Recording in progress.
Good morning, everyone, and thank you for joining us today to hear from Vp plc, who announced their interim results earlier this week. We've also published a note on those results, which you can find on our website at equitydevelopment.co.uk. This morning, we will be taking through the presentation by the new CEO, Anna Bielby, who, I think, last time you were with us was the CFO. And there will be an opportunity at the end for Q&A, and then... Please submit those questions as we go through the presentation or at the end. Without further ado, over to you, Anna.
Thank you, Hannah. Good morning, everybody. My name's Anna. I'm the CEO here at Vp. I joined the group back in January as CFO, and I've been CEO since September, so just a couple of months. I'm joined today by Judith McKenzie, who is my Group Financial Controller, and she'll be supporting today by talking us through the finance slides. I've had a busy first couple of months in role, looking at the business in order to determine what the next chapter looks like. And what today's presentation does is builds on the solid foundations and the risk-rich history of Vp, but I will be sharing a little bit more information on divisional performance than we've done in the past. I'll also be highlighting some of those areas that I think will be key to us over the coming months.
Our plans in those areas are still being shaped and will be shared more fully, probably in the summer, when we come to present our prelims in due time. So I wanted to start with a reminder of the Vp business, and more importantly, the Vp investment case. So within Vp, we have nine divisions which provide specialist equipment rental across different markets and geographies. Market-wise, infrastructure and construction make up the majority of our business, but we also have notable activities in house building and energy. So moving on to the investment case. Next slide, please. Moving on to the investment case, I know this will be familiar to a lot of you, but I wanted to outline how I see things.
A key part for me is the specialist part of our rental model and the market-leading positions that we hold in each sector, alongside our disciplined asset management. I touched on this. I touched on our business in the last slide, but the revenue from our diverse markets and our geography provide us with not only growth opportunities but also risk mitigation. When I come to talk about the future and strategy, growth is obviously key, and looking back, Vp has a really good track record. Looking forward, I think we've got really exciting growth prospects through both organic growth and also through disciplined M&A activity. From a financial perspective, we have consistently demonstrated strong returns with a target ROCE of 15%, supported by 30 years of uninterrupted dividends, and we've managed to progress our dividends in this interim period.
We've also got a really strong balance sheet with capital, disciplined capital allocation. We're cash generative, and we've got appropriate gearing, which is just, just short of 1.5 times EBITDA. We've recently completed the refinance of our revolving credit facility, which gives us a really good platform, for growth and for further opportunity. The Vp strategy, which I'm going to touch on later, focuses on our growth and also our operational excellence, and that's underpinned by three key areas, which again, I'll touch on, and those areas are people, our digital, and our ESG focus. Moving on to the half one highlights. Overall, half one represented a strong performance across key metrics. We're really pleased that our revenue and our profit moved forward, and we also increased our return on capital employed.
I think in the market we've been operating in, that represents a really strong performance. Our markets weren't all supportive, but we were really pleased with the construction market and the demand from rail, from transmission, and from water. From a balance sheet perspective, we continued to invest, and we invested GBP 28 million in our fleet CapEx during the period, and we also successfully refinanced our revolving credit facility. The board's confidence in the future means that we increased our interim dividend by 4.5%, and that stands at 11.5 pence per share. I'm going to talk about ESG and digital in a bit more detail later. And as you'll be aware, we have refreshed leadership in place in my new role and a new CFO, Keith Winstanley, who will join us in January.
I'm now going to hand over to Judith, who is going to cover the financial highlights.
Thank you, Hannah. Hello. Moving on to the financial review. We have had a very positive set of results this period. Revenue in the period grew by 2% across the group, which represents good progress in a challenging market, particularly the challenging construction market. The inflation challenges that we've spoken about previously have largely settled down, and we were pleased to report a small increase in profitability despite the impact of increasing interest rates. Net margin at 11.5% is consistent with the prior period. We don't have any exceptional items in the first half, but just as a heads-up, there will be some minor restructuring in half two, principally relating to Brandon Hire Station. Next slide, please, Hannah. Thank you. Onto ROCE.
The strength and sustainability of our returns are key parts of the Vp investment case, and return on average capital employed has always been an important measure for us. Group ROCE for the period is 14.7%, a slight increase on last full year performance and close to our long-term target of 15%. Across our divisions, we have a range of individual ROCEs, and return is an important consideration in our capital allocation. Where we have divisions with a ROCE lower than 15%, the focus is on driving this towards target levels. Our ROCE remains consistently higher than our WACC, despite increases in interest rates. We have a strong balance sheet which positions us well for future opportunity. We have a young, well-maintained fleet, and we invested GBP 28 million in the hire fleet during the period.
Our net debt at GBP 133 million has decreased significantly from September last year and is slightly lower than March, with stable working capital movements in the period. One point I do want to mention is the tougher external credit environment that we are now seeing, which is impacting us most in the construction sector. Whilst our DSO and bad debt write-offs remain relatively stable, we are finding cash collection more challenging, and we expect this trend to continue in the second half. As I mentioned, net debt at half year is GBP 133 million, and this waterfall chart shows movements during the period. As you can see, we continue to generate strong operating cash flows. Our outflows represent the continued investment in our asset base, with GBP 28 million invested in the hire fleet, leading to net cash CapEx of GBP 21 million.
Our working capital movement is back to normal after some volatility in previous years. Our dividends and tax were as expected, and our interest cost includes the impact of higher interest rates. We've recently refinanced our GBP 90 million revolving credit facility for a further three years on similar terms and with covenants unchanged. We remain in a strong position with two private placements, providing GBP 93 million of fixed low-cost debt over the medium term. This represents 70% of our period end net debt. We continue to be comfortably within both covenants, which test net debt to EBITDA and interest cover. We continue to have significant headroom, which provides opportunity for future and further investment and growth. On our hire fleet, our model is underpinned by a young and well-maintained fleet. We've continued to invest in the first half of the year based on market opportunity and performance.
Our disposals in the period demonstrate the flexibility of our business model. UK Forks is a good example, where a more subdued house building market has allowed us to dispose of some of our fleet to align our fleet size to current market conditions. Our asset managers, not asset traders, but the markets have remained supportive, and we have generally generated profit on disposal of GBP 4.4 million in the period. Anna will talk about ESG later in the presentation. It's an important part of our strategy, and we continue to invest in a cleaner and greener hire fleet. On to dividends. Another key feature of the group's investment case is its 30-year uninterrupted dividend track record. Our interim dividend of 11.5 pence per share represents continued progression and reflects sustainable profitability over the long term.
As a reminder, our dividend cover target is 2x over the cycle. I will now pass back to Anna around strategy.
Thank you, Judith. Okay, so moving on to strategy. As I mentioned, I've only been in my new role for a couple of months, so the future Vp strategy is still forming, and when we present our preliminary results in June, there'll be a bit more detail and a more fully formed strategy. That said, there are some important aspects that I want to touch on and talk about today. For me, two key areas from a strategy perspective are delivering growth and driving operational excellence. The growth piece has been a cornerstone for Vp for some time, and we've got a really good, strong track record over the years of, of driving growth. As we've mentioned, we've got that strong balance sheet, which gives us a really good baseline and a really good platform on, on which to build.
And we see growth in the near term being a combination of continued investment, organic growth, alongside disciplined M&A activity. Operational excellence is another key point from my perspective. Vp has historically had an efficient operating model, allowing us to consistently generate those really good strong returns of 15% that we've talked about. I do, however, see some opportunities in our operating model that I'm looking at the moment. I also think that our approach to digital will help to shape our operating model and will help us to be able to bring more efficiency into that as we move forward. Delivering growth and driving operational excellence are then underpinned by three key areas. Starting with people, we've got a new HR director starting shortly, and the people strategy will be front and center of the Vp strategy.
Vp is characterized by stability and experience, which is a really important part of our story. But I also think that the refreshed leadership of me and a new CFO will represent an opportunity for Vp. In the wider workforce, we continue to invest in our colleagues through our Vp academy and our management training, and we continue to bring new talent into the business through our graduates and through our apprentices. Our digital capability is not something that we've historically talked much about, but we do have long-standing digital capabilities that we need to build on, and I'll touch on that. Similarly, a focus on ESG, which is an increasingly important area for all of our stakeholders. So onto ESG. This is an important part of both our overall strategy and increasingly the way we operate on a day-to-day basis.
We continue to make progress on our sustainability initiatives, and I'm pleased to report that we recently had our science-based targets validated by the SBTi. These targets include our planetary warming projections, where we conform to the SBTi's most ambitious pathway. Alongside that, are our near-term and longer-term emissions reductions. We're doing lots of other good stuff. We're supporting restoration and conservation projects, and we've achieved partner status with the Supply Chain Sustainability School. We recognize the increased importance of ESG with our customers, and we've been working on solutions including carbon captures, carbon capture systems, and carbon comparison models. We still do have work to do in this model, and the next step for me is the S in ESG and developing our social value strategy. We're also keen to improve the carbon literacy of our people.
This is another area where you can expect to see more information from us when we present our prelims in June. If you scan the QR code on the top right-hand corner of this presentation, it will give you further information on some of our ESG activities, which is a nice segue into digital. The Vp digital journey is an important part of our strategy, and it's somewhere that, as I mentioned, we're placing increased focus. We do have digital capability within the business, but we're only at the start of having an overarching group-wide digital roadmap. Our current areas of focus include, firstly, the customer experience, understanding our customers, and making the customer journey simple and frictionless. For example, Microlise, which we're where we're using technology to better manage our transport and improve our interaction with customers. Secondly, operational process.
Improving our operational efficiency through digitally optimized processes. For example, Zendesk, which we're using to improve the performance of our hire desks. Thirdly, customer engagement. Digitally enhanced selling and streamlined, digitized processes. For example, Your Solution + , a self-service design solution within our Groundforce business, which adds value to our customers. Again, this is an area that we are currently focusing on, and we'll share more information with you when we come to present our prelims. So I want to move on and talk a bit about our operational review and our performance in the period. This first slide sets out our divisions by market. As you can see, we have a strong diversity of markets across our business. Most of our businesses operate in more than one market, but there are some key themes. Groundforce, TPA, and Torrent operate principally within infrastructure.
Brandon Hire Station, MEP, and ESS are mainly in construction. UK Forks mainly operates in house building. Airpac is exclusively in energy, and TR operates mainly in other, which includes events, defense, and aviation. From a group perspective, 38% of our revenue comes from infrastructure, which has generally been supportive in the first half. 41% of our revenue is construction, where the markets have been more challenging. House building has been relatively stable and accounts for 8% of our revenue, with energy representing 6%. I want to talk in a bit more detail about each of our individual markets. Infrastructure has generally been supportive in the first half, with output forecast to grow and a strong pipeline of transport and energy projects. Our performance in this market has been strong. Groundforce has enjoyed support from water, AMP7, transmission, and other infrastructure projects.
TPA has benefited from a supportive transmission market, and Torrent Trackside was held by CP6 in the rail market. We are still enjoying some residual HS2 revenue, with future activity stems from alternative rail initiatives. The construction market has been tough, with a decline in output in the year and a further contraction expected as we move towards 2024, and the prospects for the non-residential sector, which really haven't picked up since Brexit, remain subdued. We've experienced a mixed performance in construction during the period. Brandon Hire Station, which is our biggest business by revenue, has had a challenging first half. We've made some changes and now have a new management team in place, and we're taking a number of actions.
MEP continues to grow, but has been impacted by some project delays, particularly in London, and a more challenging credit environment, as Judith referred to earlier on, and that's increased our bad debts in that division. ESS continues to make progress, benefiting from its specialism and also some of the restructuring that we, that we undertook last year. In house building, the market has faced several headwinds due to interest rates, coupled with elevated material costs alongside labor shortages. The overall market has been subdued, but it's been stable. Our UK Forks business has successfully adjusted its fleet size and has generated profits on disposal, thanks to good residual values in the period. The energy market has generally been supportive in the first half, and Airpac benefited from increased activity in exploration, distribution, and infrastructure maintenance, alongside renewed activity in LNG projects....
In summary, we're really pleased with our resilient half one performance and the progress we've made against our key metrics. In half two, we will continue to leverage opportunities in our specialist markets, despite some of the challenges that we will face, particularly in construction. Operational excellence remains a priority, and we'll continue to focus on our digital roadmap. Our strong balance sheet and recent refinance position us well to grow by both organic and M&A opportunities. ESG remains an important part of both our strategy and our day-to-day operations. We have an excellent track record of navigating difficult markets through servicing diverse end markets, and we're confident in the group's ability to continue to deliver sector-leading returns. That concludes the formal part of our presentation, and Judith and I will now be available to take any questions that you might have. Thank you for listening.
Thank you, ladies, for sharing. Right, some questions. Digital, as you look to roll more out on this area, is this going to involve large CapEx spend?
That's an interesting question, and, my thoughts on digital are that we have some very, very good baseline underlying systems that are a really solid platform to build on. So I do not see this as being large-scale capital projects with long back, long payback periods. I see it more being a series of targeted investments that complement what we currently have. We will share more information in the summer once our digital plans are fully formed, but I don't see this as being large-scale, significant projects with long payback periods.
Okay. Thank you. For construction, obviously, you, you spoke there a little bit about how tricky it is out there. Is this somewhere that you then have had to cut back on resource, or are you able to move resource across from other divisions, which means you are well-placed when the sector jumps back?
Yeah. I think, I think if I look at the way we've allocated our resources, for example, CapEx, those businesses that have grown, those businesses that have progressed well, have probably had more CapEx within the first half.
When it comes to our people and our resources, what we don't wanna do is cut back the operating model too much such that when the market comes back, we don't have the infrastructure in place to take advantage of that. But it's fair to say that within Brandon Hire Station, in particular, we are doing a little bit of restructuring activity around the peripheral to make sure that the business is appropriately sized for the market. And as Judith alluded to in the presentation, there will be a small level of restructuring costs in the second half, to reflect that work that we're doing. But overall, I think the diverse nature of the end markets that we serve means that we can continue to grow and move forward as a business despite the challenges in that market.
Okay. Thank you. What sort of market shares do you have in your major business segments? What is the scope to increase market share, and what would be the relative contributions from organic and inorganic development?
So I'll take the market share point first. Obviously, our different divisions operate in different markets. Some of those markets are quite segregated, some are more consolidated. The key thing that we go by is our position in those markets, and we aim to be number one, number two, and number three in those markets in terms of our size. Some of our markets, we have relatively sizable market share. Others, for example, Brandon, where the market is more disaggregated, there are a number of smaller players, mean that our market share would be lower. So it sort of depends, is the answer. But the key thing for us is that we have market-leading positions in those businesses, and I think if you look across the portfolio of divisions we have, they are often one, two, or three in those individual markets.
What was the second part again? Sorry, Hannah.
M&A. It was the M&A question.
Scope to increase market share, and what would be the relative contributions from organic and inorganic development?
Yeah. I think the encouraging thing from my perspective is I think there are plenty of organic opportunities that exist within the business. We've recently completed a three-year plan exercise with our divisions. I've been really encouraged by the level of enthusiasm and energy and opportunities that they've identified. So I think there are plenty of organic opportunities for us, but I do think that complementing that with disciplined M&A is the right way to drive growth and drive the business forward. Obviously, that will be done in a considered and disciplined way that complements our current activities. So I see it being a combination. In the short term, it will be more organic, but I think if we look in that sort of three-year timeframe, we will see an increase M&A activity.
That's what this business has done very well over a 20- or 30-year period. It's only in recent years, due to COVID and due to our formal sales process from 12-18 months ago, that we've had less activity in that area.
Yeah. We'll pick up on that M&A thing 'cause we've had a couple of questions sort of relating in terms to the type of distressed opportunities, given rise in interest costs, that you might see out there from other businesses that have not handled their balance sheet so well.
Yeah. I mean, clearly, challenging external markets can present opportunities, but what we want to do is buy high-quality businesses that complement our current portfolio. The key things for me when it comes to assessing M&A are, firstly, is that business specialist, and therefore does it complement what we have? You know, we made the decision 20 years ago to move out of general and move towards specialist, and anything that we do or invest in, we want to complement that. The second one is, is return. Judith talked about our return on capital employed. It's now 14.7.... keeping that at around 15% is the sweet spot from our perspective, and any acquisition or any activity that we make, we need to make sure that that is going to support that return on capital at 15%.
So we will absolutely be assessing opportunities that exist in the current market, and if there are businesses where we can take advantage because of pricing, we will do that. But we want to buy high-quality businesses that have got sufficient level of specialism and that complements the 15% return on capital that this business has delivered so successfully over the years.
Okay, thank you. Green machines, see the appetite from the buying community, the renting community, is progressing in time within this area, but are you seeing any notable pickup? We see some of your competitors are moving into this space more aggressively.
Yeah. ESG is a really important part of our strategy, and it's important for our customers, and it's important for our people, and we will be absolutely focusing on it. But it's also important to be pragmatic in our approach to that. We need to balance doing the right thing and investing in the right areas, with generating the right, the right level of return. I think our view is we do not want to necessarily be leading in this area, but it will be an important part of our strategy. Certain areas, it's a lot easier to swap out from older style energies into batteries, and at the low end, we're absolutely doing that.
In some of our other assets, for example, telehandlers, trying to get a battery-operated version of that is a lot more complex, and some of the technology around hydrogen isn't fully formed yet. So it's an area that we're placing under review. Our customers are increasingly encouraging us to go in that direction. But there is often a price premium when it comes to green, and therefore it needs to make sense economically for both our customers and also for us. But at the moment, we're not seeing anything from our investment in green that would suggest any changes in the returns that we generate.
Thank you. Are you doing anything to gain more interest from index funds into Vp to improve interest in the company?
I'm only new in the role as CFO, and those are the things that we'll be considering, as we move forward over the next sort of six months. My focus at the moment is getting the strategy right and driving the business forward, but we will be considering those matters.
Thank you. Right. Well, that's it for questions today. So if anyone... Well, anyone has any more, now is your moment. Otherwise, I will... Thank you both for joining us. Thank you those today who did join us and who submitted some questions, and we look forward to hearing more in six months' time.
Thanks, Hannah. Thank you. Thank you.
Bye-bye.