HSS Hire Group Plc

Solid performance, launching next phase of strategy

HSS Hire Group plc ("HSS" or the "Group") today announces results for the 26 week period ended 29 June 2024.

Next phase of strategy being implemented to separate the management and trading operations of HSS ProService and HSS Operations to allow each business to pursue different but complementary growth objectives to maximise shareholder value

Solid performance, strong balance sheet

·      Solid revenue performance in challenging markets with H1 24 revenue growth +3.2%

o  HSS ProService ("ProService") marketplace business like for like growth of 3.4%, ahead of market⁹, with double digit Services¹⁰ increase somewhat offset by seasonal product¹¹ weakness 

o  HSS Operations ("Operations") maintained utilisation at 56% through efficient fleet management

·      Seasonal product weakness impacted H1 24 profitability

o  Adjusted EBITDA and EBITA excluding this impact broadly in line with H1 23

o  Targeted cost action creating operational efficiency to mitigate demand softness in certain end markets

o  Continued strong returns with ROCE above the Group's cost of capital

·      Robust balance sheet with non-IFRS16 leverage⁶ maintained at 1.0x (H1 23: 1.0x)

o  Net proceeds of £20m from sale of Power businesses used to reduce debt and further strengthen the Group balance sheet

o  HSS continues to deliver consistently high returns ahead of cost of capital

o  Material liquidity headroom of £75m to support ongoing strategy development

·      Interim dividend maintained at 0.18 pence per share¹²

Continued strategic momentum, launching next phase of strategy

·      Following legal separation of ProService and Operations in 2022 as previously announced, the commercial and operational activities of each entity will now be fully separated

·      Each business will now pursue complementary growth strategies with separate management teams and greater control over resources and investment decisions

·      ProService:

·      Digital marketplace business for building services focussed on buyer and seller acquisition across a broad range of products and services

·      Marketplace growth strategy building momentum with over 2,200 buyers having now transacted on our self-service marketplace platform, resulting in 38% average buyer revenue growth year-on-year

·      Medium term target of 7,000 buyers transacting through our marketplace

·      Operations:

·      Well-invested asset-owning independent tool hire business in the UK and Ireland focussed on delivering a consistently high-quality service combined with unlocking ongoing efficiency gains

·      Low-cost builders merchant network expanded to 104 locations delivering 13% growth on a same stores basis¹³

·      Medium term target of over 150 trading locations

·      The Board believes that this structure provides greater optionality to maximise future value for shareholders

·      Capital Markets Days planned for each business during 2025 when the management teams will present their individual growth strategies and market opportunities.

Current trading

·      While a continued weakness in seasonal products has led to a more challenging start to H2 2024, we are somewhat encouraged by lead macroeconomic indicators for UK construction beginning to trend in a positive direction. Both our businesses are positively positioned to capitalise on improving markets and we shortly expect to mobilise on a number of large accounts won over the summer.

Steve Ashmore, Chief Executive Officer, said:

"The Group delivered a solid first-half performance against a challenging market backdrop, with above-market growth in our ProService marketplace business and continued good utilisation in Operations.

Today we are meaningfully progressing our growth strategy with the announcement of the commercial and operational separation of ProService and Operations. This will enable each business to pursue complementary growth strategies under independent leadership teams with greater control over resources and investment decisions.

Looking ahead, we are well placed to capitalise on any change to market conditions and in the meantime have a number of new contracts mobilising in H2. However, as a result of the new Group structure and the period of transition that this will involve, the Board believes it is prudent to remove guidance until further notice.

The Board and I are excited about this next stage in the development of our strategy, which we are confident will fully unlock the growth potential of each business and provide greater optionality to maximise future value for shareholders."

H1 24 Results Presentation

HSS Hire Group Plc will host a virtual presentation for analysts at 9:00am on 24 September 2024. Analysts wishing to attend should contact FTI Consulting to register - [email protected]

An audio recording will be available on our website in due course.

Notes

1)     Results for H1 24 and H1 23 are on a continuing operations basis, excluding the Power businesses which were disposed of in March 2024.

2)     Adjusted EBITDA is defined as operating profit before depreciation, amortisation, and exceptional items. For this purpose, depreciation includes the net book value of hire stock losses and write offs, and the net book value of other fixed asset disposals less the proceeds on those disposals

3)     Adjusted EBITA defined as Adjusted EBITDA less depreciation

4)     Adjusted Profit before tax defined as profit before tax excluding amortisation of brand and customer lists and exceptional items

5)     ROCE is calculated as Adjusted EBITA for the 52 weeks to 29 June 2024 divided by the average of total assets less current liabilities (excluding intangible assets, cash and debt items) over the same period

6)     Non-IFRS16 leverage is calculated as closing net debt excluding non-hire equipment leases divided by adjusted EBITDA less right of use depreciation and interest on non-hire equipment for the 52 weeks to 29 June 2024 (prior year 52 weeks to 1 July 2023). Comparators on a reported basis with no pro-forma adjustments to reflect the disposal of the Power businesses.

7)     IFRS16 leverage is calculated as closing net debt divided by adjusted EBITDA for the 52 weeks to 29 June 2024 (prior year 52 weeks to 1 July 2023). Comparators on a reported basis with no pro-forma adjustments to reflect the disposal of the Power businesses.

8)     Performance excluding exceptional items

9)     European Rental Association forecast +2.7%

10)   Services relates to rehire income generated from third-party owned assets and the Training product vertical as historically presented in operating segments

11)   Seasonal products include Heating and Air Conditioning assets

12)   All dividends will be paid in cash and no scrip dividend, other dividend reinvestment plan or scheme or currency election will be offered to shareholders. Ex-dividend date of 3^rd October 2024, record date of 4th October 2024 and payment date of 6th November 2024.

13)   Merchant locations open for comparable period in both H1 24 and H1 23

Disclaimer:

This announcement has been prepared solely to provide additional information to shareholders and meets the relevant requirements of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. This announcement should not be relied on by any other party or for any other purpose.

This announcement contains forward-looking statements relating to the business, financial performance and results of HSS Hire Group plc and the industry in which HSS Hire Group plc operates. These statements may be identified by words such as "expect", "believe", "estimate", "plan", "target", or "forecast" and similar expressions, or by their context. These statements are made on the basis of current knowledge and assumptions and involve risks and uncertainties. Various factors could cause actual future results, performance or events to differ materially from those described in these statements and neither HSS Hire Group plc nor any other person accepts any responsibility for the accuracy of the opinions expressed in this presentation or the underlying assumptions. No obligation is assumed to update any forward-looking statements.

Notes to editors

HSS Hire Group plc operates through two separate but complimentary businesses serving predominately business customers:

·      HSS ProService is the leading Digital marketplace business focussed on buyer and seller acquisition. Technology driven, scalable and uniquely differentiated. Wide range of building services, including hire, resale, materials, training and more

·      HSS Operations, which includes HSS Ireland, provides tool and equipment hire and related services in the UK and Ireland through a nationwide network of Group companies and third-party suppliers. It offers a one-stop shop for all equipment through a combination of its complementary rental and re-hire business to a diverse, predominantly B2B customer base serving a range of end markets and activities.

HSS is listed on the AIM Market of the London Stock Exchange. For more information, please see www.hsshiregroup.com.

For further information, please contact:

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 as it forms part of domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018, as amended (together, "MAR"). Upon the publication of this announcement, this inside information is now considered to be in the public domain. The person responsible for arranging the release of this announcement on behalf of HSS is Richard Jones, Interim Group Chief Financial Officer.

Chief Executive Officer's Report

Summary of H1 2024 Group performance

We delivered a solid performance during the first six months of 2024 despite challenging market conditions. The warmer winter and cooler early summer weather conditions have led to significantly lower demand for seasonal products. Non-seasonal product performance, while resilient, saw subdued demand driven by low levels of end-user construction activity, particularly in housing and commercial sectors, and wetter Q2 weather also having an impact on enquiry levels.

The teams across ProService, Operations and HSS Ireland have done well to drive performance, despite these challenging markets. The price and cost actions they have taken mitigated some of the market softness and the inflationary pressures that persist. Overall, our revenue growth of 3.2% was marginally ahead of the rental market⁹.

Launch of the next phase of the strategy

Our strategy to create two divisions in ProService and Operations in 2022 has proved successful, with each business making material progress in recent years. The Directors believe that the ProService and Operations businesses have leading offerings independently of one another and are well positioned to take advantage of a fragmented market and to further capitalise on increasingly complex customer and supplier requirements. However, as both ProService and Operations continue to grow, the Board believes that each business, while complementary, have different growth strategies and strategic priorities.

In light of the above, the Board believes that a separation of the businesses has the potential to better unlock the value in each business and that this will provide the Board with additional optionality to maximise value for shareholders. It will also allow each business to pursue their strategic objectives independently with greater control over resources and opportunities through individually focused management teams.

As part of the new operating structure, we have established a trading agreement for Operations to provide services to ProService and maintain customer service levels during a period of transition. This is supported by a temporary services agreement to maintain continuity in back-office functions, almost all of which will sit within these respective businesses. The small Group corporate function will continue to exist, fulfilling governance and external reporting activities.

ProService

Positioning and strategy

ProService is a capital light, technology-driven marketplace which acts as a marketplace for those looking to procure and supply for the building services sector. The business is focused on leveraging its platform and first mover advantage and building on the strong momentum and growth in buyer and seller adoption.

The Board recognises the opportunities to be gained by broadening this offering, expanding the number of buyers and sellers on the platform and accessing the wider building services sector in the UK of approximately £186 billion. Our medium-term aspirations are to have a digital platform growing from the existing base of 2,200 to over 7,000 buyers using the marketplace which should allow the business to double its EBITDA margins as it benefits from operating leverage from the platform revenue growth.

ProService H1 2024 trading performance

The investment we made in our technology team during 2023 has supported material strategic and operational progress. The team delivered v2.0 of our marketplace platform, which we launched in December 2023, and during the first six months of 2024 we saw a significant acceleration in the number of buyers using this online self-service platform. To date over 2,200 buyers have registered for the marketplace and raised a contract themselves. This has been achieved primarily through promotion by our salesforce, rather than marketing spend, and is a reflection of the attractiveness of the platform offering.

26% of all contracts in H1 24 were originated through our self-serve technology platforms: ProService Marketplace and HSS.com, compared to 15% in H1 23.

The training vertical continues to perform well achieving 20% year-on-year growth. The training market continues to be supported by tightening legislative and Health & Safety drivers, supporting growth in demand from all buyer markets. Our extensive network of over 240 training sellers, offering a wide range of training solutions on our platform, complements our in-house provision of technical training, combining to offer buyers a market-leading one-stop-shop training proposition.

The two new verticals, building materials and equipment sales, that we launched in 2023 continue to show robust levels of demand despite challenging markets, with revenue in these verticals, having doubled year-on-year.  

Operations

Positioning and strategy

Operations is a leading fulfilment business in the UK and Ireland focussed on service delivery, health & safety and quality, with comprehensive coverage across a wide range of tools, low-level powered access and site equipment. It has a well invested asset base and has consistently demonstrated growth ahead of the market. The business has delivered high levels of customer service whilst striving for ongoing efficiency gains, underpinned by expansion of its national network and progress on carbon reduction.

Our medium-term aspirations in the UK are to expand our network of trading locations to over 150 and to continue to deliver above market revenue growth whilst maintaining ROCE above our cost of capital.

In the Republic of Ireland, HSS is well placed to capitalise in the growth in key markets such as the construction of data centres.

Operations H1 2024 trading performance

We have continued to expand our low-cost builders merchant network, adding a further 10 locations during the first six months of 2024, bringing our total network to 98 at June 2024 (June 2023: 67). A further six have been opened since the period-end. We are pleased with the continued growth in revenues from these locations, with year-on-year growth of 13% on a same-stores like-for-like basis. We currently have plans to open a further ten locations this year and medium-term aspirations for a 150-location national network.

Our route optimisation software, Satalia, continues to optimise vehicle productivity and minimise our carbon footprint. The Digital Service Portal technology we are using in our workshops continues to improve process adherence and drive equipment quality. In addition, we are currently trialling new bar-coding technology, aimed at improving stock availability and enhancing the digital information available to customers.

Health & Safety continues to be top of the agenda amongst our operational teams. They have been promoting three basics of safety this year: following training procedures, wearing the correct PPE for the job and calling out unsafe behaviours. Colleagues have made more than 9,400 safety observations this year and our All-Injury Frequency Rate (AIFR) has reduced from 3.22 in H1 last year to 2.74 in H1 this year. Whilst the number of RIDDORS has increased from 1 to 4 over the same period, I would note that the additional incidents became RIDDORS on the basis of extended lost time, rather than on the basis of the severity of the injury.

Board and people

From the end of September, as part of the new structure, I will take the role of Executive Chairman for ProService and while I remain on the PLC Board as an Executive Director, I will no longer serve as Chief Executive Officer. Alan Peterson OBE will become non-Executive Chairman of Operations and HSS Ireland and will retain his role as non-Executive Chair of the PLC Board. Other than the impending departure of Amanda Burton from the Board announced earlier today, the Board will therefore remain unchanged.

I am also pleased to announce the appointments of Jon Overman and Tom Shorten into the roles of CEO for Operations and ProService respectively. They have each appointed CFOs and CROs for each business including both internal and external hires into these new roles. Both leadership teams are now at full strength and both businesses have strong independent ambitions.

Michael Killeen will continue to run HSS Ireland which is the market-leading rental operator in the Republic of Ireland, and which is already independently self-sufficient, with only limited support required from Group functions.

As previously announced, Paul Quested stepped down from his role as Group CFO at the end of August 2024, with Richard Jones joining as Interim CFO earlier in August.

ESG Progress

The entire Group has continued to make progress on our ESG roadmap. We have recently published our 3^rd ESG Impact report, which outlines our performance against our targets. We have also completed a Biodiversity impact assessment, publishing the results in out first ever Sites Biodiversity Report. Both new reports are available at www.hsshiregroup.com. We are proud to maintain our Ecovadis Gold Sustainability Rating and look forward to our reassessment later this year. Our ProService team have enhanced our marketplace platform to provide customers with more information on the ESG credentials of different products, allowing them to make better informed choices. They have also enhanced the customer carbon reporting available via the marketplace.

Summary

We expect there to be a period of significant transition over the next 6-12 months as we implement change across the Group. Both businesses will need to settle into new team structures and adapt to new ways of working. There will also be changes to systems and processes, most notably in ProService who will be implementing a new ERP system so that it can migrate from the legacy HSS Hire systems. There will also be some optimisation of routes to market and some bedding in of the trading agreement, alongside some temporary double-running of costs and some exceptional costs.

As a result of this period of change, we believe it is prudent to remove guidance for the foreseeable future. We will regularly review the timing with which we will reinstate guidance and provide visibility of our revised expectations at the earliest opportunity. Irrespective of any recovery in market conditions I am confident the business will show further resilience, as it continues to benefit from the broad spectrum of customers we serve and the wide range of products and services we offer. The ongoing strength of our balance sheet makes us well positioned to address any ongoing market challenges, whilst also providing the opportunity to invest in a recovering market.

H1 2024 Group Financial Performance

Revenue and segmental contribution

The H1 2024 results are based on 26 weeks of trading, consistent with H1 2023. Both the current and comparator financials are presented on a continuing operations basis, excluding the Power businesses which were disposed of in March 2024. Segmental analysis is based on a consistent basis with FY 2023 but prior to the impact of the separation of the two businesses which is due to take effect from the end of September 2024.

Revenue in H1 2024 was £170.8m, an increase of £5.2m, or 3.2% higher than the previous period (H1 2023: £165.6m), a resilient trading performance given the challenging macro-environment with demand softness in certain end markets and weakness in seasonal product performance due to the mild winter and summer.

ProService revenue increased 3.4% to £156.8m (H1 2023: £151.6m) with growth primarily from rehire of third-party rental fleet and increased resale contracts, reflective of continued demand for the one-stop-shop offering.  Operations UK revenues decreased 8.7% to £49.3m (H1 2023: £54.0m) impacted by softness from certain markets such as housing, RMI (repairs, maintenance and improvements) and fit-out and weak seasonal performance which declined 23% compared to H1 2023. On a consistent foreign exchange basis, HSS Ireland revenue grew 1.1% (reported basis down 1.3%). The Central segment represents the elimination of intercompany revenue between Operations and ProService.

Costs

Cost of sales increased to £94.7m during the period (H1 2023: £85.8m) driven by the growth of third party rehire and resale revenue.

Distribution costs decreased by 3.1% to £13.6m (H1 2023: £14.0m) reflecting the continuing tight control of costs and operational efficiency gains, enabling greater flexibility as volumes change, offsetting inflationary pressures.

Administrative expenses increased by £1.2m to £55.6m (H1 2023: £54.4m). In addition to labour inflation, ongoing costs were incurred relating to the operating of the ProService Marketplace Platform being expensed (£0.8m). There has been a corresponding reduction in the software capitalisation as developers increasingly focus on maintenance activities associated with the recently developed infrastructure.

Adjusted EBITDA and Adjusted EBITA

Adjusted EBITDA reduced £2.0m to £26.9m (H1 2023: £28.9m), principally due to the revenue mix, compounded by the seasonal product performance, and increased technology costs as we invest to support the long-term growth of the business.

Adjusted EBITA decreased £3.5m to £7.3m (H1 2023: £10.8m) with an increase in property right of use depreciation arising from increases as rent review negotiations are concluded.

Operating Profit

The reduction in adjusted EBITA flowed through to operating profit which decreased £3.7m to £6.2m (H1 2023: £9.9m) with the increase in the variance linked to higher amortisation associated with the investment in ProService's marketplace technology.

This resulted in adjusted basic earnings per share (on a continuing basis) decreasing to 0.13p in H1 24 from 0.55p in the prior period. The change in the continuing basic earnings per share was 0.87p, to a loss per share of 0.21p.

Net finance expenses

Net finance expenses were £5.0m, in line with H1 2023, with the impact of increased charges due to UK base rate changes offset by a £12.5m senior facility prepayment in March 2024, utilising the proceeds from the Power businesses sale.

Exceptional items

Total exceptional items of £3.1m have been recognised in H1 2024 principally linked to the formal separation of the commercial and operational activities of ProService and Operations (£2.2m) and the financial impact of the Power businesses disposal (£0.9m).

Return on Capital Employed

ROCE on a continuing basis decreased to 14.9% from 18.0% in the prior year with the impact of seasonal product weakness resulting in an adverse impact of around 3 percentage points. 

Net debt

Net debt on 29 June 2024 was £88.3m, a £22.6m reduction compared to H1 2023 (£111.6m). This reduction has been primarily driven by the sale of the Power businesses in March 2024 which realised net proceeds of £20.1m alongside the removal of related hire purchase and lease liabilities. The reduction in net debt and continued strong working capital management has resulted in IFRS16 leverage decreasing to 1.5x (H1 2023: 1.6x, FY 2023: 1.7x). Non-IFRS16 leverage remained at 1.0x (H1 2023: 1.0x)

The debt facilities consist of a £57.5m senior finance facility and an undrawn revolving credit and overdraft facility of £25.0m, both maturing in November 2025. Including cash balances of £38.2m and unutilised finance lines for the expansion of hire fleet of £11.3m, the Group had liquidity headroom of £74.5m at 29 June 2024.

Dividend

The Board has decided to maintain the dividend at 0.18 pence per share despite the reduction in H1 2023 Earnings Per Share, demonstrating confidence in the company's strong balance sheet position

Going concern

At 29 June 2024, the Group's financing arrangements consisted of a drawn senior finance facility of £57.5m, an undrawn revolving credit facility of £19.0m and undrawn overdraft facilities of £6.0m. Cash at 29 June was £38.2m, providing liquidity headroom of £74.5m. Both the senior finance facility and revolving credit facility are subject to net debt leverage and interest rate cover financial covenant tests each quarter. At the reporting date the Group had significant headroom against these covenants. Since the 2023 year end, the Group has been in a position to make repayments against the senior finance facility of £12.5m and the Group has begun discussions to renew the financing, with the Directors confident that this will be achieved well in advance of the expiration date of the facility.

The Directors continue to model via a number of scenarios current macroeconomic factors such as increasing inflation. At 24 September 2024 the Group had sufficient liquidity to operate within banking covenants for the period to 30 September 2025 even under a 'reasonable worst case' scenario. The reasonable worst case scenario models lower underlying revenue performance, lowers product margins, and increases debtor days.

After reviewing the above, considering current and future developments and principal risks and uncertainties, and making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence over a period of at least twelve months from the date of approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing these unaudited condensed consolidated financial statements.

Risks and uncertainties

The principal risks and uncertainties that could have a material impact upon the Group's performance over the remaining 26 weeks of the 2024 financial year have not changed significantly from those described in the Group's 2023 Annual Report and are summarised in note 18 of this interim report.

Macroeconomic and strategy execution, given the scale of organisational change, have been identified as the most material risks that could impact performance and will continue to be closely monitored to ensure that appropriate actions can be taken as required.

Steve Ashmore

Director

24 September 2024

HSS Hire Group plc

Unaudited condensed consolidated income statement

The notes form part of these condensed consolidated financial statements.

1.     The notes supporting the income statement have been restated to disclose continuing operations (note 2)