18 June 2019
Marlowe plc
Audited Results for the year ended 31 March 2019
Marlowe plc ("Marlowe" the "Company" or the "Group"), the specialist services group focused on developing companies which assure safety and regulatory compliance, announces its audited results for the year ended 31 March 2019.
Financial performance
| ADJUSTED RESULTS - Continuing operations | 2019 | 2018 | % |
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| Revenue | £128.5m | £80.6m | +59% |
| EBITDA1 | £11.0m | £7.2m | +53% |
| Operating profit1 | £9.5m | £6.2m | +53% |
| Profit before tax1 | £8.9m | £5.8m | +53% |
| Earnings per share - basic1 | 18.8p | 14.0p | +34% |
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| Net debt | £20.1m | £2.9m |
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| STATUTORY RESULTS - Continuing operations | 2019 | 2018 |
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| Revenue | £128.5m | £80.6m |
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| Operating profit | £2.6m | £0.0m |
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| Profit/(loss) before tax | £2.0m | £(0.4)m |
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| Earnings per share - basic | 3.8p | (2.2)p |
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Financial highlights
· Group revenue up 59% to £128.5m. Current 12 month run-rate revenues of approximately £175m
· Adjusted EBITDA1 up 53% to £11.0m
· Adjusted profit before tax1 up 53% to £8.9m
· Adjusted EPS1 up 34% to 18.8p
· Adjusted EBITDA1 for Risk Management & Compliance and Water Treatment & Air Quality up 37% and 75% respectively
· Underlying cash conversion 83%
· Pro forma net debt now <1x EBITDA following oversubscribed placing to raise £20m as announced on 22 May 2019
Operational highlights
· Acquisition of William Martin Compliance, extending the scope and capabilities of the Group's activities in Health, Safety & Compliance markets
· Acquisitions of Suez WCS and, since the year-end, Clearwater, transforming the scale and scope of the Group's Water Treatment & Hygiene operations
· Good underlying organic growth continues, driven by increasing recognition of the scope and quality of our services, improved customer retention and market growth
· Approximately 20% of Marlowe revenue now comes from customers taking more than one service from across the Group as a result of our broader capabilities and initiatives focused on cross-selling services
· All integration programmes on track, with good progress made on operational and technological improvements across the Group
· Well-developed pipeline of acquisition opportunities to continue to add further scale and expertise to the Group
1Expanation of non-IFRS measures are contained within the Finance Director's review below.
Commenting on the results, Alex Dacre, Chief Executive, said:
"We are pleased to report another strong financial performance and a year of substantial progress in developing the scale and breadth of our Group.
Marlowe is now a UK leader in specialist services which assure safety and regulatory compliance. Our Group is uniquely positioned in the UK to provide our customers with a comprehensive one-stop approach to their health, safety and regulatory compliance needs; from audit, consultancy, and software, through to the full implementation of their recurring testing, inspection and compliance requirements.
Marlowe's defensive qualities, strong channel to market, organic growth momentum and potential to accelerate growth through targeted M&A strongly position us to continue to gain further market share across all our business streams and to create sustainable shareholder value.
The current year's trading has started in line with our expectations and we look forward to making further progress during the year."
The Annual Report & Financial Statements 2019 and the Notice of AGM 2019 can be viewed at or downloaded from the Company's corporate website at www.marloweplc.com.
For further information:
| Marlowe plc | www.marloweplc.com |
| Alex Dacre, Chief Executive | Tel: +44 (0) 203 841 6194 |
| Mark Adams, Group Finance Director | |
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| Cenkos Securities plc (Nominated Adviser & Joint Broker) | |
| Nicholas Wells | Tel: +44 (0)20 7397 8900 |
| Ben Jeynes |
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| Harry Hargreaves |
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| Joh. Berenberg, Gossler & Co. KG, London Branch (Joint Broker) | |
| Ben Wright | Tel: +44 (0)20 3207 7800 |
| Mark Whitmore | |
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| FTI Consulting | |
| Nick Hasell | Tel: +44 (0)20 3727 1340 |
| Alex Le May | |
Annual Report and Financial Statements and Notice of Annual General Meeting
The Company announces that it has today published its Annual Report & Financial Statements for the year ended 31 March 2019.
The AGM has been convened for 10 am on 18 September 2019 at 20 Grosvenor Place, London, SW1X 7HN.
The Annual Report & Financial Statements 2019 and the Notice of AGM 2019 will be posted to shareholders and can be viewed at or downloaded from the Company's corporate website at www.marloweplc.com.
CHAIRMAN'S INTRODUCTION
In my first Chairman's Statement since taking on the role in April, I am pleased to report another year of strong progress by the Group.
Overview
2019 represents the third year of trading for Marlowe and has been another important year in the development and delivery of our strategy and one of significant financial progress. The Group is now a leading operator in the UK compliance services market and is focused on activities where it can generate strong returns with excellent revenue visibility.
The details of our financial performance are set out in the Chief Executive's and Finance Director's reviews. For the year ended 31 March 2019, adjusted EBITDA1 was £11.0 million on revenue of £128.5 million. Adjusted profit before tax1 was £8.9 million with adjusted earnings per share1, of 18.8 pence. Statutory profit before tax was £2.0 million.
Following the acquisition of William Martin Compliance Solutions ("William Martin") in December 2018, the Group's two operating divisions report as Risk Management & Compliance ("Risk & Compliance") and Water Treatment & Air Quality ("Water & Air"), both of which are focused on providing services which assure the safety and regulatory compliance of commercial properties, whilst managing risk for businesses across the country.
Corporate transactions
We completed eight acquisitions during the year, one disposal of non-core assets with one further acquisition since the year end.
In line with our strategy to broaden the Group's capabilities into complementary areas, the most significant event in the year was the acquisition of William Martin, through which Marlowe has secured a market-leading position in the property related health and safety risk management sector ("Health, Safety & Compliance").
In addition, we added scale and further broadened the Group's capabilities through two acquisitions in Fire Safety & Security, three in Water Treatment & Hygiene and two in Air Testing & Quality.
After the year end, we announced the acquisition of Clearwater Group ("Clearwater"), significantly strengthening the Group's position in the water treatment & hygiene market.
People
This is my first Chairman's statement since succeeding Derek O'Neill on 1 April 2019. Derek had been a Director of Marlowe since its formation and took on the role of Chairman upon its re-admission to AIM in 2016, since when he guided the Company through a period of strong growth. On behalf of the Board, I would like to thank him for his contribution and wish him well in his retirement.
We welcome into the Group our new colleagues from the businesses acquired during the year. The Group has rapidly increased in scale since its formation and now employs over 2,000 people, including teams of consultants, auditors, risk assessors, technicians and engineers who deliver our services supported by experts across office-based support functions around the country. The continued dedication of all the teams across Marlowe has been impressive. The Group's businesses deliver services that are provided by people and as we build our businesses into market leaders, we are relying on these people to continue to demonstrate the drive, expertise and passion that has been evident over the past financial year. I would like to thank our entire team for their hard work and dedication.
Strategy
Our strategy for growth is clearly defined: we will continue to build leading positions across our existing sectors through a combination of fast-paced organic and acquisition-led growth in our ambition to become the UK's trusted name in the provision of regulated safety services.
Kevin Quinn
Non-Executive Chairman
CHIEF EXECUTIVE'S REVIEW
Results & Strategy
The Group continued to make good progress during 2019, delivering a strong trading performance with substantial improvements in revenue, adjusted profit1 and adjusted earnings per share1 along with further focus and investment on operational and technological improvements across our operations. The progress we saw in 2019 reflected the contribution from acquisitions and broad-based organic growth across both our divisions. The major acquisitions of the year were William Martin Compliance and Suez WCS, which significantly developed the breadth of our capabilities and deepened our presence across our core compliance service markets. These acquisitions were supplemented by a number of smaller bolt-on acquisitions which added further scale and expertise.
2019 was a year of important strategic advancement, with Marlowe making further strides towards its ambition of being recognised as the UK's leader in specialist services which assure safety and regulatory compliance, whilst managing risk for businesses across the country. We now occupy leading positions across our four closely related sectors and benefit from attractive scale and critical mass, with run-rate revenues now approximately £175 million. We continue to take advantage of opportunities to leverage the efficiencies that result from this scale, the benefits of the investments that we are making in our operations, and the strong competitive advantage that we now have through the broad range of compliance services that we are able to offer to our customers.
For the year ended 31 March 2019, adjusted earnings before interest, tax, depreciation, amortisation and exceptional items1 were up 53% to £11.0 million (2018: £7.2m), adjusted profit before tax1 was up 53% to £8.9 million (2018: £5.8 million) and adjusted earnings per share1 were up 34% to 18.8p (2018: 14.0p) on revenues up 59% to £128.5 million (2018: £80.6 million). Statutory profit before tax was £2.0 million (2018: £(0.4) million).
We continued to execute our strategy at a fast pace throughout the year. Since the Company's initial platform acquisition and re-admission to AIM in April 2016 we have built leading positions in the UK across our two divisions, delivering services across health and safety, fire safety and security, water treatment and hygiene and air quality, testing and environmental services. The markets we focus on, which are underpinned by compliance regulation and other long-term growth drivers, are fragmented and large enough to offer significant scope for further growth. In addition, all the businesses in our Group share a similar channel to market. As a result, we know what it takes to succeed in compliance services markets, understand what our customers care about and are able to accelerate our organic growth rate through cross-selling services across our different business units. Approximately 20% of Marlowe's revenues are now multi-service, where we are delivering more than one service to our customers. Within the top 1,000 customers, this percentage increases to 37% and within our top 100 customers to 52%. The benefits we derive from the advantage of cross-selling mean that we reduce our cost of contract acquisition, increase our organic growth rate and deepen our relationships with clients, leading to improved customer retention, which has increased to more than 95% in parts of the Group.
As a Group, our decentralised operating model allows each division operational autonomy within a well-defined and disciplined framework - our businesses are sector specialists and our managers are empowered to make the necessary decisions to grow their businesses in their markets within a structure that is designed to engender collaboration between all the businesses in the Group.
Across our Group we provide recurring regulated testing, inspection and compliance services with the benefit of very good visibility of our future revenues. The majority of the services we provide are non-discretionary and our average customer relationship length, which now stands at over ten years, continues to grow. Individually, our businesses are leading specialists in their fields and together form a Group that can provide a comprehensive and integrated approach to the safety, risk management and regulatory compliance of our customers' operations and the properties they occupy.
Risk Management & Compliance
Marlowe's Risk Management & Compliance division delivers services which assure the safety and regulatory compliance of businesses and their commercial properties across health and safety, fire safety, security and a range of other potential safety risks. The division also provides compliance software-as-a-service, which customers use to manage risk and compliance across large portfolios of commercial properties. A large portion of the services we deliver recur from month to month or year to year and are essential to our customers' operations. Across the division, we employ in the region of 575 consultants, auditors, technicians, risk-assessors, engineers and other experts who provide advice, consultancy, inspections, audits, risk assessments, testing services, maintenance, installation, commissioning and upgrade services and training with the aim of certifying the regulatory compliance of a wide range of commercial properties. We employ an additional 380 office-based support staff who are located in sites strategically located across the county.
Our Risk Management & Compliance division performed well during 2019 and recorded adjusted EBITDA1 growth of 37% to £6.3 million with adjusted operating profit1 growth of 49% to £5.8 million (2018: £3.9 million) and revenues of £68.5 million (2018: £52.6 million). This growth reflects the contribution from bolt-on acquisitions made at the end of FY18 and early FY19 and good organic growth. Following the acquisition of William Martin in December 2018, we expect to generate significant further growth in revenues and profits during the current financial year.
The acquisition of William Martin was the key corporate event for the division in the year. Through providing clients with consultancy services integrated with Meridian, our leading proprietary software-as-a-service platform, William Martin enables customers to manage risk and statutory compliance across their properties within the fast-growing market of tech-enabled health and safety. William Martin's services significantly extend Marlowe's capabilities towards its objective of providing customers with a comprehensive approach to their health and safety and regulatory compliance needs, from initial audit through to full implementation. The compliance markets we occupy continue to favour service providers who offer their customers tech-enabled solutions that help to manage complex data and multiple compliance requirements across their organisations within a consolidated risk management platform. Since acquisition, we have increased investment in the development of our Meridian software to ensure that it remains at the forefront of the commercial property compliance software market and now have in the region of 25 software developers across the Group.
Our Fire Safety & Security activities now benefit from attractive scale and route density across the UK. The twelve acquisitions that have built this business to date, including the more recent acquisitions of Flamefast, Firecrest and Island Fire, are now fully integrated into our operating platform. We are now realising attractive synergies from the combined businesses with continued improvements in underlying operating margins in recent months. We expect to deliver further improvements in productivity and operating margins into the new financial year from our continued focus on a broad range of value-enhancing initiatives. Our near-term operational focus continues to be on leveraging our increased scale to deliver an enhanced service to our customers more efficiently, to further enhance organic growth, whilst seeking complementary bolt-on acquisition opportunities to add further scale and capabilities. The acquisition of Flamefast, which was completed at the end of the previous financial year, developed our fire safety capabilities into a leading position in the commercial kitchen fire safety market. Upon acquisition, Flamefast was recording break-even profitability. Following integration, this business is now delivering the level of profitability anticipated at the time of acquisition and is on a path towards delivering margins in line with the wider Fire Safety & Security business. The Island Fire and Firecrest acquisitions which have both been integrated, have added attractive regional density to the division, especially with SME customers.
Water Treatment & Air Quality
Our Water Treatment & Air Quality division delivers regulatory-driven compliance services mainly focused on water treatment, water hygiene, air quality, ventilation hygiene and environmental services. A large portion of the services we deliver recur from month to month or year to year and are essential to our customers' operations. Across the division, we employ in the region of 600 consultants, technicians, engineers and other experts who provide advice, inspections, tests, samples, treatment, dosing, hazard remediation along with certifying the regulatory compliance of a very wide range of commercial properties. We employ an additional 400 office-based support staff who are located in sites strategically located across the county.
Our Water Treatment & Air Quality division had another strong year, reporting adjusted EBITDA1 growth of 75% to £6.3 million (2018: £3.6 million) with adjusted operating profits1 of £5.3 million (2018: £3.3 million) on revenues of £62.2 million (2018: £28.8 million). This growth reflects the impact of acquisitions in the year and the full year contribution from acquisitions made in FY18 together with good organic growth, which we have seen accelerate in recent months due to improved account management processes, enhanced service standards, our broad capabilities as a business and the efficiencies that we can deliver as a result of our scale. Customer retention rates across the division have continued to improve as we focus on enhancing service levels and realise the benefits of both our broader capabilities and the efficiencies that our scale allows us to deliver. Additionally, we have seen further improvements in the underlying profit margins of the division as a result of initiatives focused on enhancing productivity and utilisation, supplementing the synergies realised as a result of our increased scale and the effective integration of acquired businesses.
WCS Group, the largest business within the division, benefited significantly from the acquisition of Suez Water Conditioning Services, completed in August 2018. This acquisition was an important step in our water treatment and hygiene strategy and strengthened our national capabilities whilst contributing in the region of £13 million of largely recurring revenues to the Group. Upon acquisition, the Suez business was generating negligible operating margins. Since the integration of Suez into WCS Group, attractive synergies have been realised such that over the past few months, the business has delivered an operating margin in line with the Group's wider Water activities. The integration programme has seen the closure of properties, the implementation of new systems and processes, a reduction in the use of sub-contract labour, the removal of duplicated office-based support roles and the insourcing of water treatment chemical spend to our in-house blending facility. Following a post-acquisition review of the acquired business, we identified, restructured and carved out certain non-core assets of the Suez business, which comprise two contracts to produce specialist chemical products with applications in healthcare and clinical disinfection which were non-core to our water treatment and hygiene focus. These contracts were contributing in the region of £0.6 million of revenue and an immaterial profit. We sold the contracts for a cash consideration of £2.3 million, just over half the £4.5 million we paid to acquire the entire Suez business. As a result of the implementation of our sales and account management disciplines, and in spite of the significant restructuring programme, the acquired revenues of Suez have demonstrated good organic growth since acquisition.
The acquisitions of Kingfisher Environmental and Atana further extended the Group's capabilities and geographic footprint into the commercial swimming pool water treatment and hygiene market and the wastewater and effluent treatment market respectively. Both acquisitions advance the division's strategy to be able to work with customers across the entire water cycle, from influent to effluent, across all types of commercial facilities. We are now one of a small number of service providers in the UK with this range of capabilities.
The acquisition of Clearwater, announced in May 2019 following the FY19 year-end, is the next significant step in our strategy of consolidating the UK water treatment market. Clearwater, formerly owned by Baird Capital Partners Europe since 2015, provides a range of services mainly related to water treatment, hygiene and compliance across the UK and Ireland. Clearwater has approximately 2,400 customers across a broad range of end markets including healthcare, education, food processing, leisure and public services and brings in the region of £27 million of revenues to the Group. The majority of Clearwater's revenues are recurring and derived from long-term contracted customer relationships. The acquisition has broadened Marlowe's technical capabilities and will enhance its route density nationally. Following the acquisition, our enlarged business has run-rate revenues in the water services market in the region of £75 million, giving us a significant opportunity as the market continues to consolidate and favours larger, well-invested, national players. Our integration programme is now well underway, and we remain confident that we will be able to realise significant synergies from the acquisition whilst broadening the capabilities of the combined business to enhance the range of services it provides. We have made good initial progress, and Clearwater's annual water treatment chemical blending costs of approximately £1 million have already been insourced to B&V Chemicals, Marlowe's water treatment chemical blending business, from the external supplier who was supplying the business with chemicals prior to the acquisition.
DCUK, the UK market leader in air quality, ventilation hygiene and contamination remediation, continues to build its market-leading position. During the year, we acquired the business and assets of Forest Environmental, which has extended the scale and capabilities of DCUK and enhanced its national footprint. Forest was rapidly integrated into the DCUK operating platform, bringing some valuable recurring framework contracts to the business, including a key long-term contract with Transport for London. Additionally, DCUK's growth has been accelerated through access to the customer base of other Marlowe companies and likewise other Marlowe companies have looked to deliver services, such as fire safety and water treatment, to the DCUK customer base. The air hygiene market, which is less vended than some other compliance service markets, continues to grow at an attractive rate and DCUK is benefiting from this growth.
Outlook
Marlowe's defensive market qualities, strong channel to market, organic growth momentum and potential to acquire new businesses strongly position us to continue to create shareholder value. We will continue to pursue our strategy of organic and acquisitive growth and we are well positioned to gain further market share across all our business streams.
The current year's trading has started in line with our expectations and we look forward to making further progress during the year.
Alex Dacre
Chief Executive
FINANCE DIRECTOR'S REVIEW
Revenue
Revenue for the year ended 31 March 2019 increased by 59% to £128.5 million (2018: £80.6 million) reflecting good organic growth and the contribution from acquisitions completed in the year, together with the full year impact of those completed in 2018.
Profitability
On a statutory basis, profit before tax from continuing operations for the year ended 31 March 2019 was £2.0 million (2018: £(0.4) million). Adjusted profit before tax for the year was £8.9 million (2018: £5.8 million). Our key measures of profitability for the Group are adjusted operating profit and adjusted EBITDA. In the year ended 31 March 2019, adjusted operating profit increased by 53% to £9.5 million (2018: £6.2 million) and adjusted EBITDA also increased by 53% to £11.0 million (2018: £7.2 million). Adjusted EBITDA means operating profit before interest, tax, depreciation and amortisation and excludes separately disclosed acquisition and other costs.
Non-IFRS measures
The financial statements contain all the information and disclosures required by the relevant accounting standards and regulatory obligations that apply to the Group. The Annual Report and financial statements also include measures which are not defined by generally accepted accounting principles such as IFRS. We believe this information, along with comparable IFRS measures, is useful as it provides investors with a basis for measuring the performance of the Group on a comparable basis. The Board and our managers use these financial measures to evaluate our operating performance. Non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS. Similarly, non-IFRS measures as reported by us may not be comparable with similar measures reported by other companies.
Due to the nature of acquisition and other costs in relation to each acquisition and the non-cash element of certain charges, the Directors believe that adjusted EBITDA and adjusted measures of operating profit, profit before tax and earnings per share provide shareholders with a useful representation of the underlying earnings derived from the Group's business and a more comparable view of the year-on-year underlying financial performance of the Group.
To arrive at adjusted profit before tax the following adjustments have been made:
Continuing operations
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| 2019 £'m | 2018 £'m |
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| Profit/(loss) before tax | 2.0 | (0.4) |
| Acquisition costs | 1.0 | 0.6 |
| Restructuring costs | 5.2 | 3.6 |
| Amortisation of acquisition intangibles | 1.8 | 0.9 |
| Share-based payments | 0.8 | 0.4 |
| Profit on disposal of non-core business | (1.9) | - |
| Exceptional loss on customer liquidation | - | 0.7 |
| Adjusted profit before tax - continuing operations | 8.9 | 5.8 |
Reconciliation of adjusted operating profit and adjusted EBITDA
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| 2019 £'m | 2018 £'m |
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| Adjusted operating profit | 9.5 | 6.2 |
| Depreciation | 1.5 | 1.0 |
| Adjusted EBITDA | 11.0 | 7.2 |
Acquisition and other costs
Acquisition and other costs totalled £6.9 million in the year (2018: £6.2 million).
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| 2019 £'m | 2018 £'m |
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| Acquisition costs | 1.0 | 0.6 |
| Restructuring costs | 5.2 | 3.6 |
| Amortisation of acquisition intangibles | 1.8 | 0.9 |
| Share-based payments | 0.8 | 0.4 |
| Profit on disposal of non-core business | (1.9) | - |
| Exceptional loss on customer liquidation | - | 0.7 |
| Total | 6.9 | 6.2 |
Acquisition costs include legal fees, professional fees and staff costs incurred as part of the acquisitions.
Restructuring costs, being the costs associated with the integration of acquisitions, remain the key component of acquisition and other costs and increased to £5.2 million (2018: £3.6 million). The increase reflects both the number of transactions completed in the year and the scale of restructuring required at certain acquired businesses. In particular, the acquisition from its administrator of the business and assets of Forest Environmental. The costs include the bulk of the restructuring of acquisitions in the second half of 2018 and those completed in 2019. These primarily consisted of:
• The cost of duplicated staff roles during the integration and restructuring period;
• The redundancy cost of implementing the post completion staff structures;
• IT costs associated with the integration and transfer to Group IT systems.
The majority of these costs are incurred in the 12 months following an acquisition.
Amortisation of intangible assets for the year was £1.8 million (2018: £0.9 million) with the increase attributable to the higher carrying value of intangible assets.
Long term incentive schemes have been established to incentivise certain key members of the Group's senior management to create shareholder value through the successful acquisition, restructuring and integration of businesses in their chosen service sectors. As such, we consider share based payments to be part of "Acquisition and other costs" as we continue to execute our stated strategy. Share-based payments increased to £0.8 million (2018: £0.4 million), in line with the Group's growth strategy and as a result of additional key members of the senior management being included in the Group's long-term incentive schemes during the year.
On 21 January 2019 the Group sold certain non-core assets for a profit of £1.9 million. These assets comprised of two contracts which produced specialist chemical products with applications in healthcare and clinical disinfection that were acquired as part of the acquisition of Suez WCS.
Earnings per share
Basic adjusted earnings per share are calculated as adjusted profit for the year less a standard tax charge divided by the weighted average number of shares in issue in the year.
Basic earnings per share reflect the actual tax charge.
Earnings per share (EPS)
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| 2019 Pence | 2018 Pence |
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| Basic adjusted earnings per share | 18.8 | 14.0 |
| Basic earnings per share | 3.8 | (2.2) |
Interest
Net finance costs amounted to £0.6 million (2018: £0.4 million) which reflects the increased average levels of debt in the year arising from the financing of acquisitions.
Taxation
UK Corporation Tax is calculated at 19% (2018: 19%) of the estimated assessable profit/(loss) for the year.
The rate will reduce further to 17% from 1 April 2020; accordingly, this rate reduction has been reflected in the deferred tax balance which forms part of the statement of financial position.
Statement of financial position
Net assets increased to £77.5 million (2018: £48.1 million) primarily due to the placing of shares in July and December 2018 and equity issued as part of acquisition consideration.
Goodwill and intangibles at 31 March 2019 were £89.6 million (2018: £42.4 million).
Property, plant and equipment totalled £6.3 million (2018: £4.2 million), comprising freehold and long leasehold property, leasehold improvements, operational equipment, vehicles and computer systems.
Cash flow
The net cash inflow from operating activities before restructuring costs was £3.2 million (2018: £2.4 million) in the year. Cash conversion (being the ratio of cash generated from operations, excluding any acquisition related flows, to adjusted operating profit) was 83%.
There was a net working capital outflow in the year of £5.8 million (2018: £3.2 million). The movement reflects the continuing increased scale of the Group but also includes additional working capital investment at certain businesses acquired in the year. In particular, the acquisition of Forest Environmental which was structured as an asset purchase with no working capital so required an investment in working capital post acquisition. Management of working capital remains a key focus across the Group with a strong emphasis on cash collection and overdue debt reduction.
Capital expenditure totalled £1.8 million (2018: £0.5 million) following investment in our IT systems and motor fleet across the business.
Net debt
Net debt at the end of the year was £20.1 million (2018: £2.9 million). In November 2018 we replaced our £18 million debt facility with Lloyds Bank with a three-year £30 million revolving facility and £15 million additional accordion facility with HSBC and NatWest Bank.
The Group has sufficient headroom on its facilities at the end of the year to continue to fund acquisitions as part of its strategy should it choose to do so with debt.
Key Performance Indicators ('KPIs')
The Group uses many different KPI's at an operational level which are specific to the business and provide information to management. The Board uses KPIs that focus on the financial performance of the Group such as revenue, gross profit, adjusted EBITDA and adjusted operating profit.
IFRS 16
IFRS 16 'Leases' was issued in January 2016. The Group will apply the standard from 1 April 2019 and using the modified retrospective approach.
It is expected that the application of this standard will have a material impact on Group's financial statements. Indicatively, the estimated impact can be summarised as follows:
Net debt will increase by £6.5 million primarily reflecting the sizeable leasehold property and vehicle portfolio of the Group.
Operating profit will increase by approximately £0.25 million reflecting the reclassification of rental payments to interest charges.
Adjusted EBITDA will increase by approximately £3.25 million reflecting the reclassification of rental payments to interest and depreciation charges.
The debt covenants on the Group's borrowing facility will be unaffected by the application of IFRS 16 as the covenant calculation are based on the accounting principles in place at the date the agreement was entered into.
Mark Adams
Group Finance Director
Consolidated statement of comprehensive income
For the year ended 31 March 2019
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| Year ended 31 March 2019 | Year ended 31 March 2018 | ||||
| Notes | Adjusted results £'m | Acquisition and other costs £'m | Unadjusted results £'m | Adjusted results £'m | Acquisition and other costs £'m | Unadjusted results £'m | |
| Revenue | 2 | 128.5 | - | 128.5 | 80.6 | - | 80.6 |
| Cost of sales |
| (82.5) | - | (82.5) | (54.2) | - | (54.2) |
| Gross profit |
| 46.0 | - | 46.0 | 26.4 | - | 26.4 |
| Administrative expenses excluding acquisition and other costs |
| (36.5) | - | (36.5) | (20.2) | - | (20.2) |
| Acquisition costs |
| - | (1.0) | (1.0) | - | (0.6) | (0.6) |
| Restructuring costs | 3 | - | (5.2) | (5.2) | - | (3.6) | (3.6) |
| Amortisation of acquisition intangibles |
| - | (1.8) | (1.8) | - | (0.9) | (0.9) |
| Share-based payments |
| - | (0.8) | (0.8) | - | (0.4) | (0.4) |
| Profit on disposal of non-core business |
| - | 1.9 | 1.9 | - | - | - |
| Exceptional loss on customer liquidation |
| - | - | - | - | (0.7) | (0.7) |
| Total administrative expenses |
| (36.5) | (6.9) | (43.4) | (20.2) | (6.2) | (26.4) |
| Operating profit | 2 | 9.5 | (6.9) | 2.6 | 6.2 | (6.2) | - |
| Finance costs |
| (0.6) | - | (0.6) | (0.4) | - | (0.4) |
| Profit/(loss) before tax |
| 8.9 | (6.9) | 2.0 | 5.8 | (6.2) | (0.4) |
| Income tax charge | 4 |
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| (0.5) |
|
| (0.3) |
| Profit/(loss) for the year |
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| 1.5 |
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| (0.7) |
| Other comprehensive income |
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| - |
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| - |
| Profit/(loss) and total comprehensive income for the year from continuing operations |
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|
| 1.5 |
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| (0.7) |
| Attributable to owners of the parent |
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|
| 1.5 |
|
| (0.7) |
| Earnings per share attributable |
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
| - Basic | 5 |
|
| 3.8p |
|
| (2.2p) |
| - Diluted | 5 |
|
| 3.6p |
|
| (2.2p) |
| Continuing operations |
|
|
|
|
|
|
|
| - Basic | 5 |
|
| 3.8p |
|
| (2.2p) |
| - Diluted | 5 |
|
| 3.6p |
|
| (2.2p) |
Consolidated statement of changes in equity
For the year ended 31 March 2019
|
| Attributable to the owners of the parent | ||||
| Share capital £'m |
Share premium £'m | Other reserves £'m | Retained earnings £'m | Total equity £'m | |
| Balance at 1 April 2017 | 15.5 | 18.7 | 0.3 | 0.5 | 35.0 |
| Loss for the year | - | - | - | (0.7) | (0.7) |
| Total comprehensive income for the year | - | - | - | (0.7) | (0.7) |
| Transactions with owners |
|
|
|
|
|
| Issue of shares during the year | 1.8 | 12.0 | - | - | 13.8 |
| Issue costs | - | (0.3) | - | - | (0.3) |
| Share-based payments | - | - | 0.3 | - | 0.3 |
|
| 1.8 | 11.7 | 0.3 | - | 13.8 |
| Balance at 31 March 2018 | 17.3 | 30.4 | 0.6 | (0.2) | 48.1 |
|
|
|
|
|
|
|
| Balance at 1 April 2018 | 17.3 | 30.4 | 0.6 | (0.2) | 48.1 |
| Profit for the year | - | - | - | 1.5 | 1.5 |
| Total comprehensive income for the year | - | - | - | 1.5 | 1.5 |
| Transactions with owners |
|
|
|
|
|
| Issue of shares during the year | 3.1 | 25.4 | - | - | 28.5 |
| Issue costs | - | (0.9) | - | - | (0.9) |
| Share-based payments | - | - | 0.3 | - | 0.3 |
|
| 3.1 | 24.5 | 0.3 | - | 27.9 |
| Balance at 31 March 2019 | 20.4 | 54.9 | 0.9 | 1.3 | 77.5 |
Consolidated statement of financial position
As at 31 March 2019
| ASSETS Non-current assets | Notes | 2019 £'m | 2018 £'m |
| Intangible assets | 7 | 89.6 | 42.4 |
| Property, plant and equipment |
| 6.3 | 4.2 |
| Deferred tax asset |
| 0.2 | - |
|
|
| 96.1 | 46.6 |
| Current assets |
|
|
|
| Inventories |
| 4.5 | 2.7 |
| Trade and other receivables | 8 | 39.8 | 24.6 |
| Other financial assets |
| 0.5 | - |
| Cash and cash equivalents |
| 7.7 | 7.7 |
|
|
| 52.5 | 35.0 |
| Total assets |
| 148.6 | 81.6 |
| LIABILITIES |
|
|
|
| Trade and other payables | 9 | (33.2) | (19.9) |
| Financial liabilities - borrowings |
| - | (2.3) |
| Other financial liabilities |
| (0.4) | (0.3) |
| Current tax liabilities |
| (0.8) | (0.5) |
| Provisions |
| (0.5) | (0.2) |
|
|
| (34.9) | (23.2) |
| Non-current liabilities |
|
|
|
| Trade and other payables | 9 | (5.0) | (1.0) |
| Financial liabilities - borrowings |
| (26.7) | (7.7) |
| Deferred tax liability |
| (3.8) | (1.3) |
| Other financial liabilities |
| (0.7) | (0.3) |
|
|
| (36.2) | (10.3) |
| Total liabilities |
| (71.1) | (33.5) |
| Net assets |
| 77.5 | 48.1 |
| Equity |
|
|
|
| Share capital |
| 20.4 | 17.3 |
| Share premium account |
| 54.9 | 30.4 |
| Other reserves |
| 0.9 | 0.6 |
| Retained earnings |
| 1.3 | (0.2) |
| Equity attributable to the owners of the parent |
| 77.5 | 48.1 |
Consolidated statement of cash flows
For the year ended 31 March 2019
|
| Notes | Year ended 31 March 2019 £'m | Year ended 31 March 2018 £'m |
| Net cash generated from operations | 10 | 5.2 | 3.2 |
| Net finance costs |
| (0.5) | (0.4) |
| Income taxes paid |
| (1.5) | (0.4) |
| Net cash generated from operating activities before acquisition and restructuring costs |
| 3.2 | 2.4 |
| Acquisition and Restructuring costs |
| (6.2) | (4.2) |
| Net cash used in operating activities |
| (3.0) | (1.8) |
| Cash flows from investing activities |
|
|
|
| Purchase of property, plant and equipment |
| (1.8) | (0.5) |
| Disposal of property, plant and equipment |
| 0.3 | 0.3 |
| Purchase of subsidiary undertakings, |
| (38.6) | (10.6) |
| Disposal of non-core business |
| 2.3 | - |
| Cash flows used in investing activities |
| (37.8) | (10.8) |
| Cash flows from financing activities |
|
|
|
| Proceeds from share issues |
| 27.0 | 10.0 |
| Repayment of bank borrowings |
| (19.2) | (5.2) |
| New bank loans raised |
| 34.3 | 6.7 |
| Cost of share issues |
| (0.9) | (0.3) |
| Finance lease repayments |
| (0.5) | (0.7) |
| Other financing activities |
| 0.1 | 2.0 |
| Net cash generated from financing activities |
| 40.8 | 12.5 |
| Net increase/(decrease) in cash and cash equivalents |
| - | (0.1) |
| Cash and cash equivalents at start of year |
| 7.7 | 7.8 |
| Cash and cash equivalents at end of year |
| 7.7 | 7.7 |
| Cash and cash equivalents shown above comprise: |
|
|
|
| Cash at bank |
| 7.7 | 7.7 |
Notes to the audited preliminary financial information for the year ended 31 March 2019
1. Basis of Preparation
The figures for the year ended 31 March 2019 have been extracted from the audited statutory financial statements for the year on which the auditors have issued an unqualified opinion. The financial information attached has been prepared in accordance with the recognition and measurement requirements of international financial reporting standards (IFRS) as adopted by the EU and international financial reporting interpretations committee (IFRIC) interpretations issued and effective at the time of preparing those financial statements.
The financial information for the year ended 31 March 2019 and 31 March 2018 does not constitute statutory financial information as defined in Section 434 of the Companies Act 2006 and does not contain all of the information required to be disclosed in a full set of IFRS financial statements. This announcement was approved by the Board of Directors and authorised for issue on 18 June 2019. The auditor's report on the financial statements for 31 March 2019 was unqualified, and did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain a statement under either Section 498 (2) or 498 (3) of the Companies Act 2006.
The Group meets its day to day working capital requirements through organic cash generation and its bank facility. The Group's budgets for 2020 and forecasts for 2021, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facility.
The accounting policies applied in the year ended 31 March 2019 are consistent with those applied in the financial statements for the year ended 31 March 2018 with the exception of the following new standards which applied for the first time in the financial year:
IFRS 15 Revenue from Contracts with Customers
The Group has undertaken analysis of how the adoption of IFRS 15 impacted the timing of recognition of revenue across its business, depending upon the nature and terms of their customer contracts. The current contract terms and business practices were reconsidered, and it has been concluded that the new standard did not have an impact on the timing of the recognition of revenue and that no restatement was required.
IFRS 9 Financial Instruments
The Group undertook an assessment of how the adoption of IFRS 9 would impact the Group's financial instruments. The key area that was considered across the business was the bad debt provisioning because of the implementation of the expected loss model and it was concluded that no restatement was required.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
2. Segmental Analysis
The Group is organised into two main operating segments, Risk Management & Compliance ("Risk & Compliance") and Water Treatment & Air Quality ("Water & Air"). Services per segment operate as described in the Chief Executive's Review. The key profit measures are adjusted operating profit and adjusted EBITDA and are shown before acquisition and restructuring costs, exceptional loss on customer liquidation, share-based payments charge, amortisation of intangible assets and profit on disposal of non-core business. The vast majority of trading of the Group is undertaken within the United Kingdom. Segment assets include intangibles, property, plant and equipment, inventories, receivables and operating cash. Central assets include deferred tax and head office assets. Segment liabilities comprise operating liabilities. Central liabilities include income tax and deferred tax, corporate borrowings and head office liabilities. Capital expenditure comprises additions to property, plant and equipment and includes additions resulting from acquisitions through business combinations. Segment assets and liabilities are allocated between segments on an actual basis.
Revenue
The revenue from external customers was derived from the Group's principal activities primarily in the UK (the Company is domiciled in England) as follows:
| Continuing operations | Risk & Compliance £'m | Water & Air £'m | Head Office £'m | 2019 Total £'m |
| Revenue | 68.5 | 62.2 | - | 130.7 |
| Inter-segment elimination | (1.1) | (1.1) | - | (2.2) |
| Revenue from external customers | 67.4 | 61.1 | - | 128.5 |
| Segment adjusted operating profit/(loss) | 5.8 | 5.3 | (1.6) | 9.5 |
| Acquisition costs |
|
|
| (1.0) |
| Restructuring costs |
|
|
| (5.2) |
| Amortisation of intangible assets |
|
|
| (1.8) |
| Share-based payments charge |
|
|
| (0.8) |
| Profit on disposal of non-core business |
|
|
| 1.9 |
| Operating profit |
|
|
| 2.6 |
| Finance costs |
|
|
| (0.6) |
| Loss before tax |
|
|
| 2.0 |
| Tax charge |
|
|
| (0.5) |
| Loss after tax |
|
|
| 1.5 |
| Segment assets | 30.3 | 27.8 | 90.5 | 148.6 |
| Segment liabilities | 14.9 | 15.5 | 40.7 | 71.1 |
| Capital expenditure | 0.3 | 1.4 | - | 1.7 |
| Depreciation and amortisation | 0.5 | 1.0 | 1.8 | 3.3 |
| Continuing operations | Risk & Compliance £'m | Water & Air £'m | Head Office £'m | 2018 Total £'m |
| Revenue | 52.6 | 28.8 | - | 81.4 |
| Inter-segment elimination | (0.7) | (0.1) | - | (0.8) |
| Revenue from external customers | 51.9 | 28.7 | - | 80.6 |
| Segment adjusted operating profit/(loss) | 3.9 | 3.3 | (1.0) | 6.2 |
| Acquisition costs |
|
|
| (0.6) |
| Restructuring costs |
|
|
| (3.6) |
| Exceptional loss on liquidation of Carillion |
|
|
| (0.7) |
| Amortisation of intangible assets |
|
|
| (0.9) |
| Share-based payments charge |
|
|
| (0.4) |
| Operating profit |
|
|
| - |
| Finance costs |
|
|
| (0.4) |
| Loss before tax |
|
|
| (0.4) |
| Tax charge |
|
|
| (0.3) |
| Loss after tax |
|
|
| (0.7) |
| Segment assets | 16.8 | 11.3 | 53.5 | 81.6 |
| Segment liabilities | 6.9 | 5.0 | 21.6 | 33.5 |
| Capital expenditure | 0.3 | 0.2 | - | 0.5 |
| Depreciation and amortisation | 0.7 | 0.3 | 0.9 | 1.9 |
Reconciliation of segment adjusted operating profit to adjusted EBITDA
|
| Risk & Compliance £'m | Water & Air £'m | Head Office £'m | 2019 Total £'m |
| Segment adjusted operating profit/(loss) | 5.8 | 5.3 | (1.6) | 9.5 |
| Depreciation | 0.5 | 1.0 | - | 1.5 |
| Adjusted EBITDA | 6.3 | 6.3 | (1.6) | 11.0 |
|
| Risk & Compliance £'m | Water & Air £'m | Head Office £'m | 2018 Total £'m |
| Segment adjusted operating profit/(loss) | 3.9 | 3.3 | (1.0) | 6.2 |
| Depreciation | 0.7 | 0.3 | - | 1.0 |
| Adjusted EBITDA | 4.6 | 3.6 | (1.0) | 7.2 |
The above tables reconcile segment adjusted operating profit/(loss), which excludes separately disclosed acquisition and other costs, to the standard profit measure under International Financial Reporting Standards (Operating Profit). This is the Group's Alternate Profit Measure used when discussing the performance the performance of the Group. The Directors believe that adjusted EBITDA and operating profit is the most appropriate approach for ascertaining the underlying trading performance and trends as it reflects the measures used internally by senior management for all discussions of performance and also reflects the starting profit measure when calculating the Group's banking covenants.
Adjusted EBITDA is not defined by IFRS and therefore may not be directly comparable with other companies' adjusted profit measures. It is not intended to be a substitute, or superior to, IFRS measurements of profit.
Major Customers
For the year ended 31 March 2019 no customers (2018: nil) individually accounted for more than 10% of the Group's total revenue.
3. Restructuring Costs
Restructuring and redundancy costs were £5.2m in 2019 (2018: £3.6m). This costs arise due to the following:
· The cost of duplicated staff roles during the integration and restructuring period
· The redundancy costs of implementing the post completion staff structures
· IT costs associated with the integration and transfer to Group IT systems
.
4. Taxation
|
| 2019 £'m | 2018 £'m |
| Current tax: |
|
|
| UK corporation tax on profit for the year | 1.1 | 0.5 |
| Adjustment in respect of previous periods | (0.1) | (0.2) |
| Total current tax | 1.0 | 0.3 |
| Deferred tax: |
|
|
| Current year | (0.5) | (0.1) |
| Adjustment in respect of previous periods | - | 0.1 |
| Total deferred tax | (0.5) | - |
| Total tax charge | 0.5 | 0.3 |
The charge for the year can be reconciled to the profit in the Consolidated Statement of Comprehensive income as follows:
|
| 2019 £'m | 2018 £'m |
| Profit/(loss) before tax | 2.0 | (0.4) |
| Profit before tax multiplied by the rate of corporation tax of 19.0% (2018: 19.0%) | 0.4 | (0.1) |
| Effects of: |
|
|
| Expenses not deductible for tax purposes | 0.2 | 0.5 |
| Prior year adjustments | (0.1) | (0.1) |
| Tax charge | 0.5 | 0.3 |
5. Earnings Per Ordinary Share
Basic earnings per share have been calculated on the profit for the year after taxation and the weighted average number of ordinary shares in issue during the year.
|
| 2019 | 2018 |
| Weighted average number of shares in issue | 38,019,985 | 33,296,260 |
| Total profit/(loss) for the year | £1.5m | £(0.7)m |
| Total basic earnings per ordinary share (pence) | 3.8p | (2.2)p |
| Weighted average number of shares in issue | 38,019,985 | 33,296,260 |
| Executive incentive plan | 1,748,928 | 1,689,399 |
| Weighted average fully diluted number of shares in issue | 39,768,913 | 34,985,659 |
| Total fully diluted earnings per share (pence) | 3.6p | (2.2)p |
The prior year dilutive executive incentive plan shares have been restated due to an error in the prior year calculation. This has no impact on the prior year diluted earnings per share but does reduce adjusted fully diluted earnings per share from 13.9p to 13.2p.
Adjusted earnings per share
The Directors believe that the adjusted earnings per share provide a more appropriate representation of the underlying earnings derived from the Group's business. The adjusting items are shown in the table below:
|
| 2019 £'m | 2018 £'m |
| Continuing profit/(loss) before tax | 2.0 | (0.4) |
| Adjustments: |
|
|
| Acquisition costs | 1.0 | 0.6 |
| Restructuring costs | 5.2 | 3.6 |
| Amortisation of intangible assets | 1.8 | 0.9 |
| Share-based payments charge | 0.8 | 0.4 |
| Profit on disposal of non-core business | (1.9) | - |
| Exceptional loss on customer liquidation | - | 0.7 |
| Adjusted continuing profit for the year | 8.9 | 5.8 |
The adjusted earnings per share, based on the weighted average number of shares in issue during the year is calculated below:
|
| 2019 | 2018 |
| Adjusted profit before tax (£'m) | 8.9 | 5.8 |
| Tax at 19% (£'m) | (1.8) | (1.1) |
| Adjusted profit after tax (£'m) | 7.1 | 4.7 |
| Adjusted basic earnings per share (pence) | 18.8 | 14.0 |
| Adjusted fully diluted earnings per share (pence) | 17.9 | 13.2 |
6. Dividends
The Company has not declared any dividends in respect of the current year or prior period.
7. Business Combinations
If the following acquisitions had been completed on the first day of the financial year, Group revenue would have been £150m and Group loss before tax would have been £0.5m. Following acquisitions a number of restructuring costs are incurred, and after this post acquisition restructuring the acquisitions have a positive impact on Group profit before tax.
Acquisition of Island Fire Protection Limited
On 23 April 2018 the Group acquired Island Fire Protection Limited ("Island Fire"), a provider of fire protection services, for a total consideration of £1.5m, satisfied by the payment of £1.2m in cash on completion and a cash payment of up to £0.3m payable subject to the achievement of certain performance targets by the acquired business 12 months post acquisition.
The final fair values are as follows:
|
| Fair value at acquisition £'m |
| Intangible assets - customer relationships | 0.4 |
| Cash | 0.3 |
| Trade and other receivables | 0.3 |
| Property, plant and equipment | 0.1 |
| Trade and other payables | (0.2) |
| Deferred tax liabilities | (0.1) |
| Tax liabilities | (0.1) |
| Net assets acquired | 0.7 |
| Goodwill | 0.8 |
| Consideration | 1.5 |
| Satisfied by: |
|
| Cash to vendors | 1.2 |
| Deferred cash consideration to vendors | 0.3 |
One hundred percent of the equity of Island Fire was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £60k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Island Fire would have generated £2.2m revenue and £0.4m profit before tax.
Acquisition of Forest Environmental
On 17 May 2018 the Group acquired the business and assets of Forest Environmental Limited ("Forest"), a provider of asbestos remediation services, for a total consideration of £0.5m, satisfied in cash on completion.
The final fair values are as follows:
|
| Fair value at acquisition £'m |
| Trade and other receivables | 0.7 |
| Property, plant and equipment | 0.1 |
| Trade and other payables | (0.4) |
| Net assets acquired | 0.4 |
| Goodwill | 0.1 |
| Consideration | 0.5 |
| Satisfied by: |
|
| Cash to vendors | 0.5 |
Acquisition costs of £67k have been charged to profit or loss.
Acquisition of Kingfisher Environmental Services Limited
On 25 July 2018 the Group acquired Kingfisher Environmental Services Limited ("Kingfisher"), a provider of water treatment and hygiene services, for a total consideration of £3.1m, satisfied by the payment of £2.4m in cash on completion and a cash payment of up to £0.7m payable subject to the achievement of certain performance targets by the acquired business 12 months post acquisition. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
|
| Fair value at acquisition £'m |
| Intangible assets - customer relationships | 1.8 |
| Trade and other receivables | 0.7 |
| Loans receivable | 0.1 |
| Trade and other payables | (1.1) |
| Cash | (0.3) |
| Net assets acquired | 1.2 |
| Goodwill | 1.9 |
| Consideration | 3.1 |
| Satisfied by: |
|
| Cash to vendors | 2.4 |
| Deferred cash consideration to vendors | 0.7 |
One hundred percent of the equity of Kingfisher was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £69k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Kingfisher would have generated £2.9m revenue and £0.2m profit before tax.
Acquisition of Suez Water Conditioning Services Limited
On 24 August 2018 the Group acquired Suez Water Conditioning Services Limited ("Suez WCS"), a provider of water treatment and hygiene services, for a total consideration of £4.7m, satisfied by the payment of £4.7m in cash on completion. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
|
| Fair value at acquisition £'m |
| Trade and other receivables | 2.9 |
| Intangible assets - customer relationships | 1.4 |
| Property, plant and equipment | 0.8 |
| Inventories | 0.4 |
| Deferred tax asset | 0.3 |
| Cash | 0.2 |
| Trade and other payables | (3.8) |
| Net assets acquired | 2.2 |
| Goodwill | 2.5 |
| Consideration | 4.7 |
| Satisfied by: |
|
| Cash to vendors | 4.7 |
One hundred percent of the equity of Suez WCS was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £98k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Suez WCS would have generated £13.6m revenue and £1.0 loss before tax.
Acquisition of Tersus Consultancy Limited
On 3 October 2018, the Group acquired Tersus Consultancy Limited ("Tersus"), a provider of testing and inspection services, for a total consideration of £2.8m, satisfied by the payment of £2.8m in cash on completion. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
|
|
| Fair value at acquisition £'m |
| Trade and other receivables |
| 3.2 |
| Intangible assets - customer relationships |
| 0.5 |
| Property, plant and equipment |
| 0.1 |
| Trade and other payables |
| (1.9) |
| Loans payable |
| (0.7) |
| Tax liabilities |
| (0.1) |
| Deferred tax liabilities |
| (0.1) |
| Net assets acquired |
| 1.0 |
| Goodwill |
| 1.8 |
| Consideration |
| 2.8 |
| Satisfied by: |
|
|
| Cash to vendors |
| 2.8 |
One hundred percent of the equity of Tersus was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £73k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Tersus would have generated £10.4m revenue and £0.3m profit before tax.
Acquisition of Firecrest Services Limited
On 18 October 2018, the Group acquired Firecrest Services Limited ("Firecrest"), a provider of fire protection services, for a total consideration of £0.5m, satisfied by the payment of £0.5m in cash on completion. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
|
| Fair value at acquisition £'m |
| Cash | 0.2 |
| Intangible assets - customer relationships | 0.2 |
| Trade and other receivables | 0.2 |
| Trade and other payables | (0.1) |
| Tax liabilities | (0.1) |
| Net assets acquired | 0.4 |
| Goodwill | 0.1 |
| Consideration | 0.5 |
| Satisfied by: |
|
| Cash to vendors | 0.5 |
One hundred percent of the equity of Firecrest was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £53k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Firecrest would have generated £0.6m revenue and £nil profit before tax.
Acquisition of William Martin Compliance Solutions Limited and Ivor Roy Limited
On 20 December 2018, the Group acquired William Martin Compliance Solutions Limited and Ivor Roy Limited (together "William Martin"), a provider of risk compliance and consultancy services, for a total consideration of £33.1m, satisfied by the payment of £25.9m in cash on completion, £2.2m in cash by 31 January 2019, £1.5m satisfied by the issuance of 359,454 ordinary shares of the Company on completion and £3.5m satisfied by the issuance of a put and call option. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
|
| Fair value at acquisition £'m |
| Intangible assets - customer relationships | 5.9 |
| Intangible assets - software | 2.7 |
| Cash | 3.3 |
| Loans receivable | 1.6 |
| Trade and other receivables | 1.5 |
| Trade and other payables | (2.3) |
| Deferred tax liabilities | (1.9) |
| Deferred consideration | (0.4) |
| Tax liabilities | (0.4) |
| Net assets acquired | 10.0 |
| Goodwill | 23.1 |
| Consideration | 33.1 |
| Satisfied by: |
|
| Cash to vendors | 28.1 |
| Put and Call option | 3.5 |
| Ordinary Shares in Marlowe plc to vendors | 1.5 |
Eighty eight percent of the equity of William Martin was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £430k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year William Martin would have generated £7.0m revenue and £1.7m profit before tax.
Acquisition of Atana Limited
On 30 January 2019, the Group acquired Atana Limited ("Atana"), a provider of water treatment services, for a total consideration of £5.5m, satisfied by the payment of £2.5m in cash on completion and £3.0m in cash payable subject to the achievement of certain performance targets by the acquired business in the periods ending 31 December 2019 and 2020. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.
The provisional fair values are as follows:
|
| Fair value at acquisition £'m |
| Intangible assets - customer relationships | 2.1 |
| Trade and other receivables | 1.5 |
| Loans receivable | 0.3 |
| Cash | 0.2 |
| Property, plant and equipment | 0.2 |
| Inventories | 0.2 |
| Trade and other payables | (1.3) |
| Loans payable | (0.9) |
| Deferred tax liabilities | (0.4) |
| Tax liabilities | (0.2) |
| Net assets acquired | 1.7 |
| Goodwill | 3.8 |
| Consideration | 5.5 |
| Satisfied by: |
|
| Cash to vendors | 2.5 |
| Deferred cash consideration to vendors | 3.0 |
One hundred percent of the equity of Atana was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £109k have been charged to profit or loss.
If the acquisition had been completed on the first day of the financial year Atana would have generated £6.9m revenue and £nil profit before tax.
8. Trade and Other Receivables
|
| 2019 £'m | 2018 £'m |
| Trade receivables | 31.4 | 22.0 |
| Less: provision for impairment of trade receivables | (1.0) | (1.2) |
| Trade receivables - net | 30.4 | 20.8 |
| Other receivables | 0.6 | 0.4 |
| Amounts due from customer contracts | 7.1 | 2.6 |
| Prepayments and accrued income | 1.7 | 0.8 |
|
| 39.8 | 24.6 |
Trade receivables are provided for based on estimated irrecoverable amounts, determined by reference to past payment history and the current financial status of the customers.
As at 31 March 2019, trade and other receivables includes amounts due from customer contracts of £7.1m (2018: £2.6m). Revenue is recognised based on contracted terms with customers, in accordance with a contract's stage of completion, with any variable consideration estimated using the expected value method as constrained if necessary. If a contract is in dispute, management use their judgement based on evidence and external expert advice, where appropriate, to estimate the value of accrued income recoverable on the contract. Actual future outcome may differ from the estimated value currently held in the financial statements. The outcome of any amounts subject to dispute is not anticipated to have a material impact on the financial statements.
As at 31 March 2019, trade receivables of £10.5m (2018: £6.9m) were past due but not impaired. These relate to a number of independent customers with no recent history of default. The ageing analysis of these trade receivables is as follows:
|
| 2019 £'m | 2018 £'m |
| 0-120 days | 8.4 | 5.1 |
| Greater than 120 days | 2.1 | 1.8 |
9. Trade and other payables
|
| 2019 £'m | 2018 £'m |
| Current |
|
|
| Trade payables | 12.1 | 7.7 |
| Other taxation and social security | 6.1 | 4.1 |
| Other payables | 1.1 | 0.4 |
| Accruals | 6.7 | 3.4 |
| Deferred income | 2.3 | 1.6 |
| Deferred consideration payable in less than one year | 4.9 | 2.7 |
|
| 33.2 | 19.9 |
| Non-current |
|
|
| Deferred consideration payable in one to three years | 5.0 | 1.0 |
|
| 5.0 | 1.0 |
Trade and other payables principally comprise amounts outstanding for trade purchases, ongoing costs and deferred consideration.
10. Net cash generated from operations
|
| 2019 £'m | 2018 £'m |
| Continuing operations |
|
|
| Profit/(loss) before tax | 2.0 | (0.4) |
| Depreciation of property, plant and equipment | 1.5 | 1.0 |
| Amortisation of intangible assets | 1.8 | 0.9 |
| Net finance costs | 0.6 | 0.4 |
| Acquisition costs | 1.0 | 0.6 |
| Restructuring costs | 5.2 | 3.6 |
| Share-based payments charge | 0.8 | 0.4 |
| Gain on disposal of property, plant and equipment | - | (0.1) |
| Gain on disposal of non-core business | (1.9) | - |
| (Increase)/(decrease) in inventories | (1.3) | 0.3 |
| Increase in trade and other receivables | (3.6) | (1.2) |
| Decrease in trade and other payables | (0.9) | (2.3) |
| Net cash generated from continuing operations | 5.2 | 3.2 |
11. Post balance sheet events
On 21 May 2019 the Group entered into an agreement to acquire Clearwater Group Limited, a provider of water treatment, hygiene and compliance services, for a total enterprise value of £11m. One hundred percent of the equity of Clearwater Group Limited was acquired in this transaction. A purchase price allocation has not yet been performed as the Company is still in the process of establishing the fair value of the assets and liabilities acquired in this acquisition.
On 22 May 2019 the Company announced the successful placing of 4,694,836 ordinary shares raising gross proceeds of £20m.