TIDMRST
RNS Number : 2643H
Restore PLC
31 July 2019
31 July 2019
Restore plc
(AIM: RST)
Half Year Results 2019
Strong Growth and Cash Generation
Restore plc (AIM: RST), the UK leader in document management and
business relocation services, announces its unaudited results for
the six months ended 30 June 2019 ("H1" or "the period").
Financial highlights*
-- Group revenue up 15% to GBP106.2m, including organic growth of 3%
-- Group adjusted profit before tax up 17% to GBP20.1m (statutory PBT GBP12.0m, up 30%)
-- Group adjusted operating margin up 60bps to 21%
-- Adjusted earnings per share up 10% to 13.1p (Basic EPS 7.8p, up 28%)
-- Document Management revenue up 15% to GBP80.4m; adjusted
operating profit up 22% to GBP21.5m
-- Relocation revenue up 13% to GBP25.8m, adjusted operating profit up 4% to GBP2.7m
-- Operational cash conversion of 115%, reflecting strong levels
of operational cash flow and a material reduction in exceptional
costs to GBP2.0m (2018: GBP4.3m)
-- Net debt at 30 June 2019 reduced by GBP16.3m from year end
position to GBP95.0m, with leverage reduced to 1.8x adjusted EBITDA
within the normal target range 1.5-2.0x (FY18 2.1x adjusted
EBITDA)
-- Interim dividend per share up 20% to 2.4p
(* continuing operations (excludes Printer Cartridge Recycling),
before amortisation of intangible assets, exceptional items and
share-based payments charge, excludes the effects of the adoption
of IFRS 16)
Business highlights
-- Records Management organic revenue growth of 4%, with net box
growth reflecting continued market share gain
-- Integration of all prior year acquisitions now complete
-- Rainham Records Management facility build on track for box in-take commencing in Q1 2020
-- Restore Datashred performance has stabilised with
sequentially improved performance from H2 2018 to H1 2019, despite
softer paper prices
-- New Managing Director appointed for Restore Datashred
-- Restore Digital - major exam scanning contract completed
successfully; significant new contract win in public sector with a
value of GBP9m+ over 3 years
-- Restore Harrow Green performed in line with expectations
-- Bolt-on acquisition of Secure IT Disposals to broaden the
capability and customer base of Restore Technology
Full Year 2019 outlook
-- Board's expectations for full year remain unchanged
-- Focus on continued organic growth and market share gains,
leveraging the strong market position of each business unit
-- Longer term acquisition pipeline being built around
opportunities to add capability and scale
-- Material reduction in leverage anticipated for the year as a
result of improved cash generation
Charles Bligh, CEO of Restore, commented:
"I am pleased to report a strong first-half performance in line
with expectations and a 10% improvement in underlying EPS. Our
continued organic growth has been underpinned by a focus on
customer service and a solid operational performance. The expected
lower level of exceptional costs has been reflected in strong cash
generation and a resultant strengthening of the Group's financial
position.
The integration of all prior acquisitions, including TNT
Business Solutions, has now been completed successfully and our new
public sector team continues to build a good pipeline.
After five months in the role and after spending time meeting
the team, visiting sites, and talking with customers, it is clear
that we have significant opportunities to grow in the UK, both
organically and through selective acquisitions.
The underlying cash generation capability of the business will
lead to substantially reduced net debt this year and this solid
financial position leaves us well positioned to capitalise on
opportunities to acquire capability and add scale in all of the
markets we serve as and when they arise.
The Board's expectations for the full year remain
unchanged."
A video interview with Charles Bligh, CEO is available on
www.restoreplc.com.
For further information please contact:
Restore plc www.restoreplc.com
Charles Bligh, Chief Executive
Officer 020 7409 2420
Adam Councell, Group Finance
Director
Peel Hunt LLP www.peelhunt.com
Mike Bell 020 7418 8900
Guy Wiehahn
Ed Allsopp
FTI www.fticonsulting.com
Nick Hasell 020 3727 1340
Alex Le May
Financial highlights
Using consistent accounting Under revised
ADJUSTED RESULTS - policies* accounting policies**
Continuing operations HY 2019 HY 2018 % Change HY 2019
Revenue (GBPm) 106.2 92.7 15% 106.2
EBITDA (GBPm) 25.9 22.0 18% 34.7
Operating profit (GBPm) 22.2 18.8 18% 22.8
Operating margin 21% 20% 1% 21%
Profit before tax (GBPm) 20.1 17.2 17% 18.0
Earnings per share*** 13.1 11.9 10% 11.8
Dividend per share
(p) 2.4 2.0 20% 2.4
Net debt (GBPm)* 95.0 115.4 95.0
----------- ---------- ------- -----------------------
* Before amortisation of intangible assets, exceptional items
and share-based payments charge, excludes the effects of the
adoption of IFRS 16
** Before amortisation of intangible assets and exceptional
items, includes the adoption of IFRS 16
*** Calculated based on the weighted average shares in issue and
a standard tax charge
STATUTORY RESULTS - Continuing
operations HY 2019 HY 2018*
--------
Operating profit (GBPm) 16.8 10.8
Profit before tax (GBPm) 12.0 9.2
Basic earnings per share (p) 7.8 6.1
-------- ---------
* Before the adoption of IFRS 16
Full details of the impact of IFRS 16 and the changes to
accounting policies are discussed later in this report and in note
11.
Business highlights
Overall the Group delivered a strong first half result with
growth in both revenues and underlying profits, together with
excellent cash conversion. We continue to benefit from good
visibility of contracted annuity revenues, with strong execution by
our team resulting in high levels of customer satisfaction and
retention.
The focus in the period has been on delivering high levels of
customer service and ensuring a strong operational and financial
foundation for continued growth. An important milestone in this
regard was the completion, at the end of July, of all integration
projects from prior acquisitions. The closure of the TNT BS Beckton
site will complete in Q4 2019.
We believe that all five business units in the Group can grow
organically and take market share, with four of the business units
in particular having opportunities to grow strategically through
acquisition. There also remains further scope to leverage the
strength of each unit to broaden our cross-selling initiatives. In
order to maximise these opportunities, we remain focused on further
strengthening our core platform with effective operational
execution leading to efficiency gains and margin expansion.
We completed one bolt-on acquisition in the period and a smaller
acquisition in July 2019 within Restore Technology. Secure IT
Disposals, which was acquired in June, brings further
certifications to the Group in the highly secure market and
broadens our customer base. The integration is expected to be
finished in H2 2019 with minimal exceptional costs. We also
completed a smaller acquisition from a pre-pack administration
process in July 2019 which will be fully integrated by mid August
2019 and provide additional systems and capabilities in the
disposal of spare parts.
Document Management
Our Document Management division comprises Restore Records
Management, Restore Datashred and Restore Digital.
For the period the division achieved an adjusted operating
profit of GBP21.5m (H1 2018: GBP17.6m) on turnover of GBP80.4m (H1
2018: GBP69.9m).
Restore Records Management - Revenue GBP47.8m up 23% yoy (H1
2018: GBP38.8m)
Our core records management business had a strong H1, delivering
23% revenue growth, of which 4% represented organic growth, in line
with our expectations. We saw net box growth in H1 through a
mixture of new business wins in the period, additional boxes from
large contracts secured in the prior year coming into our
facilities and ongoing box intake from existing customers.
Following the sharp increase in destruction rates in H1 2018 as a
result of GDPR implementation, destruction rates have stabilised
and we are seeing a steady stream of project-based revenues
resulting from customers' ongoing GDPR compliance requirements.
We have completed the TNT BS integration as planned, with the
last customer data and processes migrated onto our strategic IT
system. The closure of the Beckton site will complete in Q4
2019.
We are continuing to increase our public sector presence as
evidenced by a contract award from a large London NHS Trust in Q3
2018, the implementation of which was completed in H1. This is a
key project which demonstrates the more differentiated and
integrated service offerings (which in the past have not been
outsourced) we can bring to customers to decrease their costs and
in turn provide a better service to their customers.
Our forward pipeline is healthy and our increased focus on the
public sector combined with excellent service delivery is gaining
traction. In addition to records management, we are seeing
increased opportunity to sell additional Group services of
shredding, scanning and heritage storage to government to provide a
broader overall service.
We are running at 96% utilisation across the estate, slightly
higher than at the start of the year (93%). Our property
rationalisation continues as we focus on our cost structure and the
quality of our facilities, which is likely to result in a number of
site closures in the South East. We are continuing to increase our
capacity, with 700k+ box slots coming online through our Rainham
build, which is on track for Q1 2020. The continued development of
our freehold mine at Monkton Farleigh (near Bath) and the leasing
of further Hardened Aircraft Shelters at our site in Oxfordshire
will give us additional capacity towards the end of 2019 and into
2020.
Restore Datashred - Revenue GBP21.0m up 1% yoy (2018:
GBP20.8m)
H1 results in Restore Datashred, our secure shredding and
recycling business, which is one of only two national operators,
were satisfactory and showed further sequential improvement over
the second half of 2018. More focused marketing initiatives
resulted in revenues slightly ahead of a tough comparator in H1
2018, which benefited from the sharp increase in GDPR-related
document destruction. Improved cost control and execution resulted
in a stronger operational performance than that achieved in the
latter part of 2018.
Consistently high levels of service delivery have been key to
ensuring high rates of customer retention. In the period, we
increased our online marketing spend and saw a corresponding
improvement in response rates in the SME market. We believe there
is scope to significantly improve our brand awareness and online
channel activities to drive increased sales in this segment.
We have a well-invested business across the UK, with substantial
capacity to add more volume, which will help to drive margin
expansion. Our new Crayford facility in South East London, which
has been operational for nine months, has given us spare capacity
to serve the London market, which we see as a key opportunity to
expand.
Consistent with the wider industry, we have seen pressure on
recycled paper pricing in H1, in a large part due to reduced quotas
into the Chinese market from May onwards. Strategically we believe
this represents an opportunity for the Group as it will favour
scale operators like Restore Datashred with a balance of service
and paper revenues which produce quality recycled paper.
A new Managing Director, Duncan Gooding, has been appointed and
he will start in October. Duncan has relevant experience in
delivering sales growth in the corporate/public sector market and
also significant experience driving digital sales and operational
transformation. We believe this will be key to our success in the
SME market, which is growing as an increasing number of smaller
companies take securing their data more seriously. We are delighted
to have an executive of Duncan's calibre to lead our team.
Restore Digital - Revenue GBP11.6m up 13% yoy (2018:
GBP10.3m)
Restore Digital, our digitisation business whose primary
activity is scanning, delivered increased volumes and revenue
year-on-year. This included the successful delivery of our key exam
(GCSE and A level) scanning contract in the May-July period.
In the period we signed a GBP9m+ contract addition to be
delivered over three years with an existing public sector customer
which demonstrates the opportunity to drive significant repeat and
extended business on the back of strong customer service and
contract delivery. We also secured a substantial, multi-year
contract to scan GP patient records across the UK which will ramp
up in the second half of 2019.
Our Consultancy function (where we provide consultancy services
ranging from developing business cases for digitisation through to
full project implementation) is trading strongly and as customer
demand grows, we intend to scale this offering. This enables us to
be at the start of the discussion with the customer about their
overall document management requirements and also ensures that we
develop projects such that we can optimise the customer experience
as well as our overall returns.
In addition to building a strong pipeline for the next 24
months, the focus of the business is to keep driving efficiency and
strong execution to deliver margin expansion, whilst leveraging the
benefits of our national presence to provide a lower cost base over
time.
Relocation
Our Relocation division comprises Restore Harrow Green, the UK
market leader in office relocation, and Restore Technology which is
a market leading business in IT Lifecycle Services. IT Lifecycle
Services comprise three specialist areas: 1) Recycling of IT
equipment safely and securely; 2) Early life implementation of IT
hardware and 3) IT Relocation - specialising in server and data
centre relocation, as well as IT moves, equipment installation and
deployment.
For the period the division achieved an operating profit of
GBP2.7m (2018: GBP2.6m) on turnover of GBP25.8m (2018:
GBP22.8m).
Restore Harrow Green - Revenue GBP19.7m up 12% yoy (2018:
GBP17.6m)
Restore Harrow Green performed well in H1. Of the 12% revenue
increase, approximately GBP1m of this increase was as a result of
the full pass-through of the costs of procuring furniture for a
customer project. Adjusting for this nil margin revenue, the
profitability of the core business was in line with expectations.
We also benefited from an initial contribution from Function
Business Relocations, acquired in H2 2018.
The London market continues to perform well with revenue and
contributions up. Regionally the business performed in line with
expectations. We secured significant wins in the public sector and
there is a strong pipeline of new opportunities across the UK.
Encouragingly, we are seeing more work come through Harrow Green
which requires additional services from the Group, such as
shredding and IT recycling as part of customer moves.
We continue to upgrade our vehicle fleet to meet the new London
ULEZ standard and we will pilot full electric vans to ensure we
minimise costs and continue to invest in the business.
Restore Technology - Revenue GBP6.1m up 17% yoy (2018:
GBP5.2m)
Revenue grew strongly at 17% year-on-year benefiting from the
two acquisitions we made in 2018 but also steady organic growth.
Costs have increased as expected following the opening of our new
Bedford facility in H2 2018. This state of the art facility with
substantial capacity means we have a well invested business that
will be able to expand margins as revenue grows.
The market for IT lifecycle services is substantial and we
continue to grow our capability to deliver early life services such
as software installation, delivery logistics and asset management.
Our aim is to leverage this asset management service to ensure we
capture the end of life element of the asset, so as to maximise our
long-term revenues. This is a fragmented market and we see
substantial opportunity for Restore as an independent provider, not
linked to specific hardware technology or brands. As such we can
increase the channels in which we operate.
We completed one bolt-on acquisition in the first half and a
smaller acquisition in July. The first acquisition, Secure IT
Disposals, brings 'List X' certification, enabling us to move into
high security (UK government contracts which require this
certification) and higher margin services. The second acquisition
expands our e-commerce platform and accesses a new revenue stream
in the high margin IT spares market.
We see opportunity to expand into new channels to grow
organically and in a fragmented market the opportunity to grow
through acquisitions given that many customers show a preference to
stay with their existing providers.
CHANGES IN ACCOUNTING POLICIES
During the period the Group has incorporated the following
changes to its accounting policies:
The adoption of IFRS 16 which came into effect on 1 January
2019. As disclosed in the 2018 Annual Report the Group has used the
modified retrospective approach to adopting this standard. In
addition to the impact on the income statement detailed below on 1
January, the Group recognised GBP118.8m of right of use assets and
GBP135.8m of lease liabilities on the statement of financial
position. Further details on the adoption of IFRS 16 have been
included in note 11.
With effect from 1 January 2019, share-based payment charges are
no longer to be classified as adjusting items. Following the
completion of the retention period under the 2013 EIP scheme, which
the Board considered to be exceptional in nature, the Group has
implemented a new LTIP scheme under which the first grants have
been made in 2019. The Board has considered the nature of this
scheme and the regular grants expected to be made under it and
concluded that it is appropriate to no longer treat share-based
payment charges as an adjusting item in the accounts.
The changes in accounting policies noted above have had a
material impact on the Group's financial statements. Under IFRS 16
the Group is not required to restate prior periods. As a result the
Board has decided for the 2019 reporting cycle it is appropriate to
show adjusted performance measures. There are two adjusted
performance measures:
Firstly, using consistent accounting policies. This provides
year on year comparison of performance using the same accounting
policies in both periods allowing the reader to discern relative
trading performance.
Secondly, adjusted results under revised accounting policies.
This provides the reader with the adjusted performance measures
derived using accounting policies that the Group has now
adopted.
A reconciliation between the statutory profit and the adjusted
performance measures noted above is shown below:
Profit Before Operating
Continuing operations Tax GBP'm profit GBP'm EBITDA GBP'm
Statutory reported 12.0 16.8 32.7
Amortisation of intangible
assets 4.0 4.0 -
Exceptional items 2.0 2.0 2.0
Adjusted results under
revised accounting policies 18.0 22.8 34.7
Exclusion of rental
charges on IFRS 16 leases (9.4) (9.4) (9.4)
Depreciation on IFRS
16 leased assets 8.2 8.2 -
Interest charges on
IFRS 16 leases 2.7 - -
Share-based payment
charge 0.6 0.6 0.6
Adjusted results under
consistent accounting
policies 20.1 22.2 25.9
-------------- -------------- -------------
EXCEPTIONAL COSTS
Exceptional costs in H1 2019 were GBP2.0m (2018 GBP4.3m). This
includes GBP1.8m of restructuring costs and GBP0.2m of National
Insurance on the exercise of options under the 2013 EIP scheme
(2018 GBP2.0m of restructuring costs, GBP1.7m of transaction costs
and GBP0.6m of National Insurance on the exercise of share
options). The majority of the 2019 restructuring costs reflected
the final elements of the TNT BS integration with only the closure
of the Beckton site in Q4 2019 outstanding.
CASH FLOW
Net cash generated from operations using consistent accounting
policies increased by 160% from GBP10.6m in H1 2018 to GBP27.6m in
H1 2019 reflecting operating cash conversion of 115%. The increase
is a strong indication of the ability of the core business to
generate cash. This is particularly evident during periods when the
level of corporate M&A activity is reduced and there are fewer
movements in the cash flow statement as a result of exceptional
costs and acquisition related working capital changes. The
operating cash flow was enhanced by a GBP3.7m million reduction in
working capital including some short-term timing differences which
will unwind in H2 2019. Capital expenditure totalled GBP4.8m (2018:
GBP5.2m) compared to depreciation of GBP3.7m (2018: GBP3.2m). The
first six months of 2019 has seen construction commence on the
extension to our site in Rainham. Net bank interest paid amounted
to GBP1.4m (2018: GBP0.9m) and tax paid totalled GBP3.3m (2018:
GBP2.0m). The cash impact of the payment of both the 2018 final
dividend (GBP5.0m) and the 2019 interim dividend will be seen in H2
2019.
STATEMENT OF FINANCIAL POSITION
Net bank debt on 30 June 2019 was GBP95.0m (30 June 2018:
GBP115.4m). The year on year reduction has been driven by the cash
generating profits of the Group together with the lower level of
acquisition spend over the most recent twelve month period,
resulting in a robust financial position for the Group. The Group
remains comfortable in its ability to service its financial
obligations and leverage at 30 June 2019 has reduced to 1.8x
adjusted EBITDA (3.2x on a lease adjusted basis) with covenants
within its banking facilities remaining on pre-IFRS 16 accounting
basis. The Group continued to develop and invest in its businesses
and during the period we have commenced construction of an
extension to our site in Rainham which will see additional Records
Management capacity come on-stream in 2020. This will provide the
opportunity to vacate more expensive premises in the South East in
due course. Net assets at 30 June 2019 increased to GBP222.9m from
GBP208.9m at 30 June 2018 using consistent accounting policies,
(GBP210.9m under revised accounting policies).
BANK FACILITIES
The Group has well structured and efficient debt facilities in
place with the current syndicate consisting of five banks. The
facilities continue to November 2022 and consist of a single
GBP160m RCF facility which gives the Group the flexibility it needs
to manage debts levels depending on the level of M&A activity.
In addition there is a GBP30m uncommitted accordion facility. These
facilities provide the Group with adequate capital to continue to
support its growth strategy. The banking covenants are unaffected
by the adoption of IFRS 16. Total amount drawn against these
facilities at 30 June 2019 was GBP115.3m.
DIVIDS
The Board has declared an interim dividend of 2.4p per share
(2018: 2.0p), a 20% year-on-year increase. The interim dividend
will be paid on 9 November 2019 to shareholders on the register on
4 October 2019.
OUTLOOK
Following a strong first half performance, the Board is
encouraged by the long term prospects for the Group with there
remaining significant opportunities to grow in the UK, both
organically and through selective acquisitions.
The underlying cash generation capability of the business will
lead to substantially reduced net debt this year and this solid
financial position leaves Restore well positioned to capitalise on
opportunities to acquire capability and add scale in all of the
markets its serves as and when they arise.
The Board's expectations for the full year remain unchanged.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019
Using consistent accounting
policies
Unaudited Unaudited Audited
Unaudited six months six months year
six months ended ended ended
ended 30 June 30 June 31 December
30 June 2019 2019 2018 2018
Note GBP'm GBP'm GBP'm GBP'm
--------------------------------- ------- --------------- ------------- ------------- --------------
Revenue - continuing operations 2 106.2 106.2 92.7 195.5
Cost of sales (59.9) (61.1) (53.5) (111.5)
Gross profit 46.3 45.1 39.2 84.0
Administrative expenses (27.5) (27.5) (24.1) (50.7)
Exceptional items 2 (2.0) (2.0) (4.3) (8.5)
Operating profit 16.8 15.6 10.8 24.8
--------------------------------- ------- --------------- ------------- ------------- --------------
Finance costs (4.8) (2.1) (1.6) (3.8)
Profit before tax 12.0 13.5 9.2 21.0
Income tax charge 3 (2.3) (2.2) (2.1) (2.5)
Profit and total comprehensive
income for the period from
continuing operations 9.7 11.3 7.1 18.5
(Loss)/profit from discontinued
operations (0.2) (0.2) 0.1 (2.8)
Profit attributable to owners
of the parent 9.5 11.1 7.2 15.7
--------------------------------- ------- --------------- ------------- ------------- --------------
Earnings/(loss) per share attributable to
owners of the parent (pence)
Total
- Basic 4 7.6p 8.9p 6.2p 13.0p
- Diluted 4 7.5p 8.8p 6.0p 12.5p
Continuing Operations
- Basic 4 7.8p 9.1p 6.1p 15.3p
- Diluted 4 7.7p 9.0p 6.0p 14.7p
Discontinued operations
- Basic 4 (0.2p) (0.2p) 0.1p (2.3p)
- Diluted 4 (0.2p) (0.2p) 0.0p (2.2p)
--------------------------------- ------- --------------- ------------- ------------- --------------
The reconciliation between the statutory results shown above and
the non-GAAP adjusted measures are shown below:
Operating profit - continuing
operations 16.8 15.6 10.8 24.8
-------------------------------------- ---- ---- ---- ------
Adjustments for:
Amortisation of intangible
assets 4 4.0 4.0 3.2 7.0
Exceptional items 4 2.0 2.0 4.3 8.5
Share-based payments charge 4 - 0.6 0.5 1.0
-------------------------------------- ---- ---- ---- ------
Adjustments 6.0 6.6 8.0 16.5
-------------------------------------- ---- ---- ---- ------
Adjusted operating profit 22.8 22.2 18.8 41.3
-------------------------------------- ---- ---- ---- ------
Depreciation of property,
plant and equipment 711.9 3.7 3.2 6.9
-------------------------------------- ---- ---- ---- ------
Earnings before interest,
taxation, depreciation, amortisation
and exceptional items (EBITDA) 34.7 25.9 22.0 48.2
-------------------------------------- ---- ---- ---- ------
Profit before tax 12.0 13.5 9.2 21.0
-------------------------------------- ---- ---- ---- ------
Adjustments (as stated above) 6.0 6.6 8.0 16.5
-------------------------------------- ---- ---- ---- ------
Adjusted profit before tax 18.0 20.1 17.2 37.5
-------------------------------------- ---- ---- ---- ------
Condensed Consolidated Statement of Financial Position
At 30 June 2019
Using consistent accounting
policies
Unaudited Audited
Unaudited Unaudited 30 June 31 December
30 June 2019 30 June 2019 2018 2018
Note GBP'm GBP'm GBP'm GBP'm
ASSETS
Non-current assets
Intangible assets 8 260.4 260.4 258.2 261.9
Property, plant and equipment 71.7 71.7 70.2 71.1
Right of use assets 9 114.4 - - -
Investment 1.6 1.6 - -
Deferred tax asset 4.6 2.6 3.5 2.5
-------------------------------- ------ ------------- ------------- --------- ------------
452.7 336.3 331.9 335.5
-------------------------------- ------ ------------- ------------- --------- ------------
Current assets
Inventories 1.2 1.2 1.8 1.1
Trade and other receivables 51.3 51.3 53.5 48.7
Cash and cash equivalents 10 20.0 20.0 15.7 11.7
-------------------------------- ------ ------------- ------------- --------- ------------
72.5 72.5 71.0 61.5
Assets held directly for
sale - - - 1.8
-------------------------------- ------ ------------- ------------- --------- ------------
Total assets 525.2 408.8 402.9 398.8
-------------------------------- ------ ------------- ------------- --------- ------------
LIABILITIES
Current liabilities
Trade and other payables (46.5) (46.5) (41.5) (33.3)
Financial liabilities -
borrowings 10 (0.7) (0.7) - (0.8)
Financial liabilities -
lease liabilities 11 (15.7) - - -
Other financial liabilities (0.2) (0.2) (0.1) (0.2)
Current tax liabilities (1.9) (1.9) (1.0) (2.4)
Provisions (0.8) (0.8) (1.2) (0.9)
-------------------------------- ------ ------------- ------------- --------- ------------
(65.8) (50.1) (43.8) (37.6)
-------------------------------- ------ ------------- ------------- --------- ------------
Liabilities associated with
assets held for sale - - - (0.2)
-------------------------------- ------ ------------- ------------- --------- ------------
Non-current liabilities
Financial liabilities -
borrowings 10 (114.3) (114.3) (131.1) (122.2)
Financial liabilities -
lease liabilities 11 (116.8) - - -
Other long term liabilities - - (0.1) -
Other financial liabilities (0.2) (0.2) (0.2) (0.1)
Deferred tax liabilities (17.2) (17.2) (13.4) (17.6)
Provisions - (4.1) (5.4) (5.1)
-------------------------------- ------ ------------- ------------- --------- ------------
(248.5) (135.8) (150.2) (145.0)
-------------------------------- ------ ------------- ------------- --------- ------------
Total liabilities (314.3) (185.9) (194.0) (182.8)
-------------------------------- ------ ------------- ------------- --------- ------------
Net assets 210.9 222.9 208.9 216.0
-------------------------------- ------ ------------- ------------- --------- ------------
EQUITY
Share capital 6.2 6.2 6.2 6.2
Share premium account 150.3 150.3 150.3 150.3
Other reserves 4.6 4.6 2.8 3.8
Retained earnings 49.8 61.8 49.6 55.7
-------------------------------- ------ ------------- ------------- --------- ------------
Equity attributable to owners
of parent 210.9 222.9 208.9 216.0
-------------------------------- ------ ------------- ------------- --------- ------------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2019
Attributable to owners of the parent
------------------------------------------------------
Share Share Other Retained Total
capital premium reserves earnings equity
GBP'm GBP'm GBP'm GBP'm GBP'm
----------------------------- --------- --------- ---------- ---------- --------
Balance at 1 January
2018 5.6 100.9 3.2 46.2 155.9
Profit for the period - - - 7.2 7.2
----------------------------- --------- --------- ---------- ---------- --------
Total comprehensive income
for the period - - - 7.2 7.2
----------------------------- --------- --------- ---------- ---------- --------
Transactions with owners
Issue of shares in the
period 0.6 51.0 - - 51.6
Issue costs - (1.6) - - (1.6)
Dividends - - - (4.1) (4.1)
Transfers - - (0.3) 0.3 -
Share-based payments
charge - - 0.5 - 0.5
Deferred tax on share-based
payments - - (0.6) - (0.6)
----------------------------- --------- --------- ---------- ---------- --------
Balance at 30 June 2018
(unaudited) 6.2 150.3 2.8 49.6 208.9
----------------------------- --------- --------- ---------- ---------- --------
Balance at 1 July 2018 6.2 150.3 2.8 49.6 208.9
Profit for the period - - - 8.5 8.5
----------------------------- --------- --------- ---------- ---------- --------
Total comprehensive income
for the period - - - 8.5 8.5
----------------------------- --------- --------- ---------- ---------- --------
Transactions with owners
Dividends - - - (2.5) (2.5)
Transfers - - (0.1) 0.1 -
Share-based payments
charge - - 0.5 - 0.5
Deferred tax on share-based
payments - - 0.6 - 0.6
----------------------------- --------- --------- ---------- ---------- --------
Balance at 31 December
2018 (audited) 6.2 150.3 3.8 55.7 216.0
----------------------------- --------- --------- ---------- ---------- --------
Change in accounting
policy (note 11) - - - (10.4) (10.4)
----------------------------- --------- --------- ---------- ---------- --------
Restated total equity
at 1 January 2019 6.2 150.3 3.8 45.3 205.6
----------------------------- --------- --------- ---------- ---------- --------
Profit for the period - - - 9.5 9.5
----------------------------- --------- --------- ---------- ---------- --------
Total comprehensive income
for the period - - - 9.5 9.5
----------------------------- --------- --------- ---------- ---------- --------
Transactions with owners
Dividends - - - (5.0) (5.0)
Share-based payments
charge - - 0.6 - 0.6
Deferred tax on share-based
payments - - 0.2 - 0.2
----------------------------- --------- --------- ---------- ---------- --------
Balance at 30 June 2019
(unaudited) 6.2 150.3 4.6 49.8 210.9
----------------------------- --------- --------- ---------- ---------- --------
Using consistent accounting policies
------------------------------------------------------
Balance at 31 December
2018 (audited) 6.2 150.3 3.8 55.7 216.0
Profit for the period - - - 11.1 11.1
----------------------------- --------- --------- ---------- ---------- --------
Total comprehensive income
for the period - - - 11.1 11.1
----------------------------- --------- --------- ---------- ---------- --------
Transactions with owners
Dividends - - - (5.0) (5.0)
Share-based payments
charge - - 0.6 - 0.6
Deferred tax on share-based
payments - - 0.2 - 0.2
----------------------------- --------- --------- ---------- ---------- --------
Balance at 30 June 2019
(unaudited) 6.2 150.3 4.6 61.8 222.9
----------------------------- --------- --------- ---------- ---------- --------
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2019
Using consistent accounting
policies
Unaudited Unaudited Audited
Unaudited six months six months year
six months ended ended ended
ended 30 June 30 June 31 December
30 June 2019 2019 2018 2018
Note GBP'm GBP'm GBP'm GBP'm
Net cash generated from
operations 7 37.6 27.6 10.6 32.4
Net finance costs (4.2) (1.4) (0.9) (3.6)
Income taxes paid (3.3) (3.3) (2.0) (3.2)
--------------------------------- ----- --------------- ------------ ------------ -------------
Net cash generated from
operating activities 30.1 22.9 7.7 25.6
Cash flows from investing
activities
Purchase of property, plant
and equipment and applications
software (4.8) (4.8) (5.2) (10.1)
Purchase of subsidiary,
net of cash acquired 6 (1.9) (1.9) (1.4) (4.0)
Purchase of trade and assets - - (88.3) (88.5)
Proceeds from sale of property,
plant and equipment - - - 0.9
--------------------------------- ----- --------------- ------------ ------------ -------------
Cash flows used in investing
activities (6.7) (6.7) (94.9) (101.7)
Cash flows from financing
activities
Net proceeds from share
issues - - 50.0 50.0
Dividends paid - - - (6.6)
Repayment of bank borrowings - - (2.3) (2.3)
Repayment of revolving
credit facility (8.0) (8.0) 1.0 (8.0)
New bank loans raised - - 44.0 44.0
Principal element of lease
payments (7.3) (0.1) (0.1) (0.1)
--------------------------------- ----- --------------- ------------ ------------ -------------
Net cash (used in)/generated
from financing activities (15.3) (8.1) 92.6 77.0
--------------------------------- ----- --------------- ------------ ------------ -------------
Net increase in cash and
cash equivalents 8.1 8.1 5.4 0.9
Cash and cash equivalents
at start of period 11.2 11.2 10.3 10.3
--------------------------------- ----- --------------- ------------ ------------ -------------
Cash and cash equivalents
at the end of period 10 19.3 19.3 15.7 11.2
--------------------------------- ----- --------------- ------------ ------------ -------------
Cash and cash equivalents
shown above comprise:
Cash at bank 20.0 20.0 15.7 11.7
Bank overdraft (0.7) (0.7) - (0.8)
Assets held as classified
for sale 2 - - - 0.3
--------------------------------- ----- --------------- ------------ ------------ -------------
10 19.3 19.3 15.7 11.2
--------------------------------- ----- --------------- ------------ ------------ -------------
Notes to the Consolidated Interim report
For the six months ended 30 June 2019
1 Basis of Preparation
The half year report has been prepared in accordance with IAS
34, Interim Financial Reporting, adopting accounting policies that
are consistent with those of the previous financial year and
corresponding half year reporting period, except for the adoption
of new and amended standards. The Group has changed its accounting
policy and made retrospective adjustments as a result of adopting
IFRS 16 Leases.
The impact of the adoption of the leasing standard and new
accounting policies are disclosed in note 11 below.
2 Segmental Analysis
The Group is organised into two main operating segments,
Document Management and Relocation and incurs Head Office costs.
Services per segment operate as described in the business review.
The vast majority of trading of the Group is undertaken within the
United Kingdom. Segment assets include intangibles, property, plant
and equipment, inventories, receivables and operating cash. Central
assets include deferred tax and head office assets. Segment
liabilities comprise operating liabilities. Central liabilities
include income tax and deferred tax, corporate borrowings and head
office liabilities. Capital expenditure comprises additions to
computer software, property, plant and equipment and includes
additions resulting from acquisitions through business
combinations. Segment assets and liabilities are allocated between
segments on an actual basis.
Revenue
The revenue from external customers was derived from the Group's
principal activities primarily in the UK (where the Company is
domiciled) as follows:
Using consistent accounting policies
Audited
Unaudited Unaudited Unaudited 31 December
30 June 2019 30 June 2019 30 June 2018 2018
Continuing operations GBP'm GBP'm GBP'm GBP'm
============================= ============== ============== ============= ============
Restore Records Management 47.8 47.8 38.8 86.5
Restore Datashred 21.0 21.0 20.8 41.8
Restore Digital 11.6 11.6 10.3 19.3
============================= ============== ============== ============= ============
Document Management division 80.4 80.4 69.9 147.6
============================= ============== ============== ============= ============
Restore Harrow Green 19.7 19.7 17.6 37.6
Restore Technology 6.1 6.1 5.2 10.3
============================= ============== ============== ============= ============
Relocation division 25.8 25.8 22.8 47.9
============================= ============== ============== ============= ============
Total revenue 106.2 106.2 92.7 195.5
============================= ============== ============== ============= ============
Segmental information
Unaudited
Document Head 30 June 2019
Management Relocation Office Total
GBP'm GBP'm GBP'm GBP'm
============================== =========== ========== ======= =============
Segment assets 447.9 74.6 2.7 525.2
Segment liabilities 151.6 29.3 314.3 314.3
Capital expenditure 4.5 0.1 0.2 4.8
Depreciation and amortisation 14.3 1.6 - 15.9
============================== =========== ========== ======= =============
Using consistent accounting policies
===============================================
Unaudited
30 June 2019
============================== =========== ========== ======= =============
Segment assets 346.4 59.7 2.7 408.8
Segment liabilities 36.4 16.2 133.3 185.9
Capital expenditure 4.5 0.1 0.2 4.8
Depreciation and amortisation 7.4 0.3 - 7.7
============================== =========== ========== ======= =============
Unaudited
30 June 2018
============================== =========== ========== ======= =============
Segment assets 348.6 48.5 5.8 402.9
Segment liabilities 38.6 11.6 143.8 194.0
Capital expenditure 4.7 0.5 - 5.2
Depreciation and amortisation 6.0 0.4 - 6.4
============================== =========== ========== ======= =============
Audited
31 December
2018
============================== =========== ========== ======= =============
Segment assets 335.1 61.2 2.5 398.8
Segment liabilities 41.6 12.4 128.8 182.8
Capital expenditure 8.8 1.1 0.2 10.1
Depreciation and amortisation 13.2 0.7 - 13.9
============================== =========== ========== ======= =============
Discontinued operations
On 25 February 2019, the Company sold ITP Group Holdings, its
printer cartridge recycling business in exchange for a 40% stake in
Ink and Toner Recycling Limited and the results have been shown as
a discontinued operation. The Group is represented on Ink and
Toner's board and accounts for the investment as a minority
interest.
Operating activities used GBP'nil (2018: GBP'nil/GBP0.3m) of
cash in the period/year. There were no cash flows from investing or
financing activities.
Using consistent accounting
policies
Unaudited Unaudited Unaudited Audited
30 June 30 June 30 June 31 December
2019 2019 2018 2018
--------------------------------- ---------- ---------- ---------- --------------
Revenue - - 2.4 4.2
--------------------------------- ---------- ---------- ---------- --------------
Operating (profit)/loss - - (0.1) 0.3
--------------------------------- ---------- ---------- ---------- --------------
Impairment and amortisation of
intangible assets - - - 2.5
================================= ========== ========== ========== ==============
(Profit)/loss before tax - - (0.1) 2.8
================================= ========== ========== ========== ==============
Tax charge - - - -
--------------------------------- ---------- ---------- ---------- --------------
Loss/(profit) for the year from
discontinued operations 0.2 0.2 (0.1) 2.8
--------------------------------- ---------- ---------- ---------- --------------
At 31 December 2018, the assets and liabilities of the business
were presented as held for sale.
Assets classified as held for sale GBP'm
----------------------------------------- ------
Property, plant and equipment 0.1
Other current assets 1.4
Cash 0.3
----------------------------------------- ------
1.8
----------------------------------------- ------
Liabilities classified as held for sale
Trade and other payables 0.2
----------------------------------------- ------
Exceptional items
For the six months ended 30 June 2019, exceptional costs were
GBP2.0m (including restructuring costs of GBP1.8m and GBP0.2m of
other exceptional costs) (2018: exceptional costs were GBP4.3m
including restructuring costs in of GBP2.0m, GBP1.7m of transaction
costs, GBP0.6m of National Insurance on the exercise of share
options). In the year ended 31 December 2018, GBP8.5m of
exceptional costs were incurred (acquisition transaction costs,
GBP2.4m, restructuring and redundancy costs GBP4.6m, other
GBP1.5m).
3 Taxation
The underlying tax charge is based on the expected effective tax
rate for the full year to 31 December 2019 of 19.6%. It is
anticipated that the tax charge in the current period will be
GBP2.3m.
4 Earnings per ordinary share
Basic earnings per share have been calculated on the profit for
the period after taxation and the weighted average number of
ordinary shares in issue during the period.
Using consistent accounting
policies
Unaudited Unaudited Unaudited
six months six months six months Audited year
ended ended ended ended
30 June 30 June 30 June 31 December
2019 2019 2018 2018
---------------------------------- ------------ ----------- ----------- ------------
Weighted average number of shares
in issue 123,979,321 123,979,321 116,692,682 120,367,778
---------------------------------- ------------ ----------- ----------- ------------
Total profit for the period GBP9.5m GBP11.1m GBP7.2m GBP15.7m
---------------------------------- ------------ ----------- ----------- ------------
Total basic earnings per ordinary
share 7.6p 8.9p 6.2p 13.0p
---------------------------------- ------------ ----------- ----------- ------------
Weighted average number of shares
in issue 123,979,321 123,979,321 116,692,682 120,367,778
Share options 2,274,096 2,274,096 2,467,253 5,351,055
Weighted average fully diluted
number of shares in issue 126,253,417 126,253,417 119,159,935 125,718,833
---------------------------------- ------------ ----------- ----------- ------------
Total fully diluted earnings per
share 7.5p 8.8p 6.0p 12.5p
---------------------------------- ------------ ----------- ----------- ------------
Continuing profit for the period GBP9.7m GBP11.3m GBP7.1m GBP18.5m
---------------------------------- ------------ ----------- ----------- ------------
Continuing basic earnings per
share 7.8p 9.1p 6.1p 15.3p
---------------------------------- ------------ ----------- ----------- ------------
Continuing fully diluted earnings
per share 7.7p 9.0p 6.0p 14.7p
---------------------------------- ------------ ----------- ----------- ------------
Discontinued (loss)/profit for
the period (GBP0.2m) (GBP0.2m) GBP0.1m (GBP2.8m)
---------------------------------- ------------ ----------- ----------- ------------
Discontinued basic (loss)/profit
per share (0.2p) (0.2p) 0.1p (2.3p)
---------------------------------- ------------ ----------- ----------- ------------
Discontinued fully diluted loss
per share (0.2p) (0.2p) 0.0p (2.2p)
---------------------------------- ------------ ----------- ----------- ------------
Adjusted earnings per share
The Directors believe that adjusted earnings per share provide a
more appropriate representation of the underlying earnings derived
from the Group's business. The adjusting items are shown in the
table below:
Using consistent accounting
policies
Unaudited Unaudited Unaudited Audited
six months six months six months year
ended ended ended ended
30 June 30 June 30 June 31 December
2019 2019 2018 2018
GBP'm GBP'm GBP'm GBP'm
---------------------------------- ------------ ----------- ----------- ------------
Continuing profit before tax 12.0 13.5 9.2 21.0
Adjustments:
Amortisation of intangible assets 4.0 4.0 3.2 7.0
Exceptional items 2.0 2.0 4.3 8.5
Share-based payments charge - 0.6 0.5 1.0
---------------------------------- ------------ ----------- ----------- ------------
Adjusted continuing profit for
the period 18.0 20.1 17.2 37.5
---------------------------------- ------------ ----------- ----------- ------------
The additional adjusted earnings per share, based on weighted
average number of shares in issue during the period, 124.0m (2018:
116.7m, 120.4m) is calculated below:
Using consistent accounting
policies
Unaudited Unaudited Unaudited Audited
Six months Six months Six months Year
ended ended ended ended
30 June 30 June 30 June 31 December
2019 2019 2018 2018
----------------------------------- ------------ ----------- ----------- ------------
Adjusted profit before tax (GBP'm) 18.0 20.1 17.2 37.5
Tax at 19.0% (GBP'm) (3.4) (3.8) (3.3) (7.1)
----------------------------------- ------------ ----------- ----------- ------------
Adjusted profit after tax (GBP'm) 14.6 16.3 13.9 30.4
----------------------------------- ------------ ----------- ----------- ------------
Adjusted basic earnings per share 11.8p 13.1p 11.9p 25.2p
----------------------------------- ------------ ----------- ----------- ------------
Adjusted fully diluted earnings
per share 11.6p 12.9p 11.7p 24.2p
----------------------------------- ------------ ----------- ----------- ------------
5 Dividends
In respect of the current period, the Directors propose an
interim dividend of 2.4p per share (2018: 2.0p) to be paid to
shareholders on 8 November 2019. The proposed interim dividend is
payable to all shareholders on the Register of Members on 4 October
2019. The estimated dividend to be paid is GBP3.0m (2018:
GBP2.6m).
6 Business Combinations
On 5 June 2019, the Group completed the acquisition of Secure IT
Disposal Limited, an IT Lifecycle asset management company, for
cash consideration of GBP2.1m. Deferred consideration of GBP0.4m
may be paid by 31 December 2019. The Group is still in the process
of establishing the fair value of the assets and liabilities
acquired, the provisional customer relationships were GBP1.3m.
7 Cash inflow from operations
Using consistent accounting
policies
Unaudited Unaudited Unaudited
six months six months six months Audited year
ended ended ended ended
30 June 30 June 30 June 31 December
2019 2019 2018 2018
GBP'm GBP'm GBP'm GBP'm
------------------------------------ ------------ ----------- ----------- ------------
Continuing operations
Profit before tax 12.0 13.5 9.3 21.0
Depreciation of property, plant
and equipment 11.9 3.7 3.2 6.9
Amortisation of intangible assets 4.0 4.0 3.2 7.0
Net finance costs 4.8 2.1 1.6 3.8
Share-based payments charge 0.6 0.6 0.5 1.0
Gain on disposal of plant, property
and equipment - - - (0.2)
Decrease in inventories 0.1 0.1 0.2 -
(Increase) in trade and other
receivables (1.7) (1.7) (9.2) (4.7)
Increase/(decrease) in trade and
other payables 5.9 5.3 1.8 (2.4)
------------------------------------ ------------ ----------- ----------- ------------
Net cash generated from continuing
operations 37.6 27.6 10.6 32.4
------------------------------------ ------------ ----------- ----------- ------------
8 Intangible assets
Applications
Customer software
Goodwill relationships Trade names & IT Total
GBP'm GBP'm GBP'm GBP'm GBP'm
--------------------------- -------- -------------- ----------- ------------ ------
Cost
1 January 2018 135.8 78.2 4.3 3.8 222.1
Arising on acquisition
of subsidiaries 0.6 0.7 - - 1.3
Arising on acquisition
of trade 21.7 43.9 - - 65.6
Additions - external - - - 0.6 0.6
--------------------------- -------- -------------- ----------- ------------ ------
30 June 2018 158.1 122.8 4.3 4.4 289.6
--------------------------- -------- -------------- ----------- ------------ ------
1 July 2018 158.1 122.8 4.3 4.4 289.6
Arising on acquisition
of subsidiaries 6.6 2.8 - - 9.4
Transfer to assets held
for sale (1.3) (1.6) - - (2.9)
Additions - external - - - 0.6 0.6
--------------------------- -------- -------------- ----------- ------------ ------
31 December 2018 163.4 124.0 4.3 5.0 296.7
--------------------------- -------- -------------- ----------- ------------ ------
1 January 2019 163.4 124.0 4.3 5.0 296.7
Arising on acquisition
of subsidiaries 0.7 1.3 - - 2.0
Additions - external - - - 0.5 0.5
--------------------------- -------- -------------- ----------- ------------ ------
30 June 2019 164.1 125.3 4.3 5.5 299.2
--------------------------- -------- -------------- ----------- ------------ ------
Accumulated amortisation
and impairment
1 January 2018 10.6 13.8 1.6 2.2 28.2
Charge for the period - 2.7 0.1 0.4 3.2
30 June 2018 10.6 16.5 1.7 2.6 31.4
--------------------------- -------- -------------- ----------- ------------ ------
1 July 2018 10.6 16.5 1.7 2.6 31.4
Charge for the period - 3.3 0.2 0.3 3.8
Transfer to assets held
for sale - (0.4) - - (0.4)
31 December 2018 10.6 19.4 1.9 2.9 34.8
--------------------------- -------- -------------- ----------- ------------ ------
1 January 2019 10.6 19.4 1.9 2.9 34.8
Charge for the period - 3.5 0.1 0.4 4.0
--------------------------- -------- -------------- ----------- ------------ ------
30 June 2019 10.6 22.9 2.0 3.3 38.8
--------------------------- -------- -------------- ----------- ------------ ------
Carrying amount
30 June 2019 - Unaudited 153.5 102.4 2.3 2.2 260.4
--------------------------- -------- -------------- ----------- ------------ ------
31 December 2018 - Audited 152.8 104.6 2.4 2.1 261.9
--------------------------- -------- -------------- ----------- ------------ ------
30 June 2018 - Unaudited 147.5 106.3 2.6 1.8 258.2
--------------------------- -------- -------------- ----------- ------------ ------
9 Right of use assets
Office equipment,
fixtures
Leasehold and Motor
Property fittings Vehicles Total
GBP'm GBP'm GBP'm GBP'm
---------------------------------- --------- ----------------- --------- ------
Cost
31 December 2018 - - - -
---------------------------------- --------- ----------------- --------- ------
Change in accounting policy (note
11) 108.7 0.7 9.4 118.8
---------------------------------- --------- ----------------- --------- ------
1 January 2019 108.7 0.7 9.4 118.8
Additions 1.8 0.1 1.9 3.8
30 June 2019 110.5 0.8 11.3 122.6
---------------------------------- --------- ----------------- --------- ------
Depreciation
31 December 2018 - - - -
---------------------------------- --------- ----------------- --------- ------
Change in accounting policy (note
11) - - - -
---------------------------------- --------- ----------------- --------- ------
1 January 2019 - - - -
Charge for the period 6.4 0.3 1.5 8.2
30 June 2019 6.4 0.3 1.5 8.2
---------------------------------- --------- ----------------- --------- ------
Net book value
---------------------------------- --------- ----------------- --------- ------
30 June 2019 - Unaudited 104.1 0.5 9.8 114.4
---------------------------------- --------- ----------------- --------- ------
1 January 2019 - Unaudited 108.7 0.7 9.4 118.8
---------------------------------- --------- ----------------- --------- ------
31 December 2018 - Audited - - - -
---------------------------------- --------- ----------------- --------- ------
10 Financial liabilities - borrowings
Using consistent accounting
policies
Unaudited Unaudited Unaudited Audited
30 June 30 June 30 June 31 December
2019 2019 2018 2018
GBP'm GBP'm GBP'm GBP'm
-------------------------- ----------- --------- --------- ------------
Current
Bank loans and overdrafts 0.7 0.7 - 0.8
Deferred financing costs - - - -
-------------------------- ----------- --------- --------- ------------
0.7 0.7 - 0.8
-------------------------- ----------- --------- --------- ------------
Non-current
Bank loans - secured 115.3 115.3 132.3 123.3
Deferred financing costs (1.0) (1.0) (1.2) (1.1)
-------------------------- ----------- --------- --------- ------------
114.3 114.3 131.1 122.2
-------------------------- ----------- --------- --------- ------------
Analysis of net debt
Cash at bank and in hand 20.0 20.0 15.7 11.7
Bank loans due within one year (0.7) (0.7) - (0.8)
Bank loans due after one year (114.3) (114.3) (131.1) (122.2)
------------------------------- ------- ------- ------- -------
(95.0) (95.0) (115.4) (111.3)
------------------------------- ------- ------- ------- -------
11 Changes in accounting policies
(a) Adjustments recognised on the adoption of IFRS 16
This note explains the impact of the adoption of IFRS 16 Leases
on the Group's financial statements and discloses the new
accounting policies that have been applied from 1 January 2019 in
(b) below.
The Group has adopted IFRS 16 from 1 January 2019, and has not
restated comparatives for the 2018 reporting period, as permitted
under the specific transitional provisions in the standard.
The reclassifications and the adjustments arising from the new
leasing rules are therefore recognised in the opening balance sheet
at 1 January 2019.
On adoption of IFRS 16, the group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted based on the lessee's incremental
borrowing rate applied to the lease liabilities on as of 1 January
2019. The weighted average discount rate applied was 4.2%.
For leases previously classified as finance leases the entity
recognised the carrying amount of the lease asset and lease
liability immediately before transition as the carrying amount of
the right of use asset and the lease liability at the 1 January
2019. The measurement principles of IFRS 16 are only applied after
that date.
A reconciliation of the lease liability recognised at 1 January
2019 to operating lease commitments at 31 December 2018 is shown
below.
GBP'm
============================================================== ======
IAS17 operating lease commitments 159.0
Add: adjustments related to variable lease payments based
on an index or rate 2.3
Less: adjustments due to disposal of subsidiary (0.4)
Less: contracts to which the short-term leases exemption
has been applied (0.9)
Add: service/non-lease components of lease contracts 8.8
-------------------------------------------------------------- ------
Subtotal gross IFRS 16 liabilities recognised at 31 December
2018 168.8
-------------------------------------------------------------- ------
Discounted at a weighted average discount rate of 4.2% 135.8
-------------------------------------------------------------- ------
Add: finance lease liabilities recognised at 31 December
2018 0.3
-------------------------------------------------------------- ------
IFRS 16 lease liability as at 1 January 2019 136.1
-------------------------------------------------------------- ------
Of which are:
Current lease liabilities 14.3
Non-current lease liabilities 121.8
-------------------------------------------------------------- ------
136.1
-------------------------------------------------------------- ------
The associated right of use assets for property leases were
measured on a retrospective basis as if the new rules had always
been applied. Other right-of use assets were measured at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
balance sheet as at 31 December 2018. Onerous lease provisions of
GBP4.6m at 31 December 2018 have been offset against the right of
use asset at the date of initial application. The recognised right
of use assets are shown in note 9.
At 30 June 2019, the IFRS 16 lease liabilities were:
GBP'm
------------------------------- ------
Current lease liabilities 15.7
Non-current lease liabilities 116.8
------------------------------- ------
132.5
------------------------------- ------
The change in accounting policy affected the following items in
the balance sheet on 1 January 2019:
-- right of use assets - increase by GBP118.8m
-- deferred tax assets - increase by GBP2.0m
-- lease liabilities - increase by GBP135.8m
The net impact on retained earnings on 1 January 2019 was a
decrease of GBP10.4m.
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of single discount rate structures to a portfolio of
leases with reasonably similar characteristics
-- reliance on previous assessments on whether leases are onerous
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases
(b) The Group's leasing activities and how these are accounted for
The Group leases various properties, plant and equipment and
vehicles. Rental contracts are typically made for fixed periods and
may have extension options as described below. Lease terms are
negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose
any covenants, but leased assets may not be used as security for
borrowing purposes. Until the 2018 financial year, leases of
property, plant and equipment were classified as either finance or
operating leases. Payments made under operating leases (net of any
incentives received from the lessor) were charged to profit or loss
on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right of use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right of use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable
-- variable lease payment that are based on an index or a rate
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined interest
rate structures based on the lessee's incremental borrowing rate
have been used, to reflect the rate that the lessee would have to
pay to borrow the funds necessary to obtain an asset of similar
value in a similar economic environment with similar terms and
conditions.
Right of use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability
-- any lease payments made at or before the commencement date
less any lease incentives received
-- any initial direct costs, and
-- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less and low-value assets comprise
IT-equipment and small items of office furniture.
Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These terms are
used to maximise operational flexibility in terms of managing
contracts. The majority of extension and termination options held
are exercisable only by the Group and not by the respective
lessor.
Critical judgements in determining the lease term
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated).
12 Post balance sheet events
On 2 July 2019, the Group acquired the trade and assets of Team
Recycling Limited, an IT Lifecycle asset management business for
cash consideration of GBP30,000. The Group is in the process of
establishing the fair value of the assets acquired.
ENDS
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SDDFMSFUSEFW
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