Renew’s change of focus reaps rewards

The Leeds-based group yesterday reported a year of surging sales and profits, and said it is confident of more growth despite the tough economy.

Renew added its Amco acquisition, bought in February, has been bedded in and it is now on the hunt for more deals.

The group, which works at sites ranging from nuclear plants to railway tunnels to mansions in London’s Mayfair, has been shifting its focus to engineering from construction in recent years. The group closed its struggling northern construction business earlier this year.

Renew said it now earns 63 per cent of its revenues from engineering services, with the remaining 37 per cent in specialist construction. The company wants to increase its proportion of engineering work to 70 per cent by 2014. Engineering also accounts for 80 per cent of the group’s operating profits.

“It’s been a good year of strategic progress,” said chief executive Brian May. “We have, without question, repositioned as an engineering services provider.

“We have valuable but minority building services business that we are very comfortable with.

“We believe that the clients we have need to keep their networks running. They prefer to work with a small, more responsive contractor that’s got local teams that can deliver – not part of a global entity that’s faceless.”

Renew reported adjusted pre-tax profits up 76 per cent to £8.1m in the year to the end of September. Turnover was up 23 per cent to £356.7m. The group retained its dividend at 3p per share.

Turnover in the group’s engineering services arm surged 39 per cent to £176.7m, which included organic growth as well as the contribution from Amco, bought for £19.8m from private equity house Endless. Engineering services contributed £7.4m to group operating profits.

“There’s going to be growth in infrastructure spend over the next five years and a complete change-round in energy provision,” said Mr May. “There are increasing numbers of people travelling by rail. We think we’re in the right areas.

“(We have an) ambition to get revenues to £500m (by 2014).”

Its order book stood at £285m at the end of September, which it said gives confidence for 2012.

The group plans more acquisitions, particularly around energy, after ending September with net debt of just £6.8m.

However, finance director John Samuel appeared to rule out taking over another plc. “We’ve looked and I don’t believe there’s a listed company that we’re aware of that would meet our normal acquisition criteria,” he said.

In March, Renew revealed plans to close its northern Allenbuild construction business after struggling to win profitable work. It has closed Allenbuild’s Wigan office and only a skeleton team remains at its Leeds site to finish a project in Kirklees.

Mr May said this resulted in about 230 job losses, almost double the previously stated figure of 120 losses. Restructuring and redundancies cost it £3.7m, contributing to an overall £5.6m exceptional charge, which also included £1.3m in costs for the Amco deal.

“We just felt that the risk/reward balance in northern building for the foreseeable future was not acceptable to the group strategy,” said Mr May.

“It wasn’t specialist enough and didn’t produce the margins. Anybody can pick work up but you’ve got to make some money at it.

“On a personal note I’m pretty gloomy about general building in the UK in the foreseeable future unless you’re in very specialist areas.”

Its construction business is now focused on the south, targeting projects such as extensions to mansions in central London, new build social housing and retail.

“That’s really all private money apart from 20 per cent of social housing,” said Mr May, who added Renew is not averse to selling the construction business, which it deems non-core.

Shares in the company edged up 0.5p to 63p.

Renew appointed David Forbes, the former managing director of NM Rothschild & Sons’ investment banking division, as a non-executive director earlier this year.

“David’s extensive experience in corporate advisory services with NM Rothschild & Son Limited will assist the board in its ambition to secure further suitable acquisitions in the engineering services sector,” said the group.

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