Crestchic plc (LON:LOAD), the power reliability company, is pleased to announce its unaudited interim results for the six-month period ended 30 June 2022
Highlights
· Group revenue from continuing operations for the period up by 35% to £21.3 million (H1 2021: £15.8 million)
· Positive sales mix – higher margin hire revenue from continuing operations up 43% to £12.4 million (H1 2021: £8.7 million), increasing Gross Margin % from continuing operations to 50% (H1 2021: 44%)
· Volume and mix drive 51% increase in gross profit from continuing operations at £10.6 million (H1 2021: £7.0 million)
· Operating profit from continuing operations more than doubled to £4.2 million (H1 2021: £1.8 million)
· Interim dividend of 1.33 pence per share declared
· Refocused strategy pays dividends as the group powers ahead to a record first half year profit
· Strong trading driven by a vibrant global data centre market and the imperatives of energy security and sustainability
· New factory capacity in Burton on Trent now on stream and order book at record levels
· Divestment of Tasman Middle East in the process of local registration that will complete the divisional exit
· Management expectations increased for 2022 and 2023
Commenting on the results and the outlook, Peter Harris, Executive Chairman of Crestchic, said:
“To date, 2022 has been a record year for Crestchic. The strength of our pipeline makes us confident that Crestchic will continue to grow strongly into 2023. This buoyant performance across all sectors around the world has led the Board to raise expectations for the fourth time this year.
Productivity gains, coupled with the additional factory capacity at Burton, which came on line in June 2022 on schedule and on budget, are proving invaluable as we continue to grow the business. Our strategy of focusing the business on the global Crestchic brand and its strong markets, with data centres and extractive industries performing particularly well, has transformed the financial performance of the Group, enabling a return to paying progressive dividends to our shareholders. We look forward to the future with confidence”
Executive Chairman’s statement
We are pleased to present our interim results for the six-month period ended 30 June 2022, which show another strong period of growth for the Group.
During 2022, we have been successfully building upon the foundations laid down by the transformation programme we initiated during 2021. This refocusing of the Group has enabled Crestchic to reap the benefits of strong market conditions across the business, delivering an outstanding set of financial results for the six months to 30 June 2022 and taking strong momentum into the second half of the year and increasingly into 2023.
The transformation programme is now substantially complete. During 2021, we restructured the Board and senior management team, restructured our balance sheet to provide an efficient, scaleable and cost-effective financial platform, initiated the divestment of the Tasman Oil Tools division, restructured and reinvigorated our transformer rental business and commenced the construction of our new factory building.
In the first half of 2022, we completed the disposal of the Tasman operations in Australia, New Zealand, Malaysia and Singapore and agreed terms for the disposal of the remaining Tasman business in the Middle East, which is now complete subject to local registrations.
We also completed the construction of the new factory building and brought this into production on time and on budget and the additional capacity, coupled with productivity gains from our drive towards becoming a world class manufacturer, is proving invaluable as we continue to deliver on a very strong order book.
In pursuit of our strategies for geographic growth and, in particular, increased penetration of the data centre sector, where our loadbanks are used for commissioning and testing the backup power systems and heat testing the cooling systems, we opened new hire depots in Antwerp and Texas. Endorsing the confidence we have in a strategy centred on our Crestchic loadbank and transformer business, we renamed the Group to Crestchic plc, aligning the whole business identity to our global brand.
We entered 2022 with a record order book for sales of our manufactured products and order intake, through the first half of the year and into the second half, has remained at record levels. The higher margin rental business has also prospered, with high levels of activity around the world across all sectors, notably in data centres and extractive industries.
Directionally, this was what we anticipated at the outset of the year, but there is little doubt that the uncertainties created by the war in the Ukraine have caused national governments and large corporates to re-evaluate their strategies so as to reduce dependence on potentially unreliable or unfriendly states for energy and commodities, which is kick starting exploration and development activity on a broad front.
Although the Covid pandemic is far from over, most of the travel restrictions imposed to fight the spread of the Covid-19 virus have now eased. As a result, project rental activity has picked up very strongly in 2022, with the prospect of further growth to come, albeit probably reverting over time towards the steady growth trend seen before the pandemic.
Both the conflict in Ukraine and the pandemic have raised supply chain issues both in terms of inbound purchases of raw materials and outbound transportation of equipment and have introduced levels of inflation last seen some 40 years ago – but these are challenges that the Company has successfully risen to. Our strong relationships with suppliers and customers have enabled us to manage these external disruptions: not without some slippage, but with no permanent loss of sales and hire revenues and with no adverse impact on margins.
The combination of our strategic repositioning, our ability to manage external shocks and the strength of our core markets has led to a step change in our underlying trading performance for the first half of 2022.
Overall sales from continuing operations for the half year at £21.3 million showed growth of 35% compared with the first half of 2021, with equipment sales up strongly by 25% and rental revenue up by a massive 43%.
The operational gearing of our business model, particularly for rental, meant that there was a high pull through from sales into gross margin, which rose by over 50% to £10.6 million (30 June 2021: £7.0 million) and cost control, despite the pressure of inflation and our continuing investment into infrastructure to deliver our ambitions for growth, meant that operating profit from continuing operations in the first half more than doubled from £1.8 million in 2021 to £4.2 million in 2022.
Delivering superior Return on Investment (“ROI”) for our shareholders is a priority and this growth in profits has translated into further growth in ROI, which has significantly and, we believe, sustainably exceeded the Group target return of 20%.
Our business model is highly cash generative. This has enabled us to fund the increased working capital required by our exceptional growth and the need to maintain strategic stocks of raw materials to overcome supply chain constraints. Together with the receipts from the Tasman divestment, this has allowed us to fund the factory expansion, invest in the hire fleet, complete our share buyback programme to underwrite the LTIP introduced in 2021 and, for the first time in seven years, to return to the dividend list, with a 1p final dividend in respect of 2021 having been paid to shareholders in June 2022.
This dividend was heralded as the first step of a progressive dividend policy and we are pleased to be able to announce with these results the declaration of an interim dividend of 1.33p per share in respect of the year to 31 December 2022, which will be paid on 3 November 2022 to shareholders on the register on 14 October 2022.
Our achievements are not just financial. Through 2022, we have been developing our ESG strategy and are committed to reducing our environmental impact, with many initiatives already ongoing, fulfilling our social obligations to our employees, local community and other stakeholders, and upholding high standards of corporate governance. We will report more fully on this area in the full year accounts for 2022.
None of this could have been achieved without our people, who have been the bedrock of our success, working tirelessly to overcome unprecedented external challenges and to seize every opportunity for growth. During the first half of the year, we have continued to invest in people. At Board level, we welcomed Nicholas Mills as a Non-Executive Director, who brings a wealth of City expertise to the table. In senior management, we have been delighted to see the impact that Jon Storer, who joined as Technical Director, has made on all aspects of design and production.
To staff the new facility we have over the last twelve months recruited, inducted and trained new colleagues who have brought with them a rich and diverse range of skills and experience. Meanwhile, we have continued to strengthen our customer facing organisation in the rental division, which has undoubtedly contributed to the growth we have seen in our hire revenues. In a recent sample employee survey, we were delighted to see very positive feedback from our staff about Crestchic as an employer – and just as delighted to receive constructive suggestions about how we can become even better. We are first and foremost a people company and will listen to and act upon this feedback.
Looking forward, our priorities are clear. We will use our financial capacity and the momentum of global megatrends towards electrical power, data centres, energy transition and energy security to grow by:
· accelerating the expansion of production that has been enabled by the new factory building. Increasingly we are confident that productivity gains will enable overall production capacity to rise well above the 50-60% originally envisaged, improving our margins and competitive position;
· using that increased capacity to meet strongly growing demand for sales of our equipment and to invest in our hire fleet, so that fleet capacity does not become a constraint on growth;
· further investing in customer facing staff in the data centre sector to identify and pursue opportunities as we set out to become the thought leader in this market;
· ensuring that our new depots in Antwerp and Texas quickly reach maturity and to then use the blueprints that they will provide to identify further opportunities for geographic expansion, notably in, though not restricted to, Europe and the USA;
· using our global market presence, strong customer relationships and in house design capability to drive product innovation so we can be first to market in both sales and rental for new products and services; and
· immersing ourselves in the evolving sector of energy transition to seek new opportunities to deploy our skills in electrical engineering design and manufacture and our global distribution footprint.
We are reaping the benefits of a strong team executing a clear and focused strategy, underpinned by our unique proposition of in-house design and manufacturing; equipment sales; aftermarket services, including remanufacturing; and rental, all supported by a strong global brand and presence with a flexible and scaleable financial capacity. Our markets are growing rapidly, as evidenced by a second significant rental project won in the third quarter of 2022, which has led us to again increase our expectations for the full year outcome for both 2022 and 2023. We have every confidence that a bright future lies ahead for the Group.
Peter Harris
Executive Chairman
29 September 2022
Finance Director’s report
Financial performance
Overall revenue for the period from continuing operations was up by 35% to £21.3 million (2021: £15.8 million).
Hire revenue made up 58% of total revenue from continuing operations in the first half of 2022 compared to 55% in 2021, and this has driven the increase in the total Group margin from continuing operations from 44% to 50%.
Operating costs from continuing operations increased from £5.1 million in H1 2021 to £6.3 million in the period due to an investment in senior staff, increased activity levels and general inflationary cost pressures.
This favourable operational gearing resulted in the operating profit from continuing operations increasing by 131% to £4.2 million (2021: £1.8 million). Finance costs from continuing operations decreased from £0.3 million in 2021 to £0.2m in the period due to decreased debt and a lower overall interest rate.
Balance sheet, debt and cashflow
In line with the Group’s strategy for growth, net hire fleet additions for the period increased to £1.6 million compared to £0.3 million in the first half of 2021. Total hire fleet capital expenditure was £1.8 million in the period which included the buyback of equipment previously sold to customers as well as additional ancillary equipment such as cable to meet customer demand. Equipment from the new factory will be added to the hire fleet in the second half of the year to enable further future growth.
Other capital expenditure totalled £1.8 million (2021: £0.2 million) which included £1.5 million of spend on the new manufacturing facility that was officially opened in July 2022.
Right-of-use assets have increased during the period from £2.1 million to £3.4 million with new depot leases signed in Texas and Antwerp and the existing lease in Kassel, Germany has been extended. There has been a related increase in the level of lease liabilities.
The availability of certain stock items improved significantly during the first half of 2022, but supply remains lumpy and inventory levels have been kept at higher than pre-pandemic levels to ensure output can remain high throughout the second half of the year.
Trade and other receivables have increased since the 2021 year end due to two main factors. Firstly, the period end balance included £1.3 million of receivables due on the sale of the Tasman assets and businesses and secondly, the level of trade receivables has increased markedly. This is mainly driven by the level of revenues seen in the second quarter of 2022 compared to the final quarter of 2021 but debtor days have also increased slightly with more of this revenue relating to revenue in the Middle East.
Trade and other payables have increased in line with activity levels.
The sale of the Australian and New Zealand Tasman entries completed in February 2022 and net of costs and the cash transferred with the sale, £2.7 million was received in the first half of 2022. A further £0.6 million was received in August 2022 with the final payment of £0.5 million due in February 2023.
During the period, £1.9 million has been spent on purchasing the Company’s own shares so that they are held in treasury to fulfil the LTIP put in place in June 2021, if required. Dividends paid in the period amounted to £0.3 million.
The Group’s investment in hire fleet, property and working capital will provide a robust base for future further growth. In the first half of the year, this has led to an increase in pre-IFRS 16 net debt (see note 6) to £1.5 million from £1.0 million at 31 December 2021 but the Group’s leverage and gearing remain low.
Return on investment (“ROI”)
As detailed in the 2021 Annual Report, a key metric for the Group is the return generated on the investments it makes in assets and working capital. Our ROI measure is defined by the pre-exceptional operating profit divided by the net operating assets.
The Group is focused on delivering an ROI well above its weighted average cost of capital. The Group’s pre-tax cost of capital as at 31 December 2021 was calculated at 12.5% and the Board is targeting a Group ROI of 20%.
The Group’s ROI from continuing operations reached 18% in 2021. Due to strong trading in the first half of 2022 and a positive outlook for the second half the Board is confident of a full year ROI well in excess of the 20% target set at the beginning of the year.
Risks and uncertainties
The Board has reviewed the risks and uncertainties included in the 2021 Annual Report and concluded that the majority of them have not materially changed in the period to 30 June 2022. The 2021 Annual Report stated that a longer-term impact of the increase in energy prices due to the conflict in Ukraine could be an economic recession in Europe and that risk has increased as the year has progressed. The Board is confident that, due to the Group’s products being vital in the commissioning and on-going maintenance of energy systems within mission critical industries such as data centres, banking and healthcare, an economic recession in Europe would not significantly adversely affect the revenues and cashflows of the business.
IFRS 16
All the metrics used in the accounts are after IFRS 16. For historical comparisons a reconciliation of pre-IFRS 16 to post IFRS-16 metrics is included as note 6 to this Interim report.
Iwan Phillips
Finance Director, Crestchic
29 September 2022
