RTC Group (LSE:RTC) — Interim Results

0:01 Good morning, and welcome to the RTC Group PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to hand you over to Andy Pendelburey, Executive Chairman and CEO. Good morning to you.

0:29 Good morning, and good morning, everybody. And, thank you for taking the time to join us this morning and to go through our interim results. With me today is Sarah Dye, our group finance director, and Paul Paul Prompton, the MD of Ganymede, the major part of the business. We hopefully, you've had a chance to read the interims that were posted, but it'd be worthwhile just going through a number of the key points for you. And, please, any questions that you'd like to ask, we'll we'll deal with at the end of the of the presentation. When we look at our half one results this year, I think, actually, they've been a very, very solid set of results given the given where the market, given where the industry is, and given where the world economy is.

1:23 But we delivered some solid profits whilst absorbing at the same time some very significant additional costs. I think it was in March when I presented last time when we talked about the increase that the impact of the war was having with Iran and how our energy prices were going up that cut the cost of petrol for fueling all our vehicles to put our guys in work. And I think at that time, it could have been something in the order of $65.70 dollars a barrel. I think since then, we've hit and I think at the moment, we've hit nearly a $100 a barrel. So we're continuing to have to absorb those costs, which we've been doing by a number of methods, really, making sure that from an operational perspective, we we operate those vehicles in a in a more cost effective way. And Paul and his team have done a really good job of that.

2:24 But given given those costs that we've been absorbing, we've got high and high again. We've got all minimum wage. We've got living wage. So there's been an awful lot of cost increases placed on the business, and so we're very happy with the profit. I think I also mentioned in the in the interims about some of these external headwinds which have been affecting us. And we've been handling those headwinds very, very, very well. I mean, we've got The UK economy, which is possibly at its lowest confidence level since COVID. We're finding now that an awful lot of employers are taking far more consideration on growing their businesses and whether they grow them at certain times, whether they're pushing out their investment plans further to the right.

3:21 So we're having to deal with that. We've got situations where we are workers are very, very cautious at this moment in time to actually be moving jobs. The amount of opportunities that we've made offers to where people have been reluctant to leave has been growing. So that's been a problem. But but at the same time, what's really encouraging for us as a group is the fact that we've got a very strong balance sheet, and that very strong balance sheet has enabled us to do a number of things. And we have no term debt, which is a very big big aspect here. There there there seems to be a trend at the moment where lots of companies with their balance sheets are talking about figures which are adjusted. Our figures are all as they are, and our balance sheet is very strong because of that.

4:19 And that that really has enabled us to do what we've always said our key priority is, which is to reward our shareholders for their loyalty to us. And because we have a very clean balance sheet, because we have a very significant level of cash flow generation, and because we have the ability to distribute profits, we're gonna maintain our dividends, which we think is a very admirable situation for us.

4:53 And I think on top of that, I think we reported during the year that we've had around about six major contract wins. So we've got a very strong order book with some very exciting growth opportunities. We just like everybody else in the infrastructure sector, we're waiting for that revenue streams to come on, but we we're very confident that they will. So all in all, a very a very solid set of results. I think for those who are not shareholders who are who are listening, We are it's worth just going over that we are a leading infrastructure provider of people to rail energy and water.

5:42 We we still have well over a thousand people a day going out to work. The sectors that we operating in are absolutely set to benefit from long term infrastructure investment plans. I mean, in when we look at rail, very sadly, there was another major incident this year, and and I've talked long and hard about the fact that the the the government has to make sure that maintenance and renewals is something which cannot afford to be kicked into the long grass. And we are very much embedded in that maintenance and renewals, and we're seeing in the control period growth coming again back into that. So that's very strong for us.

6:31 In terms of our energy business, I think we've explained in our in our interims about the fact that there there is a couple of things where there is some breathing space being taken about how do we transition from existing

6:48 smart meters being installed to the maintenance and renewal of those to higher technology ones. At the same time that we've got two major players, one looking to buy another, which is maybe just put a little bit of a hiatus on how spend might be coming out. But the the maintenance order book for rail is strong. Our overall, we're very confident in. And water, we believe now with the AMP8 is beginning to release spend. So we we we've got a good order book and one that we think is gonna continue to provide good spend.

7:26 Again, for those who don't know the client base and have have not been in these presentations, we have some very blue chip names as our key suppliers. And when you have those blue chips and they pay you well, you end up with the level of cash flow generation that Sarah will talk about. But our debt collection is very good, and we have a very strong cash flow process with our clients, which enables us to be able to spend the money wisely for you. I'll move over hand over to Sarah to just take you through the the key financials. Good morning. I'm I'm pleased this morning to present a really solid set of financials.

8:14 As Andy said, revenues and gross profits are lower than half one twenty twenty five, and that's due to lower levels of international business and that's due to project life cycles delivery models. And also we have reduced activity and energy, which Paul will talk to a little later on in the presentation. Having said that, we are very proud to have maintained our gross margin at similar levels to the prior year given the increased costs that we've had to face in particular fuel and employment costs, which affect our contractors and general price increases, which Andy's alluded to. We've also reduced our administrative expenses, and this is where I like our sort of head our head office and our support and back office costs all sit.

9:03 Again, that's had NI and minimum wage impact these increases that started in April last year. Obviously, we've had an extra extra quarter of them in this period. So we've managed to sort of mitigate that and actually reduce those costs to give a healthy profit from operations. So we're very proud of that.

9:26 As Andy said, we have a strong balance sheet with no term debt. Our net assets are slightly reduced from the year end position, but that's really reflecting slightly lower activity levels and timing on payables. Our actual deposition is similar to the year end over 98% of our debt is current, I. Less than thirty days. So all of that is in a really good healthy position.

9:56 In terms of the cash that we've generated, we've returned the majority of it to shareholders via the dividend in respect of 2025. That's the final dividend of 5.5 p per share that was approved at the AGM, and we're very pleased to do that. There's also been the sort of minimal levels of servicing lease liabilities and normal capital expenditure. And we've ended the period with 3,800,000 of cash. We started with 3.9. Think I that's a really good solid result and sort of like shows that we're, you know, we're quite correct in returning the dividends, saying that we'll pay the interim dividend at the same levels, and we're confident that that our sort of cash management will support that.

10:44 Thank you. I think just to add as well to what Sarah was saying about the balance sheet. When you look at our net asset per share, At this moment in time, 70% of our share price in the market is backed up by assets on the business, which is a a very, very solid percentage. The the other thing about having that strong balance sheet was the fact that I alluded to the fact that it's been difficult for companies to be able to keep their cost structures right. Well, because we've had such a good balance sheet, we have taken the opportunity to keep in Paul's business, a number of the consultants where other organizations have been shedding and jettisoning the numbers of people.

11:39 Regaining those people and rehiring those people when the market picks up is an expensive process. And we've been able to keep our headcount, at the right levels, so that we can hit the ground running when we do believe that some of the project opportunities and the general UK market picks up again. And I think that's a big bonus for for you, the shareholders. Okay. Just in terms of some operational highlights from the first half. So overall, The UK division delivered a resilient performance, particularly considering the sort of external cost factors that Andy's alluded to. So rail continued to perform well in the first half with profit slightly ahead of the prior year.

12:25 And also, I think quite importantly, we secured four significant contract awards and extensions, which place as well for the for the long term investment program across rail.

12:36 In energy, as Andy alluded to, the the activity has has reduced in the first half this year primarily due to the transition across the smart meter in market from the sort of rollout phase to more now sort of long term maintenance, meter health, and the sort of replacement of the old SMETS1 meters and the changes to the communications technologies within the meters as the three g network is is switched off. The reduction's also been compounded by the uncertainty, which obviously is a temporarily issue regarding the acquisition of OVO Energy by by EON. So we're hoping that that gets concluded by the end of this year. But but to add to that, we've also secured two significant contract extensions across our energy marketplace, and and we're we're confident of the long term prospects of the the energy and particularly the smart metering market going forward.

13:37 So recognizing the investment that is allocated for The UK in The infrastructure sector, we've took a decision to reallocate some of the resources internally within the business and point them at the the infrastructure sector. So the aim is obviously to capitalize on the £700,000,000,000 plus investment across the next few years, and we think this is a a prudent area to to focus our recruitment activity And and finally, with regards to permanent recruitment, so our ATA division has delivered a stable half one performance like for like to to last year, which I think in a in a tough market, as Andy alluded to, particularly around clients and candidates, I think it is a is a good performance for the first half of this year.

14:27 Thanks, Paul. So so moving to the outlook, we we're very confident that in the the medium to longer term, we have many drivers going in the direction that we believe will continue to generate good revenue opportunities, good margin maintenance, and also some future profits, which will all end up with us being able to distribute more through dividends out to our shareholders. We're absolutely committed to our our growth strategy, especially our our organic organic growth strategy. Our international business, which has been going through one of those strange transition periods, you know, you would think that because there was a war on, maybe there should be more opportunities for us. Well, usually, there's a little lag behind the fact that in the times of the war, it can actually cost revenue for us because where people have been on rotation.

15:34 For example, where we we have people in Bahrain, where people were away on rotation on holidays on leave, When the war broke out, many of their people couldn't get back to work, so they couldn't actually generate revenue for us. The Americans had a change of policy, which I think has been widely publicized,

15:56 where their discussions with NATO and their support to NATO and NATO countries has been having them review where they may or may not be putting large numbers of their forces. That in turn, reflects in the number of bases that we would support.

16:17 But, again, we're quite confident that the the long term effects of this will be there will be rebuild programs. There will be future defense programs. And our international business who is well placed, we employ people from 30 countries. We employ people into many other countries. So we we're we're quite strong about the the opportunities for it. Our

16:47 acquisition plans, our acquisition ambitions, our acquisition appetite. It's no less than it has always been, which is we have won. It remains strong, but we're not gonna overpay.

17:03 It's it's your money. It's it's it's my money. I'm a shareholder with you. I'm so sorry and poor. And we won't overpay for acquisitions. And I think at this moment in time, some of the multiples which are being looked at just don't make it value for money, especially when we got the opportunities to reinvest in our own business by bringing our headcount, keeping our headcount solid. So, yes, we have that ambition, but we will only do that for you at a price which we believe is correct. And if we could find another

17:39 rig, which was the business we bought to create our energy business, we will move quickly. So strong organic growth is where we see it with a 700,000,000,000 spend, which is widely talked about. You know, look, we're we're under no illusion as well about the fact that the burn and bounce just might create some opportunity, but there is no doubt the country has some big challenges in terms of money and spend. So to try and say with some degree of accuracy at what point some of these figures will will start to be released is not easy. Hence, a a delay in in what we would be putting out in terms of forecast into the into into the market. But what I am absolutely adamant and I'm committed that we will put those forecasts into the market. We're working on those forecasts now, but we just wanna make sure we get it right.

18:47 The answer planning is better than the pound of cure on this. So I think we have a great outlook. We have a great

18:55 experienced group of management in the business. I think I said at the AGM about the fact that we've got over 50 people with over ten years with the business. And of that, we've got half of those who've got fifteen, and a third of those who've got over twenty years. So we have a very strong experienced business with strong experienced employees, and we're committed to continuing to do what we do and deliver money back to our shareholders. That's great, Andy, Paul, Sarah. If I may just jump back in there, and 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 view those questions submitted today, I would like to remind you the recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard.

19:50 Andy Paul, Sarah, at this point, if I may hand over to you to take us through the Q and A session, read out the questions where appropriate to do so, and I'll pick up from you at the end. Thank you. Okay. I will be the question master, so maybe answer a few relevant. So the first one we've got is in a period of increasing global tensions and indeed warfare, why isn't this a time of opportunity for your international business? Or is it? Which I think you've partly answered. I know if you wanna add anything to that. Yeah. I mean, it it is, as I say, a cyclical business. And at times of where the warfare happens as quickly as some of the recent conflicts have happened, they actually can create a disturbing factor rather than an opportunity factor.

20:46 I do believe because I know the discussions that I'm involved in myself with America and some of our European clients that there are opportunities on the horizon. And, you know, we're quite unique. I don't think there's many UK recruitment businesses have the capability that we've got. You know, at one point, nearly 3,000 people in Afghanistan. We've had people in many, many conflict areas, and we do it in a very professional way. So keep watching the space. I do believe that we'll we'll get some some opportunities, and I'm and I'm hoping that that business will continue to deliver good contribution to the group. K.

21:33 Next one for you, Sarah. Has your bad debt level risen in more challenging economic environment you refer to? I would say we're not seeing any change. We've actually had no bad instances of bad debt in this six month period. We had, if anything, minimal lap the same period last year. We do extend credit to any credit worthy customers, and the majority of our customer base is backed by credit insurance. So should there be a bad debt, we will recover a a solid percentage of that anyway. As I said earlier, you know, our our aging is is 97 plus percent current. We've got under a 100,000 over 60 over ninety days, which we believe is good. It's just complications in trying to sort it out with clients and get things approved.

22:31 Our debt today is at the June 30 with 32. At the end of December, they were 31. So we I believe, no, really. We're in a good position. I'm not seeing anything that's concerning me from a debt position, and it just further backs up the strength of the balance sheet that it's all solid. Yeah. Okay. I think we've touched on this a little bit, but I don't know if you want any more to add. So you disclosed that you've delayed forecast in the market as a result of uncertainty. How long do you think we may need to wait? I would hope that during this year, we're in a position to put out a forecast into the market. As I say, the work an awful lot of the work to do this has already been done.

23:23 Our commitment is to get a forecast out into the market this year, And, you know, we made a number of commitments last year to for our dialogue with investors with the way that we will meet with investors and with the information that we will share with investors. And that commitment was very real. So I would hope during this year, we will be putting out, a forecast into the market. Okay. K. Okay. The next one, acquisitions. What do you see as the right multiple to buy another business in the sector? Everybody wants 10.

24:08 Everybody believes they're worth 15, but we probably wanna pay anywhere between 3 and 5. Now, yes, you you would pay depending upon the sector, the opportunity, the quality of the the people that you're buying, you know, you would pay between five and seven. But there are opportunities. I mean, some of these opportunities that we're talking to are organizations which don't have the depth and breadth of management to grow themself. So, actually, we're adding value to them more than they're actually adding the value to us. But, of course, trying to explain that to people is very difficult at times. So I would say five seems to be an average, but, you know, we're we're always on the look for something that could help them grow and also give us a better benefit in the process.

25:09 Okay. The next one is how much of the increased fuel and employment costs have you been able to recover through pricing, and how much has been absorbed by the business? I'll answer I'll answer this one. In terms of employment costs, I would say around 60 to 70% of the employment costs were recovered, through clients. And in terms of the fuel, the only recovery we've had from fuel is CPI increases, but, obviously, the major fuel increases happened this year. So we haven't got much of a recovery on fuel costs. However, as the inflationary numbers are washed through the system, it will be likely that we will get CPI increases that reflect fuel increases, early part of next year.

26:01 Can I just chip out? I I just Paul, you're talking there about the cost of sales and and wages and the NI costs within cost of sales. Yes. And and 70% of that recovered. Obviously, we have, like, a huge chunk within our administrative costs that are absolutely a cost. Yes. And direct employees. And the other thing, Paul, was that you were saying about not being able to get increased prices of clients in certain areas. Many of those contracts are consistent across all suppliers. So it's not just you being affected. The whole supply chain is in a similar situation to you. Yeah. Yeah. Then that long term framework comes Yes. Generally do it with pricing mechanisms, don't it? Yeah. K. Okay.

26:47 Another for you, think. So can you provide an average cash position across the period rather than just period end? I would say that the cash average, off the top of my head, it's sort of so it's been moving the last six months between about 500,000 and the position that we've got now. It sort of fluctuates depending on when we've made that payment, for example. It's sort of one of the largest ones that goes out, but not really dipping into using the invoice discounting facility hardly at all, if if any, this this period. Okay. And last one, are you considering any future share buybacks? Well, as you all know, we've made a number of share buybacks, and we made those share buybacks because we were able to do it at a discount to the market, which was to the benefit of all shareholders.

27:49 People's appetite change, so there may be opportunities where substantial shareholder or shareholders decide this sector's not for them. They've had a good journey with us. I think we've paid good dividends over quite a long period of time. So if there was an opportunity for us to we got a strong balance sheet. If there was an opportunity for us to buy some shares back at a discount to the market, which would increase the EPS for all our shareholders, then I would certainly consider it. I don't know about you, Sarah, but I would. Yes. I agree. So yes. Okay. And that concludes all the questions that have been submitted.

28:35 That's great. Thank you very much indeed for addressing those questions to investors today, guys. But, Andy, before we direct investors to provide you with a feedback, which one is particularly important to yourself and the company, could I please just ask you for a few closing comments? Yes. Well, again, look, thank you for taking the time to join us. I believe the figures that we've delivered are not what we wanted, but good. I think that when you look at the sector widely, our figures are are strong. We continue to issue dividends. We can continue to grow our order book, and we will continue to enhance the level of our dialogue with our shareholders.

29:20 I look forward to you being with us on the next long term journey for the future of the business. Thank you very much once again for updating investors today. Could I please ask investors not to close this session? As you know, I'll be automatically redirected to provide you feedback, which helped the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.