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Hercules Site Services: Strong growth from Infrastructure exposure

Hercules Site Services plc is a leading technology enabled labour supply company for the UK infrastructure sector, which joined the AIM market in February 2022. Founded in Gloucestershire in 2008 by CEO Brusk Korkmaz, Hercules provides labour-related and a diverse range of other construction services to many blue-chip clients in the infrastructure sector. The company has a market cap of £23m.

We were delighted to welcome CEO Brusk Korkmaz and Paul Wheatcroft, CFO, to the latest Yellowstone Advisory webinar to provide an introduction to the company and present the interim results. A recording of the webinar is available here.

By way of introduction the company is led by Brusk Korkmaz the founder and CEO who has over 20 years experience in the construction industry. He is assisted by Paul Wheatcroft the CFO who has 25 years of experience as a finance director across a number of sectors and a 4 person non-executive team with a wide range of relevant experience. Together the board is well positioned to support Hercules meet its growth ambitions.

The company is proud of the performance delivered in the first half of the year and highlights include: turnover increased 85% to £37m with strong growth across all divisions; within labour supply 2 new divisions were established; the suction excavator fleet was increased from 16 to 30 machines; the training academy plans continue to be advanced and the Nuneaton facility is on track to open in early 2024; and, an interim dividend of 0.6p was declared to shareholders. The training facility will address the skill shortage in the UK and provide a sustainable solution to finding local people to staff local projects. There may also be an opportunity to monetise the academy by providing courses to other companies and educational establishments.

In terms of the business there are two main divisions with Labour Supply representing about 80% of revenues and Construction Services accounting for 20%. The labour supply business supplies staff to the large blue chip infrastructure companies like Costain, Vinci, Skanska, Strabag, Kier and Balfour Beatty. During the half year Site Security and White Collar Recruitment capabilities were added within Labour supply. Construction Services provides specialist plant hire services like their suction excavator fleet and carry out civil projects. Having the two divisions enables some cross selling of work. Hercules has developed a Recruitment App which targets local staff for local jobs and a One Team app which provides paperless onboarding for staff. Management believe these two apps differentiate them from the competition.

The financial numbers reported in the first half showed good progress on the previous period. Revenues were up 85% to £37m, adjusted EBITDA rose 73% to £1.1m and earnings per share came in at 0.6p compared to a loss last time. Overall the company is on course to meet market expectations for the current year. It was mentioned that the depreciation charge of £0.7m and the finance costs of £0.6m mainly relate to the suction excavators.

Looking more closely at the divisions starting with Labour Supply which is the largest part of the business and accounts for c80% of group revenues. Turnover of £28.1m and operating profits of £3.8m were both up 110%. A lot of the growth was accounted for the HS2 Northern section where they now supply almost 25% of all workers from a group of 6 supply partners. There were also new client wins including John Sisk, Galliford Try Highways and CHC Highways. The company now has c1000 operatives on site across a wide variety of projects including HS2 which is the most important infrastructure project. The inhouse recruitment App has been downloaded almost 10k times and is having a positive contribution helping local people find local jobs. The company also has an active training division which is upskilling internal operatives as well as offering a mobile training service to external clients. The training capability will be further expanded when the Nuneaton Academy is opened in 2024.

The suction excavator business had a good period of growth. The business started the period with 16 machines, added 4 in January and then a further 10 machines were added in March. The timing of the last delivery was important for tax reasons as the super deduction for capital equipment ran out at the end of March. Revenues grew 46% and a large part of this growth is because clients are very pleased with the service that Hercules provides. There were no revenues from the 10 most recently acquired machines and so the focus now is to improve the utilisation rate which has historically been around 80%. With the fleet now at 30 machines there are no plans to grow from this number. Finally it was mentioned that 2 of the machines come with triple fan technology which enables greater suction power and higher pricing to be achieved.

The Civil Projects division works on projects in the water and sewerage sector. Revenues grew 30% to £6.7m and they are currently very busy. There is a £10.1m of contracted revenues that they will be working on during the second half which will mean that they expect to beat last years full year revenue number for the division. Amey and SGN were added as new clients during the period. The risk in the business is controlled by targeting higher margin, low risk projects which they know they will be able to complete.

Looking at the balance sheet the fixed assets are mainly the suction excavators and some property leases. The debt of £13m mainly relates to the suction excavators, there is some further £6m of debt on the leases and there is also an invoice discount facility of £8.5m which helps meet working capital requirements. At the end of the period they had £2.6m up from £1.6m the previous year but this was after an equity raise of £1.6m in January. It’s a feature of the business that it is working capital hungry as it grows. That said the company has paid a dividend since listing and intends to continue doing so. The current yield on the shares is c4.5%.

Management plan to continue to grow the business going forward through multiple opportunities. There are strong organic opportunities across all divisions, the new training academy will start selling to educational institutions, clients and competitors in 2024 and with the launch of the White Collar and Security Services divisions, managers have been appointed areas to grow these revenues. There are now 30 suction excavators and they will look to deliver revenue benefits from this expanded fleet. There is also a new partnerships approach which they are trialling to help them enter new geographic markets. Finally the company is talking to a number of identified targets in the labour supply areas.

Management finished the presentation with a summary of the investment case. Hercules has a sustained track record of growth since launch in 2008, there is positive momentum across all divisions and this has continued into 2023, there are good cross-selling opportunities and they are well placed to gain market share in large and growing markets. Management has a clear strategy for growth and is currently delivering on those ambitions and believe they will be very busy over the next 15 years. If they can achieve this, it is likely they will have grown quite a significant business.

A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact

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