Hercules (LSE:HERC) — Interim Results

0:01 Good morning, and welcome to the HERCULES PLC Interim Results Investor Presentation. So at 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 your questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll. And I would

0:32 now like to hand you over to CEO, Bruce. Good morning to you. Good morning, Alex. Thank you so much. 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 first half of the year. Once again, we achieved a record six months, and we are in line with market expectations. So we are very proud of that. 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. The next slide is about our achievements for the first half of the year. As I have mentioned before, we had a fantastic first six months for 2025.

1:27 Our revenue, EBITDA, profit before tax, and our earnings per share all increased comparison to first half of twenty twenty four, and we are trading in line with market expectations. I've got a slide about the numbers later on, so we will go through the numbers that that that we achieved on the on the next slide, I think. We have achieved these strong results through growth in our labor supply division. We have completed our second acquisition, a company called QTT, a training company called QTT. As you may be aware, The UK is facing a significant shortage of skilled workers with over 250,000 people required by 2027. And as you might remember, over a year ago, we launched our HERCULES Academy to have upskill and cross skill our workforce.

2:21 So acquiring QTT will boost and strengthen our ability to do this at scale while also enabling us to train individuals outside our organization, potentially generating additional income for our HERCULES Academy. Since establishing our HERCULES Academy, we have started generating our first revenues while upskilling and crosskilling our workforce, and we have trained over 1,500 people since we started the academy. We believe that by upskilling and crosskilling our workforce, we can meet the growing demand in The UK by supplying skilled workers for the key projects. We entered the second half of twenty twenty five financial year with strong trading and strong balance sheet, which Paul will talk about it later on.

3:11 And last September, just to remind you guys that we raised £8,000,000 to invest in acquiring companies within the labor supply sector, enabling us to grow even further. Lastly, the the the third quarter of this financial year started really well. We have a strong pipeline of projects, and we are confident that we will have another record year of trading.

3:39 The next slide is now now I'll take you through the the the figures that present our financial performance for the first half of twenty twenty five. Our revenue is up 18% to £54,600,000. Our adjusted EBITDA is also up 26% to to £2,600,000, and our EPS is up nearly 20%, and our adjusted EBITDA is up 47. So as you can see from these numbers, these are really record numbers are have have been achieved by us for the first first half of the year. The the next slide is about our business overview. At the bottom of this slide, you can see some of our blue chip clients we work for in the infrastructure sector.

4:28 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. Our labor supply division is our core business, and it's a significant part of our company, which currently contributes to 86% of this turnover, and this percentage is still growing. We believe that within five years' time, this percentage should be coming up to 95%. We have been supplying laboring to UK's highways, rail, nuclear, 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.

5:15 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 with some staying with us over eighteen years, and we continue to grow our client base every year. The next slide is yours, think, Paul.

5:40 Sorry, Paul. We can't hear you. Can now, hopefully. Yes. Sorry about that. No problem. So this is a business highlights. And talk in particular labor supply first, which is, as Bruce said, is is nearly getting towards 90% of our business. So we've got this strong project pipeline, and that is driving and continuing to drive our organic growth. We've gained a number of new clients, in particular, the costing United Utilities framework, which is a big step forward for for the for the years ahead. We've now got about 1,600 operatives across all sites. The same point last year, we had about 1,200. Those of you who will have listened to what Bruce and I have said in the past will know that we have one of our main USPs is we have this fantastic recruitment app.

6:35 We've now got 17,400 people have downloaded that app. Again, same point last year. That was 13,000. And that's all being added, really. No particular marketing happening there. It's social media, and it's word-of-mouth. So it's very popular. People are always looking for what their next role might be, and that's a great thing for them to to use to help them find it. We've also got another app, which is called the One Team app, but it's effectively onboarding. So, what happens here is that, this eliminates paper. We used to send, people up and down the country, with sheaves of paper to get people to fill out documents before we could actually get people started on the site. We now do that exclusively in the digital format.

7:25 And we've now got 7,000 people have have been onboarded so far in this way. Same period last year, that was 1,200. So just shows you how how we are a very, very efficient digital based company. Final point on on labor supply. Labor supply operates, only with a a constant upskilling and cross skilling, because the training that everybody have has always they always run out, three to four years, and they have to be retrained. We take that opportunity, upskill and cross skill them, which is good for them. They can, earn more money, and it's good for us because we can charge more money. And, that training, as Bruce said earlier on, we've now done over 1,500 since we opened our own training academy.

8:16 So better to do that ourselves rather than do it with other people, and that's why we own the academy. Civil projects. Again, those of you familiar with the the industry will know that the AMP, program, asset management program, is a they're in they come in five year chunks. AMP seven finished, at the end of March, and AMP eight has now started. Putting that into perspective, the five years worth, of money that was allocated to AMP seven was 51,000,000,000. It's now more than doubled in terms of what the the amount of money that the water companies have to spend for the five years ahead.

9:00 The usual every time there is this changeover from of amps, it's always a little bit slow for the, the industry to get itself moving, but, we're now being asked to tender for significant amounts of work. So we think that's gonna really sort of, like, pick up big time from between, September and January, February time next year when it will really start to move. But they've done but, you know, despite that, they've actually obtained £12,000,000 worth of contracts already that will affect, our financial year '25. And they've also gained a new client in Wessex Water.

9:41 So this is our our group statement, and you can see that we've, got above the 50,000,000 amount in in a half year for the first time. So that's 18% increase in turnover, a good increase in gross profit as well. Overheads, only really a minor increase in that, and we work hard to try and keep our overheads down. But as we grow and keep growing, there's always a need to do some changes, and that's normally in one direction. But I think we've controlled that quite well. So our adjusted EBITDA was increased by 26% to 2,600,000. And our operating profit, excuse me, is now 2,100,000.

10:28 1,700,000 profit or loss after tax, and that's a a major increase on last year. Similar earnings per share, 2.11p. That puts us in a very good place for, before the second half of the year comes around. We're on course to achieve market expectations, which is obviously something that everybody wants to know. We're in a a good position, we believe, after the first six months, and I'm looking forward to a another successful second half of the year. In terms of balance sheet, the major change here is that we've, divested ourselves of our suction excavator business, and that eliminated about £9,000,000 worth of debt.

11:16 So the reason that we divested ourselves of that business was because it had 88% of the group's debt, but only 5% of the turnover. And it was not a situation that investors particularly liked, And it was stopping us from moving forward with further further acquisitions in the labor supply space, which is what we're all about. And Bruce will will fill you in a bit more on that in in a in a in a few later slides. So we have, reduced that that debt, as I say, by about £9,000,000, and that is a big change, and that's the major change, in terms of the balance sheet. Cash flow wise, we had a a major benefit in 2024 because we managed to change the way the, some of the larger clients were operating with cash. So we got a one off boost there, which was not repeating. That's the working capital changes. Other than that, operating cash is flowing through nicely, and we still did have four months of the sub ex business within, these these numbers, but that won't be in there in the second half of the year.

12:30 We also gained a net £1,900,000 from that sale of the suction excavator business. And we also spent about £1,000,000 in new CapEx, which was mainly vehicles. So we ended the period with cash at 9,800,000 in the same point the previous year. It was 1.7, and that reflects the the the gain in the cash from that sale of that business and the fundraise that we did September, October time, which netted us about 7,500,000.

13:07 Finally, a point about dividends. So the, final dividend for the 2024 financial year was paid one point, $1.02 pence per share. It was paid, this last March, a couple of months ago, and we've already declared that we're going to pay, an interim dividend for 2025 as we have done consistently since we did the IPO, in August of twenty twenty five of naught point naught six pence. Bruce, back to you. Thank you, Paul. This slide is about our current trading and our industry outlook. As I mentioned before, we had a fantastic first six months. Also, strong momentum has continued across all divisions in the second half of this year, and we are pleased to to to to we are we are confident that, we are on track to to to deliver our our results.

14:01 If you got over 1,600 people employed by us, which is a record number, this means it's going in the right direction for our growth.

14:08 Infrastructure remains really buoyant with £750,000,000,000 investment earmarked across our main markets, are nuclear, power and energy, rail, highways, and the water sectors. As Paul mentioned about AMP, the the the next AMP AMP is going to be really busy. The the the the the water sector has a commitment committed investment of £104,000,000,000 over the next five years, more than double the £51,000,000,000 investment in the current m seven. M seven just finished in in April, so Ampate is is starting,

14:49 it's gonna start ramping up between September and and January. And we are we have been working in the in in in in in the different AMP since four AMP four. So So that's eighteen, eight and a half years ago when when we started, HERCULES. We have been working in the water industry, we are we are a specialist, in that. So we believe that we are going to be

15:14 twice as busy this year if you compared comparison to the m seven, which is which is brilliant news for us. Network Rail CP seven investment plans representing £44,000,000,000 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 our profit also. This is exciting. This part, as you might have already seen recently in the news that UK government committed to major infrastructure projects throughout 2025 and beyond, including initial investment of £14,200,000,000 in the nuclear energy such as Seizuasi and Ipswitch, along with numerous small modular reactors and carbon capture projects such as Net Zero, T side, as well as major power and energy transmission and distribution projects in various parts of The UK.

16:10 As you can see from the list of these investments, we are well positioned in the market to to further grow over the next ten years. As you are aware that there's a skill shortage, as I mentioned previously,

16:21 and and and huge investment opportunities in infrastructure coming up. So we believe that we are a strategic player in the in in the infrastructure sector supplying skilled workers, skilled operatives, and also providing training for our employees as well, which will make us even more special in the and and more valuable as well in the in the infrastructure sector.

16:49 The next slide is about our growth strategy. This is our final slide. As you can see from this slide, we have multiple growth opportunities for our future with regards to m and a activity. As I mentioned previously that we acquired QTT, a training company. As you might remember that we have successfully raised around £8,000,000 in September last year. So currently, we are already talking to identify acquisition targets, you know, in the labor supply sector. With regards to our organic growth, we have been growing across all divisions through strong pipeline of projects into financial year 2025. There are billions of pounds being invested in nuclear energy. As I mentioned before, initial investments of £14,200,000,000 committed to size one c nuclear energy projects.

17:36 We have already started supplying labor to this project, and we believe there are significant growth opportunities in the coming years. I think this project will be ramping up in this year end of this year and huge push from 2026 onwards. Regarding the power and energy distribution and transmission projects, the UK government has committed to ensuring energy security across the country. Major power and energy transmission and distribution projects are starting in Scotland, England, and Wales, and we are already in a framework already a framework supplier for our blue chip clients in these regions. So exciting, you know, times coming up for within the within the power and energy distribution and transmission sector as well. So we wanna maximize our opportunities there.

18:26 This is the end of the slides, and thank you so much for listening to us today. And we really appreciate your feedback, and please feel free to ask any questions. Thank you. That's great, Bruce. Paul, thank you very much indeed for your presentation. 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 a number of questions to start today's presentation. And, Paul, if I may now hand back to 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.

19:11 Sorry. The questions are are not there. No. The questions have disappeared for some reason. Sorry. I don't know why. I think one of the question from l m b, can remember, Paul. I just read it. Yeah. I can remember what what while we try and get the questions back on the screen so I can oh, here we go. There we go. Yeah. Super. Okay. I'll take the first one then. So this is from LMB. And the question is, with everything going up, why does the dividend, not go up in proportion? Right. So this is, one of these, interesting questions. There's no right answer to this, but we we started, when we did the IPO three years ago, wanting to maintain a a decent dividend, and I think that's currently a yield of about 3.6.

20:01 We always said that we would review that as as the profitability of the business is built and how much cash is required for, investments and for further growth. At this point in time, we've not, changed that dividend. But one of the reasons for that, I think, was up till now was the the issue with the, suction excavator business that I talked about earlier on was that did,

20:30 take a a fair amount of cash out of the business because the assets were so expensive to buy and pay, the funding on. So I I think it's a it's a valid question and one that we will keep under review. And I think as future dividend declarations go, we'll we will always see if it's if if that's the right time to increase the dividend because we certainly wouldn't be thinking about reducing it. Okay. The next question, Bruce, probably one for you. It says, what drove the 30% labor supply growth? Was it new wins or work on existing projects like HS two? And how does this affect margins? Thank you. Thank you, Martin. It was this was Martin's question.

21:21 So 30% labor supply growth is is combination of of of HS two contribution as well as other projects that that that we are working on in the water as well as as I mentioned, water is going to be busy. But m seven also finished really strong or finishing strong. We are still working on the current projects, and there are power and energy projects that are coming up. As I mentioned, the size of l c, we started working on. And and I believe when you look at the the the margins, it does feel like we are going to where where there's a where there's a shortage of workers, as I mentioned, two two hundred and fifty thousand people required by twin 2027, which is in two years time, we will that will be a when there's a demand, then then that means that the margins potentially go up. So we are expecting them to go up over the next couple of years, And and the contribution of the our focus will be mainly on the power and energy distribution projects as well as water and and and our, you know, current contracts that we have got.

22:37 Yeah. Exciting exciting times coming up with regard with regards to the projects and the key infrastructure projects for the country. Okay. So the next question is for Mustafa. What is your actual net cash debt position as at end of half one twenty twenty five? This is a relatively straightforward thing to answer. So debt really consists of two things. It consists of some relatively small equipment finance type things, again, mainly vehicles, and that's about 1,000,000. And our cash, as you can see from the presentation, was 9.8. The only other debt we've got is the invoice discounting facility. So if you and that's about 9,000,000. So if you took that into account, then effectively, our net cash stroke debt would be zero, which is better than it's ever been because we've had more debt than cash. But the reality of it is with the ID facility, the ID facility is an acceleration of getting money from the client. So even though legally, it's shown as debt, the reality of it is it's a reduction in receivables.

23:49 So moving on from there, the next question is, how will QTT integrate with HERCULES existing business? Do you wanna do that one, Bruce? Yes. No no problem. QTT, they are a great, training company. They do have contracts with Department of Education as well as they do, train unemployed people and apprentices, which is perfect for us. If you wanna boost and and bolster our training academy, as, mentioned, it all comes to the amount of people required in the in the future to deliver these key infrastructure projects. And we need to be keep upskilling and cross selling our workforce. And we also wanna monetize this opportunity as well by selling training related programs to our clients and other individuals as well to be able to to work and and, you know, be be part of this exciting, you know, our growth plans as well as the the The UK infrastructure programs.

24:53 There are also grants available as well that to to to to train unemployed people as well as apprentices and etcetera CIDP. There's a construction industry training board levies, grants, as well as apprenticeship grants, and local authorities. So huge huge crossovers between us and QTT, and they will be under under HERCULES umbrella. We'll be working together in the property that we have got we we set up over one and a half years ago, as you are aware, and we've been training 1,500 people ourselves when they this this number is gonna go up, and and we believe that there there's a good chance that we can do over two two and a half thousand people over the next year or so, train and and put them to to to work and keep upskilling and cross skilling our workforce so they get paid they get paid better better, you know, wages, which will help us to kind of keep our retain our workforce.

25:56 And and and having that, we believe we are going to grow ourselves as well as the individuals on the ground. Thank you. Okay. I'm sorry. I should have said that was from Gary. Thanks, Gary. So another one from. Any comment on why receivables tends to be high in this business? What are your payment terms? Well, they're not high, actually. They're, they're pretty good. In fact, they're the best, debtor days figures that we've ever had. So our our our debtor days are somewhere between thirty and forty, which is, you know, is really, really good in our industry. And given that most payment terms are end of month following, that fits in very well.

26:42 But, you know, obvious point, you know, if our turnover keeps going up, then our receivables are going to go up too, and that's obviously driving that. Okay. Right. The next one is from Christopher. Christopher says, you mentioned in pre this is a this is Bruce and Myers' favorite subject. This is this is a good one. You mentioned in previous presentations that you were targeting 500,000,000 turnover, a medium to longer term. I believe you launched a project 500. Well, we call it road to 500, but, yeah, you're not far off. Is this still a realistic target, and what are the time frames? Bruce, I'm sure you'll love to answer that one. Oh, yeah. This is my favorite question, actually. Thank you, Christopher. Yep. So when you look at our sort of past, we are we are not only a three years old company just, you know, ended up you know, started with the the stock exchange. We have got a history of eighteen years in supplying of labor in the infrastructure projects, and we have been growing every year.

27:44 And now being listed on the stock exchange three and a half years ago and and and having achieved all of this all of these mile huge milestones and huge projects coming up as well and and investment programs coming up in the infrastructure projects. We believe that by organically and especially acquiring the right labor supply companies in different sectors, we could achieve £500,000,000 in five years. We call it growth of 500. And with £25,000,000 minimum EBITDA, that's our target. And how how so we're already a 100,000,000 over a £100,000,000 company. How this will be sort of breaking, you know, in we have got a plan strategic plan that another 100 mil over the five years will come organically, and you'll be acquiring £300,000,000 worth of labor supply companies mainly operating in the infrastructure sector.

28:39 As you might be aware, that that they could be is labor supply market is very fragmented and and huge opportunities coming up in the power and energy, so we'll be sort of going into that direction as well as different parts of the country as well. Scotland is a a good one. Huge opportunities there with regards to power and energy and and power and distribution and transmission projects and the water sector is quite buoyant in the in Scotland. So we'll be sort of moving into that area. So we believe that this is this target is achievable. Very ambitious, but we we we have been always ambitious as a company, and we wanna we wanna deliver it. And if we even get to $3,400 mil, we'll be still happy, but but our target is 500 mil in in five years.

29:30 Thanks, Bruce. In fact, there's one more question from Christopher as well. He says there's no mention of figures around QTT acquisition, e. G, cost of acquisition. Could you add some color, please? Yeah. I mean, this is this is not a big acquisition. This is we we bought this for a nominal amount. We bought the assets and the and the contracts and and etcetera. And and we did TP contract changes for the employees. So not much in the way of acquisition as in acquisition cost, to be honest. This is more about an opportunity for us to to move the, the academy forward, at a far greater, rate, than we might have done otherwise. It's a great opportunity, and that's why we've done it.

30:18 One more question, from Simon. Only a tiny proportion of shares are in public hands. Would it help stock market liquidity if this could be increased? I'll take this one, if you like. Yes. Of course it would. Yes. Of course it would. It's one of those things that's actually easier said than done. I think it's fair to say we have a lot of conversations with people in the city and with brokers about this, But it's it's quite difficult to achieve. But, you know, anytime we get the opportunity to offer more shares into the market where it might be the retail sort of shareholders might be able to take part, but we would intend to do it whenever we get the opportunity. But it's not an easy thing to achieve.

31:05 If it was, we'd have done it by now. But, Paul, we do we do have a plan of potentially within the next race, potentially, if it happens in the future, we will be including the retail investors also. Absolutely. That's what we give us a which will give us a a really good opportunity. If there is a big acquisition coming up, say, within a within a year time, then then we will be we will be definitely including the retail investors. And that was a really good question from Simon. And and and this will help our liquidity. This will help our, you know, share price as well. And we do believe that we are undervalued. Our, I think, average of the analyst is at 75, 80 p a. Am I right, Paul? Something like that? So we'll we'll get that. We'll get that somehow, but we just need to keep delivering it.

31:53 And and and one of the things that we are going to be concentrating on, give more liquidity into the retail investors. Okay. I think that's all the questions that's I've I've got on my. Thank you very much for everybody for bringing those questions forward. Yes. That's great. That is correct. You have addressed all those questions from investors today. And, course, the company can review your questions submitted today. I will polish those responses on the investment company platform. But, Bruce, before we redirect investors to provide you with their feedback, which one is particularly important to the company, could I please ask you for a few closing comments? Oh, yes. Thank you so much, Alex. We are very excited. Currently, we have always been excited, but even more now with the huge investment programs just announced recently.

32:40 And we believe that we are going to be you know, it's gonna help our our growth over the next few years, and we are excited to build UK's infrastructure, you know, that that are sometimes failing and sometimes that are not enough in the in the country. So we wanna be part of this exciting program and and and keep growing. Thank you. Fantastic, Bruce, Paul. Thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the 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 PLC, we would like to thank you for attending today's presentation, and good morning to you all.