TIDMSUR
RNS Number : 7000N
Sureserve Group PLC
22 January 2019
22 January 2019
Sureserve Group plc
("Sureserve" or the "Group")
Preliminary Results for the year ended 30 September 2018
Transformational year, well-positioned for predictable
growth
Sureserve, the asset and energy support services group, is
pleased to announce its preliminary results for the year ended 30
September 2018.
Bob Holt, Chairman of Sureserve, commented:
"I am pleased to report a strong set of results for Sureserve
following a transformational year for the Group. We have
streamlined our operations, focusing on our industry-leading
Compliance and Energy Services businesses which are profitable and
deliver significant cash generation.
"We are confident in the Group's prospects and look forward to
leveraging the strong platform we have built at Sureserve.
"I am pleased to announce that the Group has started the year
positively and ahead of management expectations."
Financial overview
-- 5.1% increase in revenue from continuing operations to GBP190.8m (2017: GBP181.5m)
-- Increase in operating profit before exceptional items and amortisation of acquisition intangibles margin to 4.2%
(2017: 4.1%)
-- Profit before tax from continuing operations before exceptional items and amortisation of acquisition intangibles
of GBP6.6m (2017: GBP5.4m)
-- EPS from adjusted continuing operations (defined as the GBP6.6m as noted above, adjusted for tax at a nominal
rate of 19%, divided by the basic weighted average number of shares in issue) of 3.4p (2017: 2.8p)
-- Basic loss per share of 6.6p (2017: 0.0p)
-- Operating cash conversion from continuing operations of 60% (2017: 177%)
Operational highlights - steady progress and strong platform for
future growth
-- Sale of our Lakehouse Contracts and Foster Property Maintenance businesses enables us to focus on highly
cash-generative growth markets
-- Acquisition and integration of Just Energy Solutions to complement the current gas compliance activities
-- Increased the number of long-term contracts we service by 11, representing an overall increase in pipeline value
of GBP108m
-- Outstanding record of contract wins:
o GBP55m Arbed 3 programme in a 50/50 joint venture that extends
Everwarm's reach into Wales
o GBP44m framework with Aberdeenshire Council providing every
facet of housing improvement upgrades in Aberdeenshire
o Appointed by Eastern Procurement to the GBP40m Heating
Installations Framework for an initial two-year period
-- Ongoing focus on smart metering, ready for SMETS2 roll out
Outlook
-- At year end, we were participating in a total of 108 frameworks worth a total of GBP633.4m and had in place 157
maintenance contracts worth a total of GBP399.1m.
-- Well-placed to deliver growth in our market-leading gas provision and excellence in Compliance organically and
by acquisition.
-- Good visibility of non-volatile, essential services income streams from activities across our growing national
footprint, with an order book of GBP385m in a fragmented and regional market
Enquiries
Sureserve Group
Bob Holt, Chairman 07778 798 816
Michael McMahon, Chief Operating
Officer 07787 536 000
Camarco (Financial Public Relations)
Ginny Pulbrook 020 3757 4992
Tom Huddart
Ollie Head
Stockdale Securities
(Nominated adviser and broker)
Andy Crossley 020 7601 6100
Antonio Bossi
Notes to editors
The Sureserve Group is an asset and energy support services
group that improves, maintains and provides services to homes,
schools, public, commercial and industrial buildings with a focus
on clients in the UK public sector and regulated markets. Services
are delivered through two divisions: Compliance and Energy
Services.
The Group is headquartered in London. It currently employs some
1,990 staff from 23 offices across the UK.
Executive Chairman's statement
Introduction
Following in-depth planning over a substantial period we
successfully concluded the sale of Lakehouse Contracts Limited and
Foster Property Maintenance Limited to the Mapps Group in August
2018. This was a significant strategic advance for the Group,
enabling us to concentrate on delivering operational excellence in
our specialist core growth businesses of Compliance and Energy
Services. The divestment included certain contracts yet to be
finalised. It is hoped that those outstanding works will be
concluded by the time of the Group interim results to March 2019. A
further update will be provided at that time.
The Group subsequently changed its name to Sureserve to reflect
the renewed focus on these two divisions. These now make up the two
operating divisions of today's streamlined and rationalised Group.
Both are businesses in which we have strong market positions and a
portfolio of leading brands built on the expertise and quality
commitment of our people, ensuring our customers are willing to pay
a premium for our services.
Both divisions are underpinned by profitable, cash-generative
business models that provide the Group with a sound platform for
predictable growth. The rationale behind this approach is
exemplified by our results from continuing operations for the 2018
financial year and based on the successful implementation of our
strategy to create a high-turnover business with regular recurring
income streams, a 'blue-collar' client base and highly disciplined
financial management, providing stable operating margins.
Trading performance
The Group made excellent trading progress during the year,
delivering a number of major initiatives that pave the way for us
to fulfil our growth ambitions in the years ahead. The success of
these is already demonstrated by an increase across both divisions
in the number of long-term contracts, representing an overall
increase in pipeline value of GBP108m. The details of the awards
are within the Operating Review.
We also experienced a full financial year reaping the benefits
of our move away from the official list of the London Stock
Exchange to AIM, which took place in May 2017.
Please see the Financial Review in the 2018 Annual Report for
full details of our results.
Our growth trajectory
Resolving legacy issues to advance the Group to this stage has
taken significant and concerted effort by the Group's management
team, and I am confident that we are now on track to deliver
sustainable, profitable growth over the years to come.
On top of our plans for organic growth, Sureserve intends to act
as a consolidator in a highly fragmented industry by bringing
together quality-led organisations with a strong record of
compliance in a heavily regulated environment. We continue to seek
target businesses that not only match our ambitions, but can
embrace the standards and culture within our core growth areas, as
well as acquisitions that will enable us to introduce new service
lines to our customers.
We purchased Just Energy Services ("JES") in the period, which
is a heating and renewables specialist founded in 2011, whose
services for large energy companies, retailers and private
customers complement the activities of our own gas compliance
activities. This acquisition provides us with a low-cost route into
the private sector gas and renewables market.
As I have already indicated, organic growth from our existing
operations was strong during the year, with important contract wins
significantly strengthening our presence across the UK. These
include the award of a GBP55m contract to our Everwarm business
under the Welsh Government's Arbed 3 Warm Homes programme, which we
won in May 2018 and which took us into Wales for the first
time.
Increasingly, such acquisitions and wins are further
strengthening the national platform on which we base our ability to
deliver a high-quality service at a local level. Aspiring to be
this kind of business means we must be the supplier or partner of
choice in all the markets where we operate.
Our people
Sureserve places a strong emphasis on the importance of the
skills, attitude and commitment of the thousands of people who
deliver our services. By creating close and mutually beneficial
relationships with client personnel responsible for buying
facilities management services, based on promises kept and problems
solved, they create the sustainable bedrock on which our success is
built. I would like to thank each and every one of our excellent
people for their commitment and performance over the last year.
To ensure we have access to the skills we need for years to
come, in 2018 we launched the Sureserve Academy to train young
people in the skills required to become gas and fire engineers. The
strategic aim is to ease any issues that may emerge with recruiting
qualified engineers as our workforce grows.
There were a number of Board changes during the year. First, I
would like to thank Jeremy Simpson, who stood down as Chief
Financial Officer in October, for his invaluable contribution to
creating the 'new' Sureserve Group. I wish him every success. We
hope to bring news of his replacement early in 2019.
I would also like to thank Andrew Harrison for his contribution
over the last two years as a non-executive director of the Company.
Andrew played a key role in the Group's turnaround, and we wish him
well for the future. Derek Zissman was appointed in November 2017
and is Chairman of the Audit Committee. Robert Legget has been
appointed interim Chairman of the Remuneration Committee and Derek
Zissman has been appointed to the Nomination and Remuneration
Committees subsequent to the year end.
Building on our strategy
During the year, we significantly advanced our strategy, with
the aim of building upon a specialist focus on compliance and
energy services to maximise the opportunities provided by a stable
base of regular recurring and predictable revenues and profits.
-- Operational excellence: high performances win work and keep our existing clients happy
-- Geography: working in sectors which have traditionally been
predominantly regional we have achieved scale and geographical
coverage
-- Focused divisions: in our market we believe that focus is the
key. We have reduced the scale of the Group and now have more
focused businesses in the sectors we have targeted. This means we
have a profitable and cash generative business that is understood
by all stakeholders
-- Working together: cross selling has proved successful in the
past and we have strong track record at delivering a number of
services to the same client
Dividend
In accordance with the principles of sound financial management
and good governance, the Board aims to retain a dividend policy
that both recognises shareholder needs and expectations while
retaining sufficient capital to drive future growth. The board
propose a final dividend payment of 0.25p. The board will consider
an interim dividend based upon the trading performance of the Group
later in the year.
Outlook
Looking ahead, I would like to re-emphasise my confidence in the
tremendous opportunity we have to deliver sustainable and
predictable growth over the years to come, both organically and by
acquisition.
I believe we are now ideally positioned to build strongly on
this major achievement, delivered by all our people working as a
team. I particularly look forward to continuing and expanding our
Arbed 3 activities, building on our work in 2018 to create the
necessary infrastructure and consolidating our new presence in
Wales.
Going forward, the Sureserve Group is a stable, growing and
cash-generative business that delivers operational excellence and
builds strong relationships in highly regulated sectors that
provide substantial recurring revenues. We have strong
relationships with public sector contracting organisations across
the UK, and particularly with personnel who are ultimately
responsible for purchasing the services we deliver.
We are well placed to build further on our market-leading gas
provision and excellence in compliance. Our goal moving forward is
to build an even stronger organisation, based on predictable,
non-volatile income streams from scale activities across a growing
national footprint, that deliver all the stability and financial
returns our shareholders seek.
In addition, we will continue to provide secure employment to a
growing and increasingly skilled workforce, helping to improve the
quality of life for the many thousands of tenants for whose comfort
and safety we are ultimately responsible.
I am pleased to announce that the Group has started the year
positively and ahead of management expectations.
Bob Holt
Executive Chairman
Operational review
In the six months from 31 March 2018, the value of our
frameworks grew from GBP574.3m to GBP633.4m, demonstrating the
effectiveness of our more streamlined and focused structure.
Introduction
During 2018, the Group changed its name to the Sureserve Group
plc to reflect our position as a focused asset and energy support
services group. This followed a restructure, in which we disposed
of our Lakehouse Contracts and Foster Property Maintenance
businesses and exited our Property Services and Construction
divisions.
This strategically important move is now enabling us to
concentrate on our cash-generative core growth areas of compliance
and energy services, both of which deliver more predictable,
recurring and profitable revenue streams.
Financial performance
-- Operating profit before exceptional items and amortisation of
acquisition intangibles GBP8.0m (2017: GBP7.4m)
-- Revenue from continuing operations GBP190.8m (2017: GBP181.5m)
-- Profit before tax from continuing operations GBP1.9m (2017: restated loss of GBP5.6m)
-- Loss from discontinued operations GBP11.5m (2017: restated profit of GBP4.6m)
With an experienced management team in place, a clear strategy
for growth and the focused approach of a more streamlined
organisation, the Group is profitable in its continuing
operations.
Looking forward
During the year, we saw strong underlying growth in our
Compliance division (underlying revenues up 11.5%) and a small
decrease in our Energy Services division (underlying revenues down
1.6%) and we will continue to focus on both moving forward. We
successfully increased the number of long-term contracts we service
by 11, representing an overall increase in pipeline value of
GBP108m.
At year end, we were participating in a total of 108 frameworks
worth a total of GBP633.4m (2017: 258 frameworks worth GBP1.1bn)
and had in place 157 maintenance contracts worth a total of
GBP399.1m (2017: 152 contracts worth GBP367.9m).
We remain confident in the exciting prospects for both of our
divisions.
Compliance division
This division comprises planned and responsive maintenance,
installation and repair services, delivered predominantly to local
authority and housing association clients in the areas of gas, fire
and electrical, water and air hygiene and lifts. These services
cover clients' social housing and public building assets, as well
as industrial and commercial properties. The division is seeing the
benefits of a wider pool of clients and mandatory services that
provide significant future opportunities.
The Group's greatest increase in pipeline value was delivered by
this division, and the pipeline grew organically by GBP102m with 13
contract wins. It also grew by acquisition, with the purchase
during the year of Just Energy Solutions providing a low-cost route
into private-sector gas and renewables.
Compliance: 12 months ended 2018 2017 Change
30 September
Revenue (GBPm) 116.3 104.3 11.5%
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EBITA (GBPm) 6.1 8.0 -23.6%
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EBITA margin (GBPm) 5.2% 7.7% -2.5pts
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Overall, revenue increased by 11.5% to GBP116.3m (2017:
GBP104.3m). EBITA decreased 23.6% to GBP6.1m (2017: GBP8.0m),
resulting in an underlying EBITA margin of 5.2%, down by 2.5ppt.
Revenues were up in all compliance businesses, reflecting increased
volumes of and opportunities with clients and offering of mandatory
services which we noted in previous reporting. These revenues are
often recurring and represent a stable growth in size and scale
that we believe gives us a market leading position in gas
provision.
In relation to the gas businesses, while not significant, the
reduction in margins reflected mobilisation of a major national
contract and the transfer of trading provisions out of the centre.
Expected improvements to margin from revenue increases were
mitigated. We believe this investment is worthwhile as the business
looks forward to growth in the future.
In relation to the building compliance businesses, we had a
relatively poor operational performance for Fire and Lifts, which
has already been addressed in FY19.
Post acquisition impact of Just Energy Services (acquired in May
2018) was GBP0.8m in revenues and a loss of GBP0.2m in EBITA.
-- Gas Compliance
The three Gas Compliance businesses (Aaron Services, K&T
Heating and Sure Maintenance) make up 74% of divisional revenues
and built on the progress made in FY17 with another excellent year
of revenue growth from recurring incomes and new works.
Aaron Services, which delivers gas compliance solutions across
East Anglia and the Midlands, had a particularly successful 2018 in
terms of new contracts awarded. It has been appointed by Eastern
Procurement to the GBP40m Heating Installations Framework for an
initial two-year period, with an option to extend this for a
further two years. Under the contract it is eligible to work on
heating-installation lots for gas, oil, electricity, renewables and
all fuels. It has also been appointed by the Hanover Housing
Association under a 10-year contract worth GBP5m as sole contractor
to install heating systems in its properties across the east of
England.
In addition, Suffolk Energy Action, a coalition between the
county's seven local authorities to promote domestic energy
efficiency and encourage a reduction in energy use within the home,
has appointed the company to facilitate the installation of
energy-efficiency improvements for domestic properties across
Suffolk. As well as installing boiler replacements, first-time
central heating systems and heating controls, Aaron is tasked with
accessing funding through programmes including the Suffolk Warm
Homes Healthy People service and the National Grid's Warm Homes
Fund.
Other significant wins by Aaron Services include a two-year
domestic maintenance contract worth GBP1.3m from the Accent Housing
Association to provide gas-related safety checks, servicing and
repairs across 3,000 domestic and commercial properties, and a
three-year contract from the Salvation Army for the planned and
reactive maintenance of gas, LPG and oil-fired installations in its
commercial properties across parts of the region.
K&T Heating, which delivers gas compliance services across
London and the South East, has also had a highly successful year.
In its biggest win, it was appointed by the London Borough of
Havering appointed it to carry out a three-year programme of
domestic gas services and associated work, including testing,
servicing and repairing gas appliances, central heating systems
amongst other things. The programme is worth GBP9.0m, and includes
an option to extend for a further two years.
In a GBP4.3m award, Guildford Borough Council has appointed
K&T Heating to carry out a range of domestic gas servicing and
repair activities over a five-year programme that includes gas
safety checks and servicing, checking and maintaining air source
heat pump systems, solar thermal installations and other works. The
company has also won a one-year contract worth GBP2.0m to install
domestic heating and hot water systems for the Metropolitan Thames
Valley Housing Association. These wins have seen a significant
growth to K&T revenues compared to 2017, and the positive
performance of the business is anticipated to continue going
forward.
Sure Maintenance, which delivers gas compliance services across
the UK, won a three-year contract worth GBP13.5m with Sandwell
Metropolitan Borough Council to replace domestic gas appliances and
associated ancillary works across 29,000 domestic properties.
Leeds Federated Housing Association has also appointed Sure to
install gas boilers and central heating systems in a programme
worth GBP2.1m. And Salix Homes, a social housing provider
responsible for some 8,500 properties in and around Salford,
greater Manchester, awarded the company a GBP1.8m contract to
service and maintain central heating installations and
miscellaneous gas appliances across its estate.
The gas businesses are in the process of moving to the same
operational platform within the business on a phased approach and
we believe this will offer ever better internal comparability of
performance and benchmarking, to allow the businesses to continue
to improve their service performance to our clients.
-- Building Compliance
Our Building Compliance businesses comprise Allied Protection,
H2O Nationwide, Precision Lift Services and the newly acquired Just
Energy Solutions Limited and makes up 26% of the divisional
revenues.
Precision delivers lift installation and maintenance services to
local authorities and social housing associations across the UK.
During the year, Efficiency East Midlands - an organisation
comprising 135 members responsible for more than 1.5m social
housing properties - appointed it under a four-year contract to
carry out passenger-lift installation, refurbishment and
modernisation services.
The Royal Borough of Greenwich also appointed Precision in a
five-year contract, with an option to extend for a further five
years. Worth GBP8.4m, this engages the company to service, maintain
and repair 354 passenger and goods lifts in the residential and
public buildings that form the Council's housing and corporate
stock. The scope includes a 24/7 breakdown service for all the
authority's lifts and 10 annual services of all passenger
lifts.
The company has also won a three-year contract worth GBP350,000
to maintain and repair the portfolio of passenger lifts owned by
One Housing Group, which manages around 16,000 homes across London
and surrounding counties and helps over 11,500 people to live
independently.
Allied Protection is the Sureserve Group's specialist provider
of fire and electrical compliance services across East Anglia and
the South East. Its outstanding year included five contract
wins:
-- A four-year contract from Paragon ASRA Housing worth between
GBP750,000 and GBP2.0m each year to carry out fire remedial and
safety work across around 6,200 of the association's properties
-- Participation in a framework agreement for fire safety issued
by the Northern Housing Consortium, estimated at a value of GBP4.0m
over four years
-- A c. GBP2.5m share of a framework agreement for fire risk and
mitigation from Procure Plus/Re:Allies
-- A four-year programme worth GBP1.6m to install and maintain
fire alarms for the South East Consortium
-- A contract from One Direct Maintenance worth GBP750,000
annually over three years, with two one-year extension options, to
deliver a fire safety systems maintenance and repair service.
H2O is the Sureserve Group's specialist provider in water and
air risk assessments across the UK. Its outstanding year includes
two contract wins and repeat works:
-- Year on year contract from Metropolitan for various ad-hoc
works which annually is worth GBP413,000
-- Southend Borough Council, continuing routine monitoring and
testing worth a total of GBP314,000 a year
-- Optivo, totaling GBP583,000 a year to carry out water risk assessments
Our belief is that an ongoing move towards higher levels of
compliance requirements should benefit the compliance division in
future periods. Our continuing stable growth should increase our
buying power further and improve our ability to deliver revenues at
margins. Fleet management continues to be monitored closely and we
have or are investing in a number of areas including dashboards to
better analyse performance and find additional areas for
improvement with options being explored for further
development.
Looking forward
We continue to regard Sureserve to be the market leaders in the
compliance sector, with a true national reach. We believe we have
built the strongest compliance business of its type, well
positioned to grow further in what is a fragmented and regional
market, where we have seen continued revenue growth and believe
this is a non-volatile sector of recurring revenues that underpin
these cash generative businesses.
The experienced management teams include a number of Managing
Directors who are focused on business growth by operational
excellence from a common operating platform, building a stable
platform for us to continue to grow and support our client base in
the future.
Energy Services division
Our Energy Services businesses provide a range of energy
efficiency services including insulation, heating and renewable
technologies for social housing and private homes through the
Everwarm subsidiary. Everwarm also uses these services to deliver
carbon emissions savings for utility companies, enabling them to
meet their legislative targets. Work has extended in the current
year to include energy efficiency projects within non-domestic
properties, a recent area of new focus. The division offers
domestic smart metering installation and recurring asset management
services through Providor to a largely blue-chip utility client
base, with that sector growing due to the ongoing UK-wide
government roll-out. The division also has an established presence
in the installation of electrical vehicle charging points, a
further growth sector in which our experienced management team are
well placed to deliver.
The Energy Services division also increased pipeline value by
GBP6.2m, a further demonstration of opportunities we are seeing in
the sector.
Energy Services: 12 months ended 2018 2017 Change
30 September
Revenue (GBPm) 77.7 79.0 -1.6%
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EBITA (GBPm) 4.0 4.0 0.2%
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EBITA margin (GBPm) 5.2% 5.1% 0.1pts
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Revenue was GBP77.7m in the period, 1.6% down on the comparative
period. This was reflective of a reduction in the Everwarm incomes
due to a mix of factors, particularly reduced external wall and
kitchen and bathroom works due to lower levels of completed client
works. The Providor business saw an increase in revenues compared
to 2017 which part mitigated the Everwarm reduction, due to the
full year impact of the 2017 additional contract win in the West
Midlands with Scottish Power, as previously disclosed in May
2017.
EBITA improved nominally to GBP4.0m (2017: GBP4.0m), with
Everwarm seeing reduced overall profitability due to revenue
reductions above however still producing an overall strong
performance, which we expect to continue with a number of recurring
revenue streams remaining. The Warmworks joint venture is included
within the Everwarm position - this remains the Scottish
Government's flagship Home Energy Efficiency Programme for Scotland
("HEEPS") and it continued to perform well during the full year
with a now established level of operational excellence. This also
brings a diversified installation portfolio for Everwarm, focusing
on central heating, and boiler improvements and other energy
efficiency installation measures. The divisional profitability
variance was underpinned by the improvement in metering and
mitigated the downside from the Everwarm business - further
progression will be linked to smart meter programme timing which
have been noted below.
Carbon prices remained largely stable during the period, and
while the ECO3 commencement period is still ongoing, overall the
new obligation is not anticipated to have a significant impact
either positively or negatively on pricing in the future period.
The Arbed 3 programme as discussed below did not impact on 2018
numbers as this was in a mobilisation phase at year end.
-- Everwarm
The increase in pipeline value achieved by Energy Services was
due to the strategically important award of a three-year contract
worth up to GBP55.0m by the Welsh Government to Everwarm, our
national energy efficiency business. The contract was issued under
the Arbed 3 programme, which aims to deliver improvements to more
than 6,000 homes throughout Wales where households are most likely
to be in severe fuel poverty.
There is potential for a two-year contract extension and we were
delighted to secure this work as this opportunity was particularly
significant for reasons other than its sheer scale - it would also
extend our reach into Wales for the first time, giving Everwarm a
truly UK-wide footprint. We have set up the Arbed Am Byth Ltd joint
venture to deliver this contract with the Energy Saving Trust, with
whom we already collaborate on the Scottish Government's flagship
Home Energy Efficiency Programme for Scotland (HEEPS).
Everwarm manages a range of services, including insulation and
central heating upgrades, working with local operators to deliver
benefits to the local economy. Our approach ensures we have the
full range of competencies required, which included drawing on
Everwarm's customer service expertise to manage the customer
journey from initial assessment through to aftercare and service
visits.
In general the year has been an excellent period for contract
wins, underpinned by Arbed 3. This was complemented by a number of
other strong contract wins in the division. In addition to the
significant Renfrewshire (GBP10m) and Fife (GBP6m) wins mentioned
in our half year review, these also include a four-year central
heating contract from Perth and Kinross Council (GBP5.6m), and
HEEPS 2018-19 wins for Aberdeenshire (cGBP7.0m) and West Lothian
(GBP2.5m) Councils. We also won a three-year renewable energy
contract from North Lanarkshire Council (GBP2.6m), a further phase
of EWI for ANCHO (GBP1.6m) and energy-efficient heating for
Berwickshire HA (GBP1.4m).
-- Providor
Providor remains in a period of consolidating existing contract
delivery following a period of strong growth, however we are seeing
many opportunities from a mix of "Big 6" and smaller / "Challenger"
utilities particularly linked to the SMETS2 roll out, which we
believe will bring us further possibility for growth.
Looking forward
Everwarm's order book is strong with future revenues underpinned
by long-term JV arrangements with Warmworks and Arbed, in addition
to strong contractual agreements with a number of clients. Carbon
pricing remains an ongoing area of importance however we remain
confident there is an appetite from the government to continue to
provide funding for fuel poverty in this highly regulated sector.
Everwarm has a market leading proposition in this area and a huge
wealth of management experience, so we believe we remain well
placed to react and adapt to any changes in the landscape to
continue to provide a quality service to our customers and deliver
effectively for our stakeholders. Generally changes in regulations
result in increased compliance which we believe is a positive for
us as in effect, this can act as a barrier to entry and therefore
enhance our position in the market.
For Providor there have been continued delays to the national
smart meter roll-out and indeed, there remain further derogations
permitting the installation of older SMETS1 meters now to March
2019. This is impacting installation volumes as we have discussed
in previous reports. The impact on engineer efficiency requires
careful management, both with workforce and our contractual
positions. While we continue to seek to provide strong and secure
employment for our engineers, uncertainty within the wider industry
does not assist churn. The impact of this is that costs will
continue to rise and we believe the successful transition to SMETS2
with an achievable timetable allowing consistent volumes is crucial
if costs are not to rise further. There is therefore a level of
reliance on all stakeholders in the national smart meter roll out
to remain committed to this and we remain frustrated our investment
supporting the roll-out continues to be ignored by the legislative
agencies who ultimately rely on a skilled workforce to deliver the
programme.
Michael McMahon
Chief Operating Officer
Financial Review
Trading overview
The Operational review provides a detailed overview of our
trading performance during the year. This Financial review
therefore covers other aspects of the consolidated statements of
comprehensive income, financial position and cash flows.
The Group had a strong year, posting an operating profit before
exceptional items and amortisation of acquisition intangibles of
GBP8.0m from continuing activities (2017: GBP7.4m).
Group continuing revenue increased by 5.1% to GBP190.8m (2017:
GBP181.5m), reflecting an increase in revenues in the Compliance
division, whose revenues increased by 11.5% to GBP116.3m (2017:
GBP104.3m). Revenues in Energy Services decreased by 1.6% to
GBP77.7m (2017: GBP79.0m). Intersegment revenue of GBP3.2m (2017:
GBP1.8m) is eliminated on consolidation.
Group operating profit before exceptional items and amortisation
of acquisition intangibles increased by 8.7% to GBP8.0m (2017:
GBP7.4m), reflecting a decrease in operating profit before
exceptional items and amortisation of acquisition intangibles in
the Compliance division of 23.6% to GBP6.1m (2017: GBP8.0m), an
increase in operating profit before exceptional items and
amortisation of acquisition intangibles in Energy Services of 0.2%
to GBP4.0m (2017: GBP4.0m).
We exclude exceptional items and amortisation of acquisition
intangibles in calculating the figure reported above to provide a
more appropriate view of underlying operating performance.
Operating expenses fell 3.9% to GBP19.6m in the year (2017:
GBP20.4m) reflecting reductions in the cost base. Central costs
fell by 54.6% to GBP2.1m (2017: GBP4.6m), reflecting hiving down
costs into the trading subsidiaries as well as the cost reduction
programme outlined over the last couple of years.
We reported an operating profit from continuing operations of
GBP3.4m (2017: restated loss of GBP3.6m) reflecting a GBP0.3m net
exceptional loss (2017: GBP0.5m) and a GBP4.3m charge for
amortisation of acquisition intangibles (2017: GBP10.5m). Interest
expense was GBP1.5m (2017: GBP2.0m) and taxation was GBP0.8m (2017:
GBP0.9m credit). The disposal of Lakehouse Contracts, Foster
Property Maintenance and Orchard (in 2017) resulted in a post-tax
loss from discontinued operations of GBP11.5m (2017: restated post
tax profit of GBP4.6m). The statutory loss after tax was GBP10.4m
(2017: profit of GBP10,000).
Exceptional items in the year reduced the Group's profit before
tax by GBP0.3m (2017: GBP0.5m) and related to the following
items:
2018 2017
GBPm GBP'000
Acquisition costs 0.1 0.0
Restructuring and other costs 1.0 2.1
----- -------
Total exceptional costs 1.1 2.1
Release of provisions for deferred consideration (0.8) (1.6)
Total net exceptional costs 0.3 0.5
===== =======
Restructuring and other costs of GBP1.0m (2017: GBP2.1m) relate
to a small number of legacy clean-up and restructuring costs during
the year.
Release of provisions for deferred consideration of GBP0.8m
(2017: GBP1.6m) relate to the final settlement of deferred
consideration due to Aaron Heating Services Limited and Precision
Lift Services Limited.
Profit on sale of Orchard (Holdings) UK Limited of GBP1.2m
(2017: GBP5.4m), relating to the sale of Orchard to World Fuel
Services Europe Ltd in September 2017, which was presented as
exceptional in the 2017 Financial statements, has been reclassified
as discontinued operations in the current year, to ensure
consistent presentation of the results (see Note 1 for further
details).
Amortisation of acquisition intangibles
Amortisation of acquisition intangibles was GBP4.3m for the year
(2017: GBP10.5m), the reduction reflected the fact that we have
taken amortisation charges in prior periods, meaning we are
amortising a reduced base of intangible assets.
Finance expense
The total finance expense for the year represented the interest
charged on our debt facilities (net of finance income), together
with the amortisation of debt raising costs, which totaled GBP1.4m
(2017: GBP1.7m).
The total finance expense of GBP1.5m (2017: GBP2.0m) included
the unwinding of discounts on deferred consideration figure of
GBP0.1m (2017: GBP0.3m).
Discontinued operations
Losses from discontinued operations amounted to GBP11.5m (2017:
restated profit of GBP4.6m) on associated revenues of GBP71.9m
(2017: GBP124.1m). The losses comprised losses up to the date of
disposal of GBP5.2m (2017: GBP0.8m) and losses on disposal of
GBP6.3m (2017: profit of GBP5.4m) The associated cash outflow for
the period was GBP8.0m, discussed also in note 34. Profit on sale
of Orchard (Holdings) UK Limited of GBP1.2m (2017: GBP5.4m) has
been reclassified as discontinued operations in the current year,
to ensure consistent presentation of the results (see Note 1 for
further details). The 2018 profit relates to the reassessment of
the fair value of the consideration receivable (see Note 3).
Discontinued activities represent the Group's Construction and
Property Services divisions which were sold on 17 August 2018 and
Orchard (Holdings) UK Limited, which was sold in September 2017. In
determining the classification of the activities as discontinued at
30 September 2018, the Board had regard to the conditions that
needed to be met under IFRS5 "Non-current Assets Held for Sale and
Discontinued Operations".
Further details of the losses / profit from discontinued
operations are in Note 11.
Tax
The tax charge on the profit before tax from continuing
operations was GBP0.8m (2017: GBP0.9m credit), representing an
effective rate of 40%, which compares with the statutory
corporation tax rate of 19%. The difference was due to a
combination of permanent differences, which relates in part to
deferred consideration, together with prior year tax
adjustments.
Our net cash tax payment for the year was GBP0.2m for continuing
operations (2017: net cash receipt of GBP0.7m). During the year,
the Group has received part of the anticipated cash tax refund from
HMRC which formed the corporation tax receivable on the 30
September 2017 balance sheet, with the remaining amount being
received in October 2018. The Group has also made tax payments on
account during the year.
The net deferred tax liability as at 30 September 2018 was
GBP37,000 (2017: asset of GBP2.1m), with the movement mainly
relating to acquisition intangibles and the disposal of Lakehouse
Contracts and Foster Property Maintenance. Further details are set
out in Note 26.
Earnings per share
Earnings per share from continuing operations were 0.7 pence
(2017: restated loss per share of 2.9 pence), based on profit after
tax from continuing operations of GBP1.2m (2017: restated loss of
GBP4.6m).
Our statutory loss for the year was GBP10.4m (2017: profit of
GBP10,000). Based on the weighted average number of shares in issue
during the year of 157.5m, this resulted in basic loss per share
from continuing and discontinued operations of 6.6 pence (2017:
earnings of 0.0 pence).
Further details are contained in Note 14.
Dividend
The board has proposed a final dividend for the year of 0.25
pence per share. This represents a total dividend payable for the
year of 0.25 pence (2017: 0.5 pence).
Subject to approval at the AGM on 19 March 2019 the final
dividend will be paid on 30 April 2019 to shareholders on the
register at the close of business on 1 March 2019.
Cash flow performance
Our operating cash flow from continuing operations for the year
was an inflow of GBP4.8m (2017: GBP13.1m), discussed in Note 34 and
reflecting a operating cash conversion from continuing operations
of 60% (2017: 177%). We calculate continuing operating cash
conversion as cash generated from continuing operations, excluding
the cash impact of exceptional items and amortisation of
acquisition intangibles, divided by operating profit before
exceptional items and amortisation of acquisition intangibles. We
believe this measure provides a consistent basis for comparing cash
generation consistently over time. On a statutory basis, we saw an
operating cash outflow of GBP5.7m (2017: inflow of GBP13.4m),
representing a cash conversion of 71% outflow (2017: inflow of
181%).
As we highlighted last year, the timing of revenues, method of
contract delivery and customer contractual terms can all have an
impact on working capital and, consequently, cash conversion.
The management of working capital represents a continued
challenge. The sale of Lakehouse Contracts Limited and Foster
property Maintenance Limited has simplified our volume of
"unbilleds" (especially prepaid expenses and accrued project costs)
and allowed us to focus on the management of accrued income,
debtors and creditors. We will need to manage through one to two
seasonal cycles to see the full advantage of the disposal of
Lakehouse Contracts Limited and Foster property Maintenance Limited
in improving peaks and troughs in working capital. We managed these
balances within our banking facilities around year end, however
this represents a snapshot in time and the weighted average debt in
the year was GBP18.7m (2017: GBP27.3m).
We expect to continue to target an average annual operating cash
conversion of 80% over the long term.
Net debt
Our net debt balance was GBP11.4m at 30 September 2018 (2017:
GBP1.3m). The increase over FY17 related predominantly to the
outflow of cash in relation to Lakehouse Contracts and Foster
Property Maintenance, however this represents a snapshot in time
and the weighted average debt in the year was GBP18.7m (2017:
GBP27.3m).
Banking arrangements
We had drawn GBP13m (2017: GBP27.5m) under our revolving credit
facility at the year end. At the date of issuing this report we had
drawn GBP14m and National Westminster bank ('Natwest') continue to
be an excellent and supportive partner.
The Group had net current liabilities as at 30 September 2018 as
a result of the borrowings being due within one year at the
reporting date. In December 2018, the Group renewed its bank
facilities to provide an overdraft facility of GBP5,000,000
together with a revolving credit facility of GBP25,000,000, which
runs to 31 January 2022, so the bank facility is now
non-current.
We are confident that our banking facilities provide sufficient
support in managing our corporate affairs and provide sufficient
capacity to plan for future growth, particularly in bidding with
confidence on new contracts.
Financial position
The principal items in our balance sheet are goodwill,
intangible assets and working capital.
The principal movement in net assets reflected the disposal of
Lakehouse Contracts and Foster Property Maintenance. There was a
reduction of GBP3.5m in goodwill and intangibles, due to GBP4.3m in
amortisation of acquisition intangibles and GBP0.8m increase in
goodwill in relation to the acquisition of Just Energy Solutions,
discussed above and in Notes 15 and 16.
Net current assets (excluding cash and borrowings) stood at
GBP3.2m (2017: liability of GBP1.4m), reflecting a push on working
capital management towards the end of the year.
Working capital
2018 2017
GBPm GBPm
Trade receivables 19.0 22.3
Accrued income 15.7 25.4
Trade payables (24.6) (31.8)
Accruals (7.9) (25.0)
The principal movements in working capital are noted in the
above table and mainly relate to the disposal of Lakehouse
Contracts Limited and Foster Property Maintenance Limited during
the year.
Provisions
Provisions as at 30 September 2018 stood at GBP7.7m (2017:
GBP4.0m). During the year, we utilised GBP0.3m of provisions. We
provided a further GBP4.9m for specific risks in relation to the
disposal of Lakehouse Contracts and Foster Property Maintenance and
provisions of GBP1.5m were disposed of on the sale of Lakehouse
Contracts and Foster Property Maintenance.
Further details are set out in Note 25.
Acquisitions and disposals
The Group acquired Just Energy Solutions on the 15 May 2018 for
a gross consideration of GBP0.3m, comprising net liabilities of
GBP0.5m and GBP0.8m of goodwill.
On 17 August 2018, we announced the sale of Lakehouse Contracts
and Foster Property Maintenance. Please see note 11 in regard to
discontinued operations.
Deferred consideration
A number of the acquisitions made by the Group in recent years
incorporate deferred consideration as part of the transaction
terms, some of which depend on the performance of the businesses
post-completion.
The table below shows the movement in the total discounted
deferred consideration payable and the amount outstanding at the
year end.
Aaron Heating Just Energy
H2O Nationwide Services PLS Holdings Solutions
Limited Limited Limited Limited Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2017 1.0 0.3 0.6 - 1.9
Total discounted consideration
payable for addition
in the year - - - 0.3 0.3
Unwinding of discount 0.0 0.0 0.0 0.0 0.0
Revalued in the year - (0.1) (0.6) - (0.7)
Paid in year (1.0) (0.2) - - (1.2)
-------------- ------------- ------------ ----------- -------
At 30 September 2018 - - - 0.3 0.3
============== ============= ============ =========== =======
The fair value of the consideration has been assessed in
accordance with the Sale & Purchase Agreements. The non-current
element of the expected settlement has been discounted using a
Pre-Tax discount rate that reflects the time value of money.
The total deferred consideration may vary between GBP0.0 million
and GBP0.3 million depending on the underlying trading performance
of the businesses.
The sums due in relation to H20 Nationwide Limited and Aaron
Heating Services Limited were settled in full during the year.
Risks
The Board considers strategic, financial and operational risks
and identifies actions to mitigate those risks. Key risks and their
mitigation are disclosed within the 2018 Annual Report. We manage a
number of potential risks and uncertainties, including claims and
disputes, which are common to other similar businesses which could
have a material impact on short and longer term performance.
Our year-end review included an assessment of accrued income
balances, of which the balance was GBP15.7m at the reporting date
(2017: GBP25.4m), which as a Group we review regularly for
impairment. Accrued income represents a balance sheet risk in our
industry and we continue to ensure a balanced approach between risk
and possible outcome on final invoicing. Subsequent to the disposal
of Lakehouse Contracts and Foster Property Maintenance the balance
sheet risk is significantly reduced in this area.
We continue to manage a number of potential risks and
uncertainties, including claims and disputes which are common to
other similar businesses which could have a material impact on
short and longer term performance. The Board remains focused on the
outcome of a number of contract settlements on which there is a
range of outcomes for the Group in terms of both cash flow and
impact on the consolidated statement of comprehensive income.
In preparing our annual accounts, we have taken a view on the
financial risk of pending claims and disputes and seek to provide
in full for potential shortfalls, whilst pursuing all claims in
full, such that we have a collectively balanced position of risk
across all such matters.
Going concern statement
The Directors acknowledge the Financial Reporting Council's
'Guidance on the going concern basis of accounting and reporting on
solvency and liquidity risks' issued in April 2016. The Group's
business activities, together with factors likely to affect its
future development, performance and position are set out in the
Strategic Report as referred to within the 2018 Annual Report. The
financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Financial Review, as
part of the Strategic Report within the 2018 Annual Report. In
addition, Note 32 to the consolidated Financial Statements within
the 2018 Annual Report includes details of the Group's approach to
financial risk management, its financial instruments and hedging
activities, and its exposure to credit risk and liquidity risk. In
assessing the Group and Company's ability to continue as a going
concern, the Board reviews and approves the annual budget and
three-year plan, particularly for the 16 months following year end,
including forecasts of cash flows, borrowing requirements and
covenant headroom. The Board reviews the Group's sources of
available funds and the level of headroom available against its
committed borrowing facilities and associated covenants. The
Group's financial forecasts, taking into account possible
sensitivities in trading performance, indicate that the Group will
be able to operate within the level of its committed borrowing
facilities and within the requirements of the associated covenants
for the foreseeable future. The Group had net current liabilities
as at 30 September 2018 as a result of the borrowings being
classified as a short term liability at the reporting date. RBS
remains very supportive of the Group and in December 2018, the
Group renewed its bank facilities to provide an overdraft facility
of GBP5,000,000 together with a revolving credit facility of
GBP25,000,000, which runs to 31 January 2022. The Directors have a
reasonable expectation that the Group and Company has adequate
resources to continue its operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
of accounting in preparing the Annual Report and Accounts.
Michael McMahon
Chief Operating Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2018
Notes 2018 2017
Restated
GBP'000 GBP'000
Continuing operations
Revenue 4 190,750 181,496
Cost of sales (163,380) (154,530)
--------- ---------
Gross profit 27,370 26,966
Other operating expenses (19,558) (20,358)
Share of results of joint venture 18 226 786
Operating profit before exceptional items
and amortisation of acquisition intangibles 4,5 8,038 7,394
Exceptional costs 7 (1,048) (2,127)
Exceptional income 7 757 1,624
Amortisation of acquisition intangibles 16 (4,325) (10,495)
----------------------------------------------- ----- --------- ---------
Operating profit / (loss) 3,422 (3,604)
Finance expense 8 (1,475) (1,985)
Investment income 8 - 16
--------- ---------
Profit / (loss) before tax from continuing
operations 4 1,947 (5,573)
Taxation 12 (782) 934
--------- ---------
Profit / (loss) after taxation from continuing
operations 1,165 (4,639)
Discontinued operations
(Loss) / profit for the year from discontinued
operations 11 (11,520) 4,649
(Loss) / profit for the year attributable
to the equity holders of the Group (10,355) 10
========= =========
Earnings / (loss) per share from continuing
operations
Basic 14 0.7p (2.9p)
Diluted 14 0.7p (2.9p)
========= =========
(Loss) / earnings per share from continuing
and discontinued operations
Basic 14 (6.6p) 0.0p
Diluted 14 (6.6p) 0.0p
========= =========
The accompanying notes are an integral part of this consolidated
statement of comprehensive income.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2018
2018 2017
Notes GBP'000 GBP'000
Non-current assets
Goodwill 15 42,923 42,169
Other intangible assets 16 4,927 9,233
Property, plant and equipment 17 1,474 1,905
Interests in joint venture 18 865 1,196
Trade and other receivables 21 - 456
Deferred tax asset 26 - 2,085
-------- --------
50,189 57,044
-------- --------
Current assets
Inventories 19 4,222 4,490
Amounts due from customers under construction
contracts 20 - 6,269
Trade and other receivables 21 42,618 59,129
Corporation tax receivable 769 551
Cash and cash equivalents 1,705 26,129
-------- --------
49,314 96,568
-------- --------
Total assets 99,503 153,612
-------- --------
Current liabilities
Amounts due to customers under construction
contracts 20 - 1,786
Trade and other payables 22 39,334 69,178
Loans and borrowings 23 12,926 -
Finance lease obligations 27 83 182
Provisions 25 5,102 893
57,445 72,039
-------- --------
Net current (liabilities) / assets (8,131) 24,529
-------- --------
Non-current liabilities
Trade and other payables 22 269 973
Loans and borrowings 23 - 27,077
Finance lease obligations 27 60 144
Provisions 25 2,593 3,137
Deferred tax liability 26 37 -
-------- --------
2,959 31,331
-------- --------
Total liabilities 60,404 103,370
-------- --------
Net assets 39,099 50,242
======== ========
Equity
Called up share capital 28 15,753 15,753
Share premium account 30 25,314 25,314
Share-based payment reserve 29, 30 776 776
Own shares 30 (290) (290)
Merger reserve 30 20,067 20,067
Retained earnings (22,521) (11,378)
Equity attributable to equity holders
of the company 39,099 50,242
======== ========
The financial statements of Sureserve Group plc (registered
number 09411297) were approved by the board of directors and
authorised for issue on 21 January 2019. They were signed on its
behalf by:
M McMahon
Director
The accompanying notes are an integral part of this consolidated
statement of financial position.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2018
Share Share-based
Share premium payment Merger Retained Total
capital account reserve Own shares reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2016 15,753 25,314 776 (290) 20,067 (10,600) 51,020
Profit for the period - - - - - 10 10
Dividends paid (note
13) - - - - - (788) (788)
-------- -------- ----------- ---------- -------- --------- --------
At 30 September 2017 15,753 25,314 776 (290) 20,067 (11,378) 50,242
Loss for the period - - - - - (10,355) (10,355)
Dividends paid (note
13) - - - - - (788) (788)
-------- -------- ----------- ---------- -------- --------- --------
At 30 September 2018 15,753 25,314 776 (290) 20,067 (22,521) 39,099
======== ======== =========== ========== ======== ========= ========
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2018
2018 2017
Restated
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash (used in) / generated from operations 34 (5,682) 13,373
Interest paid (1,058) (1,385)
Interest received - 3
Taxation (152) 655
-------- --------
Net cash (used in) / generated from operating
activities (6,892) 12,646
-------- --------
Cash flows from investing activities
Payment of deferred consideration on
prior year acquisitions (1,245) (2,588)
Sale of shares in subsidiary, net of
cash disposed of - 12,044
Purchase of property, plant and equipment (430) (909)
Purchase of intangible assets (449) (462)
Sale of property and equipment 65 153
Net cash (used in) / generated from investing
activities (2,059) 8,238
-------- --------
Cash flows from financing activities
Dividend paid to shareholders (788) (788)
Proceeds from bank borrowings - 6,500
Repayment of bank borrowings (14,500) -
Repayments to finance lease creditors (183) (60)
Finance issue costs (2) (336)
Net cash (used in) / generated from financing
activities (15,473) 5,316
-------- --------
Net (decrease) / increase in cash and
cash equivalents (24,424) 26,200
Cash and cash equivalents at beginning
of year 26,129 (71)
Cash and cash equivalents at end of year 1,705 26,129
======== ========
The accompanying notes are an integral part of this consolidated
statement of cash flows.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
General information
Sureserve Group plc is a company incorporated in the United
Kingdom under the Companies Act. The address of the registered
office is 50 Liverpool Street, London, EC2M 7PY. On 28 September
2018, Lakehouse plc changed its name to Sureserve Group plc.
These results for the year ended 30 September 2018 are an
excerpt from the Annual Report & Accounts 2018 and do not
constitute the Group's statutory accounts for 2018 or 2017.
Statutory accounts for Sureserve Group plc for the year to 30
September 2017 have been delivered to the Registrar of Companies,
and the Sureserve Group plc statutory accounts for the year to 30
September 2018 will be delivered by 25 February 2018. The Auditor
has reported on both those accounts; their reports were
unqualified, did not draw attention on to any matters by way of
emphasis and did not contain statements under Sections 498(2) or
(3) of the Companies Act 2006 or equivalent preceding legislation.
Whilst the financial information included in this Annual Results
Release has been prepared in accordance with International
Financial Reporting Standards (IFRS) adopted by the European Union
(EU), this announcement does not itself contain sufficient
information to comply with IFRS. Full financial statements that
comply with IFRS are included in the Annual Report & Accounts
2018 which will be available at www.sureservegroup.co.uk.
The consolidated financial statements are presented in Pounds
Sterling because that is the currency of the primary economic
environment in which the Group operates.
1. Basis of preparation
Basis of accounting
The Group's consolidated financial statements have been prepared
and approved by the directors in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union. The financial statements have been prepared on the
historical cost basis. Historical cost is generally based on the
fair value of the consideration given in exchange for goods and
services. The principal accounting policies adopted are set out
below.
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Group's financial statements except as noted below.
Restatement of comparative information
The Group has amended the format of the consolidated statement
of comprehensive income to simplify the presentation by presenting
a single column for each year instead of separate columns for
'underlying' results and 'exceptional and other items' presented in
the 2017 Financial Statements. We have made this change in light of
FRC guidance on clear and concise reporting and use of alternative
performance measures and because we consider it presents the
results in a clearer way. We have also presented all results from
discontinued operations in a single line in both 2017 and 2018 in
accordance with IFRS 5, which has resulted in a restatement of 2017
exceptional income, profit from continuing operations, taxation,
results from discontinued operations, earnings per share and
cashflow statement.
New standards and interpretations not applied
The International Accounting Standards Board and the
International Financial Reporting Interpretations Committee (IFRIC)
have issued the following standards and interpretations for annual
periods beginning on or after the effective dates as noted
below:
IAS/IFRS standards Effective for accounting
periods starting
on or after
IFRS 9 Financial Instruments 1 January 2018
------------------------------- -------------------------
IFRS 15 Revenue from Contracts 1 January 2018
with Customers
------------------------------- -------------------------
IFRS 16 Leases 1 January 2019
------------------------------- -------------------------
Amendments to IFRS Classification and Measurement 1 January 2018
2 of Share Based Payment
Transactions
------------------------------- -------------------------
IFRIC 23 Uncertainty over Income 1 January 2019
Tax Treatments
------------------------------- -------------------------
IFRS 15 Revenue from Contracts with Customers
IFRS 15 sets out the principles to be applied in revenue
recognition, replacing those in IAS 18 Revenue, IAS 11 Construction
Contracts and their related guidance.
IFRS 15 is effective for accounting periods beginning on or
after 1 January 2018 and will be applied by the Group from 1
October 2018. Upon transition to IFRS 15, the Group currently
intends to apply the 'Cumulative Catch-Up' method. Under this
method, the cumulative impact of the transition to IFRS 15 will be
recorded as an adjustment to equity on 1 October 2018 and the
comparative figures presented in the financial statements will not
be restated.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
1. Basis of Preparation (continued)
IFRS 15 Revenue from Contracts with Customers (continued)
A project to assess the full impact of the new standard has now
been advanced with the engagement of an independent professional
services firm. In order to assess the impact of applying IFRS 15
for the first time, a representative sample of client contracts was
selected for analysis. The analysis is continuing but the work
performed thus far has enabled management to conclude that the
adoption of IFRS 15 will impact the Group's financial statements in
the following areas:
Measurement of revenue for those contracts where control of the
asset or service is transferred to the customer over time
The Group's contract portfolio comprises a mixture of short term
contracts (where works are typically completed within a day or so)
and longer term projects (where works may extend over several weeks
or months).
-- Short term contracts - the Group will utilise the practical
expedient within IFRS15, allowing revenue to be recognised at the
amount which the Group has the right to invoice, where that amount
corresponds directly with the value to the customer of the Group's
performance completed to date. This is aligned with the Group's
existing accounting policy and so is not expected to result in any
adjustments being required on adoption of IFRS 15.
-- Longer term contracts - under the Group's current accounting
policy, the costs of fulfilling longer term contracts are initially
recognised in the balance sheet as work-in-progress and are
subsequently released to profit and loss as revenue is recognised
in line with surveys performed (i.e. an 'outputs' basis). Under
IFRS 15, contract fulfilment costs are required to be expensed as
incurred unless they can be recognised as an asset under another
accounting standard. Having revisited the Group's existing
methodology for recognising revenue on longer term contracts,
management have determined that recognising revenue in line with
costs incurred as a proportion of total expected costs (i.e. an
inputs basis) will more faithfully represent the measurement of
contract progress over time and so intend to apply this method with
effect from 1 October 2018. This is expected to result in a similar
pattern for the recognition of revenue as previously with the
exception of amounts previously recorded as work-in-progress
relating to materials where control has passed to the customer but
installation has not yet occurred. Under the inputs method, these
amounts will now be recognised in revenue (at nil margin) on the
transfer of control of the goods. Had this policy been applied in
the year ended 30 September 2018, revenue would have increased by
GBP1.0m with a corresponding increase in cost of sales and no
impact on gross margin.
Accounting for variable consideration
While issued infrequently, the Group's contracts often provide
for credits to be issued in the event of specified service targets
not being met. Under the Group's current accounting policy, a
provision is made for the value of service credits expected to be
granted with the resulting charge being recognised as a cost of
sale. Under IFRS 15, service credits represent 'variable
consideration' and are required to be accounted for as a reduction
in revenue. Had this policy been applied in the year ended 30
September 2018, revenue would have decreased by GBP0.1m with a
corresponding decrease in cost of sales and no impact on gross
margin.
IFRS 16
We will evaluate the potential impact of IFRS 16 on the FY19
accounts, which will form the comparative figure when the standard
is adopted in FY20 and will provide guidance to the market
accordingly.
With the exception of IFRS15 and IFRS 16, directors do not
expect the adoption of the standards listed above to have a
material impact on the financial statements of the Group.
Basis of consolidation
The consolidated financial statements incorporate the assets,
liabilities, income and expenses of the Group. The financial
statements of the subsidiaries are prepared for the same financial
reporting period as the Company. Where necessary, adjustments are
made to the financial statements of subsidiaries to bring the
accounting policies used into line with those used by the Group.
Intercompany transactions, balances and unrealised gains and losses
transitions between Group companies are eliminated on
consolidation.
As a consolidated statement of comprehensive income is
published, a separate profit and loss account for the parent
company is omitted from the financial statements by virtue of
section 408 of the Companies Act 2006.
2. Significant accounting policies
Going concern
The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. The Directors regard the
foreseeable future as no less than 12 months following publication
of its annual financial statements, so in practical terms, sixteen
months from the reporting date. The Directors have considered the
Group's working capital forecasts and projections, taking account
of reasonably possible changes in trading performance and the
current state of its operating market, and are satisfied that the
Group should be able to operate within the level of its current
facilities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
2. Significant accounting policies (continued)
and in compliance with the covenants arising from those
facilities. The Group had net current liabilities as at 30
September 2018 as a result of the borrowings being classified as a
short term liability at the reporting date. In December 2018, the
Group renewed its bank facilities to provide an overdraft facility
of GBP5,000,000 together with a revolving credit facility of
GBP25,000,000, which runs to 31 January 2022. Accordingly, they
have adopted the going concern basis in preparing the financial
information. Please see further information in the strategic
report.
Operating segments
The Directors regard the Group's reportable segments of business
to be Compliance and Energy Services. Costs are allocated to the
appropriate segment as they arise with central overheads
apportioned on a reasonable basis. Operating segments are presented
in a manner consistent with internal reporting, with inter segment
revenue and expenditure eliminated on consolidation.
Business combinations
Acquisitions of subsidiaries are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition-date fair values of assets transferred by
the Group, liabilities incurred by the Group to the former owners
of the acquired company and the equity interest issued by the Group
in exchange for control of the acquired company.
Acquisition-related costs are recognised as non-trading exceptional
costs in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
liabilities assumed are recognised at their fair value at the
acquisition date. Goodwill is measured as the excess of the sum of
the consideration transferred over the net of the acquisition-date
amounts of the identifiable assets acquired and liabilities
assumed. If, after reassessment, the net of the acquisition-date
amounts of the identifiable assets acquired and liabilities assumed
exceeds the sum of the consideration transferred, the excess is
recognised immediately in profit or loss as a bargain purchase
gain.
When the consideration transferred by the Group in a business
combination includes an asset or liability resulting from a
contingent consideration arrangement, the contingent consideration
is measured at its acquisition-date fair value and included as part
of the consideration transferred in a business combination. Changes
in fair value of the contingent consideration that qualify as
measurement period adjustments are adjusted retrospectively, with
corresponding adjustments against goodwill. Measurement period
adjustments are adjustments that arise from additional information
obtained during the 'measurement period' (which cannot exceed one
year from the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity
is not re-measured at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Contingent consideration
that is classified as an asset or liability is re-measured at
subsequent reporting dates in accordance with IAS 39 or IAS 37 as
appropriate, with the corresponding gain or loss being recognised
in profit or loss.
Acquisition costs
Management believe that acquisition costs are exceptional in
nature and they are presented as such in the income statement, so
as not to distort presentation of the underlying performance of the
Group.
Discontinued operations
A discontinued operation is a component of an entity that either
has been disposed of, or is classified as held for sale, and
(a)represents a separate major line of business or geographical
area of operations,
(b)is part of a single co-ordinated plan to dispose of a
separate major line of business or geographical area of operations
or
(c)is a subsidiary acquired exclusively with a view to
resale.
Goodwill
Goodwill is initially recognised and measured as set out
above.
Goodwill is not amortised but is reviewed for impairment at
least annually. For the purpose of impairment testing, goodwill is
allocated to each of the Group's cash-generating units expected to
benefit from the synergies of the combination. Cash-generating
units to which the goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit,
the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of
each asset in the unit. An impairment loss recognised for goodwill
is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised on a
straight line basis over their useful lives. The estimated useful
life and amortisation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate being
accounted for on a prospective basis. The estimated useful life for
each asset type is set out below.
Computer software - 3 years
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
2. Significant accounting policies (continued)
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised at
their fair value at the acquisition date (which is regarded as
their cost). Intangible assets are recognised if they are separable
from the acquired entity or give rise to other contractual / legal
rights. The amounts ascribed to such intangibles are arrived at by
using suitable valuation techniques.
Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis
as intangible assets that are acquired separately.
The estimated useful economic lives and the methods used to
determine the cost of intangibles acquired in a business
combination are as follows:
Intangible asset Useful economic life Valuation method
Contracted customer order book Remaining period of the contract
Expected cash flows receivable
Customer relationships 5 years Expected cash flows
receivable
Non-compete agreements 5 years With or without method
De-recognition of intangible assets
An intangible asset is de-recognised on disposal, or when no
future economic benefits are expected from use or disposal. The
gain or loss from de-recognition of an intangible asset, measured
as the difference between the net disposal proceeds and the
carrying amount of the asset; is recognised in profit or loss when
the asset is de-recognised.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and any recognised impairment loss.
Depreciation is calculated so as to write off the cost of a
tangible asset, less its estimated residual value, over the
estimated useful economic life of that asset on the following
bases:
Leasehold improvements - over the period of the lease
Plant & equipment - 15% to 33% per annum on a straight line
basis
Fixtures & fittings - 20% to 33% per annum on a straight
line basis
Motor vehicles - 25% per annum on a straight line basis
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective
basis. Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or, where
shorter, over the term of the relevant lease.
An item of property, plant and equipment is de-recognised upon
disposal, or when no future economic benefits are expected to arise
from the continued use of the asset. The gains or loss arising on
the disposal or scrappage of an asset is determined as the
difference between the sales proceeds and the carrying amount of
the asset and is recognised in profit or loss.
Impairment of tangible and intangible assets excluding
goodwill
At each reporting date, the Group reviews the carrying amounts
of tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated to determine the extent of the impairment loss (if any).
Where the asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent
allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for
impairment at least annually and whenever there is an indication
that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. If
the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount
of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in
profit or loss, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognised immediately in profit or loss,
unless the relevant asset is carried at a revalued amount, in which
case the reversal of the impairment loss is treated as a
revaluation increase.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
2. Significant accounting policies (continued)
Exceptional items
Items which are significant by their size and / or nature
require separate disclosure and are reported separately in the
statement of comprehensive income. Details of exceptional items are
explained in Note 7.
Revenue
Revenue and profit are recognised as follows:
(a) Service contracts
Revenue is recognised when the outcome of a job or contract can
be estimated reliably; revenue associated with the transaction is
recognised by reference to the stage of completion of work at the
balance sheet date. The outcome of the transaction is deemed to be
able to be estimated reliably when all of the following conditions
are satisfied:
-- The amount of revenue can be measured reliably;
-- It is probable that the economic benefits associated with the
transaction will flow to the Group; and
-- The costs incurred for the transaction and the costs to
complete the transaction can be measured reliably.
The Group has recognised revenue dependent on the nature of
transactions in line with IAS 18 'Revenue'. There are a range of
contractual arrangements that require consideration:
(i) Schedule of Rates ("SOR") contracts
SOR contracts are set based on predetermined rates for a list of
services and duties required by the customer. The billing
arrangements can range from an all-encompassing price for each
direct works, including an element of local site overhead, central
overhead and associated profit; to the price of the direct works
alone, with (where relevant) a separately agreed annual fee for
local site and central overheads. The quantum of work performed in
each period is captured and valued either against the agreed
contract terms or with reference to costs incurred to date as a
percentage of total expected costs, and the resulting revenue is
recognised.
(ii) Fixed price (or lump sum) service contracts
Certain contracts, in particular for gas servicing and
maintenance, are procured on a fixed price basis. Revenue for
maintenance/reactive activities is recognised on a straight line
basis over the life of the contract. Revenue for servicing
activities is recognised when the service is performed; however
when it is impractical for the customer and householder to sign off
every job sheet, revenue is recognised on a straight line basis.
Where the contract contains servicing and maintenance/reactive
elements and the revenue cannot be split reliably between each
element of the contract, it is recognised on a basis that most
closely reflects the phasing of the servicing provision. Costs are
recognised as incurred.
(iii) Formula based income
When income is subject to formulaic valuation, revenue is
recognised either when the valuation has been submitted to, and
agreed by, the client; or where there are time constraints with the
process for receiving agreement from the client, revenue can be
recognised if prior experience shows that agreement will be
received within one month of providing a valid submission and
invoice.
(b) Construction contracts
Revenue arising from construction contracts is recognised in
accordance with IAS 11 'Construction contracts'. When the outcome
can be assessed reliably, contract revenue is recognised by
reference to the stage of completion of the contract activity at
the statement of financial position date. The stage of completion
of the contract at the statement of financial position date is
assessed with reference to the costs incurred to date as a
percentage of the total expected costs.
Margin on contracts is calculated in accordance with accounting
standards and industry practice. Industry practice is to assess the
estimated final outcome of each contract and recognise the revenue
and margin based upon the stage of completion of the contract at
the statement of financial position date. The assessment of the
final outcome of each contract is determined by regular review of
the revenues and costs to complete that contract. Consistent
contract review procedures are in place in respect of contract
forecasting.
The gross amount receivable from customers for contract work is
presented as an asset for all contracts in progress for which costs
incurred, plus recognised profits (or less recognised losses),
exceed progress billings.
The gross amount repayable to or paid in advance by customers
for contract work is presented as a liability for all contracts in
progress for which progress billings exceed costs incurred plus
recognised profits (less recognised losses). Full provision is made
for losses on all contracts in the year in which the loss is first
foreseen.
All revenue arising from construction contracts is included in
the discontinued operations set out in Note 11.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
2. Significant accounting policies (continued)
(c) Other income
(i) Contract variations
Margin associated with contract variations is only recognised
when the outcome of the contract negotiations can be reliably
estimated. Costs relating to contract variations are recognised as
incurred. Revenue is recognised up to the level of the costs which
are deemed to be recoverable under the contract.
(ii) Preliminaries income and pre-contract costs
All costs relating to pre-commencement and mobilisation are
written off as they are incurred. However where there is a
contracted element within the preliminaries income to cover such
costs, revenue and margin can be recognised in line with the
contractual terms.
In the event that mobilisation costs are incurred in a new and
material activity, market and / or territory, such costs will be
highlighted on the face of the Consolidated Statement of
Comprehensive Income, until such point as we achieve "business as
usual". This will typically be defined as the point at which we
cease hiring a series of net new staff for the activity and reach a
sustainable level of output from those staff we have trained.
Employee benefits
Retirement benefit costs
The Group contributes to the personal pension plans of certain
employees of the Group. The assets of these schemes are held in
independently administered funds. The pension cost charged in the
financial statements represents the contributions payable by the
Group in accordance with IAS 19.
Share-based payments
The Company has issued equity-settled share-based awards and
free shares to certain employees. The fair value of share-based
awards with non-market performance conditions is determined at the
date of the grant using a Black-Scholes model. The fair value of
share-based awards with market related performance conditions is
determined at the date of grant using the Monte Carlo model.
Share-based awards are recognised as expenses based on the
Company's estimate of the shares that will eventually vest, on a
straight-line basis over the vesting period, with a corresponding
increase in the share option reserve.
At each reporting date the Company revises its estimates of the
number of options that are expected to vest based on service and
non-market performance conditions. The amount expensed is adjusted
over the vesting period for changes in the estimate of the number
of shares that will eventually vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserves. Options with
market-related performance conditions will vest based on Total
Shareholder Return against a selected group of quoted market
comparators. Following the initial valuation, no adjustments are
made in respect of market based conditions at the reporting
date.
Employee Benefit Trust
The Company established an Employee Benefit Trust upon IPO,
whose remit is to hold Sureserve Group plc shares on behalf of its
employees. The trust is wholly funded by the Group and although
legally independent is deemed to be controlled by the Group as the
Trust relies on it for funding and the Company is able to remove
and appoint the trustees. The assets and liabilities of the Trust
are therefore consolidated with those of the Group.
Finance income and costs
Interest receivable and payable on bank balances is credited or
charged to the statement of comprehensive income as incurred.
Finance arrangement fees and issue costs are capitalised and
netted off against borrowings. Construction borrowing costs are
capitalised where the Group constructs qualifying assets. All other
borrowing costs are written off to the statement of comprehensive
income as incurred.
Notional interest payable, representing the unwinding of the
discount on long-term liabilities, is charged to finance costs and
recognised as an other item on the face of the statement of
comprehensive income.
Costs incurred in raising finance
Costs incurred in raising finance are capitalised and amortised
through the profit and loss account over the term of the funding as
a trading item. In the event that the associated finance product is
refinanced prior to its expiring, the unamortised costs are treated
as an other item on the face of the statement of comprehensive
income, to the extent that they are replaced with fees and costs
associated with raising the new finance.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
2. Significant accounting policies (continued)
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The current tax payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the statement
of comprehensive income because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's asset for current tax is calculated using tax rates
prevailing at the year end.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
statement of financial position liability method. Deferred tax
liabilities are generally recognised for all taxable temporary
differences; deferred tax assets are recognised to the extent that
it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that have been
enacted or substantively enacted at the statement of financial
position date. Deferred tax is charged or credited in the statement
of comprehensive income, except when it relates to items charged or
credited in other comprehensive income, in which case the deferred
tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities. Deferred
tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognised in other comprehensive
income or directly in equity, respectively. When current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the
business combination.
Inventories
Inventories and work in progress are stated at the lower of cost
and net realisable value. Cost comprises direct materials and,
where appropriate, labour and overheads which have been incurred in
bringing the inventories and work in progress to their present
location and condition. Net realisable value represents the
estimated selling price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution.
Provision is made, where appropriate, to reduce the value of
inventory to its net realisable value.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of a past event, and where it
is probable that the Group will be required to settle that
obligation and the amount can be reliably estimated. The amount
recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the statement of
financial position date, taking into account the risks and
uncertainties surrounding the obligation. Where a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (when the time value of money is material). Details of
material provisions are disclosed unless it is not practicable to
do so or where it could be expected to prejudice seriously the
position of the entity.
Contingent liabilities
Where a provision or accrual is deemed to be required it has
been included within the consolidated statement of financial
position. For contingent liabilities where an economic outflow is
possible, it is often not practicable to estimate the financial
effect due to the range of estimation uncertainty. For contingent
liabilities where the possibility of economic outflow is remote,
disclosure of the estimated financial effect is not required.
Contingent liabilities acquired in a business combination are
initially valued at fair value at the acquisition date. At the end
of subsequent reporting periods, such contingent liabilities are
measured at the higher of the amount that would be recognised in
accordance with IAS 37 and the amount initially recognised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
2. Significant accounting policies (continued)
Joint ventures
Under IFRS 11 we account for joint ventures under the equity
method of accounting. A joint venture is a joint arrangement
whereby the parties that have joint control of the arrangement have
rights to the net assets of the arrangement. Loans receivable and
investments in joint venture entities are reviewed for impairment
at each year end.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument. The
principal financial assets and liabilities of the Group are as
follows:
(a) Loans and receivables
Trade receivables, loans and other receivables that have fixed
or determinable payments that are not quoted in an active market
are classified as loans and receivables. Trade receivables do not
carry any interest and are stated at their initial value reduced by
appropriate allowances for estimated irrecoverable amounts.
Provisions against trade receivables and amounts recoverable on
contracts are made when objective evidence is received that the
Group will not be able to collect all amounts due to it in
accordance with the original terms of those receivables. The amount
of the write down is determined as the difference between the
assets carrying amount and the present value of estimated future
cash flows. Individually significant balances are reviewed
separately for impairment based on the credit terms agreed with the
customer. Other balances are reviewed in aggregate.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with a maturity of three months or less. Bank overdrafts
are presented as current liabilities to the extent that there is no
right of offset with cash balances.
(c) Trade and other payables
Trade and other payables are not interest bearing and are stated
initially at fair value and subsequently held at amortised
cost.
(d) Bank and other borrowings
Interest-bearing bank and other loans are recorded at the fair
value of the proceeds received, net of direct issue costs. Finance
charges, including premiums payable on settlement or redemption and
direct issue costs, are accounted for at amortised cost and on an
accruals basis in the statement of comprehensive income using the
effective interest method. Interest is added to the carrying value
of the instrument to the extent that they are not settled in the
period in which they arise.
(e) Derivative financial instruments
Derivatives are initially recognised at fair value on the date
that the contract is entered into and subsequently re-measured in
future periods at their fair value. They are held at fair value
through profit or loss and are re-measured at each reporting date
with the movement being recognised in the statement of
comprehensive income.
(f) Financial liabilities and equity
Financial liabilities and equity are classified according to the
substance of the financial instrument's contractual obligations
rather than the financial instrument's legal form. An equity
instrument is any contract that evidences a residual interest in
the assets of the Group after deducting all of its liabilities.
(g) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Operating leases
Amounts due under operating leases are charged to the statement
of comprehensive income in equal annual installments over the
period of the lease.
Finance leases
Assets held under finance leases are recognised as assets of the
Group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is included in the
statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance
charges are charged directly against income, unless they are
directly attributable to qualifying assets, in which case they are
capitalised in accordance with the Group's general policy on
borrowing costs.
Nature and purpose of each reserve in equity
Share capital is determined using the nominal value of shares
that have been issued.
Share premium represents the difference between the nominal
value of shares issued and the fair value of the total
consideration receivable at the issue date.
Equity-settled share-based employee remuneration is credited to
the share-based payment reserve until the related share options are
exercised. Upon exercise the share-based payment reserve is
transferred to retained earnings.
The merger reserve has been created in relation to the Group
reorganisation under IFRS 3, in which Sureserve Group plc replaced
Sureserve Holdings Limited as the Group's ultimate parent
company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
3. Critical accounting judgements and key sources of uncertainty
In the application of the Group's accounting policies, which are
described in Note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amount of assets and
liabilities that are not readily apparent from other sources. These
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or if the period of the revision and future
periods if the revision affects both current and future
periods.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that may have a
significant risk of causing material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Revenue and profit recognition
Revenue is recognised based on the stage of completion of job or
contract activity. Certain types of service provision pricing
mechanisms require minimal estimation and judgement; however
service provision lump sum and longer term contracts do require
judgements and estimates to be made to determine the stage of
completion and the expected outcome for the individual contract. A
sum will be recognised in relation to the accrued revenue on the
statement of financial position, details of which are described in
Note 21. The accrued income balance as at 30 September 2018 was
GBP15.7m (2017: GBP25.4m).
These assessments include a degree of uncertainty and therefore
if the key judgements and estimates change, further adjustments of
recoverable amounts may be necessary. Following the disposal of
Lakehouse Contracts Limited and Foster Property Maintenance Limited
in the year, the Directors consider the risk of material
adjustments arising from a revision of estimates to have reduced.
Revenue from continuing operations is generated from a large number
of contracts with customers, such that there is limited sensitivity
to material revisions arising from changes in estimates on
individual contracts.
Provisions for legal and other claims
The Group continues to manage a number of potential risks and
uncertainties, including claims and disputes, which are common to
other similar businesses and which could have a material impact on
short and longer term performance. The Board remains focused on the
outcome of a number of contract settlements on which there is a
range of outcomes for the Group in terms of both cash flow and
impact on the statement of comprehensive income.
In quantifying the likely outturn for the Group, the key
judgements and estimates will typically include:
-- The scope of the Group's assessed responsibility
-- An assessment of the potential likelihood of economic outflow
-- An estimation of economic outflow (including potential likelihood)
-- A commercial assessment of potential further liabilities
Estimates of amounts provided take account of legal advice where
sought. Details of specific cases are not disclosed due to
potential commercial sensitivity. Provisions at 30 September 2018
includes GBP4.9m in respect of the disposal of Lakehouse Contracts
Limited and Foster Property Maintenance Limited - see Notes 11 and
25 for details of the basis of estimation used.
The total carrying value of provisions as at 30 September 2018
was GBP7.7m (2017: GBP4.0m) - see Note 25 for further details.
Fair value of deferred consideration
The fair value of deferred consideration is considered in line
with the terms of the associated Sale and Purchase Agreement and
the potential range of likely outcomes.
The carrying value of deferred consideration payable as at 30
September 2018 was GBP0.3m (2017: GBP1.9m) see Note 35 for further
details.
The Directors re-assessed the fair value of deferred
consideration receivable in the year in respect of the disposal of
Orchard (Holdings) UK Limited in September 2017. The assessment of
fair value of consideration at 30 September 2017 was made based on
the limited information available at that date, taking account of
the date of disposal (29 September 2017) and lack of transactional
experience with the buyer.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
3. Critical accounting judgements and key sources of uncertainty (continued)
Fair value of deferred consideration (continued)
The re-assessment of fair value of deferred consideration
receivable resulted in recognition of profit of GBP1.2m in the year
(see Note 11) and deferred consideration receivable of GBP1.2m at
30 September 2018 (see Note 21). Of this balance GBP0.9m has been
received post year end and the remaining estimation range is nil to
GBP0.9m of which a receivable of GBP0.3m has been recognised. The
re-assessment of fair value resulted from information that became
available within the year. Measurement of fair value of the
remaining deferred consideration receivable involves a review of
expected receivables on a customer by customer basis, and
application of a
percentage probability of an adverse outcome on each based on
the past experience of the Orchard team, which we consider to be a
reliable base of estimation.
In regards to the disposal of Lakehouse Contracts Limited and
Foster Property Maintenance Limited, the consideration receivable
in the sale and purchase agreement was GBP0.5m but no consideration
has been recognised in these accounts as the Directors regard the
fair value of this to be GBPnil.
Critical accounting judgements
The group did not in the period make any critical accounting
judgements, other than the estimates involving judgment set out
above within key sources of estimation and uncertainty.
4. Operating segments
The Group's chief operating decision maker is considered to be
the Board of Directors. The Group's operating segments are
determined with reference to the information provided to the Board
of Directors in order for it to allocate the Group's resources and
to monitor the performance of the Group.
The Board of Directors has determined an operating management
structure aligned around the two core activities of the Group, with
the following operating segments applicable:
-- Compliance: focused on gas, fire, electrics, air, water and
lifts where we contract predominantly under framework agreements.
Services comprise the following:
- installation, maintenance and repair-on-demand of gas
appliances and central heating systems;
- compliance services in the areas of fire protection and building electrics;
- air and water hygiene solutions; and
- service, repair and installation of lifts.
-- Energy Services: we offer a range of services in the energy
efficiency sector, including external, internal and cavity wall
insulation, loft insulation, gas central heating, boiler upgrades
and other renewable technologies. The services are offered under
various energy saving initiatives including Energy Company
Obligations ("ECO"), Green Deal and the Scottish Government's HEEPs
("Home Energy Efficiency Programme") Affordable Warmth programme.
Clients include housing associations, social landlords, local
authorities and private householders and we have trading
relationships with five of the "big six" utility suppliers and many
of the leading utility challengers. We also provide metering
services involving the installation, servicing and administration
of devices and associated data.
The accounting policies of the reportable segments are the same
as those described in the accounting policies section.
All revenue and profit is derived from operations in the United
Kingdom only.
The profit measure the Board used to evaluate performance is
operating profit before exceptional and amortisation of acquisition
intangibles. Operating profit before exceptional and amortisation
of acquisition intangibles is defined as operating profit before
deduction of exceptional items and amortisation of acquisition
intangibles, as outlined in Note 7 and on the face of the income
statement.
The Group accounts for inter-segment trading on an arm's length
basis. All inter-segment trading is eliminated on
consolidation.
The following is an analysis of the Group's revenue and
Operating profit before exceptional and amortisation of acquisition
intangibles by reportable segment:
2018 2017
GBP'000 GBP'000
Revenue
Compliance 116,275 104,319
Energy Services 77,734 78,960
------- -------
Total segment revenue 194,009 183,279
Inter-segment elimination (3,259) (1,783)
------- -------
Total continuing revenue 190,750 181,496
------- -------
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
4. Operating segments (continued)
Reconciliation of Operating profit before exceptional
and amortisation of acquisition intangibles
to profit / (loss) before taxation from continuing
operations
2018 2017
GBP'000 GBP'000
Operating profit before exceptional
and amortisation of acquisition
intangibles by segment
Compliance 6,104 7,986
Energy Services 4,025 4,015
Central (2,091) (4,607)
------- --------
Total operating profit before
exceptional and amortisation
of acquisition intangibles 8,038 7,394
Amortisation of acquisition intangibles (4,325) (10,495)
Exceptional costs (1,048) (2,127)
Exceptional income 757 1,624
Investment income - 16
Finance costs (1,475) (1,985)
------- --------
Profit / (loss) before taxation
from continuing operations 1,947 (5,573)
======= ========
Only the Group consolidated statement of financial position is
regularly reviewed by the chief operating decision maker and
consequently no segment assets or liabilities are disclosed here
under IFRS 8.
None of the Group's major customers account for more than 10% of
Group revenue for 2018 or 2017.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
5. Profit / (loss) before taxation
2018 2017
GBP'000 GBP'000
Profit / (loss) before taxation is stated after
charging / (crediting):
Amount of inventories recognised as an expense 57,133 62,425
Depreciation of property, plant and equipment
- owned 678 1,039
- held under finance leases 180 222
Amortisation of intangible assets (note 16) 4,668 10,931
Impairment of tangible assets (note 17) - 394
Staff costs (note 9) 84,822 87,279
Operating lease rentals:
- land and buildings 933 1,177
- other 4,027 3,270
Profit on disposal of property, plant and equipment (52) (107)
======= =======
6. Auditor's remuneration
2018 2017
GBP'000 GBP'000
The analysis of the auditor's remuneration
is as follows:
Fees payable to the Company's auditor and their
associates for audit services to the Group:
- The audit of the Company's annual accounts 54 54
- The audit of the Company's subsidiaries 186 216
------- -------
Total audit fees 240 270
======= =======
Fees payable to the Company's auditor and their
associates for other services to the Group:
- Agreed upon procedures on interim accounts 23 -
- Other assurance services - 14
- Corporate finance services (IPO) - 128
------- -------
Total non-audit fees 23 142
======= =======
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
7. Exceptional and other items
2018 2017
Restated
GBP'000 GBP'000
Acquisition costs 34 14
Restructuring and other costs 1,014 2,113
------- --------
Total exceptional costs 1,048 2,127
Release of provisions for deferred consideration (757) (1,624)
Total net exceptional costs 291 503
======= ========
Exceptional items in the year decreased the Group's profit after
tax by GBP0.3m and relate to the following items:
Restructuring and other costs of GBP1.0m (2017: GBP2.1m) in the
year relating to a small number of legacy clean-up and
restructuring costs.
Release of provisions for deferred consideration of GBP0.8m
(2017: GBP1.6m) reflecting the final settlement of deferred
consideration due to Aaron Heating Services Limited and Precision
Lift Services Limited.
Exceptional items are considered non-trading because they are
not part of the underlying trade of the Group.
8. Investment income and finance expenses
2018 2017
GBP'000 GBP'000
Investment income
Unwinding of discount on financial assets - 13
Other interest receivable - 3
------- -------
- 16
======= =======
Finance expenses
Interest payable on bank overdrafts and borrowings (1,355) (1,661)
Unwinding of discount on financial liabilities (82) (238)
Other interest payable (38) (86)
------- -------
(1,475) (1,985)
======= =======
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
9. Information relating to employees
The average number of employees, including Directors, employed
by the Group during the year was:
2018 2017
Number Number
Direct labour and contract management 1,716 1,575
Administration and support 612 841
------- -------
2,328 2,416
======= =======
2018 2017
The aggregate remuneration was as follows: GBP'000 GBP'000
Wages and salaries 75,586 78,161
Social security 8,012 8,163
Pension costs - defined contribution plans 1,224 955
84,822 87,279
======= =======
10. Retirement benefit obligations
The Group contributes to the personal pension plans of certain
employees of the Group. The assets of these schemes are held in
independently administered funds. From 1 February 2014, the Group
contributes to a new workplace pension scheme for all employees in
compliance with the automatic enrolment legislation. The Group paid
GBP1,224,000 in the year ended 30 September 2018 (2017:
GBP955,000). At the reporting date, GBP251,568 of contributions
were payable to the funds (2017: GBP143,770).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
11. Discontinued operations
2018 2017
Restated
GBP000 GBP000
Revenue 71,949 124,082
Expenses (78,371) (124,838)
-------- ---------
Loss before tax (6,422) (756)
Taxation 1,220 3
-------- ---------
Loss after tax from discontinued operations (5,202) (753)
-------- ---------
Loss on disposal of Lakehouse Contracts Limited
and Foster Property Maintenance Limited (7,476) -
Profit on disposal of Orchard (Holdings) UK
Limited 1,158 5,402
(11,520) 4,649
======== =========
Below is a breakdown of the discontinued operation by
entity:
Orchard (Holdings) UK Limited 2018 2017
GBP000 GBP000
Revenue - 6,052
Expenses - (3,926)
------ -------
Profit before tax - 2,126
Taxation - (435)
------ -------
Profit after tax from discontinued operations - 1,691
------ -------
Lakehouse Contracts Limited and Foster Property
Maintenance Limited 2018 2017
GBP000 GBP000
Revenue 71,949 118,030
Expenses (78,371) (120,912)
-------- ---------
Loss before tax (6,422) (2,882)
Taxation 1,220 438
-------- ---------
Loss after tax from discontinued operations (5,202) (2,444)
-------- ---------
Losses from discontinued operations amounted to GBP11.5m (FY17:
profit of GBP4.6m) on associated revenues of GBP71.9m (FY17:
GBP124.1m). The associated cash outflow for the period was GBP8.0m,
discussed also in Note 34. Profit on sale of Orchard (Holdings) UK
Limited of GBP1.1m (2017: GBP5.4m) has been reclassified as
discontinued operations in the current year, to ensure consistent
presentation of the results.
Discontinued activities represent the Group's Construction and
Property Services divisions (the "Activities") which were sold on
17 August 2018, with the comparative period also including Orchard
Energy, which was sold in September 2017. In determining the
classification of the Activities as discontinued at 30 September
2018, the Board had regard to the conditions that needed to be met
under IFRS5 "Non-current Assets Held for Sale and Discontinued
Operations".
The 2018 losses from discontinued operations comprise:
-- Disposal costs of Lakehouse Contracts Limited and Foster
Property Maintenance Limited (including professional fees) of
GBP1.0m (2017: GBPnil)
-- Provisions for liabilities relating to the disposal of
GBP4.5m net of tax of GBP0.4m (2017: GBPnil)
-- GBP2.0m loss on disposal of Lakehouse Contracts Limited and
Foster Property Maintenance Limited (2017: GBPnil) representing net
assets at date of disposal - no consideration receivable has been
recognised
-- Losses of Lakehouse Contracts Limited and Foster Property
Maintenance Limited prior to disposal of GBP5.2m (2017 GBP0.8m)
-- GBP1.1m profit on sale of Orchard (Holdings) UK Limited from
reassessment of the fair value of consideration receivable. (2017:
GBP5.4m)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
11. Discontinued operations (continued)
The Group is entitled to recover any net value yielded by the
buyer of Lakehouse Contracts Limited and Foster Property
Maintenance Limited from the working capital balances of the
activities post-sale, together with amounts provided for provisions
noted above of GBP4.5m. No sums have been recovered to date and in
light of the weak performance of the activities since, the Board
has reserved in full, all sums potentially recoverable under this
process. The consideration receivable in the sale and purchase
agreement was GBP0.5m but no consideration has been recognised in
these accounts as the Directors regard the fair value of this to be
GBPnil.
In addition to the amounts provided for above there are a number
of potential contingent liabilities arising from the disposal
including:
-- Potential claims under parent company guarantees and bonds
for projects. The value of bonds and guarantees is disclosed in
Note 31.
-- Potential claims under clauses in the sale and purchase
agreement including working capital adjustments and warranties /
indemnities. Further details are not disclosed on the basis that
such disclosure would be seriously prejudicial.
12. Tax on profit / (loss) from continuing operations
2018 2017
Restated
GBP'000 GBP'000
Current tax
Current year 1,656 473
Current tax - prior year adjustment (67) 83
------- --------
Total current tax 1,589 556
Deferred tax (Note 26) (807) (1,490)
------- --------
Total tax on profit / (loss) on ordinary activities 782 (934)
======= ========
The tax assessed for the year differs from the standard rate of
corporation tax in the UK. The differences are explained below;
2018 2017
Restated
GBP'000 GBP'000
Profit / (loss) before tax from continuing operations 1,947 (5,573)
Effective rate of corporation tax in the UK 19.00% 19.50%
Profit / (loss) before tax at the effective rate
of corporation tax 370 (1,087)
Effects of:
Expenses not deductible for tax purposes 537 -
Income not taxable - (52)
Adjustment of deferred tax to closing tax rate 65 238
Current tax - prior year adjustment (67) 83
Deferred tax - prior year adjustment (96) (32)
Deferred tax asset not recognised (27) (84)
------- --------
Tax charge / (credit) for the year 782 (934)
======= ========
Factors that may affect future charges
The Finance (No 2) Act 2015, which provides for reductions in
the main rate of corporation tax from 20% to 19% effective from 1
April 2017 and to 18% effective from 1 April 2020, was
substantively enacted on 26 October 2015. Subsequently, the Finance
Act 2016, which provides for a further reduction in the main rate
of corporation tax to 17% effective from 1 April 2020, was
substantively enacted on 6 September 2016. These rate reductions
have been reflected in the calculation of deferred tax at the
reporting date.
The closing deferred tax asset at 30 September 2018 has been
calculated at 17% reflecting the tax rate at which the deferred tax
asset is expected to be utilised in future periods.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
13. Dividends
The final dividend for the year ended 30 September 2017 of 0.5
pence per share amounting to GBP0.8m was paid in the year.
The board has proposed a final dividend for the year of 0.25
pence per share amounting to GBP0.4m and representing a total
dividend of GBP0.25 pence for the full year (2017: 0.5 pence).
Subject to approval at the Annual General Meeting on 19 March
2019 the final dividend will be paid on 30 April 2019 to
shareholders on the register at the close of business on 1 March
2019 and has not been included as a liability in these Financial
Statements.
14. Earnings per share
The calculation of the basic and diluted (loss) / earnings per
share is based on the following data:
2018 2017
Number Number
Weighted average number of ordinary shares
for the purposes of basic (loss) / earnings
per share 157,527,103 157,527,103
Diluted
Effect of dilutive potential ordinary shares:
Share options 7,316,715 6,354,933
----------- -----------
Weighted average number of ordinary shares
for the purposes of diluted (loss) / earnings
per share 164,843,818 163,882,036
=========== ===========
(Loss) / earnings for the purpose of basic
and diluted earnings per share being net (loss)
/ profit after tax attributable to the owners
of the Company from continuing and discontinued
operations (GBP'000's) (10,355) 10
Basic (loss) / earnings per share (6.6p) -
Diluted (loss) / earnings per share (6.6p) -
Earnings for the purpose of basic and diluted
earnings per share being net profit / (loss)
after tax attributable to the owners of the
Company from continuing operations (GBP'000's) 1,165 (4,639)
Continuing basic earnings / (loss) per share 0.7p (2.9p)
Continuing diluted earnings / (loss) per share 0.7p (2.9p)
The number of shares in issue at 30 September 2018 was 157,527,103
(2017: 157,527,103).
The weighted average number of ordinary shares in issue during
the year excludes those accounted for in the own shares reserve
(Note 30).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
15. Goodwill
2018
GBP'000
At 1 October 2016 47,338
Disposal of Orchard (Holdings) UK Limited (5,607)
Other adjustments to goodwill 438
-------
At 30 September 2017 42,169
-------
Disposal of Lakehouse Contracts Limited and
Foster Property Maintenance Limited -
Acquisition of Just Energy Solutions
Limited 754
-------
At 30 September 2018 42,923
=======
Goodwill arising on consolidation represents the excess of the
fair value of the consideration transferred over the fair value of
the Group's share of the net assets of the acquired subsidiary at
the date of acquisition.
Goodwill is not amortised but is reviewed for impairment on an
annual basis or more frequently if there is an indication that
goodwill may be impaired. Goodwill acquired in a business
combination is allocated to cash generating units ("CGUs")
according to the level at which management monitors that
goodwill.
Goodwill is carried at cost less accumulated impairment
losses.
The carrying value of goodwill is allocated to the following
CGUs:
2018 2017
CGU Segment GBP'000 GBP'000
K&T Heating Services Limited Compliance 3,774 3,774
Allied Protection Limited Compliance 3,717 3,717
Everwarm Limited Energy services 17,476 17,476
H2O Nationwide Limited Compliance 2,209 2,209
Providor Limited Energy services 3,037 3,037
Sure Maintenance Group Limited Compliance 4,225 4,225
Aaron Heating Services Limited Compliance 3,667 3,667
PLS Holdings Limited Compliance 4,064 4,064
Just Energy Solutions Limited Compliance 754 -
------- -------
42,923 42,169
======= =======
An asset is impaired if its carrying value exceeds the unit's
recoverable amount which is based upon value in use. At each
reporting date impairment reviews are performed by comparing the
carrying value of the CGU to its value in use. At 30 September 2018
the value in use for each CGU was calculated based upon the cash
flow projections of the latest board approved three-year forecasts
together with a further two years estimated and an appropriate
terminal value based on perpetuity.
This is discussed further below.
Future budgeted and forecast profits are estimated by reference
to the average operating margins achieved in the period immediately
before the start of the budget period.
The estimated growth rates are based on past experience and
knowledge of the individual sector's markets. The Directors believe
that the heating, fire safety and the renewable energy and
insulation markets will continue to present strong growth
opportunities for the CGUs outlined above. Management believe that
future growth in these markets is underpinned by a number of
factors including:
-- A pipeline of new tenders
-- Further opportunities to work with other group companies
-- Client demand for safe buildings; and
-- Adjacent market opportunities.
The assumptions used in the impairment reviews are outlined
below.
The growth rate applied to the cash flows in years four and five
of the impairment review performed at 30 September 2018 was 2%
(2017: 2%). A terminal growth rate of 1% (2017: 1%) was applied.
The pre-tax discount rate applied was 10.3% (2017: 10.3%). Three
different types of sensitivity analysis have been performed on all
entities, including a 20% reduction in revenue, a reduction in the
operating profit margin of between 1% and 3% and an increase in the
discount rate by 1%.The Directors consider that reasonably possible
changes in the key assumptions would not cause the carrying amount
to exceed its recoverable amount.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
16. Other intangible assets
Acquisition intangibles
----------------------------------------
Contracted
Computer customer Customer Non-compete
software order book relationships agreements Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 October 2016 1,611 26,550 18,360 3,458 49,979
Disposal of Orchard
(Holdings) UK Limited (43) (2,216) - (1,788) (4,047)
Additions 462 - - - 462
--------- ----------- -------------- ----------- --------
At 30 September 2017 2,030 24,334 18,360 1,670 46,394
Disposal of Lakehouse
Contracts Limited and
Foster Property Maintenance
Limited (1,533) (5,728) (3,705) - (10,966)
Additions 449 - - - 449
--------- ----------- -------------- ----------- --------
At 30 September 2018 946 18,606 14,655 1,670 35,877
--------- ----------- -------------- ----------- --------
Amortisation
At 1 October 2016 1,054 18,217 7,708 1,053 28,032
Disposal of Orchard
(Holdings) UK Limited (33) (979) - (790) (1,802)
Amortisation charge 436 5,358 4,260 877 10,931
--------- ----------- -------------- ----------- --------
At 30 September 2017 1,457 22,596 11,968 1,140 37,161
Disposal of Lakehouse
Contracts Limited and
Foster Property Maintenance
Limited (1,446) (5,728) (3,705) - (10,879)
Amortisation charge 343 1,243 2,563 519 4,668
--------- ----------- -------------- ----------- --------
At 30 September 2018 354 18,111 10,826 1,659 30,950
--------- ----------- -------------- ----------- --------
Carrying value
At 30 September 2018 592 495 3,829 11 4,927
========= =========== ============== =========== ========
At 30 September 2017 573 1,738 6,392 530 9,233
========= =========== ============== =========== ========
At 30 September 2016 557 8,333 10,652 2,405 21,947
========= =========== ============== =========== ========
Contracted customer order book
The value placed on the order book is based upon the cash flow
projections over the contracts in place when a business is
acquired. Due to uncertainties with trying to forecast revenues
beyond the contract term, the Directors have valued contracts over
the contractual term only. The value of the order book is amortised
over the remaining life of each contract which typically range from
one to five years.
Customer relationships
The values placed on the customer relationships are based upon
the non-contractual expected cash inflows forecast on the base
business over and above contracted revenues. The value of customer
relationships is amortised over five years.
Non-compete agreements
The values placed on the non-compete agreements are based upon
the non-compete clause and knowledge and know-how of the former
owners of the acquired businesses. The value of non-compete
agreements is amortised over five years.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
17. Property, plant and equipment
Leasehold Plant & Fixtures
improvements equipment and fittings Motor vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 October 2016 1,412 849 1,982 1,507 5,750
Disposal of Orchard
(Holdings) UK Limited (49) - (178) - (227)
Additions 94 112 483 220 909
Disposals (42) (26) (69) (407) (544)
------------- ---------- ------------- --------------- -------
At 30 September 2017 1,415 935 2,218 1,320 5,888
Disposal of Lakehouse
Contracts Limited and
Foster Property Maintenance
Limited (936) (147) (791) (514) (2,388)
Acquisition of Just
Energy Solutions Limited - 32 49 - 81
Additions 52 237 141 - 430
Disposals - (12) (11) (299) (322)
------------- ---------- ------------- --------------- -------
At 30 September 2018 531 1,045 1,606 507 3,689
------------- ---------- ------------- --------------- -------
Depreciation
At 1 October 2016 460 329 1,266 869 2,924
Disposal of Orchard
(Holdings) UK Limited (2) - (96) - (98)
Charge for the year 213 151 490 407 1,261
Impairment in the year 394 - - - 394
Disposals (39) (11) (65) (383) (498)
------------- ---------- ------------- --------------- -------
At 30 September 2017 1,026 469 1,595 893 3,983
Disposal of Lakehouse
Contracts Limited and
Foster Property Maintenance
Limited (893) (150) (751) (524) (2,318)
Charge for the year 77 217 310 254 858
Disposals - (5) (11) (292) (308)
------------- ---------- ------------- --------------- -------
At 30 September 2018 210 531 1,143 331 2,215
------------- ---------- ------------- --------------- -------
Net book value
At 30 September 2018 321 514 463 176 1,474
============= ========== ============= =============== =======
At 30 September 2017 389 466 623 427 1,905
============= ========== ============= =============== =======
At 30 September 2016 952 520 716 638 2,826
============= ========== ============= =============== =======
Included within the net book value of property, plant and
equipment is GBP143,000 (2017: GBP326,000) in respect of assets
held under finance leases. Depreciation for the year on these
assets was GBP180,000 (2017: GBP222,000).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
18. Group entities
Subsidiaries
The Group's subsidiary undertakings are;
Country Class % Principal activity
of incorporation of capital
Aaron Heating Services Limited England Ordinary 100 Intermediate holding
company
Aaron Services Limited England Ordinary 100 Maintenance and
installation of
domestic gas heating
systems
Allied Protection Limited England Ordinary 100 Fire alarm engineers
Bury Metering Services Limited England Ordinary 100 Non-trading
Everwarm Limited Scotland Ordinary 100 Energy and insulation
services
F J Jones Holdings Limited England Ordinary 100 Non-trading
F J Jones Heating Engineers England Ordinary 100 Non-trading
Limited
H20 Nationwide Limited England Ordinary 100 Water hygiene
Just Energy Solutions Limited England Ordinary 100 Maintenance and
installation of
domestic gas heating
systems
K & T Heating Services Limited England Ordinary 100 Plumbing and heating
engineers
PLS GRP Limited England Ordinary 100 Intermediate holding
company
PLS Holdings Limited England Ordinary 100 Intermediate holding
company
PLS Industries Limited England Ordinary 100 Non-trading
Precision Lift Services England Ordinary 100 Lift installation,
Limited modernisation and
maintenance services
Providor Limited England Ordinary 100 Smart Metering
Smart Metering Limited England Ordinary 100 Non-trading
Speedfit Limited England Ordinary 100 Non-trading
Sure Maintenance Limited England Ordinary 100 Maintenance and
installation of
domestic gas heating
systems
Sure Maintenance Group Limited England Ordinary 100 Intermediate holding
company
Sureserve Compliance Services England Ordinary 100 Intermediate holding
Limited company
Sureserve Construction Services England Ordinary 100 Non-trading
Limited
Sureserve Design and Build England Ordinary 100 Non-trading
Limited
Sureserve Energy Services England Ordinary 100 Intermediate holding
Limited company
Sureserve Holdings Limited England Ordinary 100 Intermediate holding
(*) company
Sureserve Property Investments England Ordinary 100 Non-trading
Limited
* Directly held investment
The registered office of all entities above is St James House
C/O BPE Solicitors LLP, First Floor, St James Square, Cheltenham,
Gloucestershire, United Kingdom, GL50 3PR except for Everwarm whose
registered office is 3-5 Melville Street, Edinburgh, EH3 7PE.
Joint ventures
The Group's joint ventures are:
Country Class % Principal activity
of incorporation of capital
Warmworks Scotland LLP Scotland Ordinary 33.33 Energy and insulation
services
Arbed am Byth Wales Ordinary 50 Energy and insulation
services
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
18. Group entities (continued)
Details of joint ventures
2018 2017
GBP'000 GBP'000
Carrying value of investment in Arbed am Byth 200 -
Carrying value of investment in Warmworks 665 1,196
------- -------
865 1,196
======= =======
GBP'000
Carrying value of investment in joint ventures
at 1 October 2017 1,196
Income from Warmworks joint venture 226
Investment in Arbed am Byth 200
Cash received from Warmworks (757)
Carrying value of investment in joint ventures
at 30 September 2018 865
=======
Warmworks, a joint venture with Changeworks and the Energy
Saving Trust, commenced trading in September 2015, the income for
2018 was GBP226,000 (2017: GBP786,000). The registered office of
Warmworks Scotland LLP is 1 Carmichael Place, Leith, Edinburgh,
Midlothian, EH6 5PH.
Arbed am Byth, a joint venture with the Energy Saving Trust,
commenced trading in August 2018, the income for 2018 was GBPnil
(2017: nil). The registered office of Arbed Am Byth is Unit 2 Cefn
Coed, Nantgarw, Cardiff, Wales, CF15 7QQ.
19. Inventories
2018 2017
GBP'000 GBP'000
Raw materials and consumables 2,581 3,832
Work in progress 1,641 658
------- -------
4,222 4,490
======= =======
There are no inventories at 30 September 2018 or 30 September
2017 carried at fair value less costs to sell. The Directors
consider that the replacement value of inventories is not
materially different from their carrying value. There was no
specific security held at either reporting date over inventory.
20. Amounts due from and to customers under construction contracts
2018 2017
GBP'000 GBP'000
Contracts in progress at the reporting date:
Contract costs incurred plus recognised profits
less recognised losses to date - 218,556
Less: progress billings - (214,073)
------- ---------
- 4,483
======= =========
Amounts due from construction contract customers - 6,269
Amounts due to construction contract customers - (1,786)
------- ---------
- 4,483
======= =========
Details of retentions held by customers for performance under
construction contracts are disclosed in Note 21. Amounts due from
and to customers under construction contracts amounted to nil at 30
September 2018 following the Group's disposal of its construction
activities in August 2018 (see Note 11).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
21. Trade and other receivables
2018 2017
GBP'000 GBP'000
Current
Trade receivables 19,018 22,283
Construction contract retentions receivables - 3,313
Deferred consideration receivable 1,158 -
Social security and other taxes 965 199
Other receivables 3,192 5,819
Prepayments 2,580 2,106
Accrued income 15,705 25,409
--------- --------
42,618 59,129
========= ========
Other receivables includes sales retentions of GBP2,222,000 (2017;
GBP4,630,000) and rebates receivable of GBP796,000 (2017: GBP772,000).
Non-current
Construction contract retentions receivable - 453
Other receivables - 3
--------- --------
- 456
========= ========
2018 2017
GBP'000 GBP'000
Trade receivables
Trade receivables not due 15,273 20,097
Trade receivables past due 1-30 days 2,748 1,581
Trade receivables past due 31-60 days 227 163
Trade receivables past due 61-90 days 363 86
Trade receivables past due over 90 days 886 833
--------- --------
Gross trade receivables 19,497 22,760
========= ========
Provision for bad debt brought forward (477) (805)
Debtor provision recognised upon acquisition (79) -
Disposal of investments 27 11
Amounts written off receivables ledger 50 329
Debtor provision charged to profit or loss
in the year - (12)
--------
Provision for bad debt carried forward (479) (477)
--------- --------
Net trade receivables 19,018 22,283
========= ========
The entire provision for bad debts of GBP479,000 (2017:
GBP477,000) relates to balances past due over 90 days.
The Directors consider that the carrying amount of trade
receivables approximates to their fair value. Debts provided for
and written off are determined on an individual basis and included
in administrative expenses in the financial statements. The Group's
maximum exposure on credit risk is fair value on trade receivables
as presented above. The Group has no pledge as security on trade
receivables.
At the end of the year one customer represented GBP1,122,000 of
the total balance of trade receivables (2017: zero represented more
than 5%).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
22. Trade and other payables
2018 2017
GBP'000 GBP'000
Current
Trade payables 24,607 31,849
Sub-contract retentions 1,068 5,454
Accruals 7,873 24,989
Deferred income 38 894
Social security and other taxes 4,690 5,529
Other payables 1,058 463
------- -------
39,334 69,178
======= =======
Non-current
Sub-contract retentions - 353
Accruals 269 620
------- -------
269 973
======= =======
The Directors consider that the carrying amount of trade
payables approximates to their fair value for each reported period.
Trade payables are non-interesting bearing. Average settlement days
are 76 days (2017: 55 days). The movement in creditor days is
mainly due to the impact on the calculation of the disposal of
Lakehouse Contracts Limited and Foster Property Maintenance
Limited.
Included in accruals is deferred consideration arising from
business combinations analysed as follows:
2018 2017
GBP'000 GBP'000
Current - 1,318
Non-current 269 620
------- -------
269 1,938
======= =======
The fair value of the consideration has been assessed in
accordance with the Sale & Purchase Agreements.
23. Borrowings
2018 2017
GBP'000 GBP'000
Bank loans and credit facilities at amortised
cost:
Current 12,926 -
======= =======
Non-current - 27,077
======= =======
Maturity analysis of bank loans and credit
facilities falling due:
In one year or less, or on demand 12,926 -
Between one and two years - 27,077
12,926 27,077
======= =======
In December 2018, the Group renewed its bank facilities to
provide an overdraft facility of GBP5,000,000 together with a
revolving credit facility of GBP25,000,000, which runs to 31
January 2022.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
24. Net debt
2018 2017
GBP'000 GBP'000
Cash and cash equivalents 1,705 26,129
Bank loans and borrowings (12,926) (27,077)
Finance lease obligations (143) (326)
-------- --------
(11,364) (1,274)
======== ========
25. Provisions
Legal and
other
GBP'000
At 1 October 2016 4,878
Disposal of Orchard (Holdings)
UK Limited (130)
Additional provision 1,497
Utilised in the year (2,215)
---------
At 30 September 2017 4,030
---------
Identified on acquisition 27
Additional provision 5,490
Utilised in the year (344)
Disposal of Lakehouse Contracts
Limited and Foster Property
Maintenance Limited (1,508)
---------
At 30 September 2018 7,695
=========
Current provisions 5,102
=========
Non-current provisions 2,593
=========
Legal and other
Provisions relate to property dilapidation obligations,
potential contract settlement costs and other potential legal
settlement costs. These are expected to result in an outflow of
economic benefit over the next one to three years.
Additional provisions in the year include GBP4.9m in respect of
the disposal of Lakehouse Contracts Limited and Foster Property
Maintenance Limited (see Note 11) such amounts include:
-- GBP2.4m for expected costs of disposal of which GBP2.4m has been settled post year end
-- GBP2.5m for costs of claims under parent company guarantees
and bonds which are considered probable following risk assessment
of all outstanding parent company guarantees and bonds. The
estimated costs have been based on independent third-party
estimates.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
26. Deferred taxation
Accelerated Short term
capital timing Share based Acquisition Unutilised
allowances differences payments intangibles losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Asset / (provision)
bought forward as
at 1 October 2016 266 966 36 (3,636) 2,597 229
Disposals in the year (10) (4) - 380 - 366
Credit / (debit) to
P&L 53 (309) - 1,784 (38) 1,490
----------- ------------ ----------- ------------ ---------- -------
Asset / (provision)
bought forward as
at 30 September 2017 309 653 36 (1,472) 2,559 2,085
Acquired / disposed
of in the year (206) (183) (36) - (2,504) (2,929)
Credit / (debit) to
P&L 104 (34) - 735 2 807
Asset / (provision)
carried forward as
at 30 September 2018 207 436 - (737) 57 (37)
=========== ============ =========== ============ ========== =======
At 30 September 2018
Non-current asset 207 436 - - 57 700
Non-current liability - - - (737) - (737)
----------- ------------ ----------- ------------ ---------- -------
Net deferred tax asset
/ (liability) 207 436 - (737) 57 (37)
=========== ============ =========== ============ ========== =======
At 30 September 2017
Non-current asset 309 653 36 - 2,559 3,557
Non-current liability - - - (1,472) - (1,472)
----------- ------------ ----------- ------------ ---------- -------
Net deferred tax asset
/ (liability) 309 653 36 (1,472) 2,559 2,085
=========== ============ =========== ============ ========== =======
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
27. Finance lease obligations
Present
Future value of
minimum minimum
lease payments Interest lease payments
GBP'000 GBP'000 GBP'000
At 1 October 2016 469 (83) 386
New obligations 263 (51) 212
Repayments (327) 55 (272)
--------------- -------- ---------------
At 30 September 2017 405 (79) 326
Repayments (220) 37 (183)
--------------- -------- ---------------
At 30 September 2018 185 (42) 143
=============== ======== ===============
Future lease payments are
due as follows:
Present
Future value of
minimum minimum
lease payments Interest lease payments
GBP'000 GBP'000 GBP'000
Less than one year 106 (23) 83
Between two and five years 79 (19) 60
--------------- -------- ---------------
At 30 September 2018 185 (42) 143
=============== ======== ===============
Less than one year 226 (44) 182
Between two and five years 179 (35) 144
--------------- -------- ---------------
At 30 September 2017 405 (79) 326
=============== ======== ===============
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
28. Called up share capital
Allotted, called-up and fully paid;
2018 2017 2018 2017
Number Number GBP GBP
Ordinary shares of GBP0.10
157,527,103 157,527,103 each 15,752,710 15,752,710
=========== =========== ========== ==========
Details of options granted under the Group's share scheme are
contained in Note 29.
Voting rights
The holders of Ordinary shares are entitled to receive notice
of, attend or participate in any general meeting of the Company and
to receive any notice of a written resolution proposed to be passed
by the Company.
On a show of hands at a meeting the holders of any such shares
shall be entitled to one vote for all such shares held.
On a poll at a meeting, for a written resolution, the holder of
such shares shall be entitled to such number of votes as
corresponds to the nominal value (in pence) or the relevant shares
held.
29. Share based payments
The Company has established a Share Incentive Plan (SIP),
Sharesave Scheme (SAYE), Company Share Option Plan (CSOP),
Performance Share Plan (PSP), Deferred Share Bonus Plan (DSBP) and
a Special Incentive Award Plan (SIAP).
The net charge recognised for share based payments in the year
was GBPnil (2017: GBPnil).
Share Incentive Plan (SIP)
The SIP is an HMRC approved scheme plan open to all UK employees
at the date of the IPO, 23 March 2015. Each employee was given
GBP200 of free shares; there were no performance conditions apart
from remaining in employment for three years from the date of
award. Shares totaling 325,842 were transferred directly to the SIP
trust and on 29 April 2015, 236,213 share allotted in relation to
the initial award of shares under the SIP. No further awards have
been made under the SIP.
Sharesave Scheme (SAYE)
The SAYE is open to all employees who satisfy certain criteria,
particularly relating to period of employment. The exercise price
is equal to the average of the closing quoted market price for the
preceding three days less a discretionary discount approved by the
Board of not less than 80% of the market value of a share. The
Scheme is for three years, during which the holder must remain in
the employment of the Group. The shares can be exercised within six
months from the maturity of the Scheme.
Company Share Option Plan (CSOP)
The CSOP is open to all employees at the discretion of the
Remuneration Committee. The exercise price is equal to the average
of the closing quoted market price at the date of grant. The
vesting period is for three years, during which the holder must
remain in the employment of the Group and is conditional on the
achievement of a mix of market and non-market performance
conditions from the date of granting the option to the date of
potential exercise.
Performance Share Plan (PSP)
The PSP is open to certain employees at the discretion of the
Remuneration Committee at a limit not exceeding 150% of the
individual's base salary at the date of grant. The exercise price
is GBPnil with the exception of the PSP award to Michael McMahon,
which has an exercise price of 10p per share (being the nominal
value of a share in the capital of the Company). The vesting period
is for three years, during which the holder must remain in the
employment of the Group and is conditional on the achievement of a
mix of market and non-market performance conditions from the date
of granting the option to the date of potential exercise.
Deferred Share Bonus Plan (DSBP)
The DSBP will be operated in conjunction with the Company's (and
its subsidiaries') annual discretionary bonus arrangements from
time to time and will provide a means by which a proportion of an
employee's annual discretionary non-contractual bonus can be
deferred. The number of shares placed under an award granted will
be such number of shares as has a market value (measured at the
grant date) as near to, but not exceeding, the amount of bonus that
has been granted under such award. No award was made under the DSBP
in the year.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
29. Share based payments (continued)
Special Incentive Award Plan (SIAP)
Awards granted under the SIAP take the form of options to
acquire Sureserve Shares for nil consideration. The awards will
have no beneficial tax status. Only employees who are also
directors of the Company may be granted an award under the SIAP.
The Remuneration Committee will have absolute discretion to select
the persons to whom awards may be granted and in determining the
number of shares to be subject to each award. Three employees are
currently participating in the SIAP.
SIP SAYE CSOP PSP SIAP
Number
At 1 October 2016 196,310 616,408 1,330,741 1,731,911 4,615,385
Granted - 2,622,809 2,424,234 645,000 -
Lapsed (31,144) (817,441) (1,577,285) (393,498) -
-------- ---------- ----------- ----------- ---------
At 30 September 2017 165,166 2,421,776 2,177,690 1,983,413 4,615,385
Granted - 1,634,136 - - 2,000,000
Lapsed (82,555) (814,917) (613,439) (1,074,284) -
-------- ---------- ----------- ----------- ---------
At 30 September 2018 82,611 3,240,995 1,564,251 909,129 6,615,385
======== ========== =========== =========== =========
Weighted average exercise
price (p)
At 1 October 2017 0.00p 36.33p 40.75p 0.00p 0.00p
Granted - 34.00p - - 7.00p
Lapsed 0.00p 37.69p 40.75p 0.00p -
Outstanding at 30
September 2018 0.00p 34.51p 40.75p 0.00p 0.00p
Exercisable at 30 - - - - -
September 2018
Outstanding at 30
September 2017 0.00p 36.33p 40.75p 0.00p 0.00p
Exercisable at 30 - - - - -
September 2017
Fair value of options
granted
Weighted fair value
of one option 87.61p 14.52p 12.13p 51.59p 3.51p
Assumptions used in
estimating the fair
value (blended for
all options in each
scheme)
Share price at date
of grant 99.75p 44.40p 40.00p 72.79p 29.09p
Exercise price - 34.51p 40.75p 0.00p 0.00p
Expected dividend
yield 4.60% 5.12% 7.37% 6.07% 6.56%
Risk free rate 1.21% 0.51% 0.07% 0.64% 0.23%
Expected volatility 40.37% 50.79% 54.50% 43.53% 41.78%
Expected life 3 years 3.14 years 3 years 3 years 2 years
In the year ended 30 September 2018, options were granted in
November 2017 in respect of the SIAP, and options were granted in
June 2018 in respect of the SAYE.
The weighted average remaining contractual life of outstanding
options at 30 September 2018 was 2.5 years (2017: 2.7 years). The
aggregate of the estimated fair values of options granted on the
above dates was GBP1.3 million (2017: GBP1.8m).
The SIP and SAYE options were valued using a Black-Scholes model
and the CSOP and PSP options by a combination of Black-Scholes and
Monte Carlo models, weighted according to the performance
conditions of both.
The SIAP options were valued using a Monte Carlo model.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
29. Share based payments (continued)
The inputs into the Black-Scholes 2018 2017
model are as follows:
Share price (p) 40.0 40-46.4
Exercise price (p) 34.00 0.00-40.75
Expected volatility 48.63 53.40-83.00
(%)
Expected life (years) 3.00 3.00-3.25
Risk-free rate (%) 0.94 0.07-0.12
Expected dividend 2.63 2.63-7.37
yield (%)
The inputs into the Monte Carlo model 2018 2017
are as follows:
Share price (p) 42.00 40.00
Exercise price (p) 0.00 0.00
Expected volatility
(%) 40.88 83.00
Expected life (years) 1.17 3.00
Risk-free rate (%) 0.46 0.07
Expected dividend
yield (%) 6.33 7.37
Expected volatility was based upon the historical volatility
over the expected life of the schemes. The expected life is based
upon scheme rules and reflect management's best estimates for the
effects of non-transferability, exercise restrictions and
behaviouiral considerations.
30. Reserves
Share premium reserve
The share premium account represents amounts received in excess
of the nominal value of shares on issue of new shares, net of the
direct costs associated with issuing those shares.
Share based payment reserve
Equity-settled share-based remuneration is credited to the share
based payment reserve until the related share options are
exercised. Upon exercise the share based payment reserve is
transferred to retained earnings.
Own shares reserve
At IPO, each employee was given GBP200 of free shares, to be
held for their benefit in an Employee Benefit Trust. Shares
totalling 325,842 were transferred directly to the Employee Benefit
Trust on 23 March 2015. The own shares reserve at 30 September 2018
represents the cost of GBP325,842 (2017: GBP325,842) shares in
Sureserve Group plc.
Merger reserve
On 23 March 2015 Sureserve Group plc (then Lakehouse plc) was
listed on the Premium Listing segment of the Official List and
trading on the Main Market of the London Stock Exchange. As part of
a restructuring accompanying the Initial Public Offering ("IPO") of
the Group on 23 March 2015, Sureserve Group plc replaced Sureserve
Holdings Limited as the Group's ultimate parent company by way of a
share exchange agreement. Under IFRS 3 this has been accounted for
as a group reconstruction under merger accounting.
Merger accounting principles for this combination gave rise to a
merger reserve of GBP20,067,000.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
31. Guarantees and contingent liabilities
The Company and certain subsidiaries have, in the normal course
of business, given guarantees and performance bonds relating to the
Group's contracts totalling GBP7,292,000 (2017: GBP10,889,790). A
subsidiary of the Group has provided a guarantee of GBP750,000
(2017: GBP750,000) to the Warmworks joint venture.
Contingent liabilities in respect of the disposal of Lakehouse
Contracts Limited and Foster Property Maintenance Limited are
disclosed in Note 11.
32. Financial instruments
Financial instruments comprise both financial assets and
financial liabilities. The carrying value of these financial assets
and liabilities are assumed to approximate their fair values.
The principal financial assets in the Group comprise trade,
loans and other receivables and cash and cash equivalents. The
principal financial liabilities in the Group comprise borrowings
which are categorised as debt at amortised cost, together with
trade and other payables, other long term liabilities and
provisions for liabilities, which are classified as other financial
liabilities.
Financial risk management
The Group's objectives when managing finance and capital are to
safeguard the Group's ability to continue as a going concern in
order to provide returns to shareholders and benefits to other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital. The Group is not subject to any externally
imposed capital requirements.
The main financial risks faced by the Group are liquidity risk,
credit risk and market risk (which includes interest rate risk).
Currently the Group only operates in the UK and only transacts in
sterling. It is therefore not exposed to any foreign currency
exchange risk. The Board regularly reviews and agrees policies for
managing each of these risks.
Categories of financial instruments
Loans and receivables
-----------------------
2018 2017
Financial assets GBP'000 GBP'000
Current financial assets
Trade receivables, loans and other receivables 39,073 56,824
Cash and cash equivalents 1,705 26,129
40,778 82,953
=========== ==========
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
32. Financial instruments (continued)
Financial liabilities
measured at amortised
cost
------------------------
2018 2017
Financial liabilities GBP'000 GBP'000
Current financial liabilities
Trade and other payables 34,606 62,755
Borrowings 12,926 -
Finance lease obligations 83 182
----------- -----------
Total current financial liabilities 47,615 62,937
----------- -----------
Non-current financial liabilities
Trade and other payables 439 973
Borrowings - 27,077
Finance lease obligations 60 144
----------- -----------
Total non-current financial liabilities 499 28,194
----------- -----------
48,114 91,131
=========== ===========
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
financial statements approximate their fair values.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with
creditworthy counterparties and obtaining sufficient collateral
where appropriate, as a means of mitigating the risk of financial
loss from defaults. The Group does not enter into derivatives to
manage its credit risk.
The maximum exposure to credit risk at the reporting date is
represented by the carrying value of the financial assets in the
statement of financial position. The Group does not have any
significant credit risk exposure to any single counterparty or any
group of counterparties having similar characteristics.
There has been a minimal history of bad debts as the majority of
its sales are to local government councils or housing trust
partnerships and as a consequence the Directors do not consider
that the Group has a material exposure to credit risk.
Market risk
As the Group only operates in the UK and only transacts in
Sterling, the Group's activities expose it primarily to the
financial risks of changes in interest rates only.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with
the Board, which has established an appropriate liquidity risk
management framework for the management of the Group's short,
medium and long-term funding and liquidity management requirements.
The Group's policy on liquidity is to ensure that there are
sufficient committed borrowing facilities to meet the Group's long
to medium-term funding requirements.
The Group manages liquidity risk by maintaining adequate
reserves, banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows, and by
matching the maturity profiles of financial assets and
liabilities.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
32. Financial instruments (continued)
A maturity analysis of bank borrowings at each period end is
contained in Note 23.
(a) Interest rate of borrowings
The interest rate exposure of the Group's borrowings is shown
below:
2018 2017
GBP'000 GBP'000
Floating rate Sterling borrowings with a capped
interest rate 12,926 27,077
======= =======
At 30 September 2018, the Group had the following interest rate
caps in place:
-- A cap of 2.5% on up to GBP15m of debt (2017: GBP12.5m at a
cap of 2.5% and GBP2.5m at a cap of 2.0%), expiring on 9 December
2018.
(b) Interest rate risk.
Due to the floating rate of interest on the Group's principal
borrowings, the Group is exposed to interest rate risk, which is
partially mitigated by financial instruments in place to cap the
interest exposure.
(c) Interest rate sensitivity analysis
The Group's principal borrowings attract floating rate interest.
On a weighted average of GBP18.7m of debt in the year, a half per
cent increase in the floating interest rate would have been below
the interest rate cap and increased annual interest payable by
GBP93,333 (2017: GBP136,500). If the floating interest rate had
increased to the capped rate, interest payable on the weighted
average of GBP18.7m of debt would have increased by GBP332,000
(2017: GBP568,000).
33. Operating lease commitments
The future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
2018 2017
Land and Other items Land and Other items
buildings buildings
GBP'000 GBP'000 GBP'000 GBP'000
Within one year 815 2,961 899 3,220
Between two and five years 1,447 2,584 1,862 3,801
Over five years 227 - 374 -
---------- ----------- ---------- -----------
2,489 5,545 3,135 7,021
========== =========== ========== ===========
Operating lease payments represent rentals payable by the Group
for its properties and equipment. For property, leases are
negotiated for an average term of five years and rentals are fixed
for an average of five years, with an option to extend for a
further period at the then prevailing market rate. For equipment,
leases are negotiated for a term of between three and four years
and on completion the equipment is returned to the lessor.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
34. Cash generated from operations
2018 2017
Restated
GBP'000 GBP'000
Operating profit / (loss) 3,422 (3,604)
Adjustments for:
Depreciation 858 1,261
Amortisation of intangible assets 4,668 10,931
Impairment of goodwill and intangible assets
acquired - 394
Profit on disposal of property, plant and equipment (52) (107)
Changes in working capital:
Inventories 305 697
Amounts owed by customers under construction
contracts 6,269 (3,108)
Amounts owed to customers under construction
contracts (1,786) 1,096
Trade and other receivables 18,010 6,533
Trade and other payables (29,185) 458
Provisions 3,638 (1,136)
Adjustment of loss from discontinued operations (11,829) (42)
-------- --------
Cash (used in) / generated from operations (5,682) 13,373
======== ========
Operating cash conversion calculation
Cash (used in) / generated from operations (5,682) 13,373
Exceptional costs paid in the period 2,448 1,882
Cash impact of net change in working capital
from discontinued operations 8,042 (2,182)
-------- --------
Adjusted cash generated from continuing operations 4,808 13,073
======== ========
Operating profit before exceptional items and
amortisation of acquisition intangibles 8,038 7,394
======== ========
Operating cash conversion % 60% 177%
======== ========
Statutory operating cash conversion calculation
Cash (used in) / generated from operations (5,682) 13,373
Statutory operating profit before exceptional
items and amortisation of acquisition intangibles 8,038 7,394
Statutory operating cash conversion % (71%) 181%
======== ========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2018
35. Summary of consideration paid and payable in respect of acquisitions
Aaron Heating Just Energy
H2O Nationwide Services PLS Holdings Solutions
Limited Limited Limited Limited Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2017 989 329 620 - 1,938
Total discounted consideration
payable for addition
in the year - - - 254 254
Unwinding of discount 6 21 37 15 79
Revalued in the year - (100) (657) - (757)
Paid in year (995) (250) - - (1,245)
-------------- ------------- ------------ ----------- -------
At 30 September 2018 - - - 269 269
============== ============= ============ =========== =======
The fair value of the consideration has been assessed in
accordance with the Sale & Purchase Agreements. The non-current
element of the expected settlement has been discounted using a
Pre-Tax discount rate that reflects the time value of money.
The total deferred consideration may vary between GBP0.0 million
and GBP0.3 million depending on the underlying trading performance
of the businesses.
36. Business Combinations
Just Energy Solutions Limited
Just Energy Solutions Limited was acquired on 15 May 2018.
On acquisition, the Directors assessed the fair value of assets
and liabilities and did not identify any separately identifiable
acquisition intangible assets.
The Directors consider the value assigned to goodwill represents
the workforce acquired, expected synergies to be generated, and
access to additional customers and markets as a result of this
acquisition. It is not expected that any goodwill will be
deductible for tax purposes. All costs of the acquisition have been
recognised as an exceptional expense in the statement of
comprehensive income in the period in which it was incurred, the
total cost recognised is GBP34,000.
The effect of the acquisition on the Group's assets and
liabilities were as follows:
Fair value Provisional
Book value adjustments fair value
GBP'000 GBP'000 GBP'000
Assets
Non-current
Property, plant and equipment 82 - 82
Current
Stock 75 (38) 37
Trade and other receivables 1,289 (514) 775
Total assets 1,446 (552) 894
---------- ----------- -----------
Liabilities
Non-current
Provisions (14) (26) (40)
Current
Overdraft (284) - (284)
Trade and other payables (1,003) (67) (1,070)
---------- ----------- -----------
Total Liabilities (1,301) (93) (1,394)
---------- ----------- -----------
Net assets acquired 145 (645) (500)
Goodwill capitalised 754
-----------
254
===========
Satisfied by:
Contingent Deferred consideration 254
===========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2016
36. Business Combinations (continued)
Just Energy Solutions Limited (continued)
Contingent deferred consideration has been calculated based on
the expectations of future performance in the Group's three year
plan compared to the calculation methodology set out in the Share
Purchase Agreement. The contingent deferred consideration may vary
depending on the underlying trading performance of the
businesses.
Post-acquisition results
The results for Just Energy Solutions Limited since the
acquisition date, included within the consolidated statement of
comprehensive income for the period ended 30 September 2018,
are:
GBP'000
Revenue 839
-------
Loss from operations (190)
Interest -
-------
Loss before tax (190)
Taxation 49
-------
Loss for the period (141)
=======
Results of all business combinations occurring during the
year
Assuming the acquisition date for all business combinations that
occurred during the year had been 1 October 2017, the consolidated
statement of comprehensive income for Sureserve Group plc for the
year ended 30 September 2018, would have been:
GBP'000
Revenue 193,932
-------
Profit from operations 3,263
Interest (1,475)
-------
Profit before tax 1,788
Taxation (750)
-------
Profit after tax from continuing
operations 1,038
=======
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
37. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Trading transactions
The Company's subsidiary, Everwarm Limited, leases premises in
Bathgate, West Lothian, from Xafinity Pension Trustees Limited (as
corporate trustee of the Everwarm Group SIPP). Mr M McMahon, a
director of the Company, is a beneficiary of the Everwarm Group
SIPP. The lease was set up on an arm's length basis with annual
rentals determined based on an independent rental valuation.
GBP130,767 of rents were paid by the Group in 2018 (2017:
GBP226,184). The lease terminates in seven years.
The Company's subsidiary, Everwarm Limited, provides services to
Warmworks, a joint venture with Everwarm. GBP6,817,509 of services
were provided in 2018 (2017: GBP8,424,925). GBP1,645,429 was
charged to Everwarm Limited from Warmworks for services provided in
2018 (2017: GBP525,239).
As at 30 September 2018 Everwarm Limited had a receivable owing
from Warmworks amounting to GBP363,969 (2017: GBP701,823).
As at 30 September 2018 Arbed am Byth had a loan owed to
Everwarm Limited amounting to GBP200,000 (2017: GBPnil). As at 30
September 2018 Everwarm Limited had a receivable owing from Arbed
am Byth amounting to GBP91,566 (2017: GBPnil).
Bob Holt provides consultancy services to Sureserve Group plc
and other Group companies in relation to advice about the
turnaround management strategy of the Group. These consultancy
services are provided by a consultancy company of which he is a
shareholder. The daily fee payable for such consultancy services is
GBP1,595 plus VAT. Such services are provided for two days per week
over 47 weeks per year at a total cost of GBP150,000 per annum
(plus VAT). The total value of services provided to the Group was
GBP150,000 (2017: GBP150,000).
The Company's subsidiary, Sure Maintenance Limited, provides
services to Mears Group PLC, an entity of which Bob Holt was
chairman during the period. GBP30,056 of services were provided in
2018 (2017: GBP41,580). As at 30 September 2018 Sure Maintenance
Limited had a receivable owing from Mears Group PLC amounting to
GBP1,298 (2017: GBP6,228).
Remuneration of key management personnel
The remuneration of the Directors and members of the Board,
together with other key management personnel of the Group, is set
out below in aggregate for each of the categories specified in IAS
24 - Related Party Disclosures. The key management personnel are
the members of the Group Management Board. Further information
about the remuneration of individual Group Directors is provided in
the audited part of the remuneration report.
2018 2017
Number Number
Number of members of the Group Management
Board at each year end 13 9
======= =======
2018 2017
GBP'000 GBP'000
Short-term employee benefits 1,804 1,511
Post-employment benefits 114 128
Compensation for loss of office 315 -
2,233 1,639
======= =======
38. Events after the reporting date
In December 2018, the Group renewed its bank facilities to
provide an overdraft facility of GBP5,000,000 together with a
revolving credit facility of GBP25,000,000, which runs to 31
January 2022.
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
FR PGUMAGUPBPGG
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