This meeting is being recorded.
... results earlier this week. Both Neil Stothard and new FD, Anna Bielby, will be taking us through the results presentation, and then at the end, there'll be an opportunity for Q&A. Please feel free to submit questions as we head through the presentation. Without further ado, over to you, Neil.
Great. Thank you very much, Hannah. Good morning, everybody. Results for the year ending 31st of March, 2023. The first slide just shows the headline numbers, which I think represent resilient trading performance by Vp over the last 12 months, and Anna will shortly give you a bit more detail on those numbers. If I were to pick out the highlights for the results, which are just on this slide. Earnings quality, we against some very difficult backdrop, we delivered profit growth of 4% on revenue growth of 6%, and have maintained return on capital employed and margins. We're very pleased with that.
The revenue growth that we have achieved is a mix of higher rate and increase in volume, predominantly through increasing higher rates rather than a specific growth in activity. The markets we serve, which those of you who followed Vp before will know, are infrastructure, construction, house building, and energy. The infrastructure and civil engineering element of our market has been positive. House building was absolutely positive for the first nine months of the year, but was quieter in the fourth quarter, and general construction was generally flat through the period. In geographical terms, our international divisions delivered good revenue growth that improved margins. Investments in fleet was pretty similar to last year, in fact, almost identical at a gross CapEx level. Although net CapEx was down.
We've made very good progress on ESG through further good multiple initiatives. Debt shows a minor increase. 4% increase in dividends to GBP 0.375, GBP 0.375 per share for the year. Finally, we've welcomed three new members to the board this year, including Anna, who's sat with me today, the CFO, and we have two new non-executives. All of these highlights, Anna and I will expand on in the presentation, which is to follow. I'll now hand over to Anna, who will talk you through the financials.
Thanks, Neil. Good morning, everybody. I'm going to start with the financial highlights. Year-on-year, group revenue grew by 6%, which represents good progress in a challenging market. We did face some cost inflation challenges and a higher interest cost. We managed to increase our key profit measure of PBTAE by 4%. We're pleased to have maintained a broadly consistent net margin of 10.9%, compared with 11.1% last year. As signaled in our recent trading update, we have undertaken some minor restructuring in three of our divisions. This has led to an exceptional charge of GBP 3.3 million during the year. We also incurred costs of GBP 1.7 million in connection with our financial sales process in the first half of the year. Just as a reminder, these results are pre IFRS 16.
The IFRS 16 impact on our PBTAE is GBP 0.3 million. Moving on to return on capital employed. Return on average, capital employed continues to be a key measure in monitoring the group's performance. We're pleased that we've been able to maintain an overall group ROCE of 14.4% against our long-term target of 15%. We have seen a slight increase in our WACC, which is now nearer 10% as a result of interest rates, but our ROCE remains consistently higher. We are proposing a final dividend of GBP 0.265 per share, which leads to a full year dividend of GBP 0.375. This represents a year-on-year increase of 4% in line with the growth in our PBTAE. Our intention is to aim for a 2x dividend cover as a demonstration of profitability and sustainability over the long term.
Moving on to balance sheet. We have a strong balance sheet, which positions us well for future opportunities. We have a young, well-maintained fleet, and we invested GBP 60 million in the hire fleet during the year. Our working capital has increased during the year, as we signaled at the interims. In particular, we've seen an increase in debtors and a higher DSO. We've also seen a slightly higher level of bad debt write-offs, reflecting conditions in the external market. These write-offs represent 0.9% of revenue, which remains within our historic range of 0.5% to just over 1%, and it's an area which we're controlling carefully. Our year-end net debt is GBP 134 million, which, as Neil mentioned previously, is a small increase on last year. The waterfall chart shows movements in the group's net debt during the year.
As you can see, we continue to generate strong operating cash flows. Our net CapEx was GBP 38 million this year. As well as investing a significant amount in our asset base, we also continue to generate strong cash flows and profits from disposals. As already discussed, we experienced a working capital outflow in the year, mainly in half one. There has been some level of volatility in working capital in recent years, a lot of which was a result of COVID. We expect working capital to be stable going forward. Our interest payments increased slightly over the year, mainly in the second half, due to increases in SONIA. Our tax and dividend outflows were as expected, and our year-end net debt after these movements is GBP 134 million. Moving on to facilities. Our facilities remain unchanged from last year.
We remain in a strong position, with two private placements providing GBP 93 million of fixed low-cost debt. This represents 69% by year-end net debt balance. On our revolving credit facility, we did start to see the impact of rising interest rates in the second half. We continue to have significant headroom, with GBP 56 million at the year-end date. We also have an uncommitted accordion facility of GBP 20 million available to us as required. Our RCF expires in 12 months' time. We've already begun conversations with our lenders and will be refinancing shortly in advance of our end range. Our covenants remain unchanged from last year and measure interest cover and gearing. We continue to be well within our covenants on both measures. Our EBITDA interest covenant is greater than 3x . We were 8.26x at the year-end date.
Our net debt to EBITDA covenant is less than 2.5x . We were 1.44x at the year-end date. That's everything from me, and I'm gonna hand back over to Neil.
Great, thanks so much, Anna. The second section of the presentation is to talk through the markets and trading review. As we commented in the results, we felt this was a particularly resilient performance by the Vp business or businesses during the year. One of the key or some of the key building blocks are on this slide. In terms of our model, we look at resilience and proven specialist rental as a key element of the Vp model. We seek to be employer of choice and also the provider of choice to our customers. First-class asset management is at the core of what we do. Our customers cannot afford to be let down by the quality of the service that we provide.
Sustainability, as you would expect, has increasingly become a key focus for us all within the management of the business. In particular, the key components, I would say, specialist rental. We primarily support the infrastructure, construction, house building, and energy markets. We have a geographic spread of activity in both the U.K. and internationally. We seek to deliver high-quality returns to our shareholders, and our long-term track record backs up that desire. We take a long-term view. Every decision we make is aimed at looking at what the long-term benefit would be if that decision, not the short-term benefit. Finally, as I mentioned, we are embracing our ESG responsibilities as a group. My next slide talks to markets. These are the markets which we are exposed to within our Vp group.
With revenues up 6%, our two largest market sectors are infrastructure and construction. They tend to hang around that 40% of group revenue level. This year is no different. Both of those markets grew, one at 9% and construction at 7%. Further down, house building, which is 8% of group revenues, we also saw growth there. I'll comment on these individual markets in a second. The energy line looks a bit odd, at 25% reduction, but that is almost entirely due to the fact that the very large shutdown project that we completed in the prior year, which is a sort of three, four year, every third or fourth year, did not happen in the 2022, 2023 financial year.
Finally, other, which grew 12%, that includes markets like aviation, it includes outdoor events and also in terms of defense. There's a long list of smaller markets that we're exposed to. In particular, on infrastructure, those regulated markets, which we serve, were generally pretty positive, although there were some blips on the way. The rail improved last year, in spite of the industrial action that was going on in the railway, particularly in 2022. Also we saw good demand from both transmission and the AMP sectors for infrastructure and the Asset Management Program 7, which is the water industry's capital investment program. I mentioned the industrial action disruption.
We also saw in the transmission sector, National Grid delaying some of the outages during the winter, as in the autumn of 2022, there was some concern about potential for power cuts. That affected the demand for our support transmission contracts during the winter, but pleased to say that that is now back up and running. HS2, which was a very strong provider for us in terms of demand the year before, was quieter and stayed quiet during the year. Although we expect a little bit of a pickup on that as 2023, 2024 unfolds. Construction, our other very large market, there were some pockets of positive trade for us, particularly in some civil engineering activity and also within the fit-out market.
Outside of that, private industrial, and private, commercial, and public, was more subdued, and that meant that overall general construction demand, as I say, with some notable exceptions, was relatively flat and continues to be so. House build was strong for the first nine months. There was a step change from December through to January. We estimate that 10% of the demand disappeared over that period. Pleasingly, that's stabilized to a relative extent so far, and we still view the house build market as medium-term positive for us as a group. In energy, where I mentioned the lack of shutdown contracts, we have seen a pickup in activity for our well tests, and LNG-related activities in the energy sector over that year.
Some improved prospects for us in energy going forward. Moving on to the U.K. construction output. I've used this data before. This is from the Experian U.K. construction forecast for the spring of 2023. The graphs have changed slightly from when I last presented them, in that they have an infrastructure and repair and maintenance that flattened, going respectively. They flattened out a bit. New housing has dipped, whereas before it was a gradual growth, and new non-residential is still pretty similar. There has been some change. Some of it affects us more than others. In new infrastructure, we still see that as positive. The regulated markets have got a lot of activity coming through, and that's a key support for us.
Even though the graph doesn't move too grow too quickly, that's still a key support for us in the next one to two years. We believe housing will reduce in terms of demand this year, and we will react to that accordingly, probably by selling off some of the equipment, which has been very highly utilized due to strong demand during the previous two years. We will take the opportunity to reduce the fleet size and therefore reduce the cost to serve for that sector. However, longer term, we still feel confident of that activity. New non-residential is the key one. I've mentioned this before, but the COVID, or sorry, the Brexit experience impacted this sector.
It then got worse as COVID happened, as that graph betrays, it hasn't really recovered anywhere near to the levels that it was before. These, the new non-residential, which is public non-residential, private industrial, and private commercial, offices, schools, leisure, those sorts of areas of the market, which I think are primarily impacted by general business confidence, general economic confidence, particularly in the U.K. I think until that changes, that graph line isn't likely to move very far. That's my comments on the core sectors. The next slide just briefly on business performance. The overall group operating profit was robust at GBP 46 million on 6% revenue growth.
I think importantly, despite strong inflation cost pressure during 2022 in particular, we managed to keep operating margins at a similar level, in fact, slightly improved on prior year overall. The next slide, if I then split out the two constituent divisions of the group, the U.K., which is by far our largest element, shows modest revenue growth and profit growth of 4% and 3% respectively. As I said, that was against the backdrop of a pretty tumultuous market generally during 2022. Little bit of a drop off in operating margins, but not really that significant. We're quite pleased that that's where we got to. The key elements of rail transmission and AMP7 were supported to our U.K. division, and we see that continuing into next year.
No change in non-residential construction, which remains flat. House building was positive till Q4, as I mentioned, and it will be rebased at a lower level in 2023. Through a combination of the actions that we've made, whether it be on improving higher rates or becoming more efficient as a business, we've managed to protect margins in the U.K. activity. Moving on to international. This is a much smaller division, as you can see, but nevertheless, these are very good results in terms of the improvements on prior year, with profits doubling from GBP one and a half million to GBP 3.1 million on a 24% increase in revenues. Particularly pleased with this.
The margin at 8.1% is still below where we want it to be, but nevertheless, we're making good progress in terms of improving the earnings quality internationally, and we see further scope for that going forward. The revenue growth came from a mix of energy, particularly with our Airpac division and also mining, defense, and outdoor events, and other areas for the TR Group. I'll then move on to rental fleet investments. I mentioned at the start that we had a similar CapEx spend at gross level of just under GBP 60 million for the year. We're continuing to maintain an up-to-date fleet, and investing in product as is appropriate and according to where the demand lies. Emphasis has been on investing in cleaner, greener rental fleet.
The other item was the, in terms of our making the business as efficient as possible, we identified product within the rental fleet that was not earning the required level of return, and we increased or accelerated some fleet disposal activity particularly during the second half of the year. That's why we ended up with sale proceeds of just under GBP 25 million, and net capital expenditure on the group was GBP 35 million, reduced from GBP 42 million. I think that this is another element of what, how we managed to protect our return on average capital employed throughout the years, is to ensure that we're only carrying investment on the balance sheet that we can really put to work.
In terms of ESG, there are a host of ESG initiatives which we have engaged in during the year, and made, we, I think, made some very good progress. We published our medium-term roadmap. We submitted science-based targets, which we're awaiting validation on at the moment. We achieved ISO 50001, which is the International Energy Management Standard across the whole of the U.K. We've developed a sustainable procurement policy, and to help support us with that, we've invested in new supply management software, which is amongst other things, enables us to capture emission data and monitor the ESG credentials of the supply chain.
Scope 3 emission data is vital for all businesses going forward, and we need to have a efficient and comprehensive way of collecting that information from our supply base. The GBP 60 million that we invested in new fleet, we've spent GBP 15 million on what we would call substitutional products. They are, we've invested in battery and solar-powered products to replace products that would historically have been petrol or diesel engine-driven. That's a quarter of our fleet investment in the year, and it will take us. We're well on with that, well advanced with that conversion. It could probably take a couple more years to see the full replacement of those products.
On top of that, it's important to flag that over 50% of our fleet is zero emission at point of use. A lot of the products within Groundforce, within TPA, there are no engines, there's no fuel usage in that product. Any emissions that have been created were created when the metal was made in the first place. We have a good starting point as a group. We consolidated the waste, water, plastic, and paper supply chain, again, aimed at improving our sustainability. We've got an ongoing commitment to another three new nature conservation projects to add to the six that we've already done, and we'll continue to do that.
I think overall, we aim to enable, that carbon and sustainability is something that's well understood within all our colleagues within the group. My final slide is on outlook. And quickly on that, as we head into the new financial year, there's been no particular change since March into April, overall, although some markets are more volatile than others. Overall, I'd describe the markets as being stable at this stage. Infrastructure, we see, as I've mentioned, it's already been very positive for us in rail, water, and transmission. We build our plan around the flat, non-residential construction market, so any improvements on that will be a benefit.
We're very aware of the pressures on the residential construction market, which, as I say, I emphasize, is a very important market for us, but only 8% of group revenues. The rental pricing improvements, which all our colleagues have negotiated with their customer base over the last six to 12 months, will contribute and be an important factor in the current year. We will, however, focus, continue to focus on cost management and investing in further sustainable solutions. We'll also be investing in our people, our rental fleet, and our portfolio, and that's designed to make sure that we're in as good a shape as possible, because inevitably, as always happens in the cycle, opportunities will arise.
They'll be organic and acquisitive, and they'll be both in the U.K. and internationally, and we want to be in the best place to deliver on that. That's all from Anna and myself on the results. Anna, I'm guessing there may be some questions, which, of course, we're very happy to take.
Thank you to you both. Yes, there are. Right. Which one do we go first? In international, obviously, you've seen a good acceleration there in terms of growth and profit. Do you have any plans to capitalize on that with an acquisition?
I think that I did comment in terms of the margin on international as being not quite where we'd like it to be. I think the prime focus for us in, on the international business is to continue to improve the quality of the return and the margin that we're getting from that segment. That will require further organic growth, for sure. I think in terms of M&A, we're always alert to opportunities. I don't think we necessarily absolutely need M&A in the international business at the moment, but we're certainly not afraid of it, and our medium and longer-term strategy would indeed be looking to add businesses to our international businesses going forward. It's dealing with the question directly, M&A isn't the number one priority for that division at the moment.
Okay, more broadly, another question: Are the acquisition prices looking more attractive now? Are there any warm prospects?
I just don't think it's the right time at the moment for M&A. It's very difficult to tell. You would expect that prices may become more attractive going forward. I think at the beginning of or the end of 2021, I think I probably said that I thought that M&A would be more prevalent by the end of 2022 and into 2023. Had I known what was going to happen to the world in 2022, then I would probably have a different view at that point. I think that the general challenges that I mentioned and we mentioned earlier, that happened during 2022, has sort of slowed down M&A opportunity. It will come through.
I'd probably be bold enough to say that it's gonna be in 2024. Hopefully, barring any further uncertainty that we can't predict at this point in time. We have always used a strong balance of organic and acquisitive growth to develop Vp. It's a well-trod path for us. We don't particularly favor one route rather than another. We look at each one on its own merits, and we're all very keen to get back to that sort of more norm, as everybody is, more normalized environment, so that we can pursue both opportunities.
Okay, a couple of questions on inflation. First of all, can you talk about the impact of inflation on your fleet of equipment at replacement cost? Presumably, the list prices of the equipment, which constitutes your fleet, has increased dramatically since 2019, the ROCE, as reported, is significantly overstated relative to the replacement cost economics.
Well, interesting point. The investment, sorry, inflation that we took in terms of capital supply chain in 2022 was quite significant. Our view is that that will drop significantly over the next 12 months. Well, it's doing already. There's already a change in terms of that backdrop. I often say to people that the great thing about rental is that we've got a number of years to claw back any particular spikes in terms of input costs. If we were a trading business, we were buying a product at a price, and to make our living, we have to sell it the following day or the following week or the following month at another price, then we would suffer a lot more.
What we do, we buy a product today, and we live with it for the next seven, eight years, and that incremental price increase is absorbed over, and blended over a period of time. I don't think that that is, you know, one-off element is not an issue. We are turning our fleet relatively quickly as well, so we've absorbed GBP 60 million of new products at new prices. I can't remember what the cost on the balance sheet is, but, you know, it, I'm guessing we turn our, I'm guessing here, we turn our costs in five years or something. No, I think that it's obviously an unhelpful pressure in terms of our targeted return on capital, but as we always do, we continue to focus on it.
I think these results show that so far, thus far, we've been able to protect that, and we expect to do so going forward.
I think the two things, the two points I would add there are, yes, we've absolutely seen inflation hit the cost of our assets and also the cost of doing business, but we have, in the last couple of months, seen that stabilize. We're not seeing continued peaks in that. We're seeing stability. Offsetting that is the success we've had from a price increase perspective across all of our markets and all of our businesses. Yes, it's been challenging, yes, we continue to see challenges, but we have managed a lot, we have been able to manage our aspects of those.
Okay, thank you. I guess then the corollary to that is the price increases that you've put through. Can you give a little bit more flavor on customer response to that churn, any churn that you might have seen?
Yes. I mean, the price increases that were put in by the businesses were negotiated with all our customer base, and for the most part, they've stuck and we're not aware of any significant customer losses as a result. There was a general understanding, it's perhaps, but, my colleagues would smile at that comment, but a general understanding within our customer base that the world had changed quite significantly in terms of the costs to serve, and that having a healthy supply chain economically is just as important to them. To protect ourselves, we needed to put those price improvements in.
I'm sure, many of those negotiations were not easy to start with, but I'm pleased to say that we've negotiated some sensible price increases across the piece, which protect us to a degree from the inflationary pressures that we've sort of come to view.
Okay, thank you. question here on the conclusion of the formal sale process. Obviously, you, one assumes you didn't get a high enough bid, and the share price has fallen on smaller volumes. Are you considering a share buyback program, because of the current price that it's at?
Yeah. We, as a board, we're aware of share buyback being a potential opportunity for us. We keep that as a potential opportunity on the table for us. At this stage, we've not decided to do that for a number of reasons. We think that we've got other opportunities that we can pursue, which will perhaps be more beneficial to us and to shareholders than that at this stage. I mean, I don't know, Anna might talk to dividend. I mean, share buyback is another way of sort of redistributing capital allocation. Dividend is another way. Do you want to just reflect on dividend that we've paid?
I mean, covered it in the presentation. I think the group's had a strong track record of dividends over the year. I think year-over-year, we're looking at 4%, 7 dividend growth. We consistently show strong yields.
We don't. We want to be able to, we've got a very good track record long term of dividend payments. We also want to keep our powder dry in terms of any opportunities that may come up. Share buyback, cash allocation is just one of a stream of possibilities that we could consider. All I can say to the question is, it is something that we've looked at and we will continue to review as a potential action on our part.
Thank you. I guess, again, leading on from that, have you seen any churn in management leading the various businesses since the sale process was concluded?
No, we haven't. I think that the process itself was kept to a very small number of people within the business, particularly to avoid it being a distraction. The great thing about the process, if that's the right phrase, was that when we ceased the process in August last year, which is, you know, we're coming, gonna be coming up to a year very shortly. The business did continue as usual, I think we, as best we could in the very confidential elements of the process, we kept our colleagues as up to date as we were able to within the confines of confidentiality. I think there's been a very good response to that.
We've moved forward, we've got fresh plans, and I think as the results have demonstrated, the FSP was not a detrimental process to the overall operational performance of the group, and I think that's the most important thing of all. No, we've not seen any change as a result of that.
Okay. Will the reported GBP 10 billion increase in spending by the water companies benefit Vp? Separately, how do you see the outlook for AMP spending over the next few years with the transition from AMP7 to AMP8?
Well, I think the answer is hopefully that extra investment will be beneficial to us. I said in the presentation earlier that the AMP7 program have... In truth, AMP7's been quieter than we expected it to be. I think we're now in the fourth year, so I think it'll finish in 2025. There's already plans being put together for AMP8. I think our view at the moment is that AMP7 will sort of merge in with AMP8, and we'll see ongoing activity there. We like the regulated markets, and there is some certainty of spend. The uncertainty of spend is that it can be volatile as to when it actually happens.
We've seen as we've gone through AMP3, AMP4, AMP5, AMP6, AMP7, every time there's a transition, we get different experiences. Quite often, they're slow to start, and then they're back-end loaded. Just because we're busy on AMP7 right the way through to the end, doesn't mean to say that we'll just transition smoothly into AMP8. It's too early to say at this stage, I think. Overall, increased expenditure from the water companies is very good for us, yes.
Thank you. Follow up here on the point you made earlier regarding M&A. Were you implying that you are looking for certainty in end markets in order to acquire something? Would that not generally mean higher valuations for acquisition candidates?
No. I mean, I think that the key to getting acquisitions right is to make sure that there's a very positive reason for buying the business, which might be that it's filling a gap in our portfolio, which might be in whether it be product-wise, service-wise, regionally, geographically, but we look at everyone on its own, on its own merits. We, right at the end, I was saying how we're investing at a time when markets are generally flat. Our expectation for the next 12 months is that we're not gonna get too many favors outside of perhaps the industry. We're not gonna get too many favors from the markets as before. We have to create our own opportunity.
Opportunities will come up, and if we wait, and I think that may be the implication of the question, if we wait until markets have redressed and are bouncy where they were, then yes, we'll have missed the opportunity, or if we haven't, we'll have to pay top dollar to get the opportunity. But there's a sort of, there's a middle ground, middle zone, work between where we are today, and the skill of ourselves and my colleagues is to make sure that we identify when that trend is changing. As soon as we see that trend changing, is to then up the investment levels, again, whether it be organic or whether it be targeting M&A.
Well, thank you to you both. That is it from our questions today. Thank you to our audience for joining us, and we look forward to a further update in six months' time.
Great.
Thank you.
Thanks very much. Thank you, all. Cheers.
Bye-bye.