stream.

4:04 This slide is about our board. As you can see from the slide, we've got a very strong and well respected board board with both exec and nonexec directors, with great blend of experience in infrastructure, financials and banking, sales, PLC, governance, and even starting and running their own, in listed company. Together, we believe that we can grow HERCULES even, further.

4:32 This is, this slide is about our business overview. As you can see at the top of the slide, some of our blue chip clients we work for in the infrastructure sector. As I've mentioned before, we are mainly a labor supply company working, for blue chip infrastructure companies and complemented by our construction services division. Our labor supply department is a significant part of our business, which currently contributes 70% of our turnover, and this number is still growing. Under the construction services division, we hire out our, suction excavator services,

5:07 and we also carry out civil projects under the same umbrella. We also developed our apps that helps us to recruit local labor for local projects and onboard them efficiently in a paperless process. Our digital arm differentiates us from our competitors and underpins their whole business. 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. I'll move on to the next one. You can see that, from this slide, we got a very strong growth history. I set up HERCULES, in 2008 from family spare bedroom. Since then, we have been growing year by year.

5:54 You can also see from this slide that there are several milestones we have achieved over the last fourteen years. Just to mention some of the significant milestones, winning the HS two labor supply framework in 2021 for the Northern section with Balfour Beatty and VINCI joint venture. We are one of the six labor suppliers for this mega project, and we are performing really well there. At the beginning of February twenty twenty two, we listed HERCULES on the in market, and it's a major milestone for us. We are really excited about being on the in platform, and this will we we are hoping that this will enable us to grow as we have ambitious plans for the next part of our journey.

6:38 In August last year, we selected a site for our training academy, which is in Nannington. This site is very close to the northern section of the HS 2, which will help us to upscale and cross skill our workforce, and we believe that we can monetize this opportunity. Lastly, we have started our two new divisions in November, and there are construction white collar and construction site security divisions.

7:09 Thanks, Bruce. As I said earlier, revenue has been increasing by circa 50% for two years now, and we now expect another year of similar growth. Very, very exciting times. This growth is is not a surprise. We've been planning for it since well before COVID and have been steadily building our management, our facilities, and our systems to be ready for it. And we've exceeded our market forecast, and this has been despite suffering suffering delays on both the start of work on the HS 2 Northern section and on the delivery of seven new suction excavators.

7:45 Planning for growth and and matching that to the timing of new revenues is an ongoing challenge. And if those delays had not occurred in as they did in 2022, we would have delivered, an even better result. Depreciation and finance costs increased all all due to the purchase of those suction excavators during the year, but such increases in these costs will hit their peak when the 10 we have on order, which we still haven't got, arrive by the end of March of this year. So we're continuing to prepare for more growth, whether it be organically or by grasping some of the new opportunities available to us. Bruce will talk about that a little later. PBT would have been naught £600,000, but for the final IPO cost expensed in the year.

8:36 The new digital product revenue I've referred to is for our what we call a c portal, which stands for skills, education, and training. And we got funding from for this, and they've now licensed its use for just one site, the Old Oak Common Station. We expect more sites to utilize this this product and other clients to come into the frame with it in the next few years. With regards to our labor supply division, we had a brilliant year with our with this division also. As you can see from the revenue section, our turnover for the labor division grew from £23,000,000 to £33,300,000.

9:25 Before the IPO, we had around 400 people working on-site with us, but currently, our workforce is nearly 800 people. So last year, we have invested significantly in our management and our systems to help us to deliver the potential further growth in the years ahead. So the significant investments in our company are the main reason for the operating profit growing only from 3.9 to 4,200,000 last year. So we have been investing back into the company for our growth. We are growing organically, and we have a strong pipeline of projects. As I mentioned previously, we started our white collar and our site security divisions recently. We have new clients such as Tiers, Englein Water, Tilbury Douglas, Galliford Tri Highways, Catbury, and we recently started working on a project on the A 428 called Black Cat Randabad for Skanska.

10:22 We are one of the six companies working as a part of Labor Desk on the Northern HS 2 northern section, and we are performing really well there and currently supplying 25% of the whole workforce. And we believe that this number will go up. Currently, we have 750 operatives working across all sites, and we believe that this will go over 1,000 people within this year.

10:46 One of the reasons for our positive performance on all sites is our recruitment and our onboarding apps that we developed in house. So we find local jobs for local people, and we onboard them efficiently. And we've got eight eight thousand one hundred downloads through our recruitment app, and 1,200 operatives have completed onboarding process through our one one team app. As you might be aware that there's a massive skill shortage in The UK, and we believe that upskilling and crosskilling our workforce will help us to close this gap. And, also, they'll this will allow this will also help us to monetize this initiative. Our sustainable approach is to find local people for their local projects, train them up, put them to work, and retrain them for upskilling opportunities.

11:36 Because we believe that in twenty years' time, the current jobs may not exist, and we need to move with the technology.

11:49 Onto civil projects. We had a 56% increase in revenue in civil projects, and this really was driven from by the AMP seven water industry program, which finally kicked in. It should have started in the COVID year, but didn't for obvious reasons. Started sort of spring twenty twenty two. They've now got five years work to do in this of this program, and they've gotta do it in three years. That's obviously helping to to drive lots of work coming the the way of our civil projects team. But as well as that, this team is is is moving ahead very, very well in the first quarter of this year, which is October to December 2022.

12:39 They've started very well, and they already have £8,000,000 worth of contracts in the pipeline for 2023. That's with only three months gone. So, again, looking for for some good interesting result there. Because of this growth, this division, like all of our other divisions, it doesn't stand still. And to to grow in the way it does, it has to to gain a number of new clients. And you can see during the year, it's done exactly that in the likes of Tilbury Douglas, Mac McDonald, and SGN. But all building continuing to build more relationships with more key clients to to drive growth well into the future.

13:26 In terms of suction excavators, the demand for for these this service that we give is driven by an increasing need to dig around underground services safely. And that's exactly what these machines do for you. You take the top layer off, and then you suck the ground out. And for the uninitiated,

13:47 this is really to to ensure that we don't get any accidents. There have been deaths from people digging manually underground around services, and you reduce the possibility of delays and downtime and penalties. We started the year with nine suction excavated, adding another seven during the year. And, actually, since the year end, we've received another four taking us to 20. 10 more are due by the end of March twenty twenty three, and that's quite important because the idea of that is to make sure we utilize the final year of of the super deduction. When we get to that point, we'll have a fleet of 30, and that will be one of the largest fleets in The UK.

14:33 We're very, very pleased to be able to say that as we've increased this fleet, we've managed to keep utilization rates high around 87%. And we've working for some time on ways to get the the new tenants coming shortly also out on client sites as soon as possible after delivery.

14:53 We sought to expand our client base to ensure that when each new vehicle arrives, we have more clients to offer the services to. And in fact, we've increased it by 43%. Again, see some of the names here. Tilbury Douglas, Kier, Wells and West, some of those also new clients for for civil projects as I've already said. And we've also added a triple fan option for for clients that require deeper digging. So we think we've got a pretty good offering. Preparation for these vehicles coming in includes recruiting and training operatives, getting them experienced with existing skilled operatives, implementing some new systems, and purchasing vans to go along with each vehicle. These costs are all incurred as close as possible to expected delivery dates, which have unfortunately all been significantly later than promised due to

15:46 post COVID, production, problems on the continent. The gap between cost increases, which have been about naught 600,000 and the new revenues is therefore the main factor as to why we did not increase operating profit by more in the year. Our aim is to spend a year or two at least consolidating the division, following the the delivery of the last 10, and to increase efficiency. We have no plans currently to expand the fleet above 30, but if there are any opportunities that come along, we'll obviously consider them. This is our balance sheet, and it's not something I will say too much about. It's pretty straightforward. We have the suction excavator assets and property leases being the main elements of fixed assets.

16:36 The noncurrent and current liabilities contain the balances on such funded assets and leases circa £13,000,000. And the current liabilities also contains a invoice discounting facility, which stood at £6,500,000 at the end of the financial year. Cash flow. This slide gives an indication of the ongoing requirement for more working capital as the business increases in size.

17:04 The £7,100,000 needed in 2022 came from growth in the ID facility and the fundraise via the IPO. With regards to our current trading and outlook, it is really positive as well. We had a strong momentum this beginning of our 2023. So October, November, December, and January started really, really well. All divisions have carried out, carried over high performance levels, which we are very pleased about it. And we are on track to deliver our financial year ending '23 targets, which is another 50%. So when we hit this target, we would be achieving 50% growth, 50% plus growth three years in a row. That means 2021, 2022, and 2023.

17:59 So we'll be very pleased with these results. Infrastructure remains really positive with £650,000,000,000 investment earmarked across our main markets, which are highways, water utilities, and HS two. UK government committed to major infrastructure projects throughout 2023 and beyond, including a further investment in nuclear energy. And we believe with the investment in infrastructure sector, we will be very busy and growing for the next ten to fifteen years. I'll move on to the next slide. This is our growth strategy. We have been really busy with organic growth across all divisions through a strong pipeline of projects into financial year 2023.

18:47 Training and training academy are, as as I mentioned, there's a skill shortage in The UK, and we believe that we can close this gap by upskilling and crosskilling our workforce as well as, we can, I'll just show you our what what it looks like our our our training academy. We we believe that we can also monetize this opportunity as well. It's going to be very, very modern. It's just just a c CGI drawing. It's going to be really modern, and we believe that we will train The UK's next generation workforce from this. I'll go back to our growth strategy. With regards to our white collar and security divisions, I think I mentioned them. We started our, two new new divisions just November a a couple of months ago.

19:35 With regards to our digital arm, we monetized the CFT portal as a skilled education and employment portal, and it has been used for and joint venture in Oulu Common Station. And we believe that there is more potential to push this on local government as well as other projects as well, which we will be working on it. Suction excavators, like Paul as Paul mentioned, we've got 20 suction excavators currently, and 10 will be arriving 10 more will be arriving by end of March, and we will have one of the biggest fleet in The UK. And we would like to keep the utilization rate as high as it has been. So 87% plus, that is our aim, and make sure that we are very busy with suction excavators also.

20:23 With regards to the subsidiaries and partnership approach, this will help us to accelerate our labor supply growth into new geographies and new sectors by partnering with ambitious managers. This will also help us to grow our reach. With regards to the m and a activity, we are talking to a couple of companies for this for acquisition opportunities, and we believe that we wanna get one of them over the line within next six months to nine months. As you can see, we have got multiple growth opportunities in the infrastructure sector, and we are very excited for delivering great results for our shareholders and for our clients.

21:09 Thank you so much for listening to us, and, yeah, we would like to take some questions if that is okay. Paul, thank you very much indeed for your presentation. I will now turn on your cameras for the q and a. Ladies and gentlemen, please 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. Bruce, Paul, as you can see, we have received several questions throughout today's presentation, and thank you to all investors for submitting their questions. Could I please ask you to read out the questions and give responses where appropriate to do so? I'll pick up from you at the end. Thank you. Okay. Thank you. So the first question we got is great to see the significant progress. What additional investment is required in the business support the increased volumes of business that you are seeing?

22:07 I'll take this one, Bruce, if you like. So so, basically, our business is predominantly labor supply. And labor supply means we pay our operatives weekly, and we invoice our clients monthly. So there is a time lag in terms of cost for us. So that's the nature of our business. It always has been since Brusk started it in 2008. It means it's a working capital hungry business, and we'll always be looking to to raise more working capital from one facility or another. Not just now, but forever, we'll always be doing that. So that's always something that's on our list to review. The next question is, can you comment on competition in this industry, in this space? And do you see growing the company through acquiring any? Do do you wanna take that one, Russ?

23:04 Yeah. Sure. No problem. With regards to the competition in this in the infrastructure industry, there are some companies 30 to 40 years old and passed from father to the to the sons or the next, you know, generation, and and they are also growing as well. So because of the infrastructure spend as well. And we are definitely looking for acquiring some of the companies as as we are acquisitive, as I mentioned in in my in my last slide that there are a couple of companies that we are working for, and, hopefully, we get one of them over the line within the next few months. Okay. Next question. It's an interesting one. How important is technology to the future of the business, and do you have any new functionality or business applications to release this year?

24:00 Bruce, do you wanna say something about that? Yeah. Sure. No problem. Technology is so important for us, and and and it's making our with our OneTeam app as well as our recruitment app, we are finding people local people for local jobs really quickly. It makes us very, very efficient. And we would we would like to make sure that our OneTeam app has got maybe training capability, online training capability that we can train people on sites through our onboarding app, which is the one team app, as well as we would like people to have access to their their pay slips through that. So start a platform and have conversation with them, daily conversations. If they are not happy, they can let us know because health and well-being is so important as well. We would like to make sure that they are being so we wanna our aim is to create a platform with with regards to our one one team app by adding more functionality.

25:02 Okay. Another question. Do you have any plans to expand outside The UK either directly or through partnerships. I think I I think I can take this one, Bruce. We don't have any plans to expand outside The UK in a direct sense. However, the question is is is interestingly put. One of the ideas of the partnership arrangements that we're looking into is that outside The UK, certain partnerships could actually occur. So that's one of the options that we are looking at currently as as the next few years come along. So we can model all details, and it might possibly happen. We'll we'll see. Moving on to the next question. Again, probably the one for you, Bruce. How how have you found being a listed company? Has it helped being a list being listed when tendering for new business?

25:59 It's so being listed is, you know, great great platform for us to grow, and we are growing. So we believe that it is the right platform for us. With regards to the with tendering for new business, I believe it will have it it hasn't so far because we have you know, with our reputation, we have been sort of getting the projects that that that we were after, and and and and and we are just targeting them because of our our good reputation as well. But I believe that the the more that we are gonna grow this sort of being listed in the on stock exchange should help this sort of tan tendering for new new businesses. Thank you. Bruce, Paul, that's great. Thank you for that.

26:44 And I think you have addressed all the questions from investors and, of course, the company. We'll review all questions submitted today, and we will publish those responses on the Investor Meet company platform. Before redirecting investors to provide you with a feedback, which I know is particularly important to the company, Bruce, could I please ask you for a few closing comments? Yeah. Sure. We had an amazing 2022, and we wanna do this again this year. So you can see from today's presentation that we have overdelivered what we promised to the market, and our our aim is to do it again for this year as well. So thank you so much for listening to us, and, yeah, hope to meet up again online. Thank you. Thank you. Bruce and 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 management team can better understand your views and expectations?

27:38 This will only take a few moments to complete, and I am sure will be great greatly valued by the company. On behalf of the management team of HERCULES, HERCULES SITE Services PLC, we would like to thank you for attending today's presentation. Good morning to you all. Thank you, Alex. Thank you.