Have you ever wondered who staffs Britain’s biggest civil engineering projects?
Maybe not, but recruiting and supplying skilled labour is a crucial component in this country’s dynamic, fast-growing infrastructure sector, a component for which Hercules Site Services PLC (AIM:HERC) has emerged as a name to take note.
Through its professional relationship with stand-out FTSE 250 client Balfour Beatty, Hercules has ingrained itself as a key player in the absolute largest of Britain’s ongoing infrastructure projects: HS2.
Hercules, which is listed on the AIM segment of the London Stock Exchange, provides skilled labour to the Birmingham section of the HS2 line, a lucky stroke that has shielded the group from the worst of HS2’s delays in the Euston leg of the project.
While the Birmingham leg has been pushed back a couple of years, “this is not affecting us for the short term at all”, said chief executive Brusk Korkmaz, who noted a 15-year horizon on the project.
Of course, it takes more than one major project to keep the lights on, and to that end, Hercules can rattle off a list of high-profile construction clients, including Skanska, Costain Group and Galliford Try, all to which Hercules outsources blue-collar employees who are primarily on transport infrastructure projects.
“Our clients are very good at building things, but it’s not in their speciality to staff their projects… That is a completely different ballgame,” said Korkmaz. This is where Hercules steps in, and the group’s returns have been as triumphant as the titular demigod himself.
This core base of clients helped Hercules to achieve close to 50% annual revenue growth over the previous two financial years, and guidance for 2023 has the group adding another 50% for the third time running.
Diversified service
In addition to the core outsourcing segment, Hercules also has a hand in equipment hire through its fleet of high-tech suction excavators.
Yes, the fleet only brings in around 7% of total revenues, but the service forms part of Hercules’ comprehensive offering to clients such as Balfour Beatty.
“The growth of our suction excavator fleet has been phenomenal, and we have rapidly become one of the largest fleets in the UK,” Korkmaz noted at the most recent earnings call.
Most of this fleet was bought with super deduction allowances, meaning a good chunk of Hercules’ 2022 capital expenditure was privy to generous tax deductions. And in fairness, as a company dealing primarily in labour, machinery plays a small part in the balance sheet; surely a good thing in times of soaring asset finance interest rates.
Infrastructure spend benefactors
Hercules floated on AIM in February 2022, hot off the heels of a stellar year for the capital markets yet on the precipice of one the worst on record.
Out-of-control inflation preempted the largest run of interest rates from the Bank of England in 40 years, causing businesses across most sectors to significantly scale back spending.
But in the midst of this, the government has remained committed to infrastructure spending. Chancellor Jeremy Hunt reiterated commitments on infrastructure spending in his autumn 2022 statement, confirming that planned investments worth £600bn will remain in place for the next five years.
This massive commitment bodes well for Hercules’ confidence. After all, a healthy construction sector makes for a healthy Hercules Site Services.
Local jobs, local people
Hercules is a people business at its core, with all the challenges that come with it.
Britain’s exit from the European Union and the subsequent blue-collar workforce shortage has undoubtedly been tough for the outsourcing sector as a whole, as has the post-Covid trend towards early retirement for the over-50 contingent.
At the same time, as noted above there is a massive spending commitment to the British infrastructure sector and work is ramping up… with fewer people to fill positions.
But these challenges have also presented Hercules with a unique opportunity to tap into the local workforce in and around its Birmingham stronghold.
“We believe the best way of tackling this is finding local people for local projects,” said Korkmaz.
To achieve this, Hercules has embraced digital technology to recruit and onboard employees through its Mobile Recruitment app, available on Android and Apple devices.
The app has been recognised by numerous industry bodies, including the Considerate Constructors Scheme, for its innovative approach to recruitment in the construction sector.
Onboarding is only one piece of the workforce puzzle, of course, and to that end, Hercules is serious about upskilling, cross-skilling, and maintaining on-site health and wellbeing checks as part of a view to “having a self-sufficient workforce”, in Korkmaz’s words.
Going forward
"We’ve delivered 50% growth on the trot for two years, and we think we can do it for a third year, so we’re just completely focused on that,” asserted chief financial officer Paul Wheatcroft.
Hercules has no immediate plans to grow its existing machinery plant, instead pinning 50% yearly growth hopes on organically growing revenues through labour supply to a wide profile of highways and rail projects, and, of course, HS2.
“We believe and we are confident that we are going to hit that mark,” Korkmaz stated.