TIDMSUR
RNS Number : 6349N
Sureserve Group PLC
02 February 2021
2 February 2021
Sureserve Group plc
("Sureserve" or the "Group")
Preliminary Results for the year ended 30 September 2020
Strong performance ahead of expectations; stable platform for
growth
Sureserve, the compliance and energy services Group, is pleased
to announce its preliminary results for the year ended 30 September
2020.
Bob Holt, Chairman of Sureserve, commented:
"I am delighted with Sureserve's performance in what has been an
extraordinary year. Our priority throughout the Covid-19 pandemic
has been the safety and well-being of our people, whose hard work
and commitment has allowed us to post an impressive performance.
Even during the pandemic, we have continued to invest in the
training and development of our people.
"During 2021 we are focussed on making further gains across both
Energy Services and Compliance, particularly given our crucial work
in helping the UK reach its commitment to create a net zero carbon
economy by 2050. In this vein, it was pleasing that the Group
reported carbon neutral operations during FY20. We also remain
committed to helping tackling fuel poverty across the UK over the
years ahead.
"Given our strong performance, healthy balance sheet and
confident outlook the Board is recommending a final dividend of 1
pence per share. We have a solid platform for further growth,
underpinned by our continued focus on regulatory-driven sustainable
revenues and targeting growth both organically and through
acquisition. We have started FY21 strongly and, with 77% of
revenues covered by our GBP355.8m order book, we look forward to
the business continuing on this growth trajectory."
Financial overview
-- Revenue from continuing operations down 7.7% from GBP212.1m
to GBP195.7m following significant Covid-19 impact
-- Operating profit before exceptional items and amortisation of
acquisition intangibles of GBP10.4m (2019: GBP9.4m, 11.2% growth
despite revenue impact above)
-- Profit before tax from continuing operations up 45.9% from GBP5.3m to GBP7.8m
-- Profit before tax from continuing operations before
exceptional items and amortisation of acquisition intangibles of
GBP9.4m (2019: GBP8.3m)
-- Earnings per Share (EPS) from continuing operations up 48.1% to 4.0p (2019: 2.7p)
-- EPS excluding amortisation of acquisition intangibles and
share based payments of 4.9p (2019: 4.4p)
-- Operating cash conversion from continuing operations (pre-IFRS 16) of 126% (2019: 106%)
-- Year-end net cash (pre-IFRS 16, and allowing for deferred VAT
payments) GBP9.8m (2019 net debt: GBP7.4m)
-- Order book of GBP355.8m (2019: GBP333.2m)
-- Full-year proposed dividend of 1p, an increase of 100% (2019: 0.5p)
Operational overview
-- Compliance and Energy Services well established, low risk
divisions with good visibility and operational leverage
-- Outstanding record of 128 contract wins valued at GBP202.8m
-- The Group achieved carbon neutral operations within the period
-- Implemented safety measures to ensure the wellbeing of our
people and our clients' customers
Outlook
-- Participating in a total of 94 frameworks worth a total of
GBP382.1m at year end (2019: 96 frameworks worth GBP592.7m)
-- Well-placed to deliver a clear growth strategy in our market-leading gas services division
-- 77% of FY21 revenue covered by the order book worth
GBP355.8m, providing good visibility of non-volatile revenue
streams
-- The Group is well-positioned for further organic growth in a fragmented and regional market
-- Strong start to trading in FY21 continuing the Group's momentum
Enquiries
Sureserve Group
Bob Holt, Chairman and Chief
Executive 07778 798 816
Peter Smith, Chief Financial
Officer 07590 929 431
Camarco (Financial Public Relations)
Ginny Pulbrook 020 3757 4992
Ollie Head
Shore Capital (Nominated adviser
and broker)
Antonio Bossi 020 7408 4050
Mark Brown
Fiona Conroy
Notes to editors
Sureserve is a leading compliance and energy services group that
performs critical functions in homes, public and commercial
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 was founded in 1988 and is headquartered in Basildon.
It currently employs some 2,162 staff from 22 offices across the
UK.
Executive Chairman's statement
Introduction
I am pleased with Sureserve's performance in what has been an
extraordinary year, with results ahead of both market expectations
and our own internal targets.
Our priority throughout the Covid-19 pandemic has been the
safety and well-being of our people, whose hard work and commitment
has allowed us to post a good performance. Even during the
pandemic, we have continued to invest in our people, their training
and development. The Sureserve Academy, the Group's central hub for
all learning and development, is available to all staff and
provides a wide range of training protocols for individuals at all
levels in the business. It was a precondition of supporting our
apprentices on full pay that they remain committed to completing
their training during lockdown. At the end of the lockdown period
we took the view that there would be very few redundancies and have
continued to be an employer of choice. In line with Cabinet
recommendations we have ensured that all our suppliers and other
creditors have been paid in line with their agreed terms. During
the first period of lockdown our Scottish Energy and Smart Metering
businesses were placed on hold by their clients and only contracted
to carry out emergency type services. The joint ventures with the
Scottish and Welsh Governments were also subject to significant
lockdown restrictions, again carrying out primarily emergency
services.
Despite these operational constraints, our Energy Services
businesses have continued their focus on client relationships and
advancing service delivery, making sure their teams are ready when
normal services have resumed. In Everwarm we have developed
technical expertise in the provision of a range of alternative
energy solutions where we see significant growth in future markets.
A significant part of the Group's services are provided into the
public sector at both local and central Government levels and the
Government's announcement in November regarding plans for a green
recovery and their detailed ten-point plan present the Group with
substantial opportunities in this area.
With the expertise and skill-sets already in place to deliver
services in the sustainability sector, our market leading position
in gas testing further provides us with the platform to be at the
forefront of the energy transition towards the use of more
sustainable, greener energy systems in the future. These businesses
performed well within the period, benefitting from key worker
status and able to continue services during periods of
lockdown.
Demand for the Group's services continues to be strong,
operating in highly regulated public sector energy management
sectors. Our water treatment, fire and electrical, and two of the
gas testing businesses had record years for revenue and/or
profitability.
Trading performance
The Group made excellent trading and operational progress
throughout the year and exceeded both internal and external trading
forecasts. At the end of July we paid off all outstanding debt to
NatWest becoming debt free for the first time in our history as a
public company. Our cash management in the year was excellent,
generating 126% operating cash conversion against EBITA (pre-IFRS
16).
The Group has followed Government guidelines and policy during
the Covid-19 pandemic. This includes access to applicable financial
support where appropriate. Given the range of impacts seen across
the Group following Government-imposed restrictions, we took the
decision to participate in the Coronavirus Job Retention Scheme
('CJRS') where operations had been affected by Covid-19.
Our basic earnings per share from continuing operations
increased to 4.0p from 2.7p in 2019 and our basic earnings per
share from continuing and discontinued operations grew to 4.0p from
3.2p in 2019. Our normalised basic earnings per share from
continuing operations (adjusted to exclude amortisation of
acquisition intangibles and share-based payments) are 4.9p, up on
4.4p in 2019. Our bidding pipeline remains strong and we were
awarded GBP202.8m of contracts in the year under review. The
Financial Review gives a full review of all these results.
Our growth trajectory
We believe we are the leading provider of gas installation and
testing services to the public sector in the UK. We also hold long
term joint venture contracts with both the Scottish and Welsh
Governments. We have first class service level performance which
has given the Group an enviable positioning when bidding for larger
multi-location contracts for large public sector, regional and
national property owners. In addition we hold a number of
relationships with clients who buy more than a single Group
service.
Organic growth from continuing operations was strong during the
year, with important contract wins strengthening our presence
across the UK. These include a contract extension to November 2021
for the Arbed Am Byth contract with the Welsh Government, as well
as two significant awards within Smart Metering.
In the year we successfully bid for and won a number of
contracts in our gas services businesses with Homes for Haringey,
Southern Housing, Hinckley and Bosworth Council, Stonewater,
Colchester Borough Council, Clarion Housing, Ongo Homes and
Harrogate Borough Council.
The UK's commitment to creating a zero-carbon economy presents a
strong growth platform for our energy and gas businesses. With an
already established presence in the market, our businesses benefit
from continued investment in developing newer forms of energy
efficiency services and strengthened bid teams to explore new
prospects. The Group has also delivered carbon neutral operations
in the period thanks to carbon savings delivered via work
undertaken by Everwarm, underpinning our plans to help the UK
achieve net zero.
The order book stands at GBP355.8m demonstrating a strong
platform for future work and, pleasingly, the average contract
length has increased to four years.
Our people
Across the Group, training is an essential platform to further
develop our workforce. It allows us to bridge the skills gaps in
many of our operational specialisations, as well as provide
structured progression opportunities for potential managers and
leaders. The Sureserve Academy consolidated its activities across
the Group and throughout the Covid-19 pandemic we have invested
significant resources into the training and development of the
workforce.
It would be remiss of me to fail to recognise formally the
excellent management of the pandemic in the first instance by our
human resources and our health and safety teams. Maria McGettigan
and Sarah Eddy are to be commended for their commitment to provide
the business with daily updates and policy changes on legislation.
Without the diligence of those individuals and their teams I do not
believe we would have achieved the good trading results and as
excellent a record of managing Covid-19 as we have.
Building on our strategy
During the year we have continued with our growth strategy,
focused on Compliance and Energy Services to maximise the
opportunities provided by a stable base of regular recurring and
predictable revenues and profits.
-- Operational excellence : we achieve a high level of new
contract awards 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 focused businesses in the sectors we have targeted
which 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 good 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 maintain a dividend that
both recognises shareholder needs and expectations while retaining
sufficient capital to drive future growth. The Board proposes a
final dividend payment of 1 pence per share and it is the Board's
intention to continue to consider future dividend payments based
upon the trading performance of the Group.
Outlook
We have a solid platform for further growth, underpinned by our
continued focus on regulatory-driven sustainable revenues and
targeting growth both organically and through acquisition. In
December we acquired Vinshire Gas Services Limited, an East
Midlands gas testing business, and welcomed 100 new staff into the
Group. With 77% of FY21 revenues secured and a total order book of
GBP355.8m, we look forward to the business continuing on its
current growth trajectory. We have started FY21 strongly, though we
recognise the impacts of continued Covid-19 lockdowns and their
potential disruption to our business .
During 2021 we are focused on making further gains across both
Energy Services and Compliance, particularly given our crucial work
in helping the UK reach its commitment to create a net zero carbon
economy by 2050. In this vein, we are looking to repeat our
performance in FY20 and report carbon neutral operations once again
during FY21. We also remain committed to helping tackle fuel
poverty across the UK in the years ahead.
We are focused on being a stable, growing and cash-generative
Group that delivers operational excellence and builds strong
relationships in highly regulated sectors that deliver significant
recurring revenues from a debt free platform. We have a strong
platform for growth, based on good relationships with governmental
contracting organisations throughout the UK and especially with
staff who are ultimately responsible for contracting the services
we provide.
We will continue to invest in our growing and increasingly
skilled workforce, ensuring that the residents and communities we
serve are provided the best the market has to offer, as well as the
comfort and safety necessary for their well-being.
I personally look forward to bringing you further good news in
the future.
Bob Holt OBE
Chairman and Chief Executive
Operational review
Covid-19 response
As communicated through our half year interim reporting, the
unprecedented situation presented by the Covid-19 pandemic and
associated Government response measures resulted in significant
challenges for Group operations, as with so many others. The safety
of our employees and customers has been paramount throughout and
will continue to be our absolute priority. Our focus has been
serving our customers in the safest manner while protecting the
wellbeing of colleagues and minimising virus spread risk. Part of
this response has been ensuring 'Covid-Secure' status through NQA
verification standards.
Our Human Resources and Health and Safety teams have developed
and delivered clear and thorough protocols for all of our people,
both home-based and those colleagues out in the field along with
our ICT teams having delivered the necessary technological
platforms for new work systems to be available where needed.
Throughout the pandemic we have witnessed repeated examples of
voluntary support and assistance by our key workers to the
communities we serve and the individuals within them.
The Group have implemented clear protocols and procedures to
ensure that all of our employees are working in a safe and secure
environment. This includes ensuring that all our premises have
undertaken comprehensive Covid-19 Risk Assessments to ensure that
our offices are Covid Secure. We have also had this externally
verified by a third party certification body (NQA) at a number of
our businesses to give our employees, clients and key stakeholders
assurance.
By adhering to Government Guidance and the steps we, as a
responsible collective Group have proactively taken, we advocate
that all our colleagues stay alert by:
-- Maintaining social distancing measures at all times - 2 metres apart where possible;
-- Ensuring they thoroughly wash/clean their hands regularly -
adequate hand washing facilities and/or sanitising products are
made available to all colleagues;
-- By agreement with Line Manager and HR Department, work from home where appropriate;
-- Limiting contact with other people, where at all possible;
-- Office rotas are in place to prevent too many people from being in small spaces;
-- Phased working time and/or hours;
-- One-way systems around our larger offices with different entry/exit points;
-- Wearing a face covering when they are in an enclosed space
where it is difficult to socially distance e.g., on public
transport
-- The mandatory wearing of a face covering or mask in our premises when in communal areas
Our Covid-19 Risk Assessments have been developed in
consultation with our colleagues and clearly establish the control
measures we have put in place. Due to the nature of our
organisation and its various geographical locations, each Business
has undertaken this Risk Assessment in the desired format - however
all assessments have been reviewed and approved by the Senior
Management Teams and our Safety, Health, Environment and Quality ('
SHEQ') Managers via the ongoing SHEQ Forum. We also have
comprehensive RAMS (Risk Assessments/Method Statements) for all
field-based works which cover all elements and potential new risks
around Covid-19.
The SHEQ Forum consisting of all health and safety professionals
across the Group continue to have weekly calls to share best
practice, drive continual improvement and ensure that the
everchanging Government Guidance is adhered to accordingly. Weekly
Safety Updates are also being communicated to all of our colleagues
as part of this process, covering general safety elements alongside
any Covid related elements.
While the pandemic continues to present new challenges, we
remain confident in our ability to proactively manage and respond
accordingly to developments. The more streamlined and focused
structure of the Group following strategic action taken in previous
years has undoubtedly benefited us during this time. While
uncertainty continues around the worldwide response to the
pandemic, we remain confident in our future with a strong order
book value and good visibility on future earnings, underpinning a
robust financial outlook.
Group Summary
Alongside the critical Covid-19 response actions, the Group has
remained focused on strengthening its position as a leading
compliance and energy services group. Our cash-generative core
delivery areas of Compliance and Energy Services remain well placed
to deliver predictable, recurring and profitable revenue
streams.
Following a stronger first half to the year including a winter
season ahead of expectations, the Compliance division, given the
essential nature of its services, was then supported by the 'key
worker' classification by the Government during the initial phase
of the Covid-19 pandemic. Continued contract wins, the ongoing
focus on efficiency, further aided by a mix of works, reduced
material usage and improved fleet travel efficiency during lockdown
all contributed to an EBITA margin in excess of our expectations.
While unfortunately Energy Services saw reduced trading and profit
contribution as it was not afforded the same 'key worker' status
during the pandemic, it remained profitable for the year. The
impact from non-working staff was in part mitigated by utilising
the Government Coronavirus Job Retention Scheme where appropriate.
We are confident that this was a short-term impact due to the
UK-wide lockdown from March as trading within the division returned
to normalised levels in the latter months of the financial
year.
The overall Group performance was very pleasing against the
background of Covid-19 and demonstrates the resilience of the
business model, with a basis of predictable and recurring incomes
in areas supported by non-discretionary and regulatory led spend.
Following the robust trading performance and a continued emphasis
on cash conversion, we were also delighted to announce that the
business had moved into a net cash position by year end, even
allowing for deferred VAT payments in line with HMRC guidelines.
Given trading was impacted as a result of the Government pandemic
response measures and restrictions, businesses within the Group
applied for and received Government support as applicable.
Financial performance
-- Operating profit before exceptional items and amortisation of
acquisition intangibles: GBP10.4m (2019: GBP9.4m, 11.2% growth
despite revenue impact below)
-- Revenue from continuing operations: GBP195.7m (2019:
GBP212.1m, 7.7% reduction following significant Covid-19
impact)
-- Profit before tax from continuing operations: GBP7.8m (2019: GBP5.3m, 45.9% growth)
-- Year-end net cash (pre-IFRS 16): GBP9.8m (2019 net debt: GBP7.4m)
We are delighted that our clear strategy and focused approach of
a more streamlined structure as previously articulated is proving
resilient, despite the unique challenges of the past year.
Looking forward
We remain optimistic around opportunities for continued growth
within both divisions, which underpin the future strategy of the
Group, though we recognise the impacts of continued Covid-19
lockdowns and potential disruption to our business . Compliance
revenues increased despite the Covid-19 pandemic and Energy
Services, we believe, witnessed a temporary reduction, both
suggesting a positive outlook. There are many opportunities for
growth ahead, including the Green Homes Grant announced in July
2020 by the Government and an increased focus on the net zero
target for carbon emissions by 2050. Both divisions remain a core
focus moving forward.
The Board is encouraged by the high bidding success rates
continuing to be achieved by the Group with the year-end order book
of GBP355.8m (2019: GBP333.2m). This provides predictability of our
future incomes and allows longer term planning to occur, which
helps drive efficiency. Efforts remain targeted on longer term
contracts we believe we can deliver effectively and profitably, or,
in the case of frameworks, that provide future opportunities to
generate returns in our core areas. The order book remains strong
across our continuing business lines as we continue to focus on
securing contracts with long term visibility and robust value. The
investment in strengthening the senior bid team reported earlier
this year is aligned to this approach, as the Group looks to
maximise opportunities.
This provides us with great certainty over future workstreams
and we remain confident in the growth and prospects for both of our
core divisions within the Group.
Compliance division
The 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
provide for 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 a number of long
term contract wins which underpin the revenue model, with
increasing mandatory service requirements that provide significant
future opportunities.
The larger component of revenue growth were the Gas Compliance
businesses with K&T delivering the most significant increase
and now in excess of GBP40m revenues, and with some growth in Sure
mitigating a similar reduction in Aaron. Strong revenue growth was
delivered within fire and electrical also, with water services
showing a small increase and some significant electrical wins
further supporting the positive overall positioning of the
division. This was achieved despite the challenges of the pandemic,
without which we believe growth would have been more significant
and more aligned with H1 levels (12% growth).
Compliance: year ended 30 September 2020 2019 Change
Revenue (GBPm) 137.2 133.1 3.1%
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Adjusted EBITA (GBPm) 11.8 8.5 39.5%
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Adjusted EBITA margin 8.6% 6.4% 2.2ppts
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Overall, revenue increased by 3.1% to GBP137.2m (2019:
GBP133.1m). EBITA increased by 39.5% to GBP11.8m (2019: GBP8.5m),
resulting in an underlying EBITA margin of 8.6%, up by 2.2ppts.
Revenues increased in all trading Compliance businesses, with the
exception of our lift operations and Aaron as previously noted. The
increases continued to reflect greater volumes of work and
opportunities with clients driven by contract wins and extensions
in addition to increasing regulatory demands in the sector, despite
the negative effects seen over the summer months due to the
Covid-19 pandemic. The revenues seen are largely recurring and
further growth helps to reaffirm our belief we are a market leading
provider of services in the gas sector.
As previously communicated, additional revenues helped drive
margin improvements through efficiencies in delivery, geographical
reach and minimal change in business overhead. A continued growth
in higher margin commercial works has increased overall
profitability in 2020, alongside the better than expected first
half of year performance and some of the mitigating factors during
lockdown, including mix of works, material usage and fleet travel
efficiency. Together these have resulted in this performance ahead
of expectations and driving improved margins.
In relation to the Building Compliance businesses, the reduction
in our lift business revenues was small and entirely due to a
slowdown in project work during lockdown. Changes previously made
to the senior management team have now started to positively impact
performance, with the business now into profitability, despite the
small decrease in revenues. The fire and water businesses have
continued to show strong performance and profit contribution.
The nature of our Compliance businesses is one of core services
including vital emergency repair and testing cover to our local
authority and housing association customers, to ensure compliance
with gas, electricity and building testing regulations. It was
therefore crucial they continued to perform their essential
services and this is why the Government has recognised many of our
employees within their 'key worker' classification throughout the
Covid-19 outbreak to date.
The division may continue to experience some delays in accessing
certain residential and communal properties to undertake work as a
result of the Government measures in response to Covid-19,
including physical distancing and travel restrictions. Some local
authority customers have, where work is considered of a lower
priority or not essential, chosen to defer certain elements at
points during the pandemic to date. The division received GBP2.3m
of job retention scheme money from the Government in the year in
order to ensure the provision of essential services and retain our
workforce despite a reduction in work during the period. We remain
in regular contact with all of our clients, making sure we
understand their specific challenges and requirements. This has
resulted in solutions being found to deliver the works as soon as
is reasonably practicable, while ensuring that we do everything we
can to prevent the spread of the virus during the delivery of our
services.
Gas Compliance
The three Gas Compliance businesses (Aaron Services, K&T
Heating and Sure Maintenance) make up 74% (2019: 74%) of divisional
revenues and further built on the progress made in FY19 with
another excellent year of revenue growth from recurring incomes and
new works, despite Covid-19 impacts.
Aaron Services, delivering gas compliance, alternate fuel and
renewable solutions across East Anglia and the Midlands, saw some
reductions in revenue in comparison to the extremely successful
2019, due mainly to the Covid-19 impacts. Wins noted in our interim
reporting included up to GBP8.4m of gas boiler upgrades and
electrical testing works with Hinckley and Bosworth council, and
Stonewater works of GBP4.0m for a repair and testing contract.
Other significant wins in the year include electrical testing
estimated at GBP5.0m with Colchester Borough Council, GBP2.7m over
five years for renewable and new technology works with Clarion
Housing and a further GBP2.7m of ground source heat pump
installation works over two years with Newcastle City Council.
K&T Heating's trading performance has been extremely strong
and it maintained its position as the largest of our three gas
businesses, with annual revenues now exceeding GBP40m. The business
delivers gas compliance services across London and the South East.
The highest single value gas contract win in the year was with
Homes for Haringey for up to five years of gas servicing, repairs
and installations, worth an estimated maximum of GBP14.0m, and with
numerous other smaller wins and extensions. Wins previously
reported include GBP4.9m with Southern Housing for gas servicing
and maintenance works over a five-year term.
Sure Maintenance, which delivers gas compliance services across
the UK, saw a number of sizeable wins in excess of GBP1.0m with
Halton Borough Council for mechanical maintenance and servicing and
both Ongo Homes and Harrogate Borough Council for servicing,
maintenance and repair of heating systems. Sure had previously won
a GBP3.9m award for gas service and testing works with Your
Housing.
Building Compliance
Our Building Compliance businesses comprise Sureserve Fire &
Electrical ('SS F&E', previously Allied Protection), H2O
Nationwide and Precision Lift Services and make up 26% (FY19: 26%)
of the divisional revenues.
Precision delivers lift installation and maintenance services to
local authorities and social housing associations across the UK.
Following a challenging 2019, the current year showed more positive
progress with the business now into profitability, despite the
Covid-19 challenges. The largest win in the year was a five-year
lift service, maintenance and repair contract worth GBP0.8m with
the Salvation Army Housing Association, with other smaller
service-led contract wins being delivered also, in line with the
strategy to grow the business with predictable recurring
revenues.
SS F&E remains the Sureserve Group's specialist provider of
fire, electrical and sprinkler compliance services and has followed
up a successful 2019 with further progress and contract wins. These
included GBP3.0m over four years with Crescent Purchasing
Consortium for fire alarm, detection and suppression systems,
Stonewater for a GBP3.0m firefighting equipment repair and
maintenance contract and in excess of GBP4.0m with Newport City
Homes for sprinkler installation works.
H2O is our water and air risk assessment specialist provider
across the UK. Performance of the business has continued to be
strong with a full order book and exceptional client delivery. The
business has again driven efforts to grow despite impacts from
Covid-19 and delivered a number of wins in the period. This is
particularly pleasing as we believe it demonstrates an ability to
find other avenues for growth, with some of our more regular
clients such as restaurants, hotels and gyms not trading through
periods of the pandemic. The largest individual win was a GBP0.8m
contract for the maintenance and repair of water systems including
legionella risk assessments with Southend Borough Council over four
years. These newer clients, in addition to ongoing works, will
continue to support the growth aspirations of the business.
Our belief remains that the ongoing move towards higher levels
of compliance requirements should continue to benefit the
Compliance division in future periods. Further growth should
increase our buying power further and improve our ability to
deliver revenues with improved margins. All businesses are
performing well and we are delighted with our positive response to
the many challenges presented in the current year.
Compliance: Looking forward
Our growth continues to strengthen our position in the
compliance sector, with a true national reach and market leading
Gas Compliance business. 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. The division is showing
predictable and deliverable revenue growth and we remain confident
that our leadership within this non-volatile sector provides a
strong platform to continue our aims of further growth and cash
generation.
The continuity of key individuals and consistent growth have
provided us with a stable platform to continue to deliver for our
client base. In the short term we, like many others, are
experiencing ongoing uncertainty caused by the Covid-19 pandemic.
However, we believe that following this temporary disruption to the
market our mix of customer proposition and services remains strong
and longer term the demand for these works and underlying
fundamentals will underpin our future prospects when conditions
recover. As a market leader in gas and other testing we believe
that opportunities may be forthcoming as a result of other failing
contractors.
Energy Services division
Our Energy Services businesses provide a range of energy
efficiency services such as 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 from measures delivered. The
business also undertakes energy efficiency projects within
non-domestic properties. Our Providor business continues to deliver
domestic smart metering installation and recurring asset management
services to its utility client base. It is well established as one
of the market leaders and is experienced in the ongoing UK-wide
Government roll-out, extended recently to 2025.
The division also has an established presence in the
installation of electrical vehicle charging points, solar PV works
and newer technologies such as battery storage projects which all
represent likely growth sectors that our experienced management
team is well placed to deliver. The Green Homes Grant scheme
announced in July is a further UK-wide opportunity for Everwarm and
the wider group.
The Energy Services division remains within an active sector
with a number of opportunities for delivery, with GBP171.2m (2019:
GBP65.6m) of long term contracts to provide confidence over future
prospects.
Energy Services: year ended 30 September 2020 2019 Change
Revenue (GBPm) 60.4 82.1 -26.5%
----- ----- ---------
Adjusted EBITA (GBPm) 0.8 4.3 -81.8%
----- ----- ---------
Adjusted EBITA margin 1.3% 5.3% -4.0ppts
----- ----- ---------
Overall, revenue decreased by 26.5% to GBP60.4m (2019:
GBP82.1m). Despite revenues and profitability largely in line with
prior year at 31 March 2020 as noted in the interim reporting, both
were significantly impacted by the Covid-19 lockdown in the second
half. EBITA consequentially decreased by 81.9% to GBP0.8m (2019:
GBP4.3m), resulting in an underlying EBITA margin of 1.3%, down by
4.0ppts.
The key factor in this performance was that the Energy Services
division was not afforded the same 'key worker' status as seen in
our Compliance businesses. This was due to a combination of our
services delivered and devolved Government approaches around
continuation of works, particularly during the initial phases of
lockdown. This resulted in a short term reduction in trade within
both Energy businesses and joint ventures which required careful
navigation. This included the application for appropriate
Government support , with the division receiving GBP4.2m of job
retention scheme money from the Government in the year, plus
customer and supplier negotiations and the implementation of
specific cost control procedures to best mitigate the impact of the
Covid-19 outbreak.
Both Providor and Everwarm saw significant reductions in
revenues, albeit Everwarm saw a far larger impact while Providor's
was in part mitigated by contract wins and an underpin of asset
management revenues which were not impacted during lockdown
months.
EBITA reduced to GBP0.8m (2019: GBP4.3m), with the majority of
this being seen in Everwarm due to the significant revenue
reduction across all departments. The profit contribution levels of
Providor and the joint ventures was largely unchanged overall, with
offsetting minor variances. While all were negatively impacted by
the Covid-19 pandemic and restrictions, performance across the year
was pleasing for each.
Results from the Warmworks and Arbed joint ventures are reported
within the Everwarm statutory position although are operated
autonomously by local management teams, with group and joint
venture partner support as necessary. Warmworks delivers the
flagship Warmer Homes Scotland initiative for the Scottish
Government and saw positive performance during the full year with
an ongoing level of operational excellence, particularly satisfying
in light of the challenges presented by Covid-19. This contract
runs through to 2022 and brings a diversified installation
portfolio for Everwarm, focusing on central heating, boiler
improvements and other energy efficiency installation measures.
The Arbed 3 programme for the Welsh Government, via our joint
venture with the Energy Saving Trust, is focused on improvements to
households often living in severe fuel poverty. The monthly measure
installation performance has been more variable for a few reasons,
including the specific timings of individual area-based schemes and
the Covid-19 pandemic interruption. It has however contributed a
small profit for the full financial year and we have recently been
informed of an additional six-month extension to November 2021,
which is pleasing and allows further opportunity for positive
delivery.
As we had previously reported during our interim reporting,
carbon prices remained largely stable during the year. However,
volumes were impacted by Covid-19 and the ongoing challenges with
'ECO3' due to measure types and qualifying properties. We continue
to believe we are well placed to deliver on behalf of our utility
partners based on our management team's extensive experience in
this area.
Everwarm
Everwarm continues to deliver a strong record of contract wins,
albeit with revenues for FY20 reduced to a little in excess of
GBP40m . The business supports a range of clients in various energy
efficiency projects. Our largest new wins include GBP5.4m of air
source heat pump installation works for E.ON, and up to GBP10.7m
with Argyll Community Housing Association for a mix of external
wall insulation and air source heat pump installation as mentioned
in our half-year review. We have also seen further wins with
Falkirk Council (GBP4.2m) and Wise Group (GBP4.0m) to deliver the
installation of air source heat pumps. These, along with other
smaller delivery wins, support our ongoing ECO3 delivery frameworks
and longer term contract works delivering for Warmworks until 2022
and Aberdeenshire on its four-year HIP works, as previously
communicated.
The business continues to seek and explore new prospects as the
sector evolves to develop more efficient and newer forms of energy
efficiency technology. We believe Everwarm is extremely well placed
to deliver work where appropriate opportunities present. The UK's
commitment to creating a net zero carbon economy by 2050 will
likely drive further focus on energy efficiency. Already signs are
being seen with significant proposed investment through the Public
Sector Decarbonisation scheme (GBP1bn) and Green Homes Grant
(GBP2bn), among others. We believe further developments and
commitments are likely and a focus on a 'green recovery' in the
wake of the Covid-19 pandemic may further accelerate this.
Providor
Providor remains focused on existing contract delivery but,
following commencement of SMETS2 meter technology giving better
consistency in anticipated installation volumes, we can now assess
new opportunities. We continue to work with significant Utility
clients and were pleased to announce, as part of interim reporting,
that we were extending our service offering with Scottish Power to
include their SPOW region, with a potential to deliver significant
growth. We have also more recently increased our work for EDF with
an estimated contract award of up to GBP13m. These agreements,
along with other existing contracts and potential extensions, give
us confidence for Providor's future performance.
Energy Services: Looking forward
Everwarm's order book remains strong with future revenues
underpinned by long term contractual agreements with several
clients and key frameworks supported by joint venture arrangements
with Warmworks and Arbed. Although carbon pricing remains
important, we believe that the Government will remain committed to
addressing funding for fuel poverty in this highly regulated
sector. Our view remains that Everwarm's significant wealth of
management experience and client relationships gives our business a
market leading proposition in this area. We believe our ECO3
credentials will allow us to continue to service a number of the
largest utility and other clients, so we are well placed to provide
a quality service to our customers and deliver effectively for our
stakeholders through this phase of the scheme until it ends in
March 2022. We believe the wider energy efficiency landscape and
push towards net zero will create further opportunities once the
uncertainty from Covid-19 has reduced.
Providor has extensive experience of the national smart meter
roll-out and continues to apply careful management, both to our
contractual positions and while seeking to provide strong and
secure employment for our engineers. In June 2020 it was announced
that the deadline for smart meter installations had been further
extended to June 2025, driven by delays as a result of Covid-19.
This followed consultation on the introduction of a new regulatory
framework for utility retailers beyond 2020, requiring annual
installation targets for the utility companies from July 2021. We
believe this is positive, as the six-month extension of the rollout
and annual target setting should lead to more consistent volumes
which should in turn allow us to agree and plan for deliverable
installation profiles with our clients. Where existing contracts
require extension as a result of the new deadlines, we will
continue to evaluate efficiency and cost factors in our pricing
going forward, which should allow the business to grow into a
sustained phase of profitable delivery. The UK Government has
confirmed that it remains committed to the smart meter rollout and
aligns with their net zero commitment mentioned above.
Bob Holt OBE
Chairman and Chief Executive
Financial Review
The Group had a strong year posting an EBITA of GBP10.4m from
continuing activities (2019: GBP9.4m).
Group revenue decreased by 7.7% to GBP195.7m (2019: GBP212.1m),
mainly reflecting a reduction in revenues in the Energy division,
whose revenues decreased by 26.5% to GBP60.4m (2019: GBP82.1m).
Revenues in Compliance Services increased by 3.1% to GBP137.2m
(2019: GBP133.1m). These divisional revenue figures include revenue
from intercompany trading which accounts for a total of GBP1.8m
(2019: GBP3.1m).
Group EBITA increased by 11.2% to GBP10.4m (2019: GBP9.4m),
reflecting an increase in EBITA in the Compliance division of 39.5%
to GBP11.8m (2019: GBP8.5m) and a decrease in EBITA in Energy
Services of 81.8% to GBP0.8m (2019: GBP4.3m). Central costs were
GBP2.2m (H1 2019: GBP3.5m), of which the substantive movement is
related to a reduction in share option charges and a number of
one-off items.
We reported an operating profit of GBP8.8m (2019: GBP6.4m),
after GBPnil exceptional costs (2019: GBP0.2m) and GBP1.6m of
amortisation charges for acquisition intangibles (2019:
GBP2.7m).
Net finance expense was GBP1.0m (2019: GBP1.1m), taxation was
GBP1.5m (2019: GBP1.2m) and post-tax profit within discontinued
operations was GBPnil (2019: GBP0.8m). The statutory profit after
tax was GBP6.3m (2019: GBP5.0m).
During the year, the Group adopted IFRS16, using the modified
retrospective approach which means that comparatives are not
required to be restated. The impact on the income statement are
noted in the table below, with comparability to 2019.
Whilst Group revenue and cash are unaffected by the adoption of
IFRS16, the following areas are impacted:
-- Operating profit before exceptional and other items has
increased by GBP0.15m. Lease payments are now reflected as a
reduction in the lease liabilities. Conversely there is an increase
in depreciation, and interest on finance lease obligations
-- Operating expenses (lease costs) have decreased by GBP4.3m
-- Depreciation charges increased by GBP4.1m
-- Finance costs increased by GBP0.25m such that the overall
impact on profit before tax of adopting IFRS16 has been a decrease
of GBP0.1m
-- The statement of financial position recognises GBP8.2m right
of use assets and GBP8.2m lease liabilities on transition.
-- Total indebtedness therefore increases, although this does
not have an impact on the Group's covenants, which are measured on
an historic GAAP basis
A reconciliation of EBITA and adjusted EBITA pre-IFRS16 to
profit before tax for the period is provided below:
Year ended
Year ended 30 September 30 September
2020 2019
IFRS16
As reported impact Pre IFRS16
GBP'000 GBP'000 GBP'000 GBP'000
Operating profit before exceptional
items and amortisation of
acquisition intangibles 10,404 162 10,242 9,354
Exceptional items - - - (225)
Amortisation of acquisition
intangibles (1,600) - (1,600) (2,735)
Operating profit 8,804 162 8,642 6,394
Finance expense (1,047) (248) (799) (1,051)
Investment income 39 - 39 -
Profit before tax 7,796 (86) 7,882 5,343
============ ======== =========== ===============
Coronavirus Job Retention Scheme ("CJRS")
The Group has followed Government guidelines and policy during
the Covid-19 pandemic. This includes access to applicable financial
support where appropriate. Given the range of impacts seen across
the Group following Government-imposed restrictions, we took the
decision to participate in the CJRS where operations had been
affected by Covid-19.
At the height of lockdown measures, the Group saw a peak of
approximately 40% of our total workforce on furlough leave. These
individuals were predominantly within our Energy Services division,
where a mix of both sector and local Government restrictions
impacted most significantly. A proportion of colleagues furloughed
included our Apprentices, who were not allowed by physical
distancing restrictions to work with others in enclosed spaces.
Apprentices received 100% of their pay during furlough to recognise
their early stage of career development and ability to continue
learning through remote self-study during this period. All other
furloughed employees received 80% of their normal earnings, in line
with the Government policy. Further details are included in the
Operational Review.
Exceptional items
There were no exceptional items in the year (2019: costs of
GBP0.2m).
Amortisation of acquisition intangibles
Amortisation charges for acquisition intangibles was GBP1.6m for
the year (2019: GBP2.7m); the reduction in amortisation reflected
the fact that we have taken amortisation charges in prior periods,
meaning we are amortising a reduced base of intangible assets.
Finance expense
Net finance expense was GBP1.0m (2019: GBP1.1m), which
represented the interest charged on our debt facilities (net of
finance income), together with the amortisation of debt issue
costs, which totalled GBP0.8m (2019: GBP1.1m). The 2020 figure
includes GBP0.25m interest in relation to the adoption of IFRS16
(2019: GBPnil).
Discontinued operations
Profits from discontinued operations amounted to GBPnil (2019:
GBP0.8m).
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. The
result for the year to 30 September 2020 on disposal of
discontinued operations comprise:
-- GBP0.3m profit on sale of Orchard (Holdings) UK Limited from
final reassessment of the fair value of consideration
receivable
-- GBP0.3m of additional costs relating to legacy transactions
On 20 December 2019, Mapps Group Limited, the acquirer of
Lakehouse Contracts Limited and Foster Property Maintenance
Limited, went into liquidation. We are in active dialogue with the
liquidators and our advisors.
Further details of discontinued operations are in note 11.
Tax
The tax charge on the profit before tax was GBP1.5m (2019:
GBP1.2m), representing an effective rate of 19.1%, which compares
with the statutory corporation tax rate of 19%.
Our net cash tax payment for the year was GBP0.7m for continuing
operations (2019: GBP34,000). During the year, the Group has
received the anticipated cash tax refund from HMRC which formed
part of the corporation tax liability as at 30 September 2019. The
Group has also made tax payments on account during the year.
The net deferred tax asset as at 30 September 2020 was GBP0.5m
(2019: GBP0.5m), with the movement mainly relating to acquisition
intangibles and accelerated capital allowances. Further details are
set out in note 26.
Earnings per share
Basic earnings per share from continuing operations were 4.0
pence (2019: 2.7 pence), based on profit after tax from continuing
operations of GBP6.3m (2019: GBP4.2m).
Adjusted earnings per share from continuing operations excluding
amortisation of acquisition intangibles and share based payments
were 4.9 pence (2019: 4.4 pence), based on adjusted profit after
tax from continuing operations excluding amortisation of
acquisition intangibles and share based payments of GBP7.7m (2019:
GBP6.9m).
Our statutory profit for the year was GBP6.3m (2019: GBP5.0m).
Based on the weighted average number of shares in issue during the
year of 159.0m, this resulted in basic earnings per share of 4.0
pence (2019: 3.2 pence).
Dividend
The Board has proposed a final dividend for the year of 1 pence
per share. This represents a total dividend payable for the year of
1 pence (2019: 0.5 pence).
Subject to approval at the AGM on 18 March 2021, the final
dividend will be paid on 30 April 2021 to shareholders on the
register at the close of business on 19 February 2021.
Cash flow performance
Our adjusted operating cash flow, before the IFRS16 adjustment,
for the period was an inflow of GBP12.9m (2019: GBP9.9m), discussed
in note 34, reflecting an operating cash conversion of 126% (2019:
106%). We calculate operating cash conversion as cash generated
from continuing operations, excluding the cash impact of
exceptional items, including VAT payment deferral, 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, including the effect of IFRS16, we saw an
operating cash inflow of GBP23.9m (2019: GBP5.5m), representing a
cash conversion of 229% (2019: 59%).
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 is a continued focus. This
includes accrued income, debtors and creditors. We manage these
balances within our banking facilities. However, we recognise the
importance of supporting our supply chain. We have ensured that we
have paid our suppliers as normal.
Year ended 30 September 2020
Post IFRS IFRS 16 Pre IFRS
16 impact 16
GBP000's GBP000's GBP000's
Operating profit 8,805 162 8,643
Adjustments for:
Depreciation 4,793 4,111 682
Other operating activities 10,271 - 10,271
Net cash generated from operating activities 23,869 4,273 19,596
---------- ----------------- ---------
Interest paid (957) (248) (709)
Taxation (736) - (736)
Net cash generated from operating activities 22,176 4,025 18,151
========== ================= =========
Cash flows from investing activities (199) - (199)
========== ================= =========
Cash flows from financing activities
Repayments to finance lease creditors (4,084) (4,025) (59)
Other financing activities (10,666) - (10,666)
Net cash used in financing activities (14,750) (4,025) (10,725)
========== ================= =========
Net increase in cash and cash equivalents 7,227 - 7,227
---------- ----------------- ---------
Net debt
At 30 September 2020, the Group had net cash excluding the
effect of IFRS16 of GBP9.8m (2019: net debt of GBP7.4m), which
includes deferred VAT payments of GBP6.1m, in line with Covid-19
related support. However, this represents a snapshot in time and
the weighted average revolving credit facility drawdown in the year
was GBP6.4m (2019: GBP14.5m).
The total n et cash including the effect of IFRS16 was GBP3.0m.
This is based upon GBP6.8m adjustment for IFRS 16 relating to lease
liabilities.
Banking arrangements
We had drawn GBPnil as at 30 September 2020 (2019: GBP10.0m)
under our revolving credit facility (excluding borrowing costs). At
the date of issuing this report we had drawn GBPnil (excluding
borrowing costs); National Westminster Bank ('NatWest') continues
to be an excellent and supportive partner.
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. We will commence the formal refinancing of the RCF,
after the preliminary announcement. Initial discussions have taken
place with Natwest and we do not anticipate any challenges.
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.
Statement of financial position
The principal items in our balance sheet are goodwill and
working capital.
There was a reduction of GBP1.4m in goodwill and other
intangibles, mainly due to a GBP1.6m amortisation charge of
acquisition intangibles. As at 30 September 2020, there are GBPnil
acquisition intangibles remaining on the statement of financial
position.
Net current liabilities (excluding cash, borrowings and lease
liabilities) stood at GBP1.6m (2019: net current assets of
GBP7.8m), with the movement mainly relating to GBP6.1m deferral of
VAT payments. Net current assets stood at GBP4.9m (2019:
GBP10.2m).
The principal movements in working capital are noted below and
reflect a continued focus on working capital;
Working capital 2020 2019
GBP'000 GBP'000
Trade receivables 16.7 17.9
Accrued income 17.3 17.6
Trade payables (19.5) (21.1)
Accruals (9.9) (8.0)
=========== ===========
Risks
The Board considers strategic, financial and operational risks
and identifies actions to mitigate those risks.
Our year-end review included an assessment of accrued income, of
which the balance was GBP17.3m at the reporting date (2019:
GBP17.6m). 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.
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 taking account of
potential counter-claims , such that we have a collectively
balanced position of risk across all such matters.
Accounting standards
During the year we adopted IFRS 16 under the modified
retrospective approach.
Going Concern statement
The Directors acknowledge the Financial Reporting Council's '
Guidance on going concern, risk and viability' issued in June 2020
. The Group's business activities, together with factors likely to
affect its future development, performance and position, are set
out in the Strategic Report within the 2020 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 of the 2020 Annual Report. In
addition, note 32 to the consolidated Financial Statements within
the 2020 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,
three-year plan and a rolling 12 month forecast, 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 including the potential impact of Covid-19, 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. NatWest remains
supportive of the Group and in December 2018, the Group renewed its
banking 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. We will commence the formal refinancing of
the RCF, after the preliminary announcement. Initial discussions
have taken place with Natwest and we do not anticipate any
challenges. The Directors have a reasonable expectation that the
Group and Company have adequate resources to continue their
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis of accounting in
preparing the Annual report.
Peter Smith
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2020
Notes 2020 2019
GBP'000 GBP'000
Continuing operations
Revenue 4 195,706 212,066
Cost of sales (160,449) (179,188)
--------- ---------
Gross profit 35,257 32,878
Other operating expenses (24,952) (23,953)
Share of results of joint venture 99 429
Operating profit before exceptional items
and amortisation of acquisition intangibles 4,5 10,404 9,354
Exceptional costs 7 - (225)
Amortisation of acquisition intangibles (1,600) (2,735)
------------------------------------------------- ----- --------- ---------
Operating profit 8,804 6,394
Finance expense 8 (1,047) (1,051)
Investment income 8 39 -
--------- ---------
Profit before tax from continuing operations 4 7,796 5,343
Taxation 12 (1,486) (1,154)
--------- ---------
Profit after taxation from continuing operations 6,310 4,189
Discontinued operations
Profit for the year from discontinued operations 11 - 848
Profit for the year attributable to the
equity holders of the Group 6,310 5,037
========= =========
Earnings per share from continuing operations
Basic 14 4.0p 2.7p
Diluted 14 3.9p 2.6p
========= =========
Earnings per share from continuing and
discontinued operations
Basic 14 4.0p 3.2p
Diluted 14 3.9p 3.2p
========= =========
The accompanying notes are an integral part of this consolidated
statement of comprehensive income.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2020
2020 2019
Notes GBP'000 GBP'000
Non-current assets
Goodwill 15 42,357 42,357
Other intangible assets 16 726 2,171
Property, plant and equipment 17 1,212 1,344
Right of use assets 18 6,757 -
Interests in joint ventures 19 501 732
Deferred tax asset 26 517 467
-------- --------
52,070 47,071
-------- --------
Current assets
Inventories 20 3,022 3,059
Trade and other receivables 21 40,054 42,068
Cash and cash equivalents 9,679 2,452
-------- --------
52,755 47,579
-------- --------
Total assets 104,825 94,650
-------- --------
Current Liabilities
Trade and other payables 22 42,764 36,698
Lease liabilities 27 3,167 54
Provisions 25 825 415
Income tax payable 1,073 242
-------- --------
47,829 37,409
-------- --------
Net current assets 4,926 10,170
-------- --------
Non-current liabilities
Loans and borrowings 23 - 9,755
Lease liabilities 27 3,669 -
Provisions 25 3,221 3,195
6,890 12,950
-------- --------
Total liabilities 54,719 50,359
-------- --------
Net assets 50,106 44,291
======== ========
Equity
Called up share capital 28 15,934 15,895
Share premium account 30 25,408 25,318
Share-based payment reserve 29, 30 650 538
Own shares 30 (290) (290)
Merger reserve 30 20,067 20,067
Retained earnings 30 (11,663) (17,237)
Equity attributable to equity holders
of the Company 50,106 44,291
======== ========
The financial statements of Sureserve Group plc (registered
number 09411297) were approved by the Board of Directors and
authorised for issue on 1 February 2021. They were signed on its
behalf by:
P D M Smith
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 2020
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 2018 15,753 25,314 776 (290) 20,067 (22,521) 39,099
Profit for the year - - - - - 5,037 5,037
Dividends paid - - - - - (394) (394)
Issue of shares (exercise
of options) 142 4 - - - (141) 5
Share-based payments - - 544 - - - 544
Reserve transfer - - (782) - - 782 -
-------- -------- ----------- ---------- -------- --------- -------
At 30 September 2019 15,895 25,318 538 (290) 20,067 (17,237) 44,291
Profit for the year - - - - - 6,310 6,310
Dividends paid (Note
13) - - - - - (795) (795)
Issue of shares (exercise
of options) 39 90 - - - - 129
Share-based payments - - 171 - - - 171
Reserve transfer - - (59) - - 59 -
-------- -------- ----------- ---------- -------- --------- -------
At 30 September 2020 15,934 25,408 650 (290) 20,067 (11,663) 50,106
======== ======== =========== ========== ======== ========= =======
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2020
2020 2019
Notes GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 34 23,869 5,539
Interest paid (957) (914)
Taxation (736) (34)
-------- -------
Net cash generated from operating
activities 22,176 4,591
-------- -------
Cash flows from investing activities
Receipt of deferred consideration
from acquisitions in prior years 930 910
Purchase of property, plant and
equipment (621) (631)
Purchase of intangible assets (539) (403)
Sale of property and equipment 31 86
-------- -------
Net cash used in investing activities (199) (38)
-------- -------
Cash flows from financing activities
Proceeds from issue of shares 129 5
Dividend paid to shareholders (795) (394)
Repayment of bank borrowings (10,000) (3,000)
Repayment of lease liabilities (4,084) (89)
Finance issue costs - (328)
Net cash used in financing activities (14,750) (3,806)
-------- -------
Net increase in cash and cash
equivalents 7,227 747
Cash and cash equivalents at beginning
of year 2,452 1,705
Cash and cash equivalents at end
of year 9,679 2,452
======== =======
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 2020
General Information
Sureserve Group plc is a company incorporated in England and
Wales under the Companies Act. The address of the registered office
is Unit 1 Yardley Business Park, Luckyn Lane, Basildon, Essex SS14
3BZ.
These results for the year ended 30 September 2020 are an
excerpt from the Annual Report & Accounts 2020 and do not
constitute the Group's statutory accounts for 2020 or 2019.
Statutory accounts for Sureserve Group plc for the year to 30
September 2019 have been delivered to the Registrar of Companies,
and the Sureserve Group plc statutory accounts for the year to 30
September 2020 will be delivered by 31 March 2021. 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) in conformity with the requirements of the
Companies Act 2006, 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 2020 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. The principal activities
are discussed in the operational review of the annual report.
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
Accounting Standards in conformity with the requirements of the
Companies Act 2006. 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.
Adoption of new and revised standards
The accounting policies adopted are consistent with those of the
previous financial year except for the following new and revised
Standards and Interpretations which have been adopted in the
current year. Apart from IFRS 16 their adoption has not had any
significant impact on the amounts reported in these financial
statements.
-- IFRS 16 Leases
-- IFRIC 23 Uncertainty over Income Tax Treatments
IFRS 16 'Leases' was issued in January 2016 and is effective for
accounting periods beginning on or after 1 January 2019. It has
been applied by the Group from 1 October 2019 under the modified
retrospective approach, applying the short term and low value lease
exemptions.
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 17 Insurance Contracts 1 January 2023
-------------------- -------------------------
IFRS 16 Leases
IFRS 16 'Leases' was issued in January 2016 and is effective for
accounting periods beginning on or after 1 January 2019. It has
been applied by the Group from 1 October 2019 under the modified
retrospective approach, applying the short term and low value lease
exemptions. Under IFRS 16, leases have been recognised as a lease
liability and a right of use asset. These lease liabilities were
measured at the present value of the remaining lease payments based
on a range of values approximating the Group's incremental
borrowing rate as at 1 October 2019 of 4.01%. The range that is
being used is between 3.01% and 4.51% depending on the type of
asset. The associated right of use assets for all leases were
measured at the amount equal to the lease liability. A practical
expedient was taken to use a single discount rate for a portfolio
of leases with similar characteristics.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2020
1. Basis of Preparation (continued)
The following is a reconciliation of total operating lease
commitments at 30 September 2019 (as disclosed in the financial
statements to 30 September 2019) to the lease liabilities
recognised at 1 October 2019:
Land Vehicles Total
Operating lease commitments at 30
September 2019 3,035 5,177 8,212
Effect of discount factor (179) (249) (428)
Additional lease costs identified 133 189 322
Finance leases recognised at 30
September
2019 - 54 54
IFRS 16 Lease liability at 1 October
2019 (Note 27) 2,989 5,171 8,160
======================== ======================== ======================
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.
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, 16
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, including the potential
impact of Covid 19, and are satisfied that the Group should be able
to operate within the level of its current facilities and in
compliance with the covenants arising from those facilities. 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. We will
commence the formal refinancing of the RCF after the preliminary
announcement. Initial discussions have taken place with Natwest and
we do not anticipate any challenges. Accordingly, the directors
have adopted the going concern basis in preparing the financial
information. Please see further statement in the strategic
report.
2. Significant accounting policies
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. 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 remeasured at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Contingent consideration
that is classified as an asset or liability is remeasured at
subsequent reporting dates in accordance with IFRS 9 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 coordinated 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 - three to five years
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 Five years Expected cash flows
receivable
Non-compete agreements Five years With or without method
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal. The
gain or loss from derecognition 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 derecognised.
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 derecognised 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.
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 recognition is determined according to the requirements
of IFRS 15 "Revenue from contracts with customers". All revenue is
considered revenue from contracts with customers as defined by IFRS
15. IFRS 15 prescribes a five-step model of accounting for revenue
recognition which includes identifying the contract, identifying
performance obligations, determining the transaction price,
allocating the transaction price to different performance
obligations and the timing of recognition of revenue in connection
with different performance obligations.
For contracts with multiple components to be delivered such as
lift maintenance, servicing and repairs, management applies
judgement to consider whether those promised goods and services
are: (i) distinct - to be accounted for as separate performance
obligations; (ii) not distinct - to be combined with other promised
goods or services until a bundle is identified that is distinct; or
(iii) part of a series of distinct goods and services that are
substantially the same and have the same pattern of transfer to the
customer.
At contract inception the total transaction price is estimated,
being the amount to which the Group expects to be entitled and has
rights to under the present contract. This includes the fixed price
stated in the contract and an assessment of any variable
consideration resulting from variation orders, discounts, rebates,
refunds, performance bonuses, penalties, service credits. Variable
consideration is estimated based on the expected value or the most
likely outcome method and is only recognised to the extent that it
is highly probable that a subsequent change in its estimate would
not result in a significant revenue reversal.
Once the total transaction price is determined, the Group
allocates this to the identified performance obligations in
proportion to their relative stand-alone selling prices and
recognises revenue when (or as) those performance obligations are
satisfied.
For each performance obligation identified in the contract, the
Group determines if revenue will be recognised over time or at a
point in time.
Performance obligations satisfied over time
The Group recognises revenue over time on contracts where any of
the following criteria is met;
-- The customer simultaneously receives and consumes the
benefits provided by the Group's performance as the Group performs
it; or
-- The services provided creates or enhances an asset that the customer controls; or
-- The services provided do not create an asset with an
alternative use to the Group and the Group has an enforceable right
to payment for performance completed to date.
The Group typically recognises revenue on an over time basis for
the following:
-- Certain energy services
-- Gas services
-- Fire services
-- Water and air hygiene services
-- Lift services
For each performance obligation to be recognised over time, the
Group applies a revenue recognition method that faithfully depicts
the Group's performance in transferring control of the goods or
services to the customer. This decision requires assessment of the
real nature of the goods or services that the Group has promised to
transfer to the customer. The Group applies the relevant output or
input method consistently to similar performance obligations in
other contracts.
Performance obligations satisfied at a point in time
If the criteria for satisfying a performance obligation over
time are not met, revenue is recognised at the point in time when
control of the goods or services transfers to the customer. This
will be at the point when the jobs are completed and there is a
right to invoice.
The Group typically recognises revenue on a point in time basis
for the following:
-- Smart metering
-- Certain energy services
(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.
For short term jobs usually completed within a few days, the
right to consideration is considered to correspond directly with
the value of performance completed to date as measured by the
amounts specified for each job set out on the rate card. Revenue is
recognised when the jobs are completed or invoiced. Where deemed
appropriate, the Group will utilise the practical expedient within
IFRS 15 and recognises revenue in line with amounts invoiced.
Contract fulfilment costs are expensed as incurred.
For longer term jobs, the Group applies the relevant output or
input revenue recognition method for measuring progress that
depicts the Group's performance in transferring control of the
goods or services to the customer. Contract fulfilment costs are
expensed as incurred.
Certain longer term jobs use the output method based upon
surveys of performance completed or milestones reached which allow
the Group to recognise revenue on the basis of direct measurements
of the value to the customer of the goods or services transferred
to date relative to the remaining goods or services under the
contract.
Under the input method, revenue is recognised in direct
proportion to costs incurred where the transfer of control is most
closely aligned to the Group's efforts in delivering the
service.
(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 qualifies
for recognition over time as the customer receives and consumes the
benefits from the service as it is being provided. Revenue for
maintenance/reactive activities is recognised on a straight line
basis over the term of the contract. Where servicing and
maintenance activity is expected to take place evenly throughout
the performance period, revenue is recognised on a straight-line
basis over the contract term. Where activity is more aligned to
periodic service events, then revenue is allocated to those events
and recognised over the contract term when those events take place.
Contract fulfilment costs are expensed as incurred.
(iii) Accrued income and deferred income
The Group's customer contracts include a diverse range of
payment schedules which are often agreed at the inception of longer
term jobs under which it receives payments throughout the term of
the contracts.
Where revenue recognised at the period end date is more than
amounts invoiced, the Group recognises an accrued income contract
asset for this difference. Where revenue recognised at the period
end date is less than amounts invoiced, the Group recognises a
deferred income contract liability for this difference.
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 its 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. 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.
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.
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.
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.
Government grants
The Group recognises a government grant when it is receivable.
Government grants are offset against applicable costs where
appropriate, as opposed to other income.
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.
Joint venture
Under IFRS 11 we account for joint ventures under the equity
method of accounting. A joint venture is a joint arrangement
whereby the parties 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) Trade and other receivables
Trade and other receivables are recognised initially at fair
value and measured subsequently at amortised cost less any
provision for impairment losses including expected credit losses.
In accordance with IFRS 9 the Group applies the simplified approach
to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables and accrued income
contract assets, estimated using a combination of historical
experience and forward-looking information.
(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.
Leases
The Group assesses whether a contract is a lease at inception of
the contract. A lease conveys the right to direct the use and
obtain substantially all of the economic benefits of an identified
asset for a period of time in exchange for consideration.
A right of use asset and corresponding lease liability are
recognised at commencement of the lease. The lease liability is
measured at the present value of the lease payments, discounted at
the rate implicit in the lease, or if that cannot be readily
determined, at the group's incremental borrowing rate specific to
the type of asset. The lease liability is subsequently measured at
amortised cost using the effective interest rate method. It is
remeasured, with a corresponding adjustment to the right of use
asset, when there is a change in future lease payments resulting
from a rent review, or change in the Group's assessment of whether
it is reasonably certain to exercise a purchase, extension or break
option. The right of use asset is initially measured at cost,
comprising: the initial lease liability and any dilapidation or
restoration costs. The right of use asset is subsequently
depreciated on a straight-line basis over the shorter of the lease
term or the useful life of the underlying asset. The right of use
asset is tested for impairment if there are any indicators of
impairment. Leases of low value assets and short-term leases of 12
months or less are expensed to the Group income statement .
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 was 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.
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 accrued income on the
statement of financial position, details of which are described in
Note 21. The accrued income balance as at 30 September 2020 was
GBP17.3m (2019: GBP17.6m). 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 in 2018, 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 2020
includes GBP0.8m (2019: GBP0.8m) in respect of the disposal of
Lakehouse Contracts Limited and Foster Property Maintenance Limited
- see note 11 and 25 for details of the basis of estimation
used.
The total carrying value of provisions as at 30 September 2020
was GBP4.0 (2019: GBP3.6m) - see Note 25 for further details.
Impairment of intangible assets and goodwill
The Group assess whether there are any indicators of impairment
for all non-financial assets at each reporting date. Goodwill is
tested for impairment annually and at other times when such
indicators exist. Other non-financial assets are tested for
impairment when there are indicators that the carrying amounts may
not be recoverable.
When value-in-use calculations are undertaken, management must
estimate the expected future cash flows from the cash-generating
unit and choose a suitable discount rate in order to calculate the
present value of those cash flows. Further details are given in
note 15.
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
- 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 all of the large utility suppliers and many of
the leading smaller suppliers. 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 exceptionals and amortisation of
acquisition intangibles. Operating profit before exceptionals 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:
2020 2019
GBP'000 GBP'000
Revenue
Compliance 137,155 133,051
Energy Services 60,363 82,081
------- -------
Total segment revenue 197,518 215,132
Inter-segment elimination (1,812) (3,066)
------- -------
Total revenue 195,706 212,066
------- -------
Revenue recognised
---------------------
At a point
Revenue Over time in time Total
2020 GBP'000 GBP'000 GBP'000
Gas services 102,014 - 102,014
Fire and electrical services 17,419 - 17,419
Water and hygiene services 7,031 - 7,031
Lift services 10,691 - 10,691
--------- ---------- -------
Compliance segment revenue 137,155 - 137,155
--------- ---------- -------
Energy services 33,112 10,043 43,155
Smart metering - 17,208 17,208
--------- ---------- -------
Energy segment revenue 33,112 27,251 60,363
Inter-segment elimination (1,812) - (1,812)
--------- ---------- -------
Total continuing revenue 168,455 27,251 195,706
--------- ---------- -------
Revenue recognised
---------------------
At a point
Revenue Over time in time Total
2019 GBP'000 GBP'000 GBP'000
Gas services 99,929 - 99,929
Fire and electrical services 15,098 - 15,098
Water and hygiene services 6,913 - 6,913
Lift services 11,111 - 11,111
--------- ---------- -------
Compliance segment revenue 133,051 - 133,051
--------- ---------- -------
Energy services 50,934 11,594 62,528
Smart metering - 19,553 19,553
--------- ---------- -------
Energy segment revenue 50,934 31,147 82,081
Inter-segment elimination (3,066) - (3,066)
--------- ---------- -------
Total continuing revenue 180,919 31,147 212,066
--------- ---------- -------
Reconciliation of Operating profit before exceptional
items and amortisation of acquisition intangibles
to profit before taxation from continuing operations
2020 2019
GBP'000 GBP'000
Operating profit before exceptional items and
amortisation of acquisition intangibles by
segment
Compliance 11,813 8,470
Energy Services 788 4,341
Central (2,197) (3,457)
------- -------
Total operating profit before exceptional items
and amortisation of acquisition intangibles 10,404 9,354
Amortisation of acquisition intangibles (1,600) (2,735)
Exceptional costs - (225)
Investment income 39 -
Finance costs (1,047) (1,051)
------- -------
Profit before taxation from continuing
operations 7,796 5,343
======= =======
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 clients account for more than 10% of
Group revenue for 2020 or 2019.
5. Profit before taxation
2020 2019
GBP'000 GBP'000
Profit before taxation is stated after charging
/ (crediting):
Amount of inventories recognised as an expense
(Note 20) 50,615 57,532
Depreciation of property, plant and equipment
(Note 17) 682 693
Depreciation of right of use assets (Note 18) 4,111 -
Amortisation of intangible assets (Note 16) 1,984 3,159
Staff costs (Note 9) 75,632 78,665
Operating lease rentals:
- land and buildings - 816
- other - 3,778
Profit on disposal of property, plant and equipment (10) (40)
======= =======
6. Auditor's remuneration
2020 2019
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 90 88
- The audit of the Company's subsidiaries 215 172
------- -------
Total audit fees 305 260
======= =======
Fees payable to the Company's auditor and their
associates for other services to the Group:
- Agreed upon procedures on interim results 28 28
Total non-audit fees 28 28
======= =======
7. Exceptional and other items
2020 2019
GBP'000 GBP'000
Restructuring costs - 225
======= =======
Exceptional items in the year reduced the Group's profit before
tax by GBPnil (2019: GBP0.2m) and related to restructuring costs of
GBPnil (2019: GBP0.2m).
Exceptional items are considered non-trading because they are
not part of the underlying trade of the Group.
8. Investment income and finance expenses
2020 2019
GBP'000 GBP'000
Investment income
Other interest receivable 39 -
======= =======
Finance expenses
Interest payable on bank overdrafts and loans 652 887
Unwinding of discount on financial liabilities 109 157
Interest on lease agreements (Note 27) 258 -
Other interest payable 28 7
------- -------
1,047 1,051
======= =======
9. Information relating to employees
The average number of employees, including Directors, employed
by the Group during the year was:
2020 2019
Number Number
Direct labour and contract management 1,487 1,554
Administration and support 573 570
------- -------
2,060 2,124
======= =======
2020 2019
The aggregate remuneration was as follows: GBP'000 GBP'000
Wages and salaries 66,932 69,486
Social security 6,811 7,112
Pension costs - defined contribution plans 1,718 1,523
Equity-settled share-based payments 171 544
------- -------
75,632 78,665
======= =======
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
GBP1,718,000 in the year ended 30 September 2020 (2019:
GBP1,523,000). At the reporting date, GBP341,000 of contributions
were payable to the funds (2019: GBP460,000).
11. Discontinued operations
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 2020, the Board had regard to the conditions that
needed to be met under IFRS 5 'Non-current Assets Held for Sale and
Discontinued Operations'.
2020 2019
GBP000's GBP000's
(Loss) / profit on disposal of Lakehouse Contracts
Limited and Foster Property Maintenance Limited (303) 470
Profit on disposal of Orchard (Holdings) UK
Limited 303 378
-------- --------
- 848
======== ========
Profits from discontinued operations amounted to GBPnil (2019:
GBP0.8m).
The result for the year to 30 September 2020 on disposal of
discontinued operations comprise:
-- GBP0.3m of additional costs relating to legacy transactions
-- GBP0.3m profit on sale of Orchard (Holdings) UK Limited from
reassessment of the fair value of consideration receivable
The 2019 profits on disposal of discontinued operations
comprise:
-- GBP0.5m tax credit from settlement of amounts provided on
disposal of Lakehouse Contracts Limited and Foster Property
Maintenance Limited
-- GBP0.4m profit on sale of Orchard (Holdings) UK Limited from
final reassessment of the fair value of consideration
receivable
On 20 December 2019, Mapps Group Limited, the acquirer of
Lakehouse Contracts Limited and Foster Property Maintenance
Limited, went into liquidation. We have held meetings during the
year with Liquidator's and advisers to both Mapps Group Limited and
Lakehouse Contracts Limited in an effort to progress and resolve
any outstanding claims. We are still awaiting the provision of
necessary information from the Liquidators in order to progress
matters. As at 30 September 2020, the group has provisions for
liabilities relating to the disposal of GBP0.8m (2019: GBP0.8m). 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. Resolution of these outstanding claims is
in the hands of the Liquidators of Mapps Group Limited and
Lakehouse Contracts Limited
No claims have been received from the Liquidators to date and
the Group has claims against MAPPS for amounts that exceed their
best estimate of any amounts that may potentially be due to MAPPS
under clauses in the sale and purchase agreement. The Board are in
continuing dialogue with all parties.
Further details are not disclosed on the basis that such
disclosure would be seriously prejudicial.
12. Tax on profit on ordinary activities
2020 2019
GBP'000 GBP'000
Current tax
Current year 1,637 1,492
Current tax - prior year adjustment (101) 22
------- -------
Total current tax 1,536 1,514
Deferred tax (Note 26) (50) (360)
------- -------
Total tax on profit on ordinary activities 1,486 1,154
======= =======
The tax assessed for the year differs from the standard rate of
corporation tax in the UK. The differences are explained below:
2020 2019
GBP'000 GBP'000
Profit before tax from continuing operations 7,796 5,343
Effective rate of corporation tax in the UK 19% 19%
Profit before tax at the effective rate of corporation
tax 1,481 1,015
Effects of:
Expenses not deductible for tax purposes (15) 224
Adjustment of deferred tax to closing tax rate (34) 2
Current tax - prior year adjustment (101) 22
Deferred tax - prior year adjustment 155 (13)
Deferred tax asset not recognised - (96)
------- -------
Tax charge for the year 1,486 1,154
======= =======
Factors that may affect future charges
The closing deferred tax provision has been calculated at 19% in
accordance with the rate enacted at the statement of financial
position date.
In the Spring Budget 2020, the Government announced that from 1
April 2020 the corporation tax rate would remain at 19% (rather
than reducing to 17%, as previously enacted). This new law was
substantively enacted on 17 March 2020.
13. Dividends
The final dividend for the year ended 30 September 2019 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 1 pence
per share amounting to GBP1.6m and representing a total dividend of
1 pence for the full year (2019: 0.5p per share).
Subject to approval at the Annual General Meeting on 18 March
2021 the final dividend will be paid on 30 April 2021 to
shareholders on the register at the close of business on 19
February 2021 and has not been included as a liability in these
Financial Statements.
14. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
2020 2019
Number Number
Weighted average number of ordinary shares
for the purposes of basic earnings per share 159,025,339 158,049,310
Diluted
Effect of dilutive potential ordinary shares:
Share options 3,200,981 595,869
----------- -----------
Weighted average number of ordinary shares
for the purposes of diluted earnings per share 162,226,320 158,645,179
=========== ===========
Earnings for the purpose of basic and diluted
earnings per share being net profit after tax
attributable to the owners of the Company from
continuing and discontinued operations (GBP'000's) 6,310 5,037
Basic earnings per share 4.0p 3.2p
Diluted earnings per share 3.9p 3.2p
Earnings for the purpose of basic and diluted
earnings per share being net profit after tax
attributable to the owners of the Company from
continuing operations (GBP'000's) 6,310 4,189
Continuing basic earnings per share 4.0p 2.7p
Continuing diluted earnings per share 3.9p 2.6p
The number of shares in issue at 30 September 2020 was 159,335,259
(2019: 158,947,467).
The weighted average number of ordinary shares in issue during
the year excludes those accounted for in the own shares reserve
(Note 30).
15. Goodwill
GBP'000
At 1 October 2018 42,923
Other adjustments to goodwill - Just Energy
Solutions Limited (566)
-------
At 30 September 2019 and 30 September
2020 42,357
=======
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:
2020 2019
CGU Segment GBP'000 GBP'000
K&T Heating Services Limited Compliance 3,774 3,774
Sureserve Fire and Electrical
Limited (formerly known as 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 188 188
------- -------
42,357 42,357
======= =======
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 2020
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
-- 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 2020 was 4%
(2019: 2%). The growth rate has increased in line with trading over
the recent years. A terminal growth rate of 2% (2019: 2%) was
applied. The pre-tax discount rate applied was 7.2% (2019: 8.2%).
The discount rate has reduced in line with a reduction in the
Group's borrowing rate. Three different types of sensitivity
analysis have been performed on entities that showed potential
indicators of impairment, including a 20% reduction in revenue, a
reduction in the operating profit margin of between 1% and 5% and
an increase in the discount rate by 1.5%. The Directors consider
that reasonably possible changes in the key assumptions would not
cause the carrying amount to exceed its recoverable amount. There
is significant headroom in all but one of the CGU's based on the
review model. PLS Holdings headroom is GBP4.5m (2019: GBP2.1m). A
reduction in operating profit of 55% (2019: 33%) over each of the
next three years would result in a breakeven position for this
CGU.
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 2018 946 18,606 14,655 1,670 35,877
Additions 403 - - - 403
--------- ----------- -------------- ----------- -------
At 30 September 2019 1,349 18,606 14,655 1,670 36,280
Additions 539 - - - 539
Disposals (15) - - - (15)
--------- ----------- -------------- ----------- -------
At 30 September 2020 1,873 18,606 14,655 1,670 36,804
--------- ----------- -------------- ----------- -------
Amortisation
At 1 October 2018 354 18,111 10,826 1,659 30,950
Amortisation charge 424 411 2,313 11 3,159
--------- ----------- -------------- ----------- -------
At 30 September 2019 778 18,522 13,139 1,670 34,109
Amortisation charge 384 84 1,516 - 1,984
Disposals (15) - - - (15)
--------- ----------- -------------- ----------- -------
At 30 September 2020 1,147 18,606 14,655 1,670 36,078
--------- ----------- -------------- ----------- -------
Carrying value
At 30 September 2020 726 - - - 726
========= =========== ============== =========== =======
At 30 September 2019 571 84 1,516 - 2,171
========= =========== ============== =========== =======
At 30 September 2018 592 495 3,829 11 4,927
========= =========== ============== =========== =======
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 value 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 is
amortised over five years.
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 2018 531 1,045 1,606 507 3,689
Additions 155 268 190 18 631
Disposals - (89) (156) (146) (391)
------------- ---------- ------------- -------------- -------
At 30 September 2019 686 1,224 1,640 379 3,929
Additions 10 373 238 - 621
Disposals (20) (208) (118) (203) (549)
------------- ---------- ------------- -------------- -------
At 30 September 2020 676 1,389 1,760 176 4,001
------------- ---------- ------------- -------------- -------
Depreciation
At 1 October 2018 210 531 1,143 331 2,215
Charge for the year 62 269 261 101 693
Disposals - (63) (129) (131) (323)
------------- ---------- ------------- -------------- -------
At 30 September 2019 272 737 1,275 301 2,585
Charge for the year 207 236 228 11 682
Disposals (19) (208) (107) (144) (478)
------------- ---------- ------------- -------------- -------
At 30 September 2020 460 765 1,396 168 2,789
------------- ---------- ------------- -------------- -------
Net book value
At 30 September 2020 216 624 364 8 1,212
============= ========== ============= ============== =======
At 30 September 2019 414 487 365 78 1,344
============= ========== ============= ============== =======
At 30 September 2018 321 514 463 176 1,474
============= ========== ============= ============== =======
Included within the net book value of property, plant and
equipment is GBPnil (2019: GBP54,000) in respect of assets held
under finance leases. Depreciation for the year on these assets was
GBPnil (2019: GBP91,000).
18. Right of use assets
Leasehold Commercial
property Vehicles Total
GBP'000 GBP'000 GBP'000
Cost
At 30 September 2019 - - -
Adoption of IFRS16 2,989 5,171 8,160
--------- ---------- -------
At 1 October 2019 2,989 5,171 8,160
Additions 246 2,750 2,996
Disposals - (887) (887)
--------- ---------- -------
At 30 September 2020 3,235 7,034 10,269
--------- ---------- -------
Depreciation
At 30 September 2019 - - -
Adoption of IFRS16 - - -
--------- ---------- -------
At 1 October 2019 - - -
Charge for the year 1,111 3,000 4,111
Disposals - (599) (599)
--------- ---------- -------
At 30 September 2020 1,111 2,401 3,512
--------- ---------- -------
Net book value
At 30 September 2020 2,124 4,633 6,757
========= ========== =======
At 30 September 2019 - - -
========= ========== =======
19. 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
Sureserve Fire and Electrical England Ordinary 100 Fire alarm engineers
Limited (formerly known
as Allied Protection Limited
)
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 VGS Limited (formerly England Ordinary 100 Non-trading
known as Sureserve Construction
Services 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 Unit 1 Yardley Business
Park, Luckyn Lane, Basildon, Essex, SS14 3BZ 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
Details of joint ventures
2020 2019
GBP'000 GBP'000
Carrying value of investment in Arbed am Byth 390 294
Carrying value of investment in Warmworks 111 438
------- -------
501 732
======= =======
Warmworks, a joint venture with Changeworks and the Energy
Saving Trust, commenced trading in September 2015, the loss for
2020 was GBP62,000 (2019: income GBP135,000). 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 2020 was
GBP161,000 (2019: GBP294,000). The registered office of Arbed am
Byth is Unit 2 Cefn Coed, Nantgarw, Cardiff, Wales, CF15 7QQ.
20. Inventories
2020 2019
GBP'000 GBP'000
Raw materials and consumables 3,022 3,059
======= =======
There are no inventories at 30 September 2020 or 30 September
2019 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.
GBP50,615,000 (2019: GBP57,532,000) of inventories were
recognised as an expense in the year.
21. Trade and other receivables
2020 2019
GBP'000 GBP'000
Current
Trade receivables 16,667 17,858
Deferred consideration receivable - 626
Social security and other taxes 7 239
Other receivables 3,708 3,685
Prepayments 2,336 2,081
Accrued income 17,336 17,579
-------- --------
40,054 42,068
======== ========
Other receivables includes sales retentions of GBP2,461,000 (2019:
GBP2,396,000), rebates receivable of GBP714,000 (2019: GBP677,000),
and finance issue costs of GBP136,000 (2019: GBP245,000 offset
against borrowings).
2020 2019
GBP'000 GBP'000
Trade receivables
Trade receivables not due 15,231 15,074
Trade receivables past due 1-30 days 1,088 1,988
Trade receivables past due 31-60 days 255 104
Trade receivables past due 61-90 days 64 161
Trade receivables past due over 90 days 475 1,150
-------- --------
Gross trade receivables 17,113 18,477
======== ========
Provision for credit losses brought forward (619) (479)
Amounts written off receivables ledger 312 75
Debtor provision charged to profit or loss
in the year (139) (215)
-------- --------
Provision for credit losses carried forward (446) (619)
-------- --------
Net trade receivables 16,667 17,858
======== ========
The entire provision for bad debts of GBP446,000 (2019:
GBP619,000) is 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
Directors believe the credit risk is low due to the majority of the
Group's customer base being either public sector or regulated
bodies. 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 client represented over 5% of the
total balance of trade receivables ( 2019 : none).
22. Trade and other payables
2020 2019
GBP'000 GBP'000
Current
Trade payables 19,547 21,098
Sub-contract retentions 833 1,256
Accruals 9,918 7,981
Deferred income 920 233
Social security and other taxes 10,508 5,132
Other payables 1,038 998
------- -------
42,764 36,698
======= =======
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 65 days (2019: 61 days).
23. Borrowings
2020 2019
GBP'000 GBP'000
Bank loans and credit facilities at amortised
cost:
Current - -
Non-current - 9,755
------- -------
- 9,755
======= =======
Maturity analysis of bank loans and credit
facilities falling due:
In one year or less, or on demand - -
Between two and five years - 9,755
- 9,755
======= =======
In December 2018, the Group renewed its bank facilities to
provide an overdraft facility of GBP5.0m together with a revolving
credit facility of GBP25.0m, which runs to 31 January 2022.
24. Net cash / (debt)
2020 2019
GBP'000 GBP'000
Cash and cash equivalents 9,679 2,452
Bank loans and credit facilities - (9,755)
Finance lease obligations - (54)
Unamortised finance costs (included in other
receivables) 136 -
------- -------
Pre IFRS 16 net cash / (debt) 9,815 (7,357)
Finance lease obligations (6,836) -
------- -------
Total net cash / (debt) 2,979 (7,357)
======= =======
25. Provisions
Legal and
other
GBP'000
At 1 October 2018 7,695
Additional provision 172
Utilised in the year (4,257)
---------
At 30 September 2019 3,610
---------
Additional provision 632
Utilised in the year (196)
---------
At 30 September 2020 4,046
=========
Current provisions 825
=========
Non-current provisions 3,221
=========
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 five years.
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 2018 207 436 - (737) 57 (37)
Pre acquisition adjustment - - - - 144 144
Credit / (debit) to
P&L 26 (146) 92 465 (77) 360
----------- ------------ ----------- ------------ ---------- -------
Asset / (provision)
carried forward as
at 30 September 2019 233 290 92 (272) 124 467
Credit / (debit) to
P&L (140) (61) (36) 272 15 50
----------- ------------ ----------- ------------ ---------- -------
Asset carried forward
as at 30 September
2020 93 229 56 - 139 517
=========== ============ =========== ============ ========== =======
At 30 September 2020
Non-current asset 93 229 56 - 139 517
Non-current liability - - - - - -
----------- ------------ ----------- ------------ ---------- -------
Net deferred tax asset 93 229 56 - 139 517
=========== ============ =========== ============ ========== =======
At 30 September 2019
Non-current asset 233 290 92 - 124 739
Non-current liability - - - (272) - (272)
----------- ------------ ----------- ------------ ---------- -------
Net deferred tax asset
/ (liability) 233 290 92 (272) 124 467
=========== ============ =========== ============ ========== =======
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so.
27. Lease liabilities
Present
value of
minimum
lease payments
GBP'000
At 1 October 2018 143
Repayments (89)
---------------
At 30 September 2019 54
Adoption of IFRS 16 8,106
---------------
At 1 October 2019 8,160
Repayments (4,289)
Interest 258
New obligations 2,996
Obligations cancelled (289)
---------------
At 30 September 2020 6,836
===============
Future lease payments are
due as follows:
Present
value of
minimum
lease payments
GBP'000
Less than one year 3,167
Between two and five years 3,669
---------------
At 30 September 2020 6,836
===============
Less than one year 54
Between two and five years -
---------------
At 30 September 2019 54
===============
28. Called up share capital
Allotted, called-up and fully paid;
2020 2019 2020 2019
Number Number GBP GBP
Ordinary shares of GBP0.10
159,335,259 158,947,467 each 15,933,526 15,894,747
=========== =========== ========== ==========
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 GBP171,000 (2019: GBP544,000).
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. 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.
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. Two employee are
currently participating in the SIAP.
Long Term Incentive Plan (LTIP)
Awards granted under the LTIP take the form of options to
acquire Sureserve Shares either at a price equal to the nominal
share price or for nil consideration. The awards will have no
beneficial tax status. All employees of the Company and any of its
subsidiaries ("Group") may be granted an award under the LTIP. 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. Awards were granted to two
Directors of the Company during the year. Awards were capable of
exercise from grant date and were exercised during the year.
SIP SAYE CSOP PSP SIAP LTIP
Number
At 1 October 2018 82,611 3,240,995 1,564,251 909,129 6,615,385 -
Granted - 1,574,064 - - 1,600,000 1,403,846
Lapsed (16,744) (1,835,105) (316,098) (749,129) (7,415,385) -
Exercised - (16,518) - - - (1,403,846)
-------- ----------- --------- --------- ----------- -----------
At 30 September 2019 65,867 2,963,436 1,248,153 160,000 800,000 -
Granted - 1,818,896 1,880,000 680,000 - -
Lapsed - (583,656) (15,000) - - -
Exercised (65,867) (387,792) - - - -
-------- ----------- --------- --------- ----------- -----------
At 30 September 2020 - 3,810,884 3,113,153 840,000 800,000 -
======== =========== ========= ========= =========== ===========
Weighted average exercise
price (p)
At 1 October 2019 0.00p 29.49p 40.75p 0.00p 0.00p 0.00p
Granted - 32.00p 44.00p 0.00p - -
Lapsed - 30.03p 40.75p - - -
Exercised 0.00p 33.21p - - - -
-------- ----------- --------- --------- ----------- -----------
Outstanding at 30
September 2020 0.00p 30.22p 42.71p 0.00p 0.00p 0.00p
Outstanding value
at 30 September 2019 0.00p 29.49p 40.75p 0.00p 0.00p 0.00p
Fair value of options
granted
Weighted fair value
of one option 87.61p 9.55p 17.49p 39.42p 6.00p -
Assumptions used in
estimating the fair
value (weighted average)
Share price at date
of grant 99.75p 33.62p 42.42p 43.24p 27.10p -
Exercise price - 30.22p 42.71p 0.00p 0.00p -
Expected dividend
yield 4.60% 2.78% 4.04% 2.90% 1.00% -
Risk free rate 1.21% 0.42% 0.05% (0.03%) 0.71% -
Expected volatility 40.37% 42.68% 56.61% 57.10% 34.90% -
Expected life 3 years 3.4 years 5.1 years 3 years 1.5 years -
In the year ended 30 September 2020, options were granted in
respect of the CSOP, PSP and SAYE schemes.
The weighted average remaining contractual life of outstanding
options at 30 September 2020 was 1.7 years (2019: 1.9 years).
The SAYE, CSOP and PSP options were valued under the binomial
methodology.
The SIAP options were valued using a Monte Carlo model.
The inputs into the Binomial model 2020 2019
are as follows:
32.00 -
Share price (p) 44.00 29.25
0.00 -
Exercise price (p) 44.00 25.00
Expected volatility 35.00 -
(%) 58.00 48.45
Expected life (years) 3 - 6.5 3.43
(0.05)
Risk-free rate (%) - 0.20 0.65
Expected dividend 1.75 -
yield (%) 1.85 2.83
The inputs into the Monte Carlo model 2020 2019
are as follows:
Share price (p) - 27.1
Exercise price (p) - 0.00
Expected volatility
(%) - 34.90
Expected life (years) - 1.50
Risk-free rate (%) - 0.71
Expected dividend
yield (%) - 1.00
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
behavioural 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.
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
totaling 325,842 were transferred directly to the Employee Benefit
Trust on 23 March 2015. The own shares reserve at 30 September 2020
represents the cost of GBP325,842 (2019: 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.
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 GBP4,621,000 (2019: GBP5,420,000). A
subsidiary of the Group has provided a guarantee of GBP750,000
(2019: 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
Financial assets measured
at amortised cost
---------------------------
2020 2019
Financial assets GBP'000 GBP'000
Current financial assets
Trade receivables, loans and other
receivables 37,711 39,748
Cash and cash equivalents 9,679 2,452
47,390 42,200
============= ============
Financial liabilities
measured at amortised
cost
------------------------
2020 2019
Financial liabilities GBP'000 GBP'000
Current financial liabilities
Trade and other payables 31,336 31,333
Lease liabilities 3,167 54
----------- -----------
Total current financial liabilities 34,503 31,387
----------- -----------
Non-current financial liabilities
Borrowings - 9,755
Lease liabilities 3,669 -
----------- -----------
Total non-current financial liabilities 3,669 9,755
38,172 41,142
=========== ===========
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 and as a
consequence of being debt free the Directors do not consider that
the Group has a material exposure to interest rate risk.
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.
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:
2020 2019
GBP'000 GBP'000
Floating rate Sterling borrowings
with a capped interest rate - 9,755
======= =======
The Group's average interest rate was 3.7% (2019: 4.4%) which
included LIBOR and margin.
(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.
(c) Interest rate sensitivity analysis
The Group's principal borrowings attract floating rate interest.
On a weighted average of GBP6.4m (2019: GBP14.5m) of debt in the
year, a half per cent increase in the floating interest rate would
have increased annual interest payable by GBP32,000 (2019:
72,000).
33. Operating lease commitments
The future aggregate minimum lease payments under
non-cancellable operating leases are as follows:
2020 2019
Land and Other items Land and Other items
buildings buildings
GBP'000 GBP'000 GBP'000 GBP'000
Within one year - - 1,059 2,758
Between two and five years - - 1,874 2,419
Over five years - - 102 -
---------- ----------- ---------- -----------
- - 3,035 5,177
========== =========== ========== ===========
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.
34. Cash generated from operations
Pre IFRS
16
2020 2020 2019
GBP'000 GBP'000 GBP'000
Operating profit 8,805 8,643 6,394
Adjustments for:
Depreciation 4,793 682 693
Share-based payments 171 171 544
Amortisation of intangible assets 1,984 1,984 3,159
Profit on disposal of property, plant
and equipment (10) (10) (40)
Changes in working capital:
Inventories 37 37 1,157
Trade and other receivables 1,618 1,618 199
Trade and other payables 6,035 6,035 (2,491)
Provisions 436 436 (4,076)
Cash generated from operations 23,869 19,596 5,539
======= ======== =======
Adjusted operating cash conversion
calculation
Cash generated from operations 23,869 19,596 5,539
VAT deferral (6,072) (6,072) -
Exceptional (income received) / costs
paid in the year (605) (605) 4,364
Adjusted cash generated from continuing
operations 17,192 12,919 9,903
======= ======== =======
Operating profit before exceptional
items and amortisation of acquisition
intangibles 10,404 10,242 9,354
======= ======== =======
Operating cash conversion % 165% 126% 106%
======= ======== =======
Statutory operating cash conversion
calculation
Cash generated from operations 23,869 19,596 5,539
Statutory operating profit before
exceptional items and amortisation
of acquisition intangibles 10,404 10,242 9,354
------- -------- -------
Statutory operating cash conversion
% 229% 191% 59%
======= ======== =======
35. 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, provides services to
Warmworks, a joint venture with Everwarm. GBP5,285,000 of services
were provided in 2020 (2019: GBP5,932,000). GBP484,000 was charged
to Everwarm Limited from Warmworks for services provided in 2020
(2019: GBP651,000).
As at 30 September 2020 Everwarm Limited had a receivable owing
from Warmworks amounting to GBP1,166,000 (2019: GBP392,000).
As at 30 September 2020 Arbed am Byth had a loan owed to
Everwarm Limited amounting to GBPnil (2019: GBP400,000). As at 30
September 2020 Everwarm Limited had a receivable owing from Arbed
am Byth amounting to GBP18,000 (2019: GBP38,000). GBP359,000 was
charged by Everwarm Limited to Arbed am Byth for services provided
in 2020 (2019: GBPnil).
Bob Holt provides consultancy services via a 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 four
days per week over 47 weeks per year at a total cost of GBP300,000
per annum (plus VAT). The total value of services provided to the
Group was GBP285,000 (2019: GBP150,000). Sureserve group plc had an
amount owing to the company of GBPnil (2019: GBP45,000).
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;
2020 2019
Number Number
Number of members of the Group Management
Board at each year end 15 16
======= =======
2020 2019
GBP'000 GBP'000
Short-term employee benefits 2,383 2,150
Share-based payment / LTIP - 400
Post-employment benefits 142 156
Compensation for loss of office - 158
2,525 2,864
======= =======
In addition to the above dividends were paid to directors of
GBP7,000 (2019: GBP14,000)
36. Events after the reporting date
On the 3 December 2020, the Group acquired Vinshire Gas Services
Limited for a consideration of GBP200,000. This has allowed to
Group to increase its provision for gas servicing and presence in
the Midlands. Further disclosures have not been included as the
Directors do not consider them to be material to the Group.
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