REG - Hercules Site Svcs - Full-Year Results
16/01/2023 07:00
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RNS Number : 7272M Hercules Site Services PLC 16 January 2023
16 January 2023
Hercules Site Services plc
("Hercules" or "the Company")
Final Results
Hercules Site Services plc (AIM: HERC), a leading technology enabled labour
supply company for the UK infrastructure sector, is pleased to announce its
audited results for the year ended 30 September 2022.
Financial Highlights
· 51% increase in revenue to £49.5m (2021: £32.7m) with growth
achieved across all areas of the business
· Gross profit increased 44% to £9.8m (2021: £6.7m)
· Adjusted EBITDA* of £2.3m (2021: £2.4m), with significant
investments made for future growth
· Pre-tax profit of £160,685 (2021: £515,517), including exceptional
non-recurring items such as IPO costs
· Pre-tax profit before exceptional non-recurring items of £631,949
(2021: £1.4m)
· Proposed final dividend of 1.12 pence per share
*Adjusted EBITDA excludes research and development, share based payments,
profit/(loss) on sale of assets and exceptional items
Operational Highlights
· AIM listing completed on 4 February 2022, raising £4m (gross) for
the Company
· Growth achieved across the business with management delivering on
each initiative set out at IPO, including:
o Successful ramp up of labour supply to HS2 Phase 1 (northern section) and
new contracts won
o Rapid increase in Specialist Plant Services business - the Company now
owns a fleet of 20 suction excavators with a further 10 due for delivery by 31
March
o Organic growth achieved in Civil Projects division with an 18% increase in
new clients during the period
o Commenced monetisation of the Company's proprietary digital tools through
the launch of the SEE Everything Portal, which has been developed in
conjunction with the Balfour Beatty Vinci Systra (BBVS) joint venture
o Progressed training academy strategy with lease agreement signed for an
initial site in Nuneaton
· Significant investment in people and systems reflective of our growth
strategy
· Strong pipeline of new business for FY 2023, underpinning future
growth expectations
Brusk Korkmaz, Hercules' Chief Executive Officer, commented:
"Hercules has enjoyed positive year-on-year growth in 2022 which has seen us
successfully deliver on our strategy and achieve momentum across all areas of
our business. In doing so, we have continued our long-term track record of
creating value for our stakeholders.
"The UK infrastructure sector continues to forge ahead, with the UK government
recently making strong commitments to deliver significant investment in our
rail infrastructure, while recent banking reforms announced by Chancellor
Jeremy Hunt in December are being hailed as potentially unlocking billions of
pounds of funding for UK infrastructure.
"As these results show, Hercules is ideally placed to benefit from the buoyant
market conditions and we have invested in our business during the period to
prepare for continued growth in the months and years ahead. We have been
implementing a successful strategy to tackle wage inflation and post year end
trading has been very encouraging, underpinning our confidence for the current
year."
Retail Investor Webinar
CEO Brusk Korkmaz and CFO Paul Wheatcroft will deliver a live presentation
regarding the Company's Final Results via the Investor Meet Company platform
today at 9:30 a.m (GMT).
The presentation is open to all existing and potential shareholders. Questions
can be submitted pre-event via the Investor Meet Company dashboard up until
9.00 a.m. today or at any time during the live presentation.
Although the Company may not be in a position to answer every question it
receives, it will address the most prominent within the confines of
information already disclosed to the market. Responses to the Q&A from the
live presentation will be published at the earliest opportunity on the
Investor Meet Company platform.
Investor feedback can also be submitted directly to management post-event to
ensure the Company can understand the views of all interested parties.
Investors can sign up to Investor Meet Company for free and add to meet
Hercules Site Services plc via:
https://www.investormeetcompany.com/hercules-site-services-plc/register-investor
Investors who already follow Hercules Site Services plc on the Investor Meet
Company platform will automatically be invited.
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 which has been incorporated into UK law by the European
Union (Withdrawal) Act 2018.
For further information and enquiries, please visit
https://www.hercules-construction.co.uk
(https://www.hercules-construction.co.uk) or contact:
Hercules Site Services plc c/o SEC Newgate
Brusk Korkmaz (CEO)
Paul Wheatcroft (CFO)
SP Angel (Nominated Adviser and Broker) +44 (0) 20 3470 0470
Matthew Johnson / Adam Cowl / Harry Davies-Ball (Corporate Finance)
Grant Barker / Rob Rees (Sales and Broking)
SEC Newgate (Financial PR) +44 (0) 20 3757 6882
Elisabeth Cowell / Ian Silvera Hercules@secnewgate.co.uk
About Hercules Site Services plc
Hercules is a leading tech enabled labour supply company for the UK
infrastructure sector. Founded in 2008, Hercules has an established track
record of profitability and fast-growth and has built a blue-chip customer
base which includes Balfour Beatty, Costain, Kier, Skanska, Dyer & Butler
and Volker Fitzpatrick. The Company has been appointed to provide labour for a
range of high-profile infrastructure projects, such as HS2, due to its agile,
innovative, digital first approach and complete service offering. It is
well-placed to benefit from any government increase in infrastructure spending
and its experienced management team has identified multiple opportunities for
growth.
Chairman's Statement
Hercules has delivered a year of strong growth with turnover increasing
significantly. With this in mind, it gives me great pleasure to present these
results to our shareholders for a period which covers our first eight months
as an AIM listed business.
I would like to start by thanking our investors for their support since the
flotation of the Company on the AIM Market in February 2022, in conjunction
with a £4m gross (£2.7m net of costs) fundraise. It has been a positive year
which has seen Hercules achieve all the near-term milestones communicated at
the time of our listing, and we look forward to continuing this theme in the
months and years ahead.
Strong market dynamics
Despite the UK having to deal with energy and cost of living issues, the
infrastructure sector is, as expected, forging ahead. The UK government has
recently made strong commitments to deliver significant investment in our rail
infrastructure, with Network Rail expected to spend around £44 billion over
the period April 2024 to March 2029, while recent banking reforms announced by
the Chancellor of the Exchequer in December are being hailed as potentially
unlocking billions of pounds of funding for UK infrastructure.
Growth across all areas of the Hercules business
Hercules is well positioned to benefit from the UK Government's commitment to
infrastructure spending. Access to labour continues to be a core priority for
our blue-chip client base, and we have built an excellent reputation as a
top-tier provider due to our technological edge and experienced management
team.
As well as our game-changing contract on HS2 phase 1, we have also been
successful in securing agreements to supply labour for several National
Highways Regional Development Projects including the A63, A57, A30, A2, and
A12, as well as to motorway upgrades and digitisation plans such as on the M3
and M4.
Relationships built with blue chip clients have been the cornerstone of the
Company's success. These clients have either won, or are bidding for projects
such as the A66 Trans-Pennine route, A303 Stonehenge, New Tees Crossing and
Lower Thames Crossing, all of which are very significant projects. This means
that the outlook for our labour supply division remains very positive. While
inflation is affecting the business, particularly pay levels, we have shown
our ability to regularly renegotiate pay levels with our clients upwards and
we are managing this situation well.
Our other business units, Specialist Plant Services and Civil Projects, enable
us to cross sell effectively, thereby increasing the total value of each
client, and I am pleased to report that both of these divisions achieved
growth in FY 2022. The Civil Projects team has now expanded into other areas
of the civil engineering sector such as fibre broadband. Brusk will outline
developments in each of the business units in his CEO's Statement.
Dividend
The Board is pleased to propose a final dividend of 1.12 pence per share.
Hercules Real Estate Limited, the Company's 71.7% shareholder, has again
waived its entitlement to this payment. The dividend will be paid on 24 March
2023 to shareholders on the register at close of business on 24 February 2023.
The shares will go ex-dividend on 23 February 2023.
Outlook
Looking ahead, the outlook for Hercules remains very positive. Turnover growth
has been in the region of 50% per annum for two years now, and the Directors
believe a third such year of similar growth lies ahead. We are excited at the
prospects for Hercules over the next few years as we seek to grow the business
both organically and via selective acquisitions.
In terms of organic growth, our pipeline for 2023 looks robust across all our
business units and we have experienced positive trading across all areas for
the first three months of our current financial year. Having made initial
headway in the strategy to monetise our digital services, we look forward to
building on this momentum over the next 12 months, as well as continuing
progress on our training academy strategy, on which Brusk provides more detail
in his statement.
In respect to potential acquisitions, we are progressing positively with
discussions and look forward to updating the market at the appropriate time.
Once again, I would like to thank our shareholders and advisers for their
support during this transformation year for the Company, and the Hercules team
for successfully delivering a range of operational growth milestones in
conjunction with the IPO.
Henry Pitman
Non-executive Chairman
Date: 13 January 2023
Chief Executive Officer's Statement
I am delighted to report that the 12 months ended 30 September 2022 can be
summarised as a year of growth, which has seen us increase revenue year on
year by approximately 51% to £49.5m (2021: £32.7m). Adjusted EBITDA for the
year, explained in detail in the Chief Financial Officer's Review below, was
in line with market expectations at £2.3m (2021: £2.4m).
This set of results covers our first eight months as a listed company, as well
as the five months in the lead up to our listing on the AIM market of the
London Stock Exchange. To have delivered this significant growth during a
period of intense preparation for our IPO is something I'm extremely proud of,
and I would like to thank the entire Hercules team for their hard work and
dedication both during our transition to a PLC and after.
Hercules offers a "one stop shop" service which enables us to cross-sell
between our services and our experienced management team is adept at
delivering projects efficiently for clients. We are pleased to report that we
have created growth across all areas of our business, delivering on each
initiative set out at IPO.
In our core Labour Supply business, our contract to supply labour to the HS2
project commenced at the start of the year; we have grown our Specialist Plant
Services business, acquiring more suction excavators to meet the strong demand
we are experiencing; and our Civil Projects division has increased its
portfolio of clients and expanded into exciting new verticals.
In addition to this, we have started advancing new medium-term growth streams,
delivering on our strategy to start monetising our digital tools and taking
steps to open a new training academy which will play a role in fixing the
labour deficit that the construction industry faces, provide an even larger
pool of skills for Hercules to place on client construction sites and will
give the Company a geographical base in the Midlands. Notably for investors,
both these initiatives will provide us with recurring revenue.
While global markets are depressed, in contrast, the construction sector is
experiencing continued strong momentum as the UK government seeks to modernise
the country's infrastructure. With £650 billion of public and private
spending planned on new infrastructure projects*, we provide a vital role in
helping construction projects secure the people and skills required. Our
competitive digital edge means that we have a strong reputation within the
industry of matching projects with quality, local labour, quickly and
efficiently. With labour deficits being experienced on the back of Brexit,
labour supply is high on the agenda for the entire industry, meaning that our
labour supply services are in high demand.
Labour Supply
Labour Supply is our core business, supplying skilled and qualified labour to
blue-chip construction companies to deliver key infrastructure, civil
engineering, utilities, groundworks, highway and railway projects. It
represented 67% of Hercules' revenue for the year ended 30 September 2022 (FY
2021: 70%).
Hercules' dedicated operations and resource teams, personnel management system
and innovative mobile recruitment and onboarding apps ensure that we supply
the right person to the right location on time to fulfil client requirements.
Our technology gives us a strong competitive edge, enabling us to quickly meet
our clients' labour needs and to source local labour, which often is a
stipulation in government-funded projects. Indeed, our 'Hercules Construction
Jobs' recruitment app, launched in October 2019, at the time of writing has
more than 8,100 downloads and more than 4,700 registered users.
More traditional suppliers of labour struggle to achieve local labour
recruitment without a local presence and are also facing difficulties
replenishing their labour pool following shifts in the labour force caused by
the COVID-19 pandemic and Britain's exit from the European Union**. In
contrast, Hercules has a low staff turnover due to our culture and focus on
developing our people, many of whom have progressed through the business to
senior management positions.
During the year, we won our biggest ever contract with the Balfour Beatty
Vinci JV, helping to deliver the HS2 Northern section. This is a massive
achievement for Hercules and the Company is now playing a huge part in the
delivery of one of modern history's greatest legacy projects and currently the
largest infrastructure project in Europe. This is anticipated to step change
our growth dramatically in the next four years, and with circa 280 operatives
currently on site, we are pleased to see momentum building.
We have a strong, blue chip client base which continues to provide repeat
business to Hercules. Clients include Costain, Kier and Thames Water and
during the period we have continued to secure contracts across National
Highways RDP. In the last 12 months, on average, the Company has been
supplying between 480 and 800 personnel to projects each day.
We have also introduced two new income streams in the Labour Supply business.
Firstly, the supply of security personnel which has started on the M42 and a
white-collar recruitment business, placing permanent job roles (such as
section engineers and site managers) which has secured its first business with
our existing client Galliford Try. Experienced managers have been hired in
both business areas which we see as great opportunities for the Company.
In addition to this, we are looking into other ways we can accelerate growth,
not just by acquisition but also via partnerships. Consequently, we are
discussing the potential for the creation of subsidiary businesses that are
part owned by ambitious management teams that can establish Hercules
operations in geographies or business areas where the Company doesn't
traditionally operate.
I am pleased to report that we have a healthy pipeline which extends into the
next few years, so we look forward to maintaining and boosting the growth we
have experienced to date in our Labour Supply business.
Specialist Plant Services
The growth of our suction excavator business has been impressive and we now
have one of the largest fleets in the UK. During the period, this business
unit accounted for 7% (2021: 6%) of total revenue.
Suction excavators provide a more efficient and safer way of removing debris
for digging teams. At IPO in February 2022, Hercules owned nine suction
excavators and the funds raised were planned in part to contribute towards a
further eleven. In April 2022, we took the decision to acquire an additional
ten suction excavators, with the intention of expanding our fleet of suction
excavators from 20 vehicles by August 2022 to 30 vehicles by March 2023. This
includes our first Triple Fan Excavator which will provide extra capability to
our clients.
We took this decision to expand our fleet on the back of the very high levels
of demand we were experiencing, which saw us achieve a high average
utilisation rate of 85%. This strong demand for our services can be partly
attributed to the significant industry acclaim we have received for our
involvement in implementing the newly developed 'Zero-Trim' piles method,
which uses a vacuum excavator to suck out excess concrete from a concrete pile
while still wet.
Traditionally, the concrete is overpoured and then site teams have to trim the
excess concrete with jack hammers, which can cause health problems, including
hand-arm vibration syndrome, hearing loss and silicosis. The 'Zero-Trim'
method has been successfully rolled out onto the HS2 project and, in
conjunction with our partners, has won three awards, including the award for
health, safety and wellbeing initiative of the year at The British
Construction Industry Awards 2021.
We pride ourselves on the standards of our operators, providing highly trained
people to our clients with the best machines on the market. Recently we have
had success recruiting new operators, particularly those from an ex-military
background who seem to transition very well into the role. This also supports
our commitment to the Armed Forces Covenant and MOD Employer Recognition
Scheme Gold Award.
Hercules has utilised suction excavators as part of the ongoing work on HS2
South Phase 1 and Regional Development Programme sites with Balfour Beatty,
and at the M4 Smart Motorway Scheme, alongside significant utilisation through
Hercules' Civil Projects division.
Civil Projects
Hercules' Civil Projects division partners with some of the UK's top
contractors to provide end-to-end project delivery for civil engineering
contracts. This division has had a strong year of growth, with an 18% increase
in new clients brought on board. Civil Projects accounted for approximately
25% of revenue for the year ended 30 September 2022 (2021: 23%).
We have a strong reputation in the water industry, built up over the past 13
years, and we generally use our own staff and self-employed contractors to
complete these projects.
As well as increasing the portfolio of clients in the water industry's current
Asset Management Programme (AMP7), we have also commenced working in Kent and
the Midlands laying fibre broadband for two clients during the period.
Additional growth initiatives
Hercules provides a range of services for its clients, which increases the
total value of the Company to the client and provides the business with a
diversified range of revenue streams.
Hercules Digital
Our proprietary software has been critical in helping us to achieve some major
labour supply projects and has provided us with a strong reputation as
innovators in the industry. In addition, our digital tools have created
efficiencies within our business. At IPO, we highlighted that we believe that
our digital capabilities have strong potential to be monetised and I'm pleased
to say that we made positive advances in achieving this during the period.
Post year end, we were excited to announce the launch of our skills portal,
the Skills, Employment and Education ("SEE") Everything Portal, which has been
developed in conjunction with the Balfour Beatty Vinci Systra (BBVS) joint
venture on the HS2 rail project.
The launch follows the completion of successful trials, triggering an initial
payment of £44,000 to Hercules. We have now entered into a licence agreement
regarding the SEE Everything Portal's full implementation and use at the Old
Oak Common regeneration project in west London. This represents a significant
milestone in Hercules' strategy to monetise and white label its digital tools
for major projects. We are excited to expand this in 2023, and believe we are
well positioned to progress a pipeline of licensing opportunities across the
public and private sectors to secure additional recurring revenue.
Training Academy
In August 2022, we announced that we had entered into a lease agreement with
Hercules Real Estate Limited (our largest shareholder) for an industrial site
in Nuneaton in the West Midlands, circa 15 miles from the HS2 phase 1
(northern section) site.
This site is expected to house the first Hercules Training Academy, when
constructed. In the short term, we will use the site to store plant, machinery
and suction excavators.
The aim of the training academy will be to reduce our external training costs,
to ensure high skill levels and quality across the Hercules workforce, and to
provide specific training for clients across the infrastructure and
construction industries (not just limited to HS2). This will generate further
income streams and will also enable Hercules to provide training to upskill
workers to fulfil additional roles on client construction sites.
Creating positive social value
Apart from our core business, we continue to help deliver positive social
value outcomes in and around our clients' projects often working
collaboratively to achieve the best results. The culture at Hercules is one
which is very much centred around teamwork and, we are all guided by our Core
Values and Mission Statement, dedicated to delivering a world class service to
our clients, workforce and now our investors.
Our team strives to encourage the next generation into our industry, so
engagements in schools and further education colleges are vitally important.
We also endeavour to source candidates from diverse channels such as
ex-military, ex-offenders, BAME and other hard to reach communities. Our
success with hiring from the ex-military community has been rewarded with the
coveted ERS MOD Gold Award.
Additionally, we own a bespoke, fully equipped mobile health screening
trailer, which can be deployed anywhere across the country and is staffed by
SEQOHS-certified healthcare professionals to assist on-site works in a variety
of health and wellbeing areas.
The trailer has been deployed to provide a range of medical services,
including vision and hearing tests, safety critical medicals, heart and blood
pressure testing and lung function testing to on-site operatives. The medical
screening facility also provides mental health awareness support, discreet
monitoring of modern slavery related issues and a platform for raising
awareness of health, safety and wellbeing issues to workers.
The health screening trailer provides a number of advantages to site workers,
including faster turnaround for medical certificates, increased awareness of
health and safety matters, reduction in downtime away from sites for General
Practitioner visits and reduced carbon emissions.
Outlook
Hercules has been growing since 2008 when I first started the business in my
spare bedroom. 14 years later, we have a diverse, professional, and talented
team of people who are used to adapting to change, approaching work with a
growth mindset, and able to overcome adversity.
Over the past 12 months, we have grown in numerous different ways, not least
in our transition from a private limited company to a PLC. Our people have
grown and developed immensely, a point which I am especially proud of;
watching them adapt and flourish has been a pleasure; and of course, we have
grown as a business significantly.
As we move through and beyond the next reporting period, we will maintain that
growth mindset which has served us well over the past 14 years.
As well as driving our core business, we will advance some exciting new
avenues, such as our Hercules Construction Academy. Targeted acquisitions are
also on the agenda, as are other opportunities, to complement the organic
growth we are achieving. Hercules has a great team, growing together, always
ready for the exciting challenges ahead.
Brusk Korkmaz
Chief Executive Officer
Date: 13 January 2023
Footnotes
*https://www.gov.uk/government/news/plan-for-jobs-in-action-hundreds-of-thousands-of-jobs-supported-in-record-650-billion-infrastructure-investment
**https://www.pierconsulting.co.uk/high-staff-turnover-why-is-it-damaging-the-construction-industry/
Chief Financial Officer's Review
Introduction
The challenge of COVID-19 has receded, and the construction industry has
recovered strongly across all sectors with infrastructure continuing to prove
particularly resilient. However, the Company always has the issue under
consideration, and will take action to minimise the effects of any further
outbreaks if appropriate. Inflation has been an issue, and will no doubt be
for some time to come, but procedures are in place to seek rate increases from
our Labour Supply clients where applicable and we ensure that quotes for our
Civil Projects work are only valid for a minimum period.
The Directors anticipate continued growth for the Company alongside
significant investment in infrastructure as outlined by the UK Government.
There has been no material impact as yet to the Company from the war in the
Ukraine.
Financial Performance
In the year ended 30 September 2022, revenue increased to £49,549,487 (2021:
£32,754,468) representing approximately a 51% increase year-on-year.
Year ended 30 September
2022 2021
£ £
Labour Supply 33,250,617 22,890,070
Civil Projects 12,370,937 7,696,102
Suction excavator services 3,645,934 2,168,296
Other 281,999 -
49,549,487 32,754,468
Administrative costs rose to £9,073,415 (2021: £6,118,558) - an increase of
more than 48% compared to the prior year. Excluding depreciation, loss on sale
of fixed assets, and R&D costs (see Note 8), administrative costs were
£7,981,571 (2021: £5,364,912). This was again due to growth in all business
areas as detailed below:
1) Suction excavator services expanded from 9 to 16 vehicles during the
year requiring further management and administration provision. Depreciation,
maintenance, insurance and operative training costs all rise in direct
proportion to the number of vehicles in use.
2) Civil projects had a record year requiring more project managers and
site supervision.
3) Labour supply has had to boost management structures (both in
operational and commercial administration areas) in the last few years in
readiness for what turned out to be very significant growth in 2021, 2022, and
similar in FY 2023. Successful delivery of large projects is the key to future
success, and this requires more senior experienced managers and
administrators. The growth seen out on sites has also required more training.
The Company received £nil grants from the Construction Industry Training
Board, (2021: £164,631), as well as £Nil in Coronavirus Job retention Scheme
grants (2021: £52,565).
During the year the Company delivered:
Pre tax profit of £160,685 (2021: £515,517)
Pre tax profit before exceptional non recurring items (see below) of £631,949
(2021: £1,413,505)
Adjusted EBITDA (see below) £2,308,579 (2021: £2,437,739).
Year ended Year ended
30 September 30 September
2022 2021
£ £
Profit from operations 705,698 786,106
Depreciation 1,034,071 724,843
Research & development 36,555 17,505
Loss on sales of assets 21,218 11,297
Exceptional items (see below) 471,264 897,988
Share based payment expense 39,774 -
Adjusted EBITDA 2,308,579 2,437,739
Exceptional items related to:
Cost relating to AIM admission 443,264 297,058
Employment settlement 28,000 -
NMCN bad debt - 600,930
Total 471,264 897,988
NMCN (North Midland Construction), a client of the Company, went into
administration at the end of September 2021, and we have been unable to
recover any of the debt. This was the first bad debt in the Company's 14 year
history.
Statement of Financial Position
As at 30 September 2022, the Company's net assets were £6,838,092 (2021:
£3,436,950) of which £1,211,554 (2021: £1,465,292) were cash and cash
equivalents.
Non-current assets at 30 September 2022 were £14,642,396 (2021: £9.236.223).
Current assets at 30 September 2022 were £19,253,174 (2021: £10,113,832).
Net current assets at 30 September 2022 were £3,362,064 (2021 net assets:
£1,366,772).
The change in assets in 2022 over 2021 was due to significant increases in
plant & equipment (financed mostly through asset financing), and trade
debtors.
Company loans & borrowings were £6,528,750 as at 30 September 2022
(2021:£3,139,463). This is the balance on a working capital facility with
Investec that was introduced in May 2021 - this is a £10m facility.
The financial position of the Company was strengthened by admission to the AIM
market of the London Stock Exchange on 4 February 2022 with a net fundraise of
circa £2.7m (after listing and issue costs).
Seven more suction excavators were added to the fleet during the year, all are
financed with conventional asset funding from a number of different providers.
Ten more suction excavators are due to be delivered in the year ending 30
September 2023, all to be similarly funded.
Paul Wheatcroft
Chief Financial Officer
13 January 2023
Statement of Comprehensive Income
Year ended Year ended
30 September 2022 30 September 2021
Continuing operations Note £ £
Revenue 6 49,549,487 32,754,468
Cost of sales (39,770,374) (26,066,999)
Gross profit 9,779,113 6,687,469
Other operating income 7 - 217,195
Administrative expenses (9,073,415) (6,118,558)
Profit from operations 8 705,698 786,106
Fair value gains/(losses) 16 691 (38,116)
Finance income 4,634 27
Finance costs 12 (550,338) (232,500)
Profit before tax expense 160,685 515,517
Tax credit/(charge) on profit 13 160,167 (571,720)
Net profit/(loss) for the year
320,852 (56,203)
Total comprehensive income/(loss) for the year 320,852
(56,203)
Earnings per share
Basic 4 0.58p (0.27p)
Diluted N/A N/A
Basic earnings per share above is based on the current par value of the
Company's ordinary shares, each of which was subdivided from one share of £1
to 1,000 shares of 0.1p on 20 January 2022.
There are no further items of comprehensive income other than those shown
above.
Statement of Financial Position
30 September 2022 30 September 2021
Note £ £
Non-current assets
Property, plant and equipment 15 14,642,398 9,236,223
14,642,398 9,236,223
Current assets
Inventories 51,772 1,973
Trade and other receivables 17 17,906,957 8,292,227
Current tax receivable 82,891 82,890
Assets at fair value through profit or loss 16 - 271,450
Cash and cash equivalents 1,211,554 1,465,292
Total current assets 19,253,174 10,113,832
TOTAL ASSETS 33,895,572 19,350,055
Equity and liabilities
Equity attributable to equity holders of the parent
Share capital 24 58,650 50,000
Share premium 3,417,068 -
Share based payment reserve 39,774 -
Retained earnings 3,322,600 3,386,950
Total equity 6,838,092 3,436,950
Non-current liabilities
Deferred tax liabilities 14 287,420 447,587
Lease liabilities 21 10,878,950 6,718,458
Total non-current liabilities 11,166,370 7,166,045
Current liabilities
Trade and other payables 18 7,005,102 4,520,533
Provisions 19 304,951 259,537
Loans and borrowings 20 6,528,750 3,139,463
Lease liabilities 21 2,052,307 827,527
Total current liabilities 15,891,110 8,747,060
TOTAL LIABILITIES 27,057,480 15,913,105
33,895,572 19,350,055
TOTAL EQUITY AND LIABILITIES
Statement of Changes in Equity
Share capital Share premium Share based payment reserve Retained earnings Total equity
£ £ £ £ £
Balance at 1 October 2020 2 - - 6,787,342 6,787,344
Loss for the year - - - (56,203) (56,203)
Bonus issue of shares 49,998 - - (49,998) -
Dividends paid - - - (3,294,191) (3,294,191)
Balance at 30 September 2021 50,000 - - 3,386,950 3,436,950
Profit for the year - - - 320,852 320,852
Proceeds from issue of shares 8,650 4,359,70 - - 4,359,704
Share issue costs - (942,636) - - (942,636)
Share based payment - - 39,774 - 39,774
Dividends paid - - - (385,202) (385,202)
Balance at 30 September 2022 58,650 3,417,068 39,774 3,322,600 6,838,092
Share premium represents the amount raised on the proceeds of share issues in
excess of the par value of those shares, net of issue costs.
The share based payment reserve represents the accumulated entries to equity
arising from the recognition of share-based payments in accordance with IFRS
2.
Retained earnings represent the accumulated profits and losses of the Company,
less distributions and similar items, since its incorporation.
Dividends of £385,202 were paid during the year in 2 instalments, a full
dividend for the year ended 30 September 2021 of £284,715, 1.7p per share (FY
2020, Nil), and an interim dividend for the year ended 30 September 2022 of
£100,487, 0.6p per share (interim 2021 Nil).
Statement of Cash Flows
Year ended 30 September
2022 2021
Note £ £
Cash flows from operating activities:
Profit/(loss) after taxation 320,852 (56,203)
Taxation charge 13 (160,167) 571,720
Finance income (4,634) (27)
Finance costs 12 550,338 232,500
Fair value movements(gain)/loss 16 (691) 38,116
Share based payment charge 39,774 -
Depreciation of property plant and equipment 15 1,034,071 724,844
Loss on disposal of property, plant and equipment 21,218 11,297
(Increase)/decrease in inventories (49,799) 3,625
Increase in trade and other receivables (9,614,731) (2,981,835)
Increase/(decrease) in trade and other payables and provisions 2,529,984 (116,529)
Cash generated from operations (5,333,785) (1,572,492)
Tax paid - (28,688)
(5,333,785) (1,601,180)
Net cash used in from operating activities
Cash flows from investing activities:
Purchase of tangible assets 15 (228,184) (358,146)
Proceeds from disposal of tangible assets 240,755 20,001
Proceeds from disposal of other assets 16 272,141 -
Interest received 4,634 27
Net cash generated from/(used in) investing activities 289,346 (338,118)
Cash flows from financing activities:
Payment of lease liabilities 21 (1,406,611) (1,282,403)
Interest paid (232,491) (123,383)
Bank loan advances 3,389,287 2,794,824
Dividends paid (385,202) -
Net proceeds of share issues 3,425,718 -
Net cash from financing activities 4,790,701 1,389,038
Net decrease in cash and cash equivalents (253,738) (550,260)
Cash and cash equivalents at start of year 1,465,292 2,015,552
Cash and cash equivalents at end of year 1,211,554 1,465,292
NOTES TO THE FINANCIAL STATEMENTS
Net debt
At 30 September 2021 Cash flow Non-cash movement At 30 September 2022
Cash and cash equivalents
Cash 1,465,292 (253,738) - 1,211,554
Debt
Bank loans (3,139,463) (3,389,287) - (6,528,750)
Lease liabilities (7,545,985) 1,406,611 (6,791,883) (12,931,257)
(10,685,448) (1,982,676) (6,791,883) (19,460,007)
Net debt (9,220,156) (2,236,414) (6,791,883) (18,248,453)
Non-cash movements represent new liabilities and interest recognised under
IFRS 16 in respect of leases
1 General Information
The Company is a public company limited by share capital incorporated and
domiciled in England and Wales. The principal activity of the Company is that
of general construction and civil engineering.
The address of its registered office and principal place of business is:
Hercules Court
Lakeside Business Park
South Cerney
Cirencester
GL7 5XL
The immediate and ultimate parent undertaking of the Company is Hercules Real
Estate Limited, the financial statements of which can be obtained from the
above address.
2 Summary of significant accounting policies
Statement of compliance
The financial statements have been prepared in accordance with UK-adopted
international accounting standards and applicable law.
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of the financial
statements are set out below. These policies have been consistently applied to
all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared on the following basis:
· The financial information for the Company for the years ended 30
September 2021 and 30 September 2022;
· Using the historical cost convention except for, where disclosed in
the accounting policies, certain items shown at fair value.
The financial statements are presented in Pounds Sterling, being the
functional currency of the Company.
The preparation of the financial statements in conformity with IFRS requires
the use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Company's accounting
policies. These are disclosed in note 3.
Changes in accounting policy and disclosures
(a) New and amended accounting standards
New Standards applicable for the year were as follows:
- Interest Rate Benchmark Reform - Phase 2 (1 January 2021)
- Amendment to IFRS 16 : Covid-19 Related Rent Concessions beyond 30
June 2021 (1 April 2021)
Neither of these Standards had a material impact on the Company's results for
the year.
(b) Future standards
At the date of authorisation of the financial statements, the Company has not
early adopted the following amendments to Standards and Interpretations that
have been issued but are not yet effective:
- Amendments to IAS 1 : Classification of Liabilities as Current or
Non-Current (1 January 2023)
- Amendments to IFRS 3 : Reference to the Conceptual Framework (1
January 2022)
- Amendments to IAS 16 : Proceeds before Intended Use (1 January 2022)
- Amendments to IAS 37 : Onerous Contracts - Cost of Fulfilling a
Contract (1 January 2022)
- Annual Improvements to IFRS Standards 2018-2020 (1 January 2022)
- Amendments to IFRS 17 (1 January 2023)
- Amendments to IAS 1 and IFRS Practice Statement 2 : Disclosure of
Accounting Policies (1 January 2023)
- Amendments to IAS 8 : Definition of Accounting Estimates (1 January
2023)
- Amendments to IAS 12 : Deferred Tax related to Assets and
Liabilities arising from a Single Transaction (1 January 2023)
- Amendments to IAS 1 : Classification of liabilities as current or
non-current (1 January 2024)
- Amendments to IFRS 16 : Lease Liability in a Sale and Leaseback (1
January 2024)
- Amendments to IAS 1 : Non-current Liabilities with Covenants (1
January 2024)
These Standards and amendments are effective from accounting periods beginning
on or after the dates shown above. The directors do not expect any material
impact as a result of adopting the standards and amendments listed above in
the financial year they become effective.
Going concern
The directors have prepared forecast information. The financial information
has been prepared assuming the Company will continue as a going concern. Under
the going concern assumption, an entity is ordinarily viewed as continuing in
business for the foreseeable future. In assessing whether the going concern
assumption is appropriate, management has considered the Company's existing
working capital and management are of the opinion that the Company has
adequate resources to undertake its planned programme of activities for a
period of at least 12 months from the date of approval of these financial
statements. The Company's working capital facility is currently capped at
£10m (but the directors believe could be extended if required), and is on a 3
month notice period on either side. The facility operates well and a good
relationship exists between the Company and the provider, therefore the
Directors do not believe the facility will be terminated within the going
concern assessment period. However the facility will be kept under review as
other offerings appear in the market.
The directors have taken a view of the Company as a whole over the 12 months
January 2023 to January 2024. Assessments have been made of revenue streams
from key contracts, growth in a number of areas, overheads, cash levels, cash
facilities where required, tax projections etc. A further scenario test with
lower sales, margins, and worse debt collection days has been undertaken,
without reducing planned headcount increases, and sufficient (but reduced)
cash levels are forecast in the 12 months ahead.
The Company increased its turnover by 51% in the year, and exceeded its
forecast turnover and EBITDA (before extraordinary items). The Company is one
of six labour suppliers selected for the Northern Section of HS2, which is
currently the largest construction project in Europe. This will continue to
underpin and grow turnover over the next few years. In addition, the Company
raised funds to purchase another seven suction excavators, which further
boosted turnover. Civil projects are expected to be similarly busy, due to the
requirements of AMP7 being squeezed into three years rather than five.
Admission to AIM on 4 February 2022 raised circa £2.7m (net) to aid working
capital, and together with external asset funding, further expand the suction
excavator fleet and provide minibuses to aid transport of operatives to the
eight HS2 Northern section locations. Based on the current status, the
Directors have a reasonable expectation that the Company
will be able to execute its plans in the medium
term such that the Company will have adequate resources to continue in
operational existence for the foreseeable future. This provides the Directors
with assurance on the Company's ability to continue as a going concern, and
therefore adopt the going concern basis of accounting in preparing the annual
financial statements.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the executive
directors that make strategic decisions. The Company operates from one
location but, in the Directors' opinion, has four reportable segments: Labour
supply, civil projects, the hire of suction excavators and other activities.
Revenue
Revenue arises from the provision of construction and civil engineering
services under fixed price contracts, as well as the hire of suction
excavators under hire contracts. Contract duration can vary and can range from
the supply of labour only to the provision of fully managed construction and
engineering projects. Where variations are requested, prices are agreed as
soon as practically possible. Variations are exactly that - changes or
additions to initial requests. Discounts, rebates, refunds, credits, price
concessions, incentives, performance bonuses, penalties are rarely
encountered, but if any of them are, they are not material.
To determine whether to recognise revenue, the Company follows the 5-step
process as set out within IFRS 15:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are satisfied
Certain fixed price contracts span more than one accounting period and can
have a duration of more than one year. The Company's accounting policies for
these projects require revenue and costs to be allocated to individual
accounting periods and the consequent recognition at period-end of contract
assets or liabilities for projects still in progress. Management apply
judgement in estimating the total revenue and total costs expected on each
project. Such estimates are revised as a project progresses to reflect the
current status of the project and the latest information available to
management. The project teams regularly review contract progress to ensure the
latest estimates are appropriate. The carrying amounts of contract assets and
liabilities are stated in Note 17.
The key judgements and policies in respect of revenue from the Company's
various activities are described further below.
Labour Supply
This represents the provision of labour to customers. The amount of revenue is
based on agreed contractual hourly rates with customers. The customer
simultaneously receives and consumes the benefits provided by the Company's
performance under these contracts and the performance obligation (being the
provision of labour) is therefore satisfied over time. In the majority of
cases, the Company invoices customers monthly in arrears for the hours of
labour supplied during that month. Amounts invoiced but unpaid at the balance
sheet date are included within trade receivables.
In some cases, the monthly invoice will not correspond with a calendar month,
and the Company is therefore required to include an amount within contract
assets in the Statement of Financial Position, for revenue relating to periods
for which labour has been provided but not yet invoiced.
Civil Projects
This represents work performed under contracts with customers to undertake
construction and/or civil engineering works. These contracts contain a number
of individually identified services. However, the directors consider that the
services being provided are highly interdependent and interrelated and
therefore should not be considered to be separate performance obligations
under IFRS 15. Furthermore, the services provided by the Company either
enhance an asset that the customer controls and/or do not create an asset with
alternative use to the Company and there is an enforceable right to payment
for performance completed to date. The Company therefore considers the
delivery under these contracts to be a single performance obligation that is
satisfied over time.
Each contract has its own assessed view. If for instance a variation has been
agreed in principle but not fully signed off pending provision of all costed
substantiation a balanced view of revenue is then taken in the accounts. Also
this is often backed up by the Clients QS certifying an interim on account
contribution in the meantime. Where variations are more complicated such as
delay and disruption claims, as opposed to measuring drawing revisions, a more
pessimistic view is taken. Where variations have been consolidated and
formalised (signed off) these are fully accounted for.
Under these contracts, the Company produces a monthly 'application' to the
customer detailing the work performed to date and requesting payment
accordingly. Within a period of one to two months (in the majority of cases)
the customer will confirm agreement to the 'application' and remit the
necessary funds to the Company. Historically, the Company's experience is that
instances of customers materially disagreeing with the 'application' are rare
and that this is therefore a reliable method by which to recognise revenue
earned ("output method"). There have been
no new 'output' method projects started since March 2021, and internal
valuations made under this method in the year ending 30 September 2022 would
not change the position in any material way.
At the balance sheet date, the Company includes a balance in receivables for
the amount of revenue receivable on contracts based on the work performed. The
Company used the output method for all projects still in operation at the end
of March 2021 (until those projects are completed), but all new projects since
then use the input method, based on costs incurred to date, to estimate the
amount of revenue earned and includes an amount in contract assets within
receivables. The input method is based on costs incurred at the balance sheet
date compared to expected costs to be incurred throughout the life of the
contract.
Suction excavators
Revenue from the provision of suction excavators services is recognised in
line with the income received over time under the relevant contracts/sale
agreements. Labour & material costs are recognised as they occur.
Other
Revenue from the sale of software products is recognised at a point in time,
being when the software is delivered to the end customer. Likewise, the
revenue from the sale of vehicle investments is recognised, at a point in
time, when the investment vehicle is delivered to the end customer.
Other operating income - Government grants
Government grants relate to amounts receivable under the Construction Industry
Training Board scheme. Grants are recognised in the income statement on a
systematic basis over the periods in which the entity recognises the related
expenditure for which the grant is intended to compensate.
Taxation
The tax expense or credit for the period comprises current and deferred tax.
Tax is recognised in the income statement, except that a change attributable
to an item of income or expense recognised as other comprehensive income is
also recognised directly in other comprehensive income.
The current tax charge or credit is calculated on the basis of tax rates and
laws that have been enacted or substantively enacted by the reporting date in
the United Kingdom, where the Company operates and generates taxable income.
Deferred tax is recognised on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial
statements and on unused tax losses or tax credits available to the Company.
Deferred tax is determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date and that are expected to apply in
the period when the liability is settled or the asset realised.
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. The carrying amounts of deferred tax assets are
reviewed at each reporting date and a valuation allowance is set up against
deferred tax assets so that the net carrying amount equals the
highest amount that is more likely than not to be recovered based on current
or future taxable profit.
Deferred tax assets and liabilities are only offset against each other when
there is a legally enforceable right to set off current taxation assets
against current taxation liabilities and the deferred tax assets and
liabilities relate to income taxes levied by the same tax authority on either
(a) the same taxable entity, or (b) different taxable entities which intend to
settle these on a net basis, or to realise the assets and settle the
liabilities simultaneously. In the Company's accounts all taxes are levied
by H M Revenue and Customs. Management review the offset of deferred tax
assets and liabilities to ensure such an offset is appropriate.
Research and Development tax claims
Where the Company has made Research and Development tax claims under the Small
and Medium Enterprise scheme and tax losses have been surrendered for a
repayable tax credit, a current tax credit is reflected in the income
statement based on the best estimate of the submission to be made in relation
to that financial year.
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position
at cost, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable
incremental costs incurred in its acquisition and installation.
Depreciation
Depreciation is charged so as to write off the cost of assets over their
estimated useful lives, as follows:
Asset class Depreciation
method and rate
Plant and machinery 10% reducing balance
Fixtures, fittings and equipment 20% reducing balance
Right-of-use assets Straight line over the
term of the lease or the asset's useful life if shorter
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately independent cash inflows (CGU). Those
intangible assets including goodwill are tested for impairment at least
annually. All other individual assets or CGUs are tested for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
An impairment charge is recognised for the amount by which the asset's or CGUs
carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of fair value, reflecting market conditions less costs to sell, and
value in use. All assets are subsequently reassessed for indications that an
impairment loss previously recognised may no longer exist.
Financial instruments
The Company classifies financial instruments, or their component parts, on
initial recognition as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the underlying contractual
arrangement. Financial instruments are recognised on the date when the Company
becomes a party to the contractual provisions of the instrument. Financial
instruments are initially recognised at fair value. Financial
instruments cease to be recognised at the date when the Company ceases to be
party to the contractual provisions of the instrument.
Financial assets are included on the balance sheet as trade and other
receivables or cash and cash equivalents. Financial liabilities include
borrowings, trade payables and accruals.
(a) Trade receivables
Trade receivables are amounts due from customers for services performed in the
ordinary course of business. They are recognised initially at the amount of
consideration that is unconditional. The Company holds the trade receivables
with the objective of collecting the contractual cash flows and therefore
measures them subsequently at amortised cost using the effective interest
method, less provision for impairment. A provision for impairment of trade
receivables is established based on the expected credit loss. The Group
applies the IFRS 9 simplified approach to measure expected credit losses that
uses a lifetime expected loss allowance for all trade receivables, which are
grouped based on shared credit risk characteristics and the days past due. The
amount of the provision is recognised in the balance sheet within trade
receivables. Movements in the provision are recognised in the profit and loss
account in administrative expenses. Any change in their value through
impairment or reversal of impairment is recognised in the income statement.
Default is defined as non-payment - there is no specific write off policy, but
disputes are settled by discussion as is common in the industry.
(b) Borrowings
All borrowings are initially recorded at fair value. Borrowings are
subsequently carried at amortised cost, with the difference between the
proceeds, net of transaction costs, and the amount due on redemption being
recognised as a charge to the income statement over the period of the relevant
borrowing. Interest expense is recognised on the basis of the effective
interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Company has an
unconditional right to defer settlement of the liability for at least 12
months after the reporting date.
(c) Trade payables
Trade payables are obligations to pay for goods or services that have been
acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if the company does not have an
unconditional right, at the end of the reporting period, to defer settlement
of the creditor for at least twelve months after the reporting date. If there
is an unconditional right to defer settlement for at least twelve months after
the reporting date, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and all are repayable
within one year and hence are included at the undiscounted amount of cash
expected to be paid.
(d) Contract assets
A contract asset is recognised within receivables where the Company has earned
the right to revenue through performance under contracts. Contract assets are
also potentially subject to credit losses and are therefore subject to a
provision for expected credit losses in the same way as trade receivables as
described above.
Assets at fair value through profit or loss
The Company owned a number of gold bars which were held for the purposes of
their potential appreciation in value. These were therefore accounted for as
an asset at fair value through profit or loss. This was considered a Level 1
fair value asset as the value is determined by reference to readily available
market information, with the movement in fair value in each accounting period
being accounted for through the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other
short-term highly liquid investments that have a maturity date of 3 months or
less, are readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value.
Provisions
Provisions are recognised when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Company
will be required to settle that obligation and a reliable estimate can be made
of the amount of the obligation.
Provisions are measured at the directors' best estimate of the expenditure
required to settle the obligation at the reporting date and are discounted to
present value where the effect is material.
Leases
The Company as lessee
Short term leases or leases of low value are recognised as an expense on a
straight-line basis over the term of the lease.
The Company recognises right-of-use assets under lease agreements in which it
is the lessee. The underlying assets comprise property, plant and machinery
and motor vehicles, and are used in the normal course of business. The
right-of-use assets comprise the initial measurement of the corresponding
lease liability payments made at or before the commencement day as well as any
initial direct costs and an estimate of costs to be incurred in dismantling
the asset. Lease incentives are deducted from the cost of the right-of-use
asset. The corresponding lease liability is included in the statement of
financial position as a lease liability.
The right-of-use asset is depreciated on a straight line basis over shorter of
the asset's useful life and the lease term and if necessary impaired in
accordance with applicable standards. The lease liability shall initially be
measured at the present value of the lease payments that are not paid at that
date, discounted using the rate implicit in the lease or, where this cannot be
determined, the Company's incremental borrowing rate. The lease liability is
subsequently measured by increasing the carrying amount to reflect interest on
the lease liability (application of the effective interest method) and by
reducing the carrying amount to reflect the lease payments made. No lease
modification or reassessment changes have been made during the reporting
period from changes in any lease terms or rent charges.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at
the fair value of the cash or other resources received or receivable, net of
the direct costs of issuing the equity instruments. If payment is deferred and
the time value of money is material, the initial measurement is on a present
value basis.
Defined contribution pension obligation
A defined contribution plan is a pension plan under which fixed contributions are paid into a pension fund and the Company has no legal or constructive obligation to pay further contributions even if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Contributions to defined contribution plans are recognised as employee benefit
expense when they are due. If contribution payments exceed the contribution
due for service, the excess is recognised as a prepayment.
Share-based payment
The Company applies IFRS 2 to share-based payments. The Company operates a share-based payment compensation plan, under which the entity grants key employees the option to purchase shares in the Company at a specified price maintained for a certain duration. The Company has also issued warrants to certain key suppliers with similar characteristics which are accounted for in the same way as the options.
The fair value of the services received in exchange for the grant of the
options is recognised as an expense. The total amount to be expensed is
determined by reference to the fair value of the options granted:
• including any market performance conditions (e.g. an entity's
share price);
• excluding the impact of any service and non-market performance
vesting conditions (e.g. profitability, sales growth targets and remaining an
employee of the entity over a specified time period), and
• including the impact of any non-vesting conditions (e.g. the
requirement for employees to save).
Non-market performance and service conditions are included in assumptions
about the number of options that are expected to vest. The total expense is
recognised over the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied. At the end of each financial
period, the Group revises its estimates
of the number of options that are expected to vest based on the non-market
vesting conditions. It recognises the impact of the revision to original
estimates, if any, in the Consolidated Statement of Comprehensive Income, with
a corresponding adjustment to equity. When the options are exercised, and the
Group issues new shares to meet that obligation, the proceeds received net of
any directly attributable transaction costs are credited to share capital
(nominal value) and share premium.
3 Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Company's accounting policies, management is
required to make judgements, estimates and assumptions about the carrying
value of assets and liabilities that are not readily apparent from other
sources. The estimates and underlying 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 in the period of revision and future
periods if the revision affects both current and future periods. The key
sources of estimation uncertainty that have a significant effect on the
amounts recognised in the Financial statements are described below.
Key judgements
Lease discount rate
IFRS 16 requires the carrying value lease liabilities and the corresponding
right of use assets to be calculated using the net present value of future
lease payments. This calculation inherently requires a discount rate to be
applied, which requires judgement. The Directors have used the Company's
incremental borrowing rate for property leases where the rate implicit in the
lease cannot be determined. The incremental borrowing rate applied is based on
the interest rate applied to the bank loan disclosed in note 20.
Key sources of estimation uncertainty
Revenue recognition (Civil projects)
Certain fixed price contracts span more than one accounting period and can
have a duration of more than one year. The Company's accounting policies for
these projects require revenue and costs to be allocated to individual
accounting periods and the consequent recognition at period-end of contract
assets or liabilities for projects still in progress. Management apply
judgement in estimating the total costs expected on each project. Such
estimates are revised as a project progresses to reflect the current status of
the project and the latest information available to
management. The project teams regularly review contract progress to ensure the
latest estimates are appropriate. Further information is disclosed in note 2
under 'Revenue' and the carrying amounts of contract assets are stated in Note
6.
Provision
As disclosed in note 19, a provision is included in this Financial statements
relating to the potential underpayment of National Insurance Contributions
under the Construction Industry Scheme. There is a level of uncertainty in the
quantum and timing of future payments related to this liability. Further
information is included in note 19.
Listing and fundraising costs.
Incremental costs that are directly attributable to issuing new shares have
been deducted from the share premium account, whilst costs that relate to the
stock market listing, or are otherwise not incremental and directly
attributable to issuing new shares have been expensed. The Company has
allocated costs that relate to both share issuance and listing on a rational
and consistent basis which requires judgement. These cost have been allocated
on the basis of 75% to the P&L and 25% to the share premium.
4 Earnings per share
Year ended 30 September
2022 2021
Basic £ £
Earnings used in calculation of earnings per share:
Total profits/(losses) attributable to equity holders 320,852 (56,203)
Weighted average number of shares in issue 55,640,408 21,097,000
Earnings/(loss) per share
On total profits attributable to equity holders 0.58p (0.27p)
The Company has share options and warrants in issue as disclosed in note 25.
However, the average share price during the period since issue was lower than
the exercise price, therefore the potential shares arising are not dilutive.
Earnings per share for the year ended 30 September 2021 above have been
restated to reflect the revised par value of the shares following a
sub-division on 20 January 2022. Each £1 share was converted to 1,000
ordinary shares of 0.1p each.
5 Segmental reporting
The Company's management have identified four operating segments : labour
supply, civil projects, suction excavator services; and other services. The
segments are monitored by the Company's chief operating decision maker and
strategic decisions are made based on the segments' operating results.
In total, at 30 September 2022 suction excavators accounted for £6,040,600
(2021 : £3,339,920) of right-of-use assets, and £5,364,237 (2021 :
£2,896,058) of lease liabilities. All other assets and liabilities relate to
construction services.
Segment information for the year ended 30 September 2022 is as follows:
Labour supply Civil projects Suction excavator Other Total
services
£ £ £ £ £
Revenue (all from external customers) 33,250,617 12,370,937 3,645,934 281,999 49,549,487
Cost of sales -27,719,436 -10,355,715 -1,517,541 -177,682 -39,770,374
Gross profit 5,531,181 2,015,222 2,128,393 104,317 9,779,113
Administrative expenses -1,284,275 -810,482 -1,085,008 0 -3,179,765
Operating profit from segments 4,246,906 1,204,739 1,043,385 104,317 6,599,348
Administrative expenses
not attributable to segments -5,893,650
Profit from operations 705,698
Fair value gains 691
Finance income 4,634
Finance costs -550,338
Profit before tax 160,685
Other services include digital product revenue, and vehicle investment sales.
Segment information for the year ended 30 September 2021 is as follows:
Labour supply Civil projects Suction excavator Other Total
services
£ £ £ £ £
Revenue (all from external customers) 22,890,070 7,696,102 2,168,296 0 32,754,468
Cost of sales -18,583,114 -6,696,798 -787,087 -26,066,999
Gross profit 4,306,956 999,304 1,381,209 0 6,687,469
Administrative expenses -615,972 -483,355 -422,711 0 -1,522,038
Other operating Income 217,195 0 0 0 217,195
Operating profit from segments 3,908,179 515,949 958,498 0 5,382,626
Administrative expenses
not attributable to segments -4,596,520
Profit from operations 786,106
Fair value losses -38,116
Finance income 27
Finance costs -232,500
Profit before tax 515,517
6 Revenue
The total turnover of the Company has been derived from activities wholly
undertaken in the United Kingdom, being the provision of service through
supply of labour and the operation of construction and engineering contracts,
the hire of suction excavators and other services.
The Company's revenue from each activity is shown below and is all derived in
the United Kingdom.
Year ended 30 September
2022 2021
£ £
Labour Supply 33,250,617 22,890,070
Civil projects 12,370,937 7,696,102
Suction excavator services 3,645,934 2,168,296
Other 281,999 -
49,549,487 32,754,468
Other than suction excavator and other services, the Company derives its
income from two main activities, both of which are linked to the principal
activity of the delivery of construction and civil engineering services, being
the provision of labour and services provided under construction and/or civil
engineering contracts. These are referred to internally as 'labour supply' and
'civil projects' respectively.
Significant customers
In the year ended 30 September 2022 one customer represented 17% (£8,437,682)
of revenue (2021 one customer 25% £7,601,708), and another customer
represented 11% (£5,404,125) of revenue (2021 one customer 16% £5,119,878).
These customers were primarily labour supply customers. No other customers
represented more than 10% of revenue in either year.
Contracts with customers
The Company has contract assets relating to revenue earned from the supply of
labour and construction services. Due to the nature of this revenue, balances
defined as contract assets will vary and depend on the number, timing and
nature of the contracts in progress at the balance sheet date. The relevant
balances are shown as contract
assets in note 17. The increase in contract assets compared to the prior year
represents the increased level of activity at the year end.
Revenue from contract assets
Revenue in the year relating to previously recognised contract assets was
£3,362,862 (2021 : £2,168,062)
Contract balances
The nature of the Company's revenue recognition is such that the only contract
balances arising relate to accrued income, which is shown as a contract asset.
The balance at 30 September 2022 was £6,739,637 (2021 : £3,362,862).
Significant changes in contract assets
The Company has many contracts for services and underway at any point in time,
and these are a mix of large and small contracts, generally with monthly
invoicing. The level of contract assets therefore fluctuates depending on the
mix of contracts and the stage of contract completion at the balance sheet
date by reference to costs incurred to date.
7 Other operating income
Year ended 30 September
2022 2021
£ £
Construction Industry Training Board grants - 164,631
Coronavirus Job Retention Scheme grants - 52,564
- 217,195
Other operating income arises mainly from the receipt of government grants.
Since this is not considered to be part of the main revenue generating
activities, the Company presents this income separately from revenue.
There are no unfulfilled conditions or other contingencies attaching to these
grants. The Company did not benefit directly from any other forms of
government assistance.
8 Profit from operations
Operating profit is stated in the income statement after charging:
Year
ended 30 September
2022 2021
,£ £
Depreciation - owned assets 146,472 126,280
Deprecation - right-of-use assets 887,599 598,564
Loss on disposal of fixed assets 21,218 11,297
Research and development costs 36,555 17,505
9 Auditors' remuneration
No non-audit services have been provided since the listing was completed.
Year
ended 30 September
2022 2021
£ £
For audit of the financial statements 66,340 62,000
Non-audit services :
Review of interim financial information - 15,000
10 Staff costs
The aggregate employee benefit expenses were as follows:
Year ended 30 September
2022 2021
£ £
Wages and salaries 13,375,145 7,183,515
Social security costs 1,506,878 787,729
Pension costs 265,586 178,891
15,147,609 8,150,135
The average monthly number of employees during the year was as follows:
Year ended 30 September
2022 2021
Site based operatives 212 99
Administrative and Managerial 63 54
275 153
11 Directors' remuneration
Key management of the Company are the members of the board of directors. Key
management personnel remuneration includes the following expenses:
Year ended 30 September
2022 2021
£ £
Salaries 517,646 515,734
Benefits 14,331 19,540
Pension contributions 70,500 95,951
602,477 631,225
During the year retirement benefits were accruing to 4 directors (2021: 3) in
respect of defined contribution pension schemes.
Amounts paid to the highest paid director were as follows:
Year ended 30 September
2022 2021
£ £
Salary and benefits 164,861 151,091
Pension contributions 40,000 40,000
204,861 191,091
12 Finance costs
Year ended 30 September
2022 2021
£ £
Lease finance costs 317,847 215,278
Interest on loans measured at amortised cost 230,552 3,676
Other interest 1,939 13,546
550,338 232,500
13 Income taxes
Year ended 30 September
2022 2021
£ £
Current tax:
UK corporation tax - -
Adjustments to prior periods - -
Total current tax charge - -
Deferred tax:
Origination and reversal of timing differences (114,925) (1,584)
Adjustments in respect of prior periods (45,242) 465,503
Effect of tax rate change on opening balance - 107,801
(160,167) 571,720
Tax on profit on ordinary activities (160,167) 571,720
Tax on loss on ordinary activities for the year is lower than the standard
rate of corporate tax in the UK of 19%, (2021: 19%).
The differences are reconciled below:
Year ended 30 September
Continuing operations 2022 2021
£ £
Profit on ordinary activities before taxation 160,685 515,517
Tax at the UK rate of 19% (2021: 19%) 30,530 97,948
Effect of:
Expenses not deductible for tax purposes 112,796 68,819
Fixed asset differences (230,669) (163,193)
Adjustments in respect of prior periods (45,242) 465,503
Remeasurement of deferred tax for change in tax rates (27,582) 107,801
Other differences affecting tax charge - (5,158)
Total tax charge (160,167) 571,720
At 30 September 2020, the Company anticipated that it would be making a
Research and Development tax claim that would lead to an increased level of
tax losses being available. The relevant claim has not yet been submitted and
the directors do not consider there was sufficient certainty at 30 September
2021 to be able to continue to recognise the corresponding deferred tax asset.
As a result, the deferred tax charge in the year ended 30 September 2021
includes an amount of £465,503 relating to the reversal of the previously
recognised asset.
14 Deferred tax
Deferred tax balances are analysed as follows:
Deferred tax balances before offset 30 September 2022 30 September 2021
£ £
Deferred tax liability (1,998,219) (1,093,676)
Deferred tax asset 1,710,799 646,089
Total deferred tax liability (287,420) (447,587)
Deferred tax balances after offset 30 September 2022 30 September 2021
£ £
Deferred tax asset - -
Deferred tax liability (287,420) (447,587)
Total deferred tax liability (287,420) (447,587)
The amounts reflect the differences between the carrying and tax amounts of
the following balance sheet headings as at each year end.
Credits/(charges) during each year are as follows:
Tax losses Short term temporary differences Fixed asset temporary differences Total
£ £ £ £
At 1 October 2020 - asset/(liability) 465,503 2,932 (344,302) 124,133
Tax credit/(charge) in respect of current year 180,443 (2,789) (749,374) (571,720)
At 30 September 2021 - asset/(liability) 645,946 143 (1,093,676) (447,587)
Tax credit/(charge) in respect of current year 1,063,412 1,298 (904,543) 160,167
At 30 September 2022 - asset/(liability) 1,709,358 1,441 (1,998,219) (287,420)
In May 2021 an increase in the main corporation tax rate to 25% was enacted,
and has been applied to the deferred tax provisions and assets shown above.
15 Property, Plant and Equipment
Plant and machinery Fixtures & office equipment Right-of-use assets Total
£ £ £ £
Cost
At 1 October 2020 1,071,740 393,059 6,110,998 7,575,797
Additions 325,007 33,139 3,020,493 3,378,639
Disposals (49,245) - - (49,245)
At 30 September 2021 1,347,502 426,198 9,131,491 10,905,191
Additions 67,710 160,475 6,474,034 6,702,219
Disposals (438,917) - - (438,917)
At 30 September 2022 976,295 586,673 15,605,525 17,168,493
Depreciation
At 1 October 2020 296,068 231,966 434,037 962,071
Charge 92,648 33,632 598,564 724,844
Disposals (17,947) - - (17,947)
At 30 September 2021 370,769 265,598 1,032,601 1,668,968
Charge 85,724 60,748 887,599 1,034,071
Disposals (176,944) - - (176,944)
At 30 September 2022 279,508 326,346 1,920,241 2,526,095
Net book value
At 30 September 2022 696,787 260,327 13,685,284 14,642,398
At 30 September 2021 976,733 160,600 8,098,890 9,236,223
At 30 September 2020 775,672 161,093 5,676,961 6,613,726
Certain right-of-use assets are pledged as security on the lease agreements to
which they relate.
16 Assets at fair value through profit or loss
2022
£
At 1 October 2020 309,566
Change in fair value (38,116)
At 30 September 2021 271,450
Change in fair value 691
Disposal (272,141)
At 30 September 2022 -
The asset above comprised 6kg of gold bars held by the Company and were
disposed of in April 2022. Whilst gold bars were not strictly speaking a
financial asset, given their nature as an investment with high liquidity and
readily ascertainable value, the Directors developed an accounting policy in
accordance with the guidance in IAS 8 to treat them as a financial asset at
fair value through profit or loss.
The fair value of the gold bars were based on 'Level 1' inputs as the fair
value is readily available from market sources.
17 Trade and other receivables
As at As at
30 September 2022 30 September 2021
Amounts falling due within one year: £ £
Trade receivables 9,395,331 4,132,819
Other receivables 812,251 343,742
Contract assets 6,739,637 3,362,862
Prepayments 959,738 452,804
17,906,957 8,292,227
Trade and other receivables and contract assets above are stated net of
expected credit loss ('ECL') provisions where necessary, which are calculated
using the simplified approach grouping trade receivables and contract assets
on the basis of their shared credit risk characteristics.
Trade receivables are regularly reviewed for bad and doubtful debts. The
Company's policy is to include a provision for impairment based on estimated
credit losses. This includes an assessment where relevant of forward-looking
information on macroeconomic factors that may affect the ability of customers
to settle receivables. Trade receivables are written off where there is no
reasonable expectation or recovery, for example where the customer has entered
insolvency proceedings or where a customer has failed to make contractual
payments for an extended period. As part of this assessment, the Company also
considers the likelihood of any credit losses occurring in future based on
previous experience and knowledge of the respective customers.
Trade and other receivables are all current and any fair value difference is
not material. Trade and other receivables are assessed for impairment based
upon the expected credit losses model. In order to manage credit risk, the
Directors set limits for customers based on a combination of payment history
and third party credit references. Credit limits are reviewed on a regular
basis in conjunction with debt ageing and collection history.
At 30 September 2021 an amount of £600,930 was included as an ECL provision.
This was in respect of a single customer, which had gone into administration,
and was considered by the Directors to be an exceptional event. It was
therefore excluded when considering any further provision required under the
expected credit loss model. The company believe the credit risk attached to
its customer base is minimal, as such have taken the ECL percentage as nil.
In addition to any provisions required for ECL, the Company also includes a
provision against trade receivables and contract assets for disputed items.
During the year ended 30 September 2022 the Company recorded a credit to the
income statement of £17,377 in respect of changes in the dispute provision.
As at 30 September 2022 the balance of the dispute provision was £41,289
(2021 : £148,753).
The maturity analysis of trade receivables is:
< 1 month 1-2 months 2-3 months > 3 months Total
£ £ £ £ £
30 September 2022 4,920,487 1,013,039 1,509,228 1,993,866 9,436,620
30 September 2021 2,616,935 1,318,166 528,436 418,965 4,882,502
The expected credit loss rate on all ageing columns above is 0%.
18 Trade and other payables
As at As at
30 September 2022 30 September 2021
Amounts falling due within one year: £ £
Trade payables 2,257,614 1,307,541
Social security and other taxes 2,353,042 1,503,300
Other payables 2,216,235 1,423,852
Accrued expenses 178,211 285,840
7,005,102 4,520,533
Trade payables are all current and any fair value difference is not material.
19 Provisions
2022 2021
£ £
At 1 October 259,537 143,312
Additional provision for year 45,414 116,225
At 30 September 304,951 259,537
The Directors have identified a potential underpayment of National Insurance
contributions in respect of payments made to subcontractors. Following
extensive professional consultation and advice, the Directors considered the
roles for all subcontractors provided by the Company. Whilst the Directors
consider that many of the roles were outside the scope of the Agency
legislation, there were several that were potentially considered within the
scope of the rules.
The Company has commenced the process of voluntary disclosure to HM Revenue
& Customs in this regard. The provision of £304,951 (2021 : £259,357),
based on those roles that the Directors deemed were inside the scope of the
Agency legislation, was recognised as at 30 September 2022, although the
timing of any resulting payment and the quantum thereof, currently remains
uncertain. The directors have not provided for a penalty which may be
between 0% and 30% of any liability arising from the disclosure, on the basis
that they are making a voluntary disclosure to HM Revenue & Customs. The
Directors have used their best estimate based on the advice provided and their
analysis of the potential underpayments.
The provision stated above is subject to uncertainty in both amount and timing
of cash flows due to the fact that the Company has submitted voluntary
disclosure to HM Revenue & Customs but is yet to receive any substantive
response. It is possible that, following the voluntary disclosure exercise, HM
Revenue & Customs may challenge that more of the roles should be caught by
the Agency rules and therefore the final liability may be higher. The amounts
stated above are, in the Directors opinion, reflective of the best estimate
and are confident of having a robust position to defend their judgements to
which the Company is exposed.
20 Loans and borrowings
As at As at
30 September 2022 30 September 2021
£ £
Included within current liabilities
Bank loans 6,528,750 3,139,463
The bank loan is secured by guarantees from the Company's major shareholder,
Hercules Real Estate Limited. The loan is a revolving facility with a rolling
12 month notice period, is secured on trade receivables and attracts interest
at a rate of 2.25% over base rate. The facility is currently capped at £10m,
but can be increased as the business grows.
21 Leases
The Company leases properties and certain items of plant and machinery. With
the exception of short-term leases and leases of low value underlying assets,
each lease is reflected on the balance sheet as a right-of-use asset (Note 15)
and a lease liability.
The Company had recognised 4 property leases in 2022 (2021 - 2), 65 vehicle
leases (2021 - 16) and 17 plant and machinery leases (2021 - 7).
All future cashflows are included. The property leases are subject to rent
reviews every five years. The nature of the rent reviews is such that annual
rentals are adjusted to prevailing market rates, unless that would lead to a
reduction. In accordance with IFRS 16, any future increases in annual rentals
arising from rent reviews are not included in the calculation of the lease
liabilities. Any future increases in annual rentals will result in prospective
adjustments to the lease liabilities at the point of the rent review.
Amounts recognised in the Statement of Financial Position relating to leases,
categorised by underlying type of asset, are:
Leasehold property Plant and machinery Motor vehicles Total
£ £ £
£
Net book value
At 1 October 2020 4,460,009 1,079,068 137,884 5,676,961
New leases recognised in the year - 2,920,076 100,417 3,020,493
Depreciation charge for the year (228,662) (286,083) (83,819) (598,564)
At 30 September 2021 4,231,347 3,713,061 154,482 8,098,890
New leases recognised in the year 1,251,157 3,840,541 1,382,337 6,474,035
Depreciation charge for the year (234,968) (444,072) (208,559) (887,599)
At 30 September 2022 5,247,536 7,109,530 1,328,260 13,685,326
Maturity analysis
2022 2021
£ £
Due within one year 2,483,527 1,042,939
Due within two to five years 7,045,096 3,377,289
Due after five years 5,784,982 4,581,294
Future finance charges (2,382,359) (1,455,537)
12,931,257 7,545,985
Amounts recognised in the Statement of Comprehensive Income
The statement of comprehensive income shows the following amounts relating to
leases:
2022 2021
£ £
Depreciation charge of right of use asset 887,599 598,564
Interest expenses (within finance costs) 317,848 215,278
1,205,447 813,842
Amounts recognised in the Statement of Cash Flows
The statement of cash flows shows the following amounts relating to leases:
2022 2021
£ £
Cash outflows 1,406,611 1,282,403
Low value leases and short-term leases
The Company has no leases for which the low value or short-term exemptions of
IFRS 16 has been applied.
22 Financial instruments
As at As at
30 September 2022 30 September 2021
Financial assets held at amortised cost: £ £
Trade receivables 9,395,331 4,132,819
Other receivables 812,251 343,742
Cash and cash equivalents 1,211,554 974,148
11,904,503 5,450,709
As at As at
30 September 2022 30 September 2021
£
Assets held at fair value through profit or loss:
Gold bars - 271,450
As at As at
30 September 2022 30 September 2021
Financial liabilities held at amortised cost: £ £
Bank borrowings 6,528,750 3,139,463
Trade payables 2,742,981 1,307,541
Other payables 2,216,235 1,423,852
Accrued expenses 178,211 285,840
Lease liabilities 12,931,257 7,545,985
24,597,434 13,702,781
23 Financial Risk management
The Company uses various financial instruments. These primarily include bank
borrowings, cash and various items, such as trade receivables and trade
payables that arise directly from its operations. The main purpose of these
financial instruments is to finance the Company's operations.
The existence of these financial instruments exposes the Company to a number
of financial risks, which are described in more detail below.
a) Market risk
Market risk encompasses three types of risk, being currency risk, interest
rate risk and price risk. The Company was previously exposed to price risk on
the value of its gold bars. These were purchased by the Company some years ago
as a long-term investment with the expectation of future capital appreciation
and were not actively managed. The gold bars were disposed of in the year and
there is therefore no longer any exposure in this respect.
Exposure to interest rate risk is considered further below. There is no
exposure to currency risk as the Company operates entirely with the United
Kingdom and all transactions are denominated in Pounds Sterling.
b) Liquidity risk
The Company seeks to manage financial risk by ensuring sufficient liquidity is
available to meet foreseeable needs by closely managing its cash balance. The
Company has significant levels of cash reserves available and continues to
generate profit before taxation (the loss after taxation in the year was due
to a large deferred tax charge on the reversal of a previously recognised
asset). In this context, liquidity risk is therefore considered to be low.
The Company's borrowing facilities are continually monitored against forecast
requirements and timely action is taken to put in place, renew or replace
credit lines. The Company acquires items of property, plant and equipment on
lease agreements where appropriate to assist in managing liquidity risk by
avoiding the depletion of cash on large capital purchases. The Company also
manages its liquidity needs by carefully monitoring cash outflows due on a
day-to-day basis.
The Company's financial liabilities comprise bank borrowings, trade payables,
other payables, accruals, amounts due to related parties and lease
liabilities. The maturity of lease liabilities is disclosed in note 21 above.
All other financial liabilities are expected to be settled within 12 months of
the balance sheet date.
c) Interest rate risk
Interest rate risk is limited to interest paid on the Company's variable rate
bank borrowings and interest received on cash deposits. Due to the relatively
low level of borrowings and the low rates of interest on cash deposits, the
impact of any changes in interest rate is not considered significant.
d) Credit risk
The Company's principal financial assets are cash and trade receivables.
Credit risk is also attached to contract assets that represent accrued income.
The credit risk associated with cash is limited, as the counterparties have
high credit ratings assigned by international credit-rating agencies. The
credit risk associated with trade receivables is minimal as invoices are based
on contractual agreements with long-standing customers. Credit losses
historically incurred by the Company have consequently been immaterial, other
than a single bad debt incurred in the year ended 30 September 2021 of
approximately £600,000 that the directors consider to be exceptional. This
arose due to the unexpected business failure of a major customer.
Notwithstanding the lack of historical credit losses, the Company maintains a
credit note provision against receivables. However, this is not necessarily
linked to credit risk and the ageing of receivables is not the most relevant
indicator to determine the potential impairment of a receivable. The nature of
the Company's operations is such that misunderstandings or minor disagreements
may arise during the course of contracts, which may sometimes require an
adjustment to be made to achieve settlement.
The Company's provision is broadly on the basis of any receivables that remain
outstanding after 6 months. The Company had no material individual receivables
past due or impaired at 30 September 2022 or 30 September 2021, other than the
exceptional amount referred to above.
Further details regarding expected credit losses can be found in note 17.
Capital management
The Company's capital comprises total equity and net debt. The Company's
capital management objectives are:
- To ensure its ability to trade as a going concern; and
- To provide an adequate return to shareholders.
The Company monitors capital based on the carrying amount of equity and net
debt. Adjustments are made as necessary based on the Directors' assessment of
the needs of the business and external factors such as the Company's industry
and the wider economy. The Company has traded profitably and therefore
generally levels of debt have been low. More recently a revolving credit
facility has been utilised to assist with working capital, and debt has also
been increased by the leasing of a number of capital items, particularly
suction excavators which are expected to be a significant future source of
income and profitability.
Therefore, whilst the Company appears to be relatively highly geared, this is
in line with the Directors' strategy to grow the business. The Company also
raised further equity after the balance sheet date following its successful
flotation on the Alternative Investment Market.
The Directors are able to maintain and adjust the capital structure by
adjusting dividends, issuing new shares or selling assets to reduce debt.
A summary of the Company's gearing is shown below.
30 September 2022 30 September 2021
£
Total equity 6,838,092 3,436,950
Net debt 18,248,453 9,711,300
Total capital 25,086,545 13,148,250
Gearing ratio (net debt / capital) 73% 74%
24 Share capital
Issued capital
As at As at
30 September 2022 30 September 2021
Allotted, called up and fully paid Number Number
Ordinary shares of 0.1p each (2021 : £1 each) 58,650,206 50,000
As at As at
30 September 2022 30 September 2021
Allotted, called up and fully paid £ £
Ordinary shares of 0.1p each (2021 : £1 each) 58,650 50,000
Share rights
The ordinary shares have attached to them full voting, dividend and capital
distribution rights (including on winding up). They do not confer any right of
redemption.
Share redesignation and issues
On 20 January 2022, the 50,000 existing shares of £1 each were subdivided
into 50,000,000 shares of 0.1p each.
On 4 February 2022, following the Company's successful admission to the AIM
Market, the Company issued 8,650,206 ordinary shares of 0.1p each for total
consideration of £4,368,354.
25 Share based payments
As part of its flotation on the AIM Market of the London Stock Exchange on 4
February 2022, the Company issued a number of share options and warrants to
key employees and suppliers. No further options were granted during the year.
The number of options and warrants granted is shown in the table below.
Options Warrants
Number Weighted average exercise price Number Weighted average exercise price
At 1 October 2021 - - - -
Issued on 4 February 2022 2,932,504 50.5p 716,379 50.5p
2,932,504 50.5p 716,379 50.5p
At 30 September 2022
Options
The weighted average remaining contractual life of the share options
outstanding at 30 September 2022 was 6 years and 4 months. The options have a
fixed exercise price based on the market price at the time of grant.
The options may be exercised between 4 February 2027 and 3 February 2029. No
specific criteria is involved other than to be on the payroll for the period
up to the start of the expected life of the options (see below).Any option
holder leaving the employment of the Company before then forfeits the options.
The issue of these options is not part of the remuneration package for the
individuals concerned.
The fair value of the options is estimated at the grant date using a
Black-Scholes option-pricing model that uses assumptions noted in the table
below. All options were granted on 4 February 2022 and were valued using the
following assumptions:
Expected life of options (years) 6 years
Exercise price 50.5p
Market value of share at date of grant 50.5p
Risk free rate 1.43%
Expected share price volatility 20%
Expected dividend yield 3.36%
Fair value per option 5.18p
Expected life of options
The expected life of the options was estimated based on the average of the
minimum and maximum life under the option agreements of 5 and 7 years
respectively.
Risk-free rate
A risk free rate of 1.43% was assumed in the option pricing model, based on
the yield from dividend strip government bonds with a similar life to the
options issued as close as possible to date of grant.
Dividend yield
This is based on the level of dividends paid by the Company in the year.
Exercise price
The exercise price was fixed at the market price at the date of grant, being
50.5p.
Volatility
Volatility was assumed to be 20% on average. The directors based this
assumption on the share price of the Company throughout the year. The
Directors consider this the most appropriate method of assessing expected
volatility as there is no comparable listed company from which to draw data.
Taking into account factors such as liquidity and performance, this is
expected to be a reasonable reflection of the expected volatility throughout
the expected life of the options.
The cost that has been charged to profit and loss in respect of share options
was £16,199. The charge was included in staff costs. The total fair value of
the options was calculated as £121,489, which is being spread over the
vesting period of 5 years.
Warrants
The weighted average remaining contractual life of the warrants outstanding at
30 September 2022 was 2 years and 4 months. The options have a fixed exercise
price based on the market price at the time of grant.
The warrants may be exercised at any time from the date of grant (31 January
2022) to 31 January 2025 at the option of the warrant holder.
The fair value of the warrants is estimated at the grant date using a
Black-Scholes option-pricing model that uses assumptions noted in the table
below. All options were granted on 4 February 2022 and were valued using the
following assumptions:
Expected life of warrants (years) 3 years
Exercise price 50.5p
Market value of share at date of grant 50.5p
Risk free rate 1.43%
Expected share price volatility 20%
Expected dividend yield 3.36%
Fair value per option 4.11p
Expected life of warrants
The estimate for the expected life of the warrants is based on the warrant's
contractual life.
Risk-free rate
A risk free rate of 1.43% was assumed in the option pricing model, based on
the yield from dividend strip government bonds with a similar life to the
options issued as close as possible to date of grant.
Dividend yield
This is based on the level of dividends paid by the Company in the year.
Exercise price
The exercise price was fixed at the market price at the date of grant, being
50.5p.
Volatility
Volatility was assumed to be 20% on average. The directors based this
assumption on the share price of the Company throughout the year. Taking into
account factors such as liquidity and performance, this is expected to be a
reasonable reflection of the expected volatility throughout the expected life
of the options.
The cost that has been charged to profit and loss in respect of share options
was £23,575. The charge was included within administrative expenses. The
warrants vested immediately, therefore this charge represents the full
calculated fair value of the instruments and no further charge to profit and
loss will be required.
26 Defined contribution pension scheme
The Company operates a defined contribution pension scheme. The pension cost
charge for the year represented contributions payable by the Company to the
scheme and amounted to £265,586 (2021 - £178,891). Contributions totalling
£5,766 (2021 - £1,336) were payable to the scheme at the end of the year and
are included in other payables.
27 Related party transactions
Ultimate controlling party
During the historical financial period, the Company was controlled by B K
Korkmaz and Mrs N Korkmaz by virtue of their shareholding in the parent
undertaking, Hercules Real Estate Limited.
Key management personnel compensation
Key management personnel remuneration has been set out in note 11 to the
financial statements.
Transactions with parent entity
The following transactions occurred with the Company's ultimate controlling
party, Hercules Real Estate Limited:
2022 2021
£ £
Rental payments 379,156 313,562
Provision of building services (income) - (257,831)
Outstanding balances arising from sales/purchases of goods and services
There were no outstanding balances due to or from relation parties at 30
September 2022 or 30 September 2021.
28 Capital commitments
At 30 September 2022, the Company had orders committed on the lease purchase
of suction excavators to a value of £6,506,472 (2021 : £4,785,000).
29 Post Balance Sheet Events
Following the Company's admission to the AIM Market, the Board is pleased to
propose a final dividend of 1.12 pence per share for the year ended 30
September 2022. Hercules Real Estate Limited, the Company's 71.7% shareholder,
has again waived its entitlement to this payment. The dividend will be paid on
24 March 2023 to shareholders on the register at close of business on 23
February 2023. The shares will go ex-dividend on 24 February 2023.
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