Hercules Plc (HERC.L) Earnings Call Transcript & Summary

Good morning, and welcome to the Hercules plc Investor Presentation. [Operator Instructions]. And I'd now like to hand you over to Brusk Korkmaz, CEO. Good morning, sir.

Good morning. Good morning, Lilly. Hi, everyone. I'm joined here today by our CFO, Paul.

Good morning, everybody.

Good morning, everyone. Thank you so much for your time today. As you might have already seen from our announcements in 2025, we had a fantastic year, which we will announce our end of year results in January 2026. The announcement will be around a week commencing 19th January. In today's presentation, we'll talk about our performance over the year, and we will also share our future growth plans with you. Just before that, I just want to remind you about our -- give you a bit of a brief introduction. Hercules plc is a technology-enabled labor supply company operating in the infrastructure sector. The second 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. 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 is a significant part of our company, which currently contributes to 86% of our turnover, and this percentage is still growing. We believe that within 5 years' time, that will be around 95% of our total business. We currently employ over 1,700 operatives weekly. We have been supplying labor into U.K.'s highways, rail, nuclear energy, utilities, power and energy transmission and distribution sectors as well as other infrastructure projects. Under the Construction Services division, we carry out civil projects in the water industry, and we operate our Hercules Construction Academy. 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 of the clients are with us over 18 years, and we continue to grow our client base every year. The next slide is about our achievements for 2025. I'll start from the top. As I mentioned before, we had a fantastic first 6 months for 2025, and we are trading in line with market expectations for the second half of the year also. Our revenue, EBITDA, profit before tax and our EPS all increased materially. We have achieved these strong results through growth in our labor supply division. As you might have already aware, there are billions of pounds of investment earmarked into the power and energy sectors, over GBP 100 billion earmarked. So we have acquired 2 businesses. They are called Advantage NRG and Lyons Power Services to move into power and energy sectors. We have got a separate slide for our acquisitions. So Paul will go through with you later on. We are also delivering what we promised to the market regarding our M&A strategy. In this year, we have completed 3 acquisitions. First one is Advantage NRG. They are an overhead lines and supply company into the transmission lines. Lyons Power Services specialized in supplying commissioning engineers into the energy sector and QTT is a training company, which is a great addition to our existing Hercules Training Academy. As you might be aware, the U.K. is facing a significant shortage of skilled workers with over 250,000 people needed by 2027. And as you might also remember that nearly a couple of years ago, we launched our Hercules Academy to help upskill and cross-skill our workforce. Since establishing our Hercules Academy, we have trained over 2,000 workers. And we believe that upskilling and cross-skilling our workforce, we can meet the growing demand in the U.K. by supplying skilled workers for the key projects. We had a good second half of 2025 financial year also with strong trading and strong balance sheet, which Paul will talk about in detail later on. Also selling the Suction Excavator business reduced our debt. As you might remember, a few years ago, we have developed our Hercules recruitment app in order to match local labor to local projects, and we now have over 20,000 potential operators registered in our system. Lastly, 2026 financial year started really well. We have a strong pipeline of projects, and we are confident that we will have another record year. As you are aware that there is GBP 725 billion investment year mark in the infrastructure sector, and we are set to grow organically and through acquisitions over the next few years, aligning ourselves with infrastructure investment plans. The next slide is about our financial performance. Now I will take you through the figures that represent our financial performance for the first half of 2025 comparison to first half of the 2024 financial year. Our revenue is up 18% and comparison to first half of 2024, revenue is GBP 54.6 million. Our adjusted EBITDA is also up 26% comparison to first half of 2024, and EPS is up 19% and adjusted PBT is also increased by 47% to GBP 1.7 million. The next slide, I think this slide is yours, Paul.

Absolutely. As Brusk has just reminded everybody who haven't seen them what our interim results were for the first half of the financial year. We did do a trading update, and we did this in -- I think it was October, late October. So what we said was that we expect our revenue for the full year financial year 2025 to be GBP 111 million revenue at minimum, which is a 16% increase on financial year 2024, which was GBP 101.9 million. And we also said to the market that we expect adjusted EBITDA to be in line with market expectations. We're very pleased with that second half year. It's been very, very busy. We're always a busy business, but again, very busy. Business highlights. So as Brusk said earlier on, the majority of our business currently around 86% is labor supply. And we continued this organic growth through delivery of strong project pipeline. We've gained a number of new clients such as Balfour Beatty Power and Transmission and Distribution and Costain and United Utilities. We always gain new clients. We don't really lose them. So that's good news. Again, talking about operatives across sites, Brusk mentioned this earlier on. That's increased from 1,200 in the first half of 2024 to 1,700 currently, a very big increase. We find local employees via our recruitment app, and that's the 20,000 downloads that we've had so far that Brusk mentioned earlier. At the same time, end of half 1 2024 was 13,000. That is incredibly popular. And it's great to be able to communicate with our workforce or prospective workforce in that way. One of the things that is really, really important to us is the academy. We opened it in January 2024. And we've trained since that open 2,000 operatives. And we use this to upskill and cross-skill our operatives as their revised training dates come in front of us because nobody is trained forever. And normally between 3 to 4 years, you have to be retrained. So we always take that opportunity now via our own academy to upskill and cross-skill. The civil projects part of the business is very much in the water industry. For anybody who is aware of the AMP Cycle, AMP 8 started in April of this year and runs for 5 years. The previous AMP 7 and again, which was for 5 years was for GBP 51 billion. AMP 8 is for GBP 104 billion. And everybody who follows the headlines will know that this is because of the amount of work that needs to be done to clean up our rivers, oceans, et cetera. There's a lot of work there and the public demands to make those changes. Hence, that money is being allocated for that very purpose. And we hope to do very well out of that over the next 5 years. In fact, we've already got projects that are in contract that will affect financial year 2025. In fact, that was GBP 12 million. I think the same figure for 2026 to date, and let's face it, we're only not quite 2 months into 2026 financial year, but that we've already got GBP 8 million in contract that will affect financial year '26. We did also gain a new client in the civil projects [ Sphere ], Wessex Water. Okay. So M&A activity. Well, we've made no secret of the fact ever since we did the IPO and joined the stock market that we intend to grow. We intend to grow by organic growth, and you can see that in what Brusk and myself have already shown you in the previous slide, but also by acquisition. So one of the major acquisitions or the major one we've done to date was Advantage NRG. And if you look at that picture, you'll see that there's a group of some of those employees there, and you'll see a big steel erection and overhead lines behind them. That's what they do. And currently, there's about 170 guys engaged in that activity. Not only in the U.K., they've also just done their first contract in the Republic of Ireland. It's the leading provider of overhead linesman and works across the U.K.'s power transmission and distribution network. So this really -- this acquisition signals a positive strides that we're making into what is clearly a new and rapidly growing sector. We've got a new client in Balfour Beatty Power Transmission and distribution, which is a huge win for us. So we know this is going to be one of the busiest infrastructure sectors in the next 10 to 15 years. And so we think we bought this business just at the right time and expect great things from it in the future. On a slightly smaller scale, but in the same sector, we also purchased more recently Lyons Power Services. So this is a company that effectively works on commissioning in electrical substations in the power and energy sector. Again, right place, right time, we believe, lots of growth coming along in that space. And we think there's lots of cross-selling that can be done between Advantage NRG and Lyons and other parts of the Hercules Group. QT, we purchased earlier in the year, again, relatively small, but what this does, it enables us to expand the courses that we make available to people in the Academy. And it means that we've got some in-house trainers. We don't need to go to external trainers at all. We effectively use the people that we've got on our payroll, which will add to the long-term profitability. And we expect the academy to pretty much get to -- in fact, it's probably already got there now where it's now washing its face. We expected 2 years to break even. I think we've done that just within that time frame, which is quite a success for everybody involved. Finally, we -- the first acquisition we did, which we did in November 2023, was Future Build, which is a white-collar recruitment business operating in the infrastructure sector. And that has had quite a good year in 2025, an improvement on 2024. And we expect on 2026 to show similar improvement. So the business is, as I said earlier on, is very, very busy. But it's busy for a number of reasons. We want to grow. We want to build and we want to develop, and we want to launch ourselves into different opportunities. So this has been a really big development year for Hercules. In fact, the first thing -- one of the first things we did earlier in the year was that we rebranded. We rebranded to be called Hercules plc rather than Hercules Site Services plc. And this was to create a stronger brand and allow for a structural change as the group grows and develops. We talk about being a technology-enabled business. Well, we are and the apps are something that will definitely differentiate ourselves from our competitors. But as well as that, we've had to look at our existing back-office systems, which really is how the business operates. And we've had the same one since 2016 when we were quite a small company. So we're undergoing 2 major changes in technology. We are launching a pay and bill system, which will give us quite a bit of room for growth in the years to come, and that's halfway through implementation, and that should be completed in the early part of next year. And we're also implementing a new ERP system, which is, again, a very big part of what we need to do, and that will be a 2026 implementation completion. We've also, of course, hired a Business Development Director. This is really important because it's very much a strategic hire to help with growth into new markets, new clients, ones that we've not dealt with before. And Jacques Kriel is the guy as he's got an individual with very strong industry experience. We're looking to have him. He's doing a great job. Moving on from there, we're also launching ourselves into Scotland. So again, another strategic move, which will provide opportunities across the group, but in particular, power transmission and distribution and in the water sector and the provision of labor. In fact, we just opened an office there in Scotland in Motherwell. So we're looking for great things in Scotland in the years ahead because we know there's going to be a lot of work there. Finally, and this is relatively exciting, we think. We've been exploring what clearly is an abundance of opportunities in the Kingdom of Saudi Arabia. And in particular, training, which is a big thing over there. Everybody will probably be aware of the amount of work that's going on in Saudi Arabia to build what they are calling giga cities. So we've got involved in that, and we'll obviously keep people posted as things develop. But we're exploring those opportunities, and we hope to bring some to fruition in 2026. Brusk, back to you.

Thank you, Paul. This slide is about our current trading and industry outlook. As I had mentioned before, we had a fantastic first 6 months. Also, momentum has continued across all divisions into the second half of the year. We are also on track to deliver our results Infrastructure remains buoyant with GBP 725 billion investment earmarked across our main markets, which are nuclear energy, power and energy, distribution and transmission work, rail, highways and water sectors. The next AMP, which is AMP 8 in the water sector has a committed investment of GBP 104 billion over the next 5 years, more than double the GBP 51 billion investment in the current AMP 7. When I said current AMP 7, I mean, AMP 7 finished in April last year, so AMP 8 started. We are the biggest labor supply company into the water sector. We work in the Thames Water area, Anglian Water, Severn Trent Water, Southern Water, Wessex Water, United Utilities. There was one more, I forgot Yorkshire Water as well as -- we are opening up our offices in Scotland to target Scottish Water also. So we are the biggest labor supply company and our project team also carry out work in the water industry. So that means we will be twice as busy over the next 5 years in comparison to the AMP 7 period. Network Rail CP7 investment plans representing a GBP 44 billion investment into the rail network is from April 2024 over the next 5 years. In the rail sector, we are well positioned to maximize our revenue and profit. As you might remember, we have opened up our rail division a couple of years ago, and it's going really well. We are growing every year, and it will continue to grow this year also. As you might have already seen in the recent news that the government committed to major infrastructure projects throughout 2025 and beyond, including initial investment of GBP 14.2 billion in the nuclear energy such as Sizewell C Ipswich, along with numerous SMRs, smaller modular reactors and carbon capture projects such as Net Zero Teesside as well as major power and energy transmission and distribution projects in the various parts of the U.K. As you can see from the list of these investments, we are well positioned in the market to further grow over the next 10-plus years. 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&A activity, as I mentioned previously, that we have acquired 4 companies so far, and they are doing really well, contributing to our growth strategy. We are also talking to identify acquisition targets in the labor supply sector -- we have a good pipeline of acquisition targets. With regards to our organic growth, we have been growing across all divisions through a strong pipeline of projects into financial year 2026. I mean, when I started the business 18 years ago from a family spare bedroom, we have been growing every year. So this hasn't just only happened last year or the year before. Every year, we have been growing. Apart from the COVID year, we dropped down. But over the last 18 years, we have got a really good track record of growth every year. There are billions of pounds being invested in the nuclear energy, as I mentioned before, with initial investment of GBP 14.2 billion committed to Sizewell C nuclear energy project. We have already started supplying labor to this project, and we believe that there are significant growth opportunities in the coming years. I think when it picks up, they will be employing 11,000 blue-collar people. So as you can see, we are well positioned in the nuclear market as well. Regarding the power and energy distribution projects, the U.K. government has committed to ensuring energy security across the country. Major power and energy transmission and distribution projects are starting in Scotland, England, Wales, and we are already a framework supplier for our blue-chip clients in these regions. So this is the end of the slides. Thank you so much for listening to us today, and we are -- we really appreciate your feedback, and please feel free to ask any questions. Thank you so much.

That's great. [Operator Instructions] I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. So please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you very much, Lilly. So first, we've got to question one. So this is a question about the Advantage NRG acquisition that we made recently. So the question was, Advantage NRG cost up to GBP 15.7 million, which is a big chunk of change. Is it proving to be "earnings enhancing and cash generative"? And how many years will it take to wipe its face? Well, it's one of these acquisitions that is very, very strategic and it's for the long term, and we know there's going to be lots of growth in that area. What we don't know is the rate of growth because that's the nature of infrastructure, labor supply, you don't quite know when things are going to kick off, but you know they're going to kick off. So it's very much earnings enhancing and very much cash generative. -- and that will become more evident as the years go by. In terms of how many years it will take to wipe its space, well, to be fair, that's a difficult one because we don't know exactly the rate at which the work will kick off. But I think the way we would look at it is it's a very, very good acquisition and will prove its worth relatively soon.

It's already growing, right, Paul, the Advantage NRG team.

Already growing.

Going in the right direction, huge amount of work coming up in 2026. So we believe we'll be growing with Advantage NRG over the next few years, which is brilliant. That's the whole point we bought we acquired the company.

We're only interested in buying companies that we believe have got growth within them in the years ahead, and they very much are one of those. Okay. Perhaps I'll let you do this one, Brusk, what are the unique selling points of the Hercules service that give you an advantage over your competitors?

Yes, great question. I'll start with our apps. We are a technology-enabled labor supply company. We have got our apps that we use for the recruitment app. We match local people to local projects. It helps us a lot. It helps people a lot. We can also target difficult areas where there is -- there are less operatives and very difficult challenging areas. We can also find people as well by using our apps. We can also onboard them really quickly. We've got an onboarding app as well that we have developed in-house, which is brilliant. And we are continuing to develop our apps to make us more efficient as well as less costly. Another unique selling point that we have got is our training academy. So we are finding local people for local projects. As you remember, after Brexit, the amount of skilled workers in the U.K. dramatically reduced. And therefore, having -- we are finding local people for local projects, but we need to upskill and cross-skill the workforce. Also, we need to bring new people into the industry as well. How we are doing is that through our academy, which is brilliant, our Hercules training academy we established 2 years ago. We trained 2,000 people and is helping us to supply people for the key infrastructure projects. And the number three unique selling point is that we have got -- we have acquired a few companies. And that means for our clients, we can offer services under the same umbrella, different services under the same umbrella, which are mainly labor supply into different infrastructure projects, including power and energy as well and into water as well as rail and white collar. So you can see that clients prefer to sort of go to one company who can -- who can provide all of these services under the same umbrella. We are also cross-selling between the companies as well, which is working really well.

Okay. So the next one, I think you have made excellent progress with the Academy in a short space of time, given that you are training staff for other organizations. Are you planning for it to be self-funding? I can do this one because I think I alluded to it within the presentation anyway. So yes, just to clarify, so we opened the Academy in January 2024. And we're really pleased with the progress. I think we've trained up to 2,000 people since we opened. We always knew it was going to take a couple of years before we got to breakeven point. And as I said, I think we're just at that crossover point now. So 2 years would be January 2026. So I think we've achieved our target, and we're very pleased with that. We never intended this to be a major profit center within the group, but we knew we wanted it to be as a minimum self-funding and then make a contribution to the group's results over time, but also really work as a bit of vertical integration into providing that services, that service, not just for other companies within the group, but to competitors or to other organizations and educational establishments across the country, which is a key part of our strategic plan. But as Brusk has explained how important the skills gap is and how we've got to address it. And we're very much trying to do our bit. Okay. Next one. This is -- I'll leave this one for you, so an easy one, Brusk. What proportion of the labor force is white collar?

It's only a smaller portion if you compare to the rest of the workforce. We have got our recruitment -- white collar recruitment company that we have acquired, Future Build Recruitment, as Paul mentioned before. They are an excellent company, and they are supplying people into the infrastructure sector. And it is only a small portion, I would say, probably up to sort of 5% to 7% of our workforce, even probably less than 7%. I would probably say around 5% of our workforce is white collar.

Okay. It's an interesting one, Brusk. Again, I'll let you do this one. Sure. What impact will creation of a new oversight body, including the closure of Ofwat have on business?

I mean business is as usual for us. It doesn't affect us at all. The AMP 7 investment has already been earmarked and it's already [ started ] to AMP 8 investment already earmarked GBP 104 billion, as I mentioned before, and it has kicked off. As you are aware, there are currently spillage which is being spilled into the rivers, into the lakes, into the seas. And that is to stop that happening. That amount has to be spent to be able to make sure that we don't have any spillage into the rivers, et cetera. So it doesn't make any impact. We already started seeing the AMP 8 sort of growing within our business, affecting our business. And it's going to, I think, kick off properly from January to April onwards, which that means we are positioned really well. in the water sector.

Okay. So this one is from Jed S. And Jed says, one of your clients, Costain, recently gained a GBP 75 million contract with EDF for project control services at 8 nuclear power stations. Will there be any financial benefit to Hercules? Brusk, do you want to take that one?

Yes, I would start it. So yes, with regards to Costain, Costain is -- we are a strategic supplier to Costain. We are in their framework. So wherever they require people, we will be supplying to Costain anyway for that. And especially acquiring Advantage NRG and Lyons Power Services, Paul mentioned, one of them is a great, great company for overhead linesman supply -- labor supply company. The other one is supplies commissioning engineers into the substations, into the nuclear energy sort of plants. So obviously, we will be supplying cost wherever they require in the EDF projects as well.

Okay. Right. So this is a question from Nigel A. Why is there an H2 weighting? And do you expect this to continue in financial year '26? Are operating margins expected to rise given organic and inorganic growth? Okay. I'll take this one. So -- there's always been anybody who watches the construction industry and in particular, the infrastructure part of the construction industry will know that there is a downturn in the Christmas period and the winter period, generally speaking. And there is an upturn in the summer months when hopefully the sun shines and everybody wants everybody out on site working. That's never changed. It's a combination of those 2 things. So half 1 goes down, half 2 goes up. It's really as straightforward as that. Do we expect this to continue? Well, unless the seasons start changing because of climate change, I think it's going to continue not only into 2026, but well beyond. Our operating margins expected to rise? Well, our margins are a blend. They're a blend of the different elements of the business. And what we look to do as we make acquisitions is to look for niche margin type businesses that's going to add to our overall blend. And that's very much what we expect to be the case with Advantage NRG and with Lyons Power Services. So with organic growth, organic growth, it depends where that organic growth occurs. Government-funded projects tends to be more nailed down in terms of margin levels, whereas nongovernment funded ones, we have far more scope. So do we expect margins overall to increase in terms of percentages? I think we do, yes. Okay. So next one is from Nigel A. CP7 rail started slowly. Are you seeing activity in rail picking up? And if you are, given timings, is this an opportunity for 2026 outperformance, assuming revenue in rail was below 2025 expectations? Brusk, do you want to take that one?

Yes, sure. We only started our rail labor supply business a couple of years ago. We've got a really good team set up with operations and compliance. And we have been growing for the last 2 years and even 2026 started really well as well. Now we have established our name into the market. And we believe that we'll be growing in 2026 as well. So -- which is really, really good news for us to be able to do that.

Okay. Next question is from Anthony [indiscernible] , Anthony asks, the forecast of GBP 129 million revenue in 2026 does not seem to reflect the opportunities that you have outlined. Okay. Well, this is a fairly simple one to answer. We're in a business where we don't determine the start and end dates of contracts. We know contracts are coming along, but we get intel from our clients that give us indications of when we are going to be required on different sites, but they very often do not turn out to be the real start dates. So you would expect us to be relatively cautious in terms of what we forecast. We want to be able to put something into the market that we can deliver. Having said that, obviously, there is -- as Brusk said earlier, we'll be publishing our results for the financial year 2025 in January of next year. And we will assess the market and the year ahead then and revise our forecast as we normally do then for both 2026 and 2027. But unashamedly, we're always going to be relatively cautious because we don't have the handle on the go button, so to speak, or the start button. So we have to be careful.

Yes, it's a great point. And it's a great question as well. But also we want to be underpromising and overdelivering as well. So like Paul said, we are cautious. we call it cautiously optimistic, right, Paul?

Absolutely.

So yes, we believe we'll be growing again in 2026 and 2027, and you're going to see our forecast for 2026 in January into the market.

Okay. Right. Let's move on. This is from Alex M. Regarding the M&A strategy, does management foresee the continuing issuance of new shares to be part of the approach?

Can I start with this, Paul, if that is all right?

Absolutely.

At the moment, our share price is undervalued with the current share price, we are giving 5% dividend, 4.5%, I think, currently before something like that anyway. And we would like our share price to grow to analysts sort of -- when analysts sort of report to the market, I think it's around 60p, and we would want to do it when the share price is sort of grown, not in the current conditions.

And just to finish to add to what Brusk has said. So we don't have a predefined plan because each acquisition is different, and we don't know which one will come along when and we would have to look at each one and make decisions there. But I think we would envisage that in most cases, there will be some element of issuance of new shares for acquisitions, but it very much depends on the size and the timing and the nature of the acquisition. This is an easy one for you, Brusk from [ Garry ] D. Please can you explain what AMP stands for that you referred to on your civil slide?

So AMP is asset management program. So this is given by Ofwat -- set by Ofwat every 5 years. They are the control periods. So AMP 7 just finished in 2024 -- sorry, 2025 April and AMP 8 started. AMP 8 is normally -- the beginning of the AMPs are normally taken by design. And then after the design is completed, it goes to the sites for the projects to start. And we started seeing that now. Things start getting busier over the last 2, 3 months. And we believe January onwards is going to get even busier. Thank you.

Okay. So this looks like the last question, and it's from Cameron R. Cameron asks, why does a construction company use Hercules trained personnel rather than hire and train their own. This is a good one for you, Brusk.

Yes, sure. So this is a really good question, Cameron. So employing people, finding people and putting them to projects is very different than delivery of the projects. Our clients are excellent at delivering the projects, but finding people, training them and putting them to projects and moving them from one project to another is another still. They have got only limited resources, as you can imagine, and they are good at completing the project, starting the project, completing it successfully and safely and efficiently. And we have them by finding the right people training them up and putting them into projects and upskilling it again and moving to them to another project. So it's a different skill, different teams, and that's why we are good at what we do. Thank you.

Brusk, Paul, thank you for answering all those questions you have from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide with their feedback, which is particularly important to the company, Brusk, could I please just ask you for a few closing comments?

Thank you, Lilly. Yes, we are very well positioned in the market. As I mentioned before, the last 18 years, we have been growing. And we believe we've got a great company, huge investment happening in the infrastructure, GBP 725 million. So we believe that we are going to be growing and keeping our promise to our shareholders and potential shareholders as well. So thank you so much for your trust in us. Thank you.

That's great. Thank you for updating investors today. Can I please ask investors not to close this session as shall now be automatically redirected to provide your feedback in order that the management team 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'd like to thank you for attending today's presentation, and good morning to you all.