REG - HSS Hire Group PLC - Preliminary Results
28/04/2022 07:15
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RNS Number : 6188J HSS Hire Group PLC 28 April 2022
HSS Hire Group Plc
New operating model driving significant increase in profitability
HSS Hire Group plc ("HSS" or the "Group") today announces results for the 53
week period ended 1 January 2022
Financial Highlights FY21 FY20 Change
Continuing Operations(1)
Revenue £303.3m £250.1m 21.3%
Adjusted EBITDA(2) £69.8m £59.6m 17.2%
Adjusted EBITDA margin 23.0% 23.8% (0.8pp)
Adjusted EBITA(3) £31.7m £13.4m £18.3m
Adjusted EBITA margin 10.4% 5.3% 5.1pp
Adjusted basic earnings/(loss) per share 1.52p (4.64)p 6.16p
ROCE(4) 22.1% 10.7% 11.4pp
Net debt leverage(5) 1.5x 2.8x 1.3x
Other extracts
Operating profit / (loss) £34.5m £(4.7)m £39.2m
Profit / (loss) before tax £6.1m £(29.6)m £35.7m
Basic earnings/(loss) per share 1.05p (15.13)p 16.18p
· Strong trading performance with new operating model driving
improved profitability
· 2021 like-for-like(6) revenues up 20% year-on-year, returning to
pre-pandemic 2019 levels
· Capital-light Services revenue 24% ahead of 2020 on a
like-for-like(6) basis,
· EBITDA and EBITA materially ahead of 2020 with EBITA margin
almost twice prior year; reflective of operating model effectiveness and
continued strong price control
· Technology-led, low-cost operating model underpinning improved
Group returns with ROCE(4) increasing to 22.1%, up 11.4pp compared to 2020
· Materially stronger balance sheet with leverage on a non-IFRS16
basis reduced 1.8x to 0.8x
· Net debt(7) reduced to £45.4m (2020: £120.4m)
· Sales of Laois completed for net proceeds of £10.0m and All
Seasons Hire for £54.3m
· Refinancing completed, reducing the ongoing annual interest
charge to around £3m(8) (2020: £16.3m)
· Technology-led low capital intensity operating model continues to
drive accelerated growth
· c.60% of transactions now processed through HSS Pro, our new
digital platform, enabling improved enquiry conversion as customers value the
enhanced experience
· Restructured organisation into two divisions, already delivering
improved performance
· HSS ProService - focused on customer acquisition, sales enquiry
conversion and leveraging digital assets; and
· HSS Operations - focused on customer fulfilment and service
· Low-cost builders merchant network expanded to 55 locations
(December 2020: 24), now representing 16% of customer orders in England &
Wales. 44% like-for-like(9) revenue growth
· Continued technology investment, including enhancements to
HSS.com, with online revenue 128% above pre-pandemic levels and representing
23% of transactions in 2021
· Targeting net zero carbon emissions(10) by 2040, building on good
progress in 2021
· Detailed plan to deliver targets developed in partnership with
specialist consultants
· Focus on leveraging technology platforms to help customers and
suppliers reduce their carbon footprint
· By reducing our branch network and switching to renewable
electricity, Group energy carbon emissions are now 97% lower than 2016
· Current trading and outlook
· Revenue has grown 13% in Q1 2022 with EBITDA and EBITA in line
with management expectations
· Management expect full year EBITA to be in line with market
expectations
· Capex investment in 2022 is expected to increase to £35-£40m to
support the accelerated delivery of our technology roadmap
· Limited exposure to supply chain disruption which is being caused
by the tragic conflict in Ukraine. Cost inflation being successfully offset
through selling price increases.
· Strategy is delivering; we are well positioned for accelerated
growth and targeting:
· Services revenue growth of 10pp above the market
· Rental revenue growth in line with the market
Steve Ashmore, Chief Executive Officer, said:
"2021 was a year of significant progress for HSS with successful
implementation of a number of transformational strategic projects. Trading
returned to pre-pandemic levels, our EBITA margin almost doubled, and we
delivered strong operating profit while significantly strengthening our
balance sheet. This performance is testament to the effectiveness of our new,
technology-led, capital light, low-cost operating model which provides us with
the agility and flexibility to adapt and respond to changing market
conditions.
In 2022 our focus will be to further invest in and enhance our digital
capabilities, and we have a clear technology roadmap ahead of us which will be
largely implemented by the end of the year. This technology provides an
unparalleled, easy-to-use service, further differentiating us in the market
and will be a key enabler of our continued profitable growth. Supporting this
growth is our new structure based around two complementary divisions: HSS
ProService and HSS Operations. By simplifying the business with one division
wholly focused on sales and the other on service, we have further improved our
efficiency and effectiveness.
We have started 2022 well, carrying over the momentum achieved in 2021. We
will continue to build on this and position ourselves as the most
technologically advanced company with the most comprehensive customer offering
in the sector."
Notes
1) Results for 2021 and 2020 are on a continuing operations and IFRS16
basis (excluding Laois Hire Limited and All Seasons Hire Limited sold in April
2021 and September 2021 respectively)
2) Adjusted EBITDA is defined as operating profit before depreciation,
amortisation, and exceptional items. For this purpose depreciation includes
the net book value of hire stock losses and write offs, and the net book value
of other fixed asset disposals less the proceeds on those disposals
3) Adjusted EBITA defined as Adjusted EBITDA less depreciation
4) ROCE is calculated as Adjusted EBITA for the 53 weeks to 1 January
2022 divided by the average of total assets less current liabilities
(excluding intangible assets, cash and debt items) over the same period
5) Net debt leverage is calculated as closing net debt divided by
adjusted EBITDA for the 53 weeks to 1 January 2022 (prior year 52 weeks to 26
December 2020)
6) Like-for-like excludes impact of additional week's trading in 2021
7) Non-IFRS16 basis
8) Based on current SONIA rate and £70m senior finance facility
9) Merchant locations open for comparable periods in both 2021 and
2020
10) Scopes 1,2 and 3
Disclaimer:
This announcement contains forward-looking statements relating to the
business, financial performance and results of HSS Hire Group plc and the
industry in which HSS Hire Group plc operates. These statements may be
identified by words such as "expect", "believe", "estimate", "plan", "target",
or "forecast" and similar expressions, or by their context. These statements
are made on the basis of current knowledge and assumptions and involve risks
and uncertainties. Various factors could cause actual future results,
performance or events to differ materially from those described in these
statements and neither HSS Hire Group plc nor any other person accepts any
responsibility for the accuracy of the opinions expressed in this presentation
or the underlying assumptions. No obligation is assumed to update any
forward-looking statements.
Notes to editors
HSS Hire Group plc provides tool and equipment hire and related services in
the UK and Ireland through a nationwide network and its extensive supply chain
of rehire partners. It offers a one-stop shop for all equipment through a
combination of its complementary Rental and Services businesses to a diverse,
predominantly B2B customer base serving a range of end markets and activities.
Over 90% of its revenues come from business customers. HSS is listed on the
AIM Market of the London Stock Exchange. For more information please
see www.hsshiregroup.com (http://www.hsshiregroup.com/) .
For further information, please contact:
HSS Hire Group plc Tel: 07557 491 860 (on 28 April 2022)
Steve Ashmore, Chief Executive Officer Thereafter, please email: Investors@hss.com (mailto:Investors@hss.com)
Paul Quested, Chief Financial Officer
Greig Thomas, Head of Group Finance
Teneo
Tom Davies Tel: 07557 491 860
Charles Armitstead Tel: 07703 330 269
Numis Securities (Nominated Adviser and Broker Tel: 020 7260 1000
Stuart Skinner
George Price
Chairman's Statement
Dear shareholder,
2021 was a significant year for HSS, marking the completion of the strategy we
first set out in 2017: to Delever the Group, Transform the Tool Hire business
and Strengthen our commercial proposition.
Today, the Group is unrecognisable from the HSS of five years ago and we have
established ourselves as a digital leader in the hire market. The progress is
testament to the resilience of our colleagues who have provided customers with
exceptional service during an immensely challenging period for both the
business and society at large. We begin 2022 with the technology,
organisational structure and resources that will support us as we begin a new
chapter of exciting growth for HSS, focused on delivering our vision: to be
the market-leading, digitally-led brand for equipment services.
Summary
Following the significant acceleration of our digital strategy in 2020, we
entered 2021 with strong momentum and performance quickly returned to
pre-COVID-19 levels, delivered through our lower cost operating model.
We continued to invest in technology, rolling out HSS Pro and on-boarding
colleagues to improve the customer journey while expanding our builders
merchant network to enhance our reach with little capital investment.
The strategic divestitures of Laois Hire Services and All Seasons Hire
represented good value for shareholders while our ongoing commercial
relationships with both companies, entered into as part of these
transactions, ensure we continue to offer a one-stop shop for our customers.
We used the cash generated to further reduce the Group's debt. With a
strengthened balance sheet and net debt leverage at approximately 0.8x
(non-IFRS 16, 2020 2.6x), our refinancing was successfully completed leading
to a significant reduction in ongoing interest cost and increase in earnings
per share.
In 'Delevering the business', we completed the last stage of the strategy set
out in 2017 and now occupy a differentiated position within the market as a
digitally-enabled, capital-light business, supported by a strong balance
sheet. We are now well-positioned for the future as we begin a new chapter of
exciting growth built around our unique business model.
Our vision
As we embark on our next stage of growth, we have a clear vision underpinning
our strategy: to become the market-leading, digitally-led brand for equipment
services. Through the investments and digital developments we have made over
the last four years, combined with our new organisational structure, we have
the foundations in place on which to realise this vision.
Our Board and management team
Our Board members act as custodians of the HSS brand and we benefit from a
stable and experienced Board with no Director having served for fewer than
four years. This stability has been a crucial asset, both during the
uncertainty of the pandemic and also in steering the business through a
significant transformation. The Board has provided essential support to senior
management at key moments where important strategic decisions have been made
as well as helping shape the Company's approach to risk during this period of
change.
The Board continues to engage with all stakeholders to ensure HSS operates
with transparency, integrity and in the interests of our colleagues and
partners while leading the Company into the next phase of growth as we deliver
on our vision.
Our people
At the heart of HSS are our colleagues and, against the backdrop of the
COVID-19 pandemic, they have worked tirelessly to support our stakeholders.
Our success as a business is wholly a product of this hard work and, on behalf
of the Board, I would like to express my sincere thanks to all our colleagues
for their unfaltering commitment.
Thankfully the pandemic appears to be receding, however it has had a
significant impact on society and ways of working. Given this, it is more
important than ever to maintain regular communication with colleagues to
ensure we are aware of their views and concerns and provide them with
a fulfilling and engaging place to work. This communication was vital in our
decision-making process as we adapted our working policies, moving to a new
head office designed for hybrid working and rolling out our HSS Pro technology
to support their day-to-day work. Our colleagues are now able to adapt their
working patterns with greater flexibility while continuing to provide a
seamless service for our customers.
2021 also saw us implement significant strategic and structural change across
the business and it was vital that colleagues were kept abreast of these
developments, had their questions answered, and their views addressed.
Accordingly, during the year, we provided regular updates through
company-wide emails, FAQs and our annual management roadshow, supplemented by
more informal company updates through our CEO's blog.
'Make It Together' is one of our four core values as a business but we can
only live up to this value if we maintain our position as a diverse and
inclusive employer. Engaging with our colleagues is central to this and
feedback from the Women's Networking Group provided management with new
methods of attracting women into a historically male-dominated industry while
our employee engagement surveys helped us establish the topics for our monthly
wellbeing events. We are incredibly pleased with the progress that has been
made over the year and have now laid the groundwork for a large-scale refresh
of our diversity training and outreach programmes.
Environment, Social and Governance
At HSS, we strive to operate in a responsible and sustainable way. We are
cognisant, however, that we can always do better and, accordingly, in 2021 we
began a comprehensive review of our ESG strategy.
Throughout 2021 health and safety has remained paramount to our business
including an increased focus on mental health and wellbeing. To support our
colleagues, we have implemented a variety of measures, see the ESG section for
more information, while continuing to support our customers, our communities
and the environment in which we operate.
In Q4 we appointed an external consultant, Sustainable Advantage, to conduct a
comprehensive analysis of our ESG credentials and identify improvement
opportunities. They benchmarked us as "excellent" during their review of 62
ESG-related categories. They have also supported us with a materiality
assessment and net zero analysis, which has led us to accelerate our ESG
strategy with a new set of objectives and commitments which are outlined in
our Sustainability section.
Our investors
Over the year, the Group has benefited from continued support from our
long-term shareholders while engagement with new and potential investors has
ensured our vision and operating model are well-understood.
Having made excellent progress in delivering our 2017 strategy, we now want to
build on this success and accelerate growth through further investment in our
digital capabilities to create longer-term shareholder value. Accordingly,
the Board believes that the interests of shareholders are best served by
not declaring a dividend for 2021, a position that will be kept under
review as we progress through 2022.
Looking ahead
Following the changes made last year, I am pleased to say that we are entering
2022 with the technology, structure, resources and - most importantly - the
colleagues, to deliver on our next phase of accelerated growth. I would like
to thank my fellow Board members for their continual support and, reiterating
my earlier sentiment, express my immense gratitude to our colleagues for all
that they have done over the last year in driving our transformation and
continued success as a business. We are confident that 2022 will see HSS
continue to grow by leveraging our differentiated position within the tool
hire market.
Alan Peterson OBE
Chairman
Chief Executive Officer's Strategic Review
I am very pleased with our performance in 2021 and would like to thank all my
colleagues for their exceptional efforts and performance over the last year.
Despite the ongoing headwinds of the pandemic, our agile, digitally-enabled,
lower-carbon network ensured we were able to support our customers and
deliver a strong set of results during a challenging period for the global
economy. We ended 2021 with underlying (adjusted to account for an extra week
in 2021) revenue up 20% against prior year and back in line with pre-pandemic
2019 levels. EBITDA and EBITA both stepped forward against 2020 by £10.2m and
£18.3m respectively with the improved revenue performance fulfilled through
our lower-cost operating model.
2021 also marked the successful completion of the strategy we set out in
2017: to Delever the Group, Transform the Tool Hire business, and Strengthen
our commercial proposition.
We enter 2022 with a new organisational structure, a strong balance sheet and
a differentiated business model that we believe positions us as the most
agile and technologically advanced operator in the equipment hire industry.
Our market-leading digital capabilities continue to develop at pace and allow
us to provide a comprehensive and efficient service to our customers. With
these foundations firmly in place, we are entering a new stage of growth,
ready to capitalise on the market opportunities present in the sector.
Our year in summary
Following the significant acceleration of our strategy in 2020, we started
2021 well and EBITDA and EBITA margins in the first quarter were comfortably
ahead of both 2019 and 2020 levels. This was despite the impact of a third
COVID-19 lockdown across all territories starting in January, with our
click-and-collect service and digital capabilities ensuring trading remained
strong.
Early in the year, we moved our shares from the Main Market to AIM to benefit
from its greater flexibility following the significant strategy acceleration
we made in 2020. This was widely supported by existing shareholders and we
have since seen increased interest from potential new investors.
By April, HSS Pro had been rolled out across our entire salesforce, improving
our efficiency and decision-making processes. As a result, OneCall enquiries
grew, conversion rates increased, and we saw a material improvement in
like-for-like Services revenue.
In April, we announced the decision to sell Laois Hire Services Limited to
Briggs Equipment Ireland Limited for €11.2 million. With Laois contributing
4% of the Group's revenue in 2019, €11.2m was an attractive valuation and,
with our new operating model performing well, we determined that the capital
could be more effectively used in other parts of the business. The proceeds
of the sale were used to increase investment in our core Tool Hire business
and reduce debt, supporting two of our 2017 objectives: to Delever the Group
and Transform the Tool Hire business. As part of the transaction, we entered
into a commercial agreement with Briggs for the cross-hire of equipment,
ensuring that we continue to provide our Irish customers with their large
plant requirements.
By the half-year, revenue was back in line with 2019 levels. Profitability had
stepped forward with EBITDA up 3ppts and EBITA up 6ppts versus FY19 and ROCE
at a record 24%.
In September we announced the sale of our heating, ventilation and air
conditioning hire provider - All Seasons Hire (ASH) - to Cross Rental Services
for £55m. As with Laois, this was an attractive valuation and, by striking a
commercial agreement with the company, we continue to provide our customers
with access to ASH's equipment and services. This transaction reduced our
leverage to around 0.8x - a significant decrease from the 2.6x leverage (both
measures on a non-IFRS 16 basis) we started the year with, and the proceeds
were used to repay debt, marking the completion of the strategy we began in
2017.
With our 2017 strategy delivered, in the latter half of 2021 we launched a new
business model in preparation for our next stage of growth, creating a more
focused, more efficient organisation consisting of two distinct divisions -
HSS ProService and HSS Operations - which work together to provide our
customers with what we believe is the most comprehensive offering in the
sector.
Capitalising on our new structure, materially stronger balance sheet, and
growth potential, in November we engaged with our lenders whose confidence in
our operating model and financial position enabled us to successfully
refinance the business, significantly reducing our annual interest costs (on
our senior finance facility) from £16.3m in 2020 to approximately £3.0m per
annum (based on our £70m facility), improving earnings per share and free
cash flow.
Towards the end of what was already a year of significant change, we also
started to review our sustainability approach, appointing an external agency,
Sustainable Advantage, to conduct a comprehensive review of our current ESG
credentials, identify areas of strength and weakness, and help us establish a
new set of commitments and targets which are outlined later in this report.
With a new business model, stronger balance sheet, and one of the most
advanced digital offerings in the marketplace, we ended 2021 well. We have
continued to build on this and started 2022 strongly with first quarter
revenue growth of 13% compared to 2021 and we are well-positioned to build on
this as we continue our exciting new phase of growth.
Our strategy
The hire market in the UK is significant - estimated to be £5-6bn in size -
but it is fragmented, consisting of a small number of large providers and
over 1,000 smaller, independent businesses, most of which operate from single
sites.
The market is also digitally immature, and many companies are still in their
technological infancy. As a result of the work we have done over the last four
years, accelerated in 2020 through increased investment in technology, we
benefit from a highly differentiated position within the marketplace which we
believe creates an exciting prospect for investors as well
as our customers.
For customers, our differentiated offering is focused on employing our
technology to provide a superior service to that of our peers, building brand
loyalty and increasing our market share. Through our website, our customer
app, HSS Pro, our ProService platform and Brenda - the technology on which our
digital capabilities are built - we offer our customers a one-stop shop for a
full range of building services. We believe our technology provides the
quickest, most efficient, most reliable and most comprehensive offering in the
sector.
For suppliers, we offer volume and access to the end user. In our ProService
division, our rehire suppliers can put their rental equipment on hire with our
broad portfolio of customers. We consolidate that demand for them, lowering
their customer acquisition and administration costs. Our technology provides
them with the insight they require to enhance their returns on investment.
For investors, our differentiated operating model benefits from an extremely
flexible cost base and strong margin and ROCE performance. Our technology
also means we are highly scalable without the need for large capital
investment. By transitioning from a capital-heavy operating model with a
large branch network to an agile, digitally-enabled, capital-light model, we
fulfil our customers' requirements while delivering superior returns for
shareholders (see Investment case in the Annual Report for more information).
This differentiation is key to our success and, as we enter our new chapter
of growth, our strategy will focus on leveraging our technology to build on
this and position ourselves as the most comprehensive, accessible and reliable
service provider in the equipment hire sector, retaining existing client
relationships while building new ones to drive revenue growth.
Our new operating model
At the heart of our strategy is our operating model which underwent
significant change in 2020 and 2021, making us a far more efficient and
profitable business. Our two divisions - HSS ProService and HSS Operations -
work together to provide customers and suppliers with the equipment and
services they need to complete projects.
HSS ProService:
HSS ProService is our customer-facing sales acquisition division, offering
customers a one-stop shop for Hire, Equipment Sales, Accessories, Parts,
Fuel, Waste Management, Training, Materials and other building services.
Built on Brenda, the technology platform on which all our digital applications
will sit, HSS ProService can source - either from our own fleet or through our
extensive supplier network - the equipment our customers need the moment a
request is made. By acting as a supply aggregator, we can optimise our
owned fleet investment decisions towards higher returning products, while
providing our customers with one of the broadest and deepest product
offerings in the sector. Similarly, our technology allows us to connect our
suppliers with an extensive customer base, consolidating supply and demand
and capitalising on converging customer and supplier requirements.
Our Brenda technology ecosystem has been designed to provide tailored
interfaces to meet the needs of different users - large customers, SMEs,
suppliers and colleagues - but each with a consistent goal: to be quick and
easy-to-use and to provide access to our complete range of products and
services.
Supported by the Brenda platform, HSS ProService allows us to operate a
market-leading, technologically-enabled acquisition model at low cost,
positioning us as an aggregator, differentiating us from our peers and
replacing a legacy manual process with an advanced, automated digital system
to improve the accuracy and speed of conversion, driving customer loyalty and
enquiry volumes.
HSS Operations:
HSS Operations leverages our well established, national distribution and
engineering network to deliver upon the relationships we build and the
enquiries we generate through our HSS ProService team.
Focused on customer service, utilisation and fulfilment rates, HSS Operations
makes sure our customers get the equipment they need when and where they need
it in the quickest, most efficient, way possible. Operations acts as the
largest single fulfilment solution for ProService requirements, choosing to
fulfil enquiries where it is well placed from both a customer service and
operational efficiency perspective.
At the heart of HSS Operations is 'Spanner', our asset management tool that
automates the entire fulfilment process, ensuring that all products are safe
and in good working order for our customers. As a 'circular economy'
business, HSS Operations is inherently sustainable and Spanner is the
foundation of this, prolonging the life-cycle of our equipment by ensuring
that our fleet is managed efficiently. In addition, when a piece of equipment
is returned, it is routinely tested and maintained to ensure that its
life-cycle is extended and our ROCE is maximised. Finally, when equipment does
reach the end of its life-cycle, it is recycled or disposed of in a manner
that minimises environmental impact. When buying new fleet, our procurement
process carefully considers the sustainability credentials of products and
this is key to our decision-making process.
Alongside Spanner, we introduced Satalia Delivery - a tried and tested third
party routing and scheduling system - to our CDCs in late 2021 to optimise the
efficiency of our deliveries. Using technology, and integrating seamlessly
with our customer and driver apps, Satalia Delivery examines all our orders to
determine the most effective way they can be fulfilled, outlining which
drivers should deliver which tools to each customer and by which route. This
improves our service by increasing the number of orders we can fulfil in a day
and provides our customers with more accurate timeframes as to when they can
expect their deliveries. Importantly, it also reduces the time our vans spend
on the road, lowering fuel costs, reducing carbon emissions and improving our
sustainability as a business.
Working in unison, our Operations platforms ensure our customers are provided
with a seamless service, our colleagues have easy-to-use systems to support
their day-to-day work.
Our technology roadmap
Beyond the initial focus areas (see below) we will continue to build our
digital capabilities by accelerating our investment in customer and supplier
acquisition, utilising the data we collect from our digital applications to
better understand consumer behaviour and improve fulfilment choices.
We will also leverage our technology to enter new verticals in the building
services sector, expanding our customer offering and capitalising on
converging customer and supplier needs.
Increasing automation underpins our growth plan, with our digital platforms
ensuring transactions are seamless and accurate, reducing manual intervention
and improving both customer and supplier adoption.
In short, by utilising our technology and providing our customers with the
easiest, quickest and most accurate service in the marketplace, we will
continue to differentiate our offering and become the 'go to' building
services provider, growing our business, our customer base and our market
share.
Acting responsibly and sustainably
Health and Safety is our priority and, via the monthly Health and Safety
forums which I chair, I can see that our teams consistently strive to keep
themselves, their colleagues and our customers safe at all times. We continue
to make progress reporting near misses and safety observations, and our
colleagues have really embraced the first of our four values: Make It Safe.
While we strive to act as a sustainable business (see our sustainability
report), our appointment of Sustainable Advantage to conduct a review of our
policies was in recognition of the fact that there is always room for
improvement.
At the end of the year, Sustainable Advantage provided us with a comprehensive
review and suggestions for development of our ESG credentials. We are
currently in the process of developing a new approach and set of commitments
and targets which are detailed later in this report.
Our market
Following a period of uncertainty created by COVID-19 and the associated
reductions in demand and supply-side challenges, we saw our market recover
well. While the Group has no direct customer exposure, recent tragic events in
Ukraine have resulted in cost inflation and supply chain disruptions. Our
exposure to supply chain disruption had already been mitigated through early
ordering of our current year's hire fleet requirements in the latter part
of 2021 as well our Services business supply chain of 600+ partners ensuring
that we can continue to provide national availability. We are offsetting cost
pressure through targeted selling price increases. We will continue to monitor
the situation closely.
Outlook
To summarise, the business is in great shape and, with a high performing team,
leading technology, differentiated organisational structure and strong balance
sheet, we have all the elements in place to begin a new chapter of
sustainable growth.
We have started this already and in the first quarter of 2022 revenue is 13%
ahead of prior year.
We continue to benefit from a differentiated position in an attractive
marketplace and as such, continuing historic performance trends, we are
targeting growth in our Services business segment of 10ppts above the
market and our Rental business segment in line with the market.
Steve Ashmore
Chief Executive Officer
TECHNOLOGY ROADMAP - FOCUS AREAS
With technology at the heart of our strategy and business model and a key
enabler to our growth, we have a clear technology roadmap that will ensure
we retain and build on our already differentiated position, provide our
customers, suppliers and colleagues with a seamless, efficient and easy-to
use service, and grow market share.
The initial focus areas for our investment will be:
1. Continuing to develop the ProService platform for larger customers,
improving its features such as auto-approval and revised order flow, customer
push notifications and purchase order validation capabilities.
2. Moving our hss.com website from Spanner to the Brenda technology
platform to provide our small customers with the same benefits our large
customers receive through the ProService platform, giving them a quicker,
easier-to-use system with increased visibility of product availability.
3. Improving our supplier portal and the on-boarding of suppliers to
ensure they capitalise on the full benefits of the system. These include the
ability to quickly and easily respond to enquiries, manage the equipment they
have out on hire and optimise their own utilisation by adjusting their
catchment area and pricing. Not only does this benefit our suppliers by
improving their efficiency but it also benefits our customers, enhancing
availability and response times.
4. Continuing the roll-out of our Satalia Delivery routing and
scheduling software to our CDCs to improve efficiency and reduce the carbon
impact of deliveries and collections.
Financial Review
Stronger balance sheet, well-positioned for growth
Financial highlights(1)
£m 2021 2020 Variance
Revenue Rental 191.2 160.6 19.0%
Services 112.1 89.4 25.4%
Group 303.3 250.1 21.3%
Contribution(2) Rental 132.6 116.8 13.5%
Services 16.2 10.7 51.5%
Group 148.8 127.5 16.7%
Adjusted EBITDA(3) 69.8 59.6 17.2%
Adjusted EBITA(3) 31.7 13.4 18.3
Operating profit/(loss)(3) 34.5 (4.7) 39.2
1 Results are for Continuing operations.
2 Contribution is defined as revenue less cost of sales (excluding
depreciation and exceptional items), distribution costs and directly
attributable costs (for each segment).
3 These measures are not reported on a segmental basis because branch and
selling costs, central costs and exceptional items (non-finance) are allocated
centrally rather than to each reportable segment.
Overview
FY21 has been an excellent year for the Group, delivering improved performance
across all key financial measures and successfully completing the strategy set
out in 2017. This is testament to the hard work and commitment demonstrated
every day by each and every colleague, especially given it was delivered
against the backdrop of the pandemic.
Our revenue, which is back to pre-pandemic levels, was underpinned by
continued technology development, including the re-platforming of the business
onto our HSS Pro system, and efficient hire fleet investment, leveraging
insight from our various tools. This performance was also positive affirmation
of the operational changes made at the end of 2020 where we moved to a lower
variable cost and scalable model with our regional builders merchant partners.
These changes have delivered improved EBITA margin.
Pleasingly, the balance sheet was materially strengthened with the proceeds
from the strategic business sales of Laois and All Seasons Hire used to repay
the Group's debt and enable an early refinancing at materially lower interest
costs. An important part of these divestitures was the ongoing commercial
agreement through our technology-led, capital-light business, offering our
customers continued access to the broadest range of products. We are
delighted with the performance to date under these agreements. To ensure
comparability all commentary in this report is on a continuing
operations basis.
The combination of these actions resulted in the Group delivering a
significant increase in both adjusted EBITDA and EBITA alongside a material
reduction in net debt leverage to 1.5x (2020: 2.8x); the lowest level in the
Group's history.
With our technology platforms in place and supported by a flexible, low-cost,
scalable operating model and strong balance sheet, we are well-positioned for
the next phase of growth.
Revenue
Group revenue grew by 21.3% to £303.3m (FY20: £250.1m) and recovered back to
pre-pandemic levels through effective strategy execution. This is against a
backdrop of COVID-19, including the impact of stricter lockdowns in some
territories in the early part of 2021.
Group revenue growth is one of our KPIs as, combined with estimates of market
size and growth rates, it provides us with a measure of our market share.
Segmental performance
Rental and related revenues
Our Rental revenues recovered throughout 2021 as we rolled out HSS Pro,
expanded the builders merchant network to 55, increased hire fleet investment
where customer demand and returns were strong and COVID-19 restrictions were
gradually eased. Revenues grew 19.0% to £191.2m (FY20: £160.6m) and
accounted for 63% of Revenue (FY20: 64.2%). Rental and related revenues is
one of our KPIs.
Contribution, defined as revenue less cost of sales (excluding depreciation
and exceptional items), distribution costs and directly attributable costs, of
£132.6m (FY20: £116.8m) was up 13.5%. Prior year benefited from £2.0m of
COVID-19 support.
Services
Services revenues increased by 25.4% to £112.1m (FY20: £89.4m), accounting
for 37% (FY20: 35.7%) of Group revenues. Customers continue to value the
one-stop-shop that our Services division provides and our technology
platforms, supported by a large network of supply chain partners, are making
every transaction even easier and therefore enabled exceptional growth in the
financial year.
Contribution from Services increased 51.5% to £16.2m (FY20: £10.7m) as our
scalable operating model more efficiently connected customers and suppliers
through technology.
Costs
Our cost analysis set out below is on a reported basis and therefore includes
exceptional costs, the most significant of which are associated with the
successful surrender of branches closed in October 2020 (see note 4).
Our cost of sales increased by 17.1% to £146.3m (2020: £124.9m) reflecting
increased sales through our Services division.
Distribution costs reduced to £21.9m (2020: £25.3m) with reduced operating
costs following the Group's operating network changes in the latter part of
2020.
Administrative expenses were reduced by £12.2m, of which £7.9m relates to
the release of provisions and lease liability held following the successful
surrender of the branches closed in October 2020 - refer to the exceptional
items section of this review for more detail.
Adjusted EBITDA and Adjusted EBITA
Our Adjusted EBITDA for 2021 was 17% higher at £69.8m (2020: £59.6m) driven
by improved revenue through our lower-cost operating model. Adjusted EBITDA
margin reduced 0.8pp to 23.0% (2020: 23.8%) with the mix of the business
moving more towards our Services segment. Adjusted EBITDA and EBITDA margin
are included in our KPIs.
Our Adjusted EBITA increased £18.3m to £31.7m (2020: £13.4m), a combination
of improved EBITDA and reduced depreciation on property (Right of Use assets,
dilapidations and leasehold enhancements) following the Group's network
changes in 2020. This also reflects the impact of careful fleet management to
match demand at the height of the pandemic. Adjusted EBITA margin increased
5.1pp to 10.4% (2020: 5.3%). Adjusted EBITA and EBITA margin are included in
our KPIs.
Other operating income
Total other operating income was £1.7m, principally due to insurance proceeds
following a successful claim under our business interruption policy. This
compares to £11.2m in 2020; mainly the result of Government grant income via
participation in the UK and Irish Governments' furlough programmes (£9.2m),
rate relief grants (£0.6m) and insurance proceeds (£1.2m).
Operating profit
Our operating profit increased by £39.2m to £34.5m (2020: operating loss
£4.7m).
Exceptional items
Exceptional costs, excluding profit on disposal of discontinued operations,
totalled £1.9m.
Following the successful surrender of properties post the network restructure
in October 2020, lease liabilities, onerous property costs and dilapidation
provisions related to these locations have been released resulting in an
exceptional credit of £7.9m.
This has been offset by costs expensed refinancing the Group (£9.7m)
comprising accelerated amortisation of original debt issue costs, and
prepayment penalties incurred on the early settlement of the previous senior
finance facility.
Restructuring costs of £0.6m were incurred as the Group legally restructures
to reflect the two core divisions of ProService (sales acquisition) and HSS
Operations (fulfilment) that were introduced at the time of our H1 2021
results. This project will complete later in 2022.
Profit on disposal of discontinued operations
We completed two strategic divestitures in 2021 realising a profit on disposal
of £41.2m. Laois Hire Services was sold in April 2021 (profit: £3.2m) and
All Seasons Hire in September 2021 (profit; £38.0m). The cash generated was
used to further reduce the Group's debt.
Finance costs
Net finance expense increased to £28.5m (2020: £25.0m). The charge for the
year included £9.7m of exceptional costs associated with the early repayment
of the Group's senior finance facility as part of the successful refinancing
completed in November 2021. The new debt facility is lower in quantum and at
significantly reduced interest rates. As such ongoing finance expenses will be
materially reduced.
Taxation
The Group had a tax credit for the year of £1.2m (2020: tax charge £42k),
with a deferred tax credit offsetting tax paid in the year.
Reported and adjusted earnings per share
Our basic and diluted earnings per share, both on a reported and adjusted
basis, stepped forward in 2021 from the loss per share in 2020, driven by the
improved performance of the business. The successful refinancing of the Group
will result in a materially reduced ongoing annual interest charge which will
enhance EPS in the future.
Capital expenditure
Additions to Intangible assets, Property, plant and equipment and Right of Use
hire equipment in the year were £34.2m (2020: £24.6m). Investment in
technology to support the strategic growth of the business totalled £4.3m,
up 30% on 2020. Investment in hire fleet to support our Rental business was
£27.1m (2020: £19.0m) with decisions informed from our insight tools
to maximise returns.
Return on capital employed
Our ROCE for 2021 was 22.1%, an increase of 11.4pp over 2020. The strong
EBITA growth, including from our capital-light Services business, underpinned
this performance. ROCE is one of our KPIs.
Trade and other receivables
Gross trade debtors increased 11% over 2020 as revenue recovered throughout
the financial year. A strong focus on cash collections is core to the business
and forms part of colleagues' objectives. Despite this focus on collections,
macroeconomic uncertainty remains and as such we continue to provide at levels
above the historic loss rate. The situation will be kept under review moving
forward.
Provisions
Provisions reduced £9.8m to £23.8m (2020: £33.7m). The vast majority of
this reduction relates to the release of onerous property cost and
dilapidations provisions associated with properties surrendered during the
year. The balance relates to the ongoing annual utilisation of the onerous
contract provision associated with Unipart, created in 2017.
Cash generated from operations
Cash generated from operating activities was £71.6m for FY21, an increase of
£15.6m compared to FY20. Materially increased profitability supported by
continued focus on working capital management contributed to this improved
performance.
Leverage and net debt
Net debt non-IFRS 16 (stated gross of issue costs) decreased by £75.0m to
£45.4m (2020: £120.4m) reflecting the strategic divestitures during the year
and continued trading performance. On a reported basis net debt is £104.6m
(2020: £194.6m). As at 1 January 2022 the Group had access to £78.1m
(2020: £118.3m) of combined liquidity from available cash and undrawn
borrowing facilities. With the significantly improved Adjusted EBITDA and
lower net debt, leverage reduced to 1.5x (2020: 2.8x). Leverage or Net Debt
Ratio is one of our KPIs.
Use of alternative performance measures to assess and monitor performance
In addition to the statutory figures reported in accordance with IFRS, we use
alternative performance measures (APMs) to assess the Group's ongoing
performance. The main APMs we use are adjusted EBITDA, adjusted EBITA,
adjusted profit before tax, adjusted earnings per share, leverage (or Net Debt
Ratio) and ROCE, which, with the exception of adjusted profit before tax, are
included in our KPIs.
We believe that Adjusted EBITDA, a widely used and reported metric amongst
listed and private companies, presents a 'cleaner' view of the Group's
operating profitability in each year by excluding exceptional costs, finance
costs, tax charges and non-cash accounting elements such as depreciation and
amortisation. This metric was used in 2021 to calculate annual bonuses payable
to Executive Directors.
Additionally, analysts and investors assess our operating profitability using
the adjusted EBITA metric, which treats depreciation charges as an operating
cost to reflect the capital-intensive nature of the sector in which we
operate.
Analysts and investors also assess our earnings per share using an adjusted
earnings per share measure, calculated by dividing an adjusted profit after
tax by the weighted average number of shares in issue over the period. This
approach aims to show the implied underlying earnings of the Group. The
adjusted profit before tax figure comprises the reported loss before tax of
the business with amortisation and exceptional costs added back. This amount
is then reduced by an illustrative tax charge at the prevailing rate of
corporation tax (currently 19%) to give an adjusted profit after tax. Adjusted
earnings per share is used as a performance metric for the 2019 LTIP awards.
The calculation of Adjusted EBITDA and Adjusted EBITA can vary between
companies, and a reconciliation of Adjusted EBITDA and Adjusted EBITA to
operating profit/(loss) and adjusted profit before tax to loss before tax is
provided on the face of the Group's income statement. A reconciliation of
reported loss per share to adjusted earnings per share is provided in note 33
to the Financial Statements.
In accordance with broader market practice we comment on the amount of net
debt in the business by reference to leverage (or Net Debt Ratio), which is
the multiple of our Adjusted EBITDA that the net debt represents. This metric
was also used in the calculation of annual bonuses payable to Executive
Directors in 2021.
We use ROCE to assess the return (the Adjusted EBITA) that we generate on the
average tangible fixed assets and average working capital employed in each
year. We exclude all elements of net debt from this calculation. This metric
is also used as a performance metric for the vesting of 2019 LTIP awards.
Paul Quested
Chief Financial Officer
Principal Risks and Uncertainties
Managing Risk and unCertainty
Effective risk management underpins everything we do at HSS and is embedded
within our culture as a business. We employ a comprehensive risk management
process to identify, assess and mitigate risks to ensure we deliver on our
strategic objectives.
Ownership
The Board has overall responsibility for the business strategy and managing
the risk associated with its delivery, setting the risk appetite, tolerance
and culture to achieve goals. The Audit Committee plays a key supporting role
through monitoring the effectiveness of risk management and the control
environment, reviewing and requesting deep dives on emerging risk areas and
through directing and reviewing independent assurance.
The Group's Executive Management Team (EMT) has overall responsibility for
day-to-day risk management. Mark Shirley, HSS's Risk and Assurance Director,
maintains the Group's Risk Register which is reviewed in detail by the EMT on
a quarterly basis with changes to the risk landscape, assessment and
mitigating actions agreed.
Identification and assessment
Risks are identified through a variety of sources, both internal and
external, to ensure that developing risk themes are considered. This process
is focused on those risks which, if they occurred, would have a material
financial or reputational impact on the Group.
Management identifies the controls in place for each risk and assesses the
impact and likelihood of the risk occurring, taking into account the effect of
these controls, with the result being the residual risk. This assessment is
compared with the Group's risk appetite to determine whether further
mitigating actions are required.
All risks have an overall EMT owner responsible for the day-to-day management.
Health and safety is a key area in our industry and as such it requires
collective ownership to continually improve. There is an established Health
and Safety Forum which is made up of the EMT, Operational MDs and the Risk and
Assurance Director, that meets bi-monthly (and more frequently if required,
e.g. during COVID-19) to review trends, incidents and issues such
as COVID-19.
Monitoring
The Risk and Assurance Director reports to the EMT and the senior management
team on a monthly basis to review the findings of risk-based assurance
activity. Risk-based assurance work is then reported to the Audit Committee on
a quarterly basis for review.
How we manage risk
We adopt a 'Three Line of Defence' model for managing risk, providing the
Board and the EMT with assurance that risk is appropriately managed. This is
achieved by dividing responsibilities as follows:
· The first line of defence - functions that own and manage risk.
· The second line of defence - functions that oversee or specialise
in risk management, compliance such as Health, Safety Environment and Quality
(HSEQ).
· The third line of defence - functions that provide independent
assurance, in the HSS case primarily Internal Audit (IA).
Culture and values
The Board is cognisant that risk management processes alone are not enough to
mitigate risk, and behaviour is a critical element in risk management. The
wellbeing of our colleagues, the drive and skill set they bring and the
training and environment we provide are key to our success. These are
underpinned in the HSS values which are vital in us achieving our strategy as
well as mitigating the risks associated with it:
COVID-19
In 2021 the Group effectively implemented strategy and delivered strong
performance, all against the continued backdrop of the COVID-19 pandemic.
Keeping our colleagues and customers safe remained paramount throughout the
year with measures taken in 2020 maintained including flexible working for
colleagues, COVID-19 safety procedures (which were subject to regular audit)
above and beyond government guidelines and click-and-collect capability. We
continue to monitor emerging variants and adapt policies and procedures
to ensure supply is not disrupted and all stakeholders remain safe.
New risks in 2021
In 2021 we expanded our key risks from 9 to 11. We added 'Environment, Social
and Governance' (ESG) recognising the importance of working with all our
stakeholders to drive a sustainable end-to-end business with defined targets
underpinned with clear deliverable plans. 'Safety' and 'Legal and Regulatory
Requirements' were previously combined as one risk. We have now separated out
Safety as a standalone risk, reflecting its importance to us and the effort
and innovation that has gone into improving our performance, for example
introducing incident reporting on mobile devices and increasing safety
observations, with colleagues challenging each other to keep everyone safe.
Ukraine conflict
The conflict is increasing macroeconomic risk in 2022 and will be closely
monitored for its effect on inflation, interest rates and demand.
Measures will be put in place to minimise exposure as risk evolves.
PRINCIPAL risks REVIEW
Key risk Description and impact How we mitigate What we have done in 2021
1. Macro-economic conditions The group's sales and profits, either volume or price, are adversely impacted The group focuses on the 'fit-out, maintain and operate' markets, which are Embedded our new lower and flexible cost operating model, which mitigates
by any decline in the macroeconomic environment. less cyclical, less discretionary and have a large proportion of recurring against any downturn in future demand. Trading via this model was in line with
spend. 2019.
Covid-19 and the Ukraine conflict could have a material impact on inflation,
Risk Movement: None effecting demand and therefore financial performance. Ongoing monitoring and modelling of performance, which is reviewed regularly Strengthened the balance sheet by completing the strategic divestures of LAOIS
by the EMT. hire and all seasons hire, and successfully refinancing the group's debt.
Continued to consider via a reverse stress test model the impact of covid-19
Owner: should there be further lockdowns, each time demonstrating significant
liquidity and covenant headroom.
Steve Ashmore
(Chief Executive Officer)
2. Competitor challenge A highly competitive and fragmented industry, with the chance of increased Differentiated technology platforms including fully integrated customer app. Further investment and development in the group's technology capability
competition could result in excess capacity therefore creating pricing
including re-platforming the business onto the HSS pro system.
pressure and adverse impacts on planned growth. National presence through customer distribution centres (CDCS), branches and
builders merchants. Expansion of the builders merchant network to 55 branches, increasing local
Risk Movement: None
presence in key markets.
Through the services business, the group provides customers with access to a
huge range of products and complementary services such as training courses. Targeted investment in hire fleet based on demand and returns, utilising
insight capability.
Owner:
Steve Gaskell
(Group Strategy Director)
3. Strategy execution Failure to successfully implement the group's strategic plans could lead to A clearly defined and communicated strategic plan is in place. The 2017 strategic plan was completed following the group's refinancing in
lower than forecast financial performance both in terms of revenue growth and
November 2021.
cost savings. Clear governance structure, with defined accountabilities. Each strategic
initiative is sponsored by an EMT member. Delever the group: leverage reduced from a high of 4.8x to 0.8x (non-IFRS 16)
Risk Movement: None
following the completion of strategic divestures.
Implementation of projects is monitored by the EMT including resource
allocation. Transform the tool hire business: the new digitally-led, lower-cost operating
model has been implemented with performance back to pre-covid-19 levels.
Owner: Regular updates, including initiative-specific deep dives, provided to
the board. Strengthen the commercial proposition: continued investment in technology
Steve Gaskell platforms and fast delivery of improvements through agile development. This
includes the re-platforming of the business onto HSS pro, making it easier for
(Group Strategy Director) colleagues and customers.
A new strategic plan and targets are in development, and will be published
during 2022.
4. Customer service The provision of the group's expected service levels depends on its ability to National reach and presence through CDCS, branches, builders merchants and Ongoing engagement with colleagues and customers, monitoring and acting on
efficiently transport the hire fleet across the network to ensure it is in the online. feedback as the technology develops, improving the customer experience at
right place, at the right time and of the appropriate quality.
pace.
Diverse range of rehire suppliers provides ongoing flexibility to ensure
Risk Movement: None Any disruption in supply can reduce revenue and drive additional costs into continuity of supply for customers. Introduction of new routing and scheduling software for CDCS, improving
the business.
operational efficiency and providing more accurate delivery windows for
Clear business continuity plans to ensure continuity of supply. customers.
Owner: Extensive and continued training to ensure testing and repair quality Introduction of new engineering processes, including storing digital images to
standards are maintained. improve quality, and continual colleague development.
Tom Shorten
Audits and reporting covering quality, contracts and complaints.
(Chief Commercial Officer)
Business accreditations are maintained, including iso 9001 providing customers
with confidence in the quality of the services provided.
5. Third party reliance A significant amount of group revenue is derived from the services business Third party rehire suppliers are subject to rigorous on-boarding processes. Further expansion of the rehire supplier base in 2021, ensuring availability
which is dependent on the performance of third party service providers.
of equipment for customers and mitigating against risks caused by covid-19 or
Each supplier is subject to demanding service level agreements with broader supply chain issues.
Other third parties, such as builders merchants, are an increasingly important performance monitored on an ongoing basis.
Risk Movement: None part of the operational model.
Strengthened relationships with builders merchant partners. There are
The wide and diverse range of rehire suppliers provides flexibility to select currently 55 branches open through 17 partners.
If any third parties become unable or refuse to fulfil their obligations, or those who meet required service levels.
violate laws or regulations, there could be a negative impact on the group's
Owner: operations leading to an adverse impact on profitability and reputation. Extensive commercial and risk assessment process undertaken before and after
entering into a relationship with a builders merchant or opening a new
Tom Shorten location.
(Chief Commercial Officer)
6. IT Infrastructure The group requires an it system that is appropriately resourced to support Third party specialists are used to assess the appropriateness of it controls, Detailed third party review commissioned to review cyber security and develop
the business. An it system malfunction may affect the ability to manage including the risk of malicious or inadvertent security attacks. group's ongoing server upgrade strategy.
operations and distribute hire equipment and service to customers, affecting
revenue and reputation. Firewalls, antivirus software, endpoint detection and clean up tools to Cyber security improvements implemented including the introduction of new
Risk Movement: None
protect against malicious attempts to penetrate the business it environment software to reduce spear-phishing risk, refreshed testing protocols and
An internal or external security attack could lead to a potential loss of and remove malware or similar agents. colleague awareness and training programmes.
confidential information and disruption to transactions with customers and
suppliers. Procedures to update supplier security patches. Enhanced it risk assessment tool introduced.
Owner:
Regular disaster recovery tests conducted and appropriate back-up servers to Ongoing resilience and penetration testing with prioritisation of any
Paul Quested manage the risk of primary server failure. resultant actions through the group's governance process.
(Chief Financial Officer) Cross-departmental data governance team to ensure that business processes are,
and continue to be, adequate.
7. Financial To deliver its strategic goals the group must have access to funding at a Working capital management with cash collection targets (which roll up into Strategic divestures of LAOIS hire and all seasons hire materially reduced the
reasonable cost. our net debt kpi). group's net debt and leverage. This improved balance sheet position enabled
the group to refinance at a materially lower interest cost of c.£3.0m (fy20:
Some customers may be unwilling or unable to fulfil the terms of their rental Extensive credit checking for account customers with strict credit control £16.3m).
Risk Movement: Decreasing agreements. Bad debts and credit losses can arise due to service issues or over a diversified customer base.
fraud.
Technology enhancements to the group's dispute management modules improved the
Credit insurance in place to minimise exposure to larger customer default efficiency in ensuring invoices are paid when they fall due.
Unauthorised, incorrect or fraudulent payments may lead to financial loss or risk.
Owner: delays which could affect relationships with suppliers and lead to
The vast majority of dark store leases were surrendered during 2021. There are
a disruption in supply. Investigation team focused on minimising group's exposure to fraud. currently eight onerous locations with a liability over the next five years
Paul Quested
of £0.8m.
Clearly defined authorisation matrix governing payments and amendments.
(Chief Financial Officer)
8. Inability to attract, train and retain personnel The group needs to ensure the appropriate human resources are in place to Market rates are regularly benchmarked to ensure competitive pay and benefits Colleague wellbeing and mental health activity has been prioritised,
support the existing and future growth of the business. packages. especially with the backdrop of the pandemic and increased homeworking.
Failure to attract and retain the necessary high-performing colleagues could Training for colleagues is provided at all levels to build capability and A number of initiatives have been established to attract and retain certain
Risk Movement: Increasing adversely impact financial performance. improve compliance. Training is role-related and behaviour focused, via critical skills, for example earn as you learn schemes.
blended learning.
Recruitment programmes reintroduced working with the prison service and social
Colleague engagement surveys are conducted, with actions taken as a result of enterprises (e.g. Ex-military personnel).
Owner: feedback.
Max Morgan (Group HR Director)
9. Legal and regulatory requirements Failure to comply with laws or regulation, leading to material misstatement Robust governance is maintained within the group including a strong financial Ongoing review of relevant compliance requirements including development of
and potential legal, financial and reputational liabilities for structure, assurance provision from internal and external audit, and anti-competition e-learning training programmes and its roll-out to all sales
non-compliance. employment of internal specialist expertise supported by suitably qualified colleagues.
and experienced external practitioners.
Risk Movement: None
Refresher training completed by colleagues on anti-bribery, modern slavery,
Training and awareness programmes, focusing on anti-bribery, anti-modern tax evasion and data protection.
slavery, anti-facilitation of tax evasion and data protection legislation.
Owner: Whistleblowing process in place providing colleagues with the ability
to raise non-compliance issues.
Daniel Joll
(General Counsel)
10. Safety The group operates in industries where safety is paramount for colleagues, Clear health and safety policy with ongoing risk management and monitoring of A range of covid-19 measures were in operation throughout 2021. These were
customers and the general public. accidents and incidents. continually risk-reviewed and flexed in line with changes to the business and
government advice, including in response to the omicron variant.
Failure to maintain high safety standards could lead to the risk of serious Health and safety leadership forum chaired by the CEO and comprising senior
Risk Movement: New injury or death. managers with responsibility for setting direction and monitoring progress. Risk assessments were undertaken for all colleagues with an element of home
working, to check on physical and mental wellbeing.
Fully skilled hseq team and an internal group investigation team providing
assurance and support. A new mobile technology enabled incident reporting portal has been established
Owner:
to improve on the already high level of safety observations - these have a key
Mandatory training programmes for higher risk for activities. role in reducing accidents.
(previously included within Safety, Legal And Regulatory Requirements)
The group is iso 45001 health and safety accredited. Creation of a senior hseq role to enhance accident investigation and resulting
insight.
Owner: Increased focus on awareness communication across the group.
Steve Ashmore
(Chief Executive)
11. Environmental, social and governance (ESG) If the group fails to set and meet appropriate ESG goals, there may be an The group has a comprehensive set of procedures in place to minimise adverse Energy carbon emissions reduced 91% compared to 2020 and are now 97% lower
adverse reputational impact with stakeholders and limit ability to trade with environmental impact including procurement of electricity from renewable than 2016.
customers. This could result in revenue reduction, deterring people from sources, third party monitoring of utility consumption and waste management.
joining the business and limit attractiveness to investors.
While the group has continually improved performance year on year, we
Risk Movement: New Procedures are in place to manage social and governance risks, many of which recognise the need to set scientifically based environmental targets to become
are covered in key risks 8, 9 and 10. net zero.
The group is iso 140001 environmental management accredited. External consultants were engaged from the start of q4 fy21 to support the
Owner: group set targets and develop milestones within a coherent delivery plan. This
will be governed by a senior ESG forum led by the CEO.
Steve Gaskell
(Group Strategy Director)
Environmental, social and governance
Accelerating our sustainability strategy
CEO introduction
At HSS we have a strong desire to operate responsibly and sustainably, and
with the best interests of our stakeholders and the planet in mind.
In recent years we have continued to make significant progress with ESG across
several areas, including colleague engagement and welfare, health and safety
and year on year reductions in energy carbon emissions. In 2021 we decided to
take stock of our progress, engaging with a specialist sustainability
consultant to review our ESG credentials and help us create an ESG strategy
for our business.
In Q4 2021 we appointed Sustainable Advantage to carry out a comprehensive
assessment of our ESG activity and provide recommendations of where we could
improve. As part of this work Sustainable Advantage have recently conducted a
materiality assessment on our behalf to understand our stakeholders'
requirements. They have also completed a thorough analysis of our carbon
footprint, including scope 3, and have advised us on how to reduce gross
emissions further. The conclusion of this work is an ESG strategy,
incorporating new objectives including a net zero target.
As we embark on an exciting new phase of growth, I am also looking forward to
seeing the positive impact our new ESG strategy will have on all our
stakeholders and ultimately the contribution we make to the global challenge
of climate change.
Steve Ashmore
CEO
Our people
The guiding principles of how our colleagues operate are set by our corporate
values, all of which are underpinned by an ethos of sustainability:
MAKE IT SAFE
· Safety comes first, always!
· Think safe, work safe, home safe.
MAKE IT HAPPEN
· No job is too big or too small, we do what it takes to get things
done.
· We do our best for our customers and our business.
MAKE IT BETTER
· We're excited about what's next.
· We're focused on making things better, brighter and fit for our
future.
MAKE IT TOGETHER
· We're like a family and we've all got each other's backs.
· We celebrate success, work well as a team, and have fun along the
way.
In 2021 we continued our commitment to supporting, engaging and protecting our
colleagues, and made advances in many areas including health and safety,
wellbeing, personal development and colleague engagement.
COVID-19
Throughout 2021, our priority was to "Make It Safe" for our colleagues during
the ongoing COVID-19 pandemic. We continued to operate the COVID-19 protocols
introduced in 2020 which are outlined in our HSS COVID-19 colleague handbook.
We made our new hybrid-working model permanent in 2021, giving colleagues
flexibility to work from home. This also enabled us to relocate our head
office in Manchester to a smaller site with improved facilities for
colleagues. Our new head office facilitates collaboration between colleagues
whether at home or in the office, via a combination of physical meeting spaces
and technology that connects colleagues in different locations.
In Q1 2021 we rolled out our HSS Pro technology platform to our sales
colleagues, giving them the flexibility to work remotely whilst also improving
our efficiency in serving our customers.
To support our colleagues working from home, remote working packages were
provided containing practical advice and support. We also carry out regular
workplace assessments to ensure our colleagues are properly supported.
Against the backdrop of the pandemic, communication was also key in ensuring
our colleagues across the business remained up to date with changes to our
policies as government guidelines around self-isolation continued to develop.
Regular communication through bulletins, emails, WhatsApp groups, our annual
colleague roadshow, working from home welfare calls, and our CEO blog helped
support this while also ensuring our colleagues felt part of one cohesive
business and not isolated. It was important, however, that conversation was
two-way, with management engaging with colleagues to ask them their opinions
and ensure that the Board remained cognisant of colleague concerns so they
could be addressed.
Health and safety
As well as protecting our colleagues from COVID-19, keeping our colleagues
safe and well in their day-to-day work remains fundamental to our success as a
business. It is why 'Make It Safe' is the first of our values. We have seen
continued low levels of RIDDOR accidents with just 5 in 2021. While this is a
significant improvement on pre-COVID-19 levels, we regard any accident as one
too many. Accordingly, we implemented additional health and safety initiatives
in 2021 including an increased focus on safety observations and new training
materials such as safety videos and safety flipbooks for our drivers.
We also held a dedicated 'Health and Safety Month' in December which focused
on a different health and safety topic each week. We continued to hold CEO-led
health and safety forums to maintain a collaborative approach and ensure
colleagues from all levels of the business give suggestions on how to improve
our company-wide health and safety procedures.
To complement our internal initiatives, we launched a number of external
health and safety projects including undertaking an International Powered
Access Federation (IPAF) review, the result of which saw us receive an IPAF
Rental+ silver safety award for the first time.
Responsibility for our colleagues extends beyond accidents, with employee
wellbeing equally important to our "Make It Safe" value. Our wellbeing agenda
is based around three core pillars - financial wellbeing, physical wellbeing
and mental health - and each month, an expert in their field hosts a webinar
to provide colleagues with useful information to support their wellbeing. For
example, in January, we had an expert nutritionist host a bespoke session for
our colleagues focused on nutrition and healthy living. The topics for
discussion are informed by our monthly Employee Assistance Programme (EAP)
reports, our forums and our other engagement activities. For example,
following feedback from the Women's Networking Group, in 2022 we will be
increasing focus on menopause and fertility, providing additional support in
these areas as well as re-thinking our family- friendly policies.
Our health and safety initiatives are supported by our learning and
development programme (see 'colleague development' section, below) with
qualified first-aider and responder mental health training delivered in
collaboration with St John's Ambulance.
Colleague development
To support our 'Make It Happen' and 'Make It Better' values, colleague
development is a central element of our activity. It ensures our colleagues
can provide customers with unrivalled service and provides our colleagues with
an engaging and fulfilling place to work. Our Learning and Development
(L&D) team utilises a variety of tools to support this. Along with
specific training modules for certain subjects such as health and safety and
diversity, we offer a range of structured training programmes to foster
talent, engage colleagues and build careers. We have also adapted many
training courses taking on a blended in-person and virtual approach.
Our apprenticeship programme gives current and future colleagues the
opportunity to take the next step in their career, whether that be through our
early career development partnership with Reaseheath College, or our advanced
in-role schemes which offer technical and managerial development in a range of
areas, from customer services to IT to coaching. In addition, we provide
ongoing Continued Development Programmes to address the changing world of
business, such as more effective management in the age of permanent hybrid
working. We are also currently trialling an 'Earn As You Learn' scheme with
our drivers to encourage upskilling and hope to roll the scheme out in our
engineering community with a view to expanding further beyond that.
At the heart of our Learning & Development programmes is our e-learning
platform, LearningLab, and our dedicated HSS L&D intranet page, which
offer colleagues a wealth of resources and information to support their
development, allowing them to learn remotely at a time that is suitable for
them.
The success of our learning and development programme is dependent on
colleague engagement - therefore, we always collect anonymous feedback
following each session and conduct pulse surveys at the conclusion of each
course.
Our annual engagement survey acts as a consistent signpost to inform our
policies. Last year we saw the opportunity to improve 'My Manager' scores and
following a series of development initiatives for managers in 2021, we have
been pleased to see a significant improvement in scores in this area in our
latest engagement survey.
Colleague engagement
A key indicator of colleague wellbeing in the workplace is our annual
engagement survey. Our latest survey carried out in February 2022 showed
further improvement in colleague engagement, which has now risen four times in
a row since our first survey in FY16. Our latest score of 76.1% is up on 75.0%
from the prior year and is significantly higher than the national average of
61%. The score is a good reflection of our workforce with over 80% of
colleagues answering the survey once again.
One area that saw a significant increase, up 4ppts, was 'My Manager', which is
very pleasing to see following the focus we put on training and developing our
managers in 2021.
Diversity and inclusion
Our approach to diversity and inclusion is led by our commitment to open
dialogue with our colleagues. We believe that there is always progress to be
made in this area and we therefore encourage engagement at all levels of the
business to make HSS a more inclusive company.
This engagement has involved a number of initiatives that are pushing the
Company forward and enhancing the colleague experience. For example the
Women's Networking Group, which brings together women at all levels of
seniority to discuss their experiences and how they believe HSS can improve
its approach to diversity and attracting women to a traditionally male
dominated industry. We maintain a constant thread of diversity and inclusion
throughout all training programmes, from induction to apprenticeships. Our
2021 median pay gap was -6.9% (2020 -1.01%).
Our colleague engagement has laid the groundwork for the future, helping us
update our Diversity, Equity and Inclusion (DE&I) learning programmes.
Our communities
In line with our values, we are committed to giving back to the communities we
work in. We are a corporate partner of the Lighthouse Club (an organisation
which provides mental, financial, and medical support for construction
industry workers and their families) and in 2021 we raised funds through
several charity events and initiatives.
Our relationship with the charities we support is reciprocal and extends
beyond simply raising money. We regularly engage with the Lighthouse Club and
men's mental health charity, Andy's Man Club, both of which have hosted
webinars to support our colleagues as part of our wellbeing agenda.
At a local level, we're proud to say our colleagues regularly support local
community initiatives in their area: for example, our Onsite team collaborated
with Sir Robert McAlpine to support a local food bank, with the wider business
supporting the cause through raising donations.
The environment
Approach
As a circular economy business, tool hire is inherently sustainable, ensuring
that a single piece of equipment is reused multiple times by multiple clients
during its life-cycle. We help our customers reduce their carbon footprint
through hire, but we are very conscious that there is much more we can do, not
just with our customers but with our suppliers too. It was with this in mind
that we engaged Sustainable Advantage to work with us towards the end of 2021
to help us accelerate our ESG strategy, and this project has led to a new set
of objectives which are outlined later. Progress has been made in 2021 across
several key areas:
Responsible waste management
We have made good progress in disposing of our waste in a responsible manner,
thanks to our continuous relationship with Biffa. In 2021, Biffa disposed of
985.3 tonnes of waste for us (2020 - 937.5 tonnes), diverting 88% from
landfill. Our hazardous waste disposal partner, Slicker, ensured that items
like waste oils are recovered, reused or converted into electricity in
accordance with their zero landfill policy. Across HSS, 27,900 litres of waste
oil was collected. We have also achieved 57% Waste to Energy, 1% Reuse, 2%
Processed Fuel Oil and 30% Recycling.
Energy and emissions
Through our partnership with Maloney Associates, we maintain a robust approach
to monitoring our energy and emissions and, in 2021, building energy carbon
emissions reduced 91% compared to 2020 and are now 97% lower than in 2016. We
have moved to 100% sourced renewable electricity at all our sites in England,
Wales and Scotland and are targeting to do the same in Ireland this coming
year.
As part of the Streamlined Energy and Carbon Reporting (SECR) framework, the
total UK energy use for HSS totals 48,325,397 kWh for the period 1 January to
31 December 2021 (2020 - 49,167,771 kWh). This includes our built environment,
transport, and process fuel energy. Total emissions expressed as a percentage
of revenue is a Group KPI. We utilise the Greenhouse Gas Protocol Corporate
Accounting and Reporting Standard to fulfil the reporting requirements around
energy and emissions. This includes DEFRA conversion factors to calculate
Greenhouse Gas (GHG) emission disclosures. The extent of the GHG reporting
boundary comprises of all building, transport and process emissions within the
three reporting scopes.
We continue to reduce the carbon footprint of our company car fleet with 24%
of our fleet now electrified in some way, and that number set to increase
significantly as we replace older models next year. All our commercial
vehicles are now a minimum of Euro 6 standard and we have reduced idling
through a driver education program and the adoption of anti-idling technology
in new vehicles. All commercial vehicles are also fitted with telematics which
were updated in 2021 to provide additional information on driver behaviours
and fuel consumption. Looking forward, we have recently launched a trial of
Hydrotreated Vegetable Oil (HVO) as a fuel for a small number of vehicles and
we are exploring a range of larger electric delivery vehicles, including
trucks. Our Electric Vehicle (EV) loan scheme, by which colleagues can try out
an EV for a limited period before deciding on their permanent company vehicle,
has proven popular and we expect to see greater take-up next year as many
drivers near the end of their current leases. To support this, we have
introduced charging points at our head office and will increase the number of
these this year across our CDCs.
Our new route optimisation system, Satalia, which we rolled out at the end of
2021, is expected to reduce our mileage per job and we look forward to seeing
the associated reduction in carbon as this technology embeds in 2022.
Our future plans
Our future plans for sustainability have been informed by the ongoing project
carried out in partnership with Sustainable Advantage which has involved five
stages:
1. ESG Benchmarking Review
2. Materiality Assessment
3. Net Zero Analysis
4. Objective Setting
5. ESG Impact Report
Benchmarking Review
Sustainable Advantage carried out a comprehensive benchmarking review in Q4
2021 involving 62 areas that cover Environment, Social, Governance and ESG
Integration.
Our overall score put us in their top category of 'Excellent' which accounts
for the top 10% of companies they have benchmarked.
Following their review they made a series of recommendations in many areas,
which we have since made commitments against. In January 2022 we set up an ESG
committee to ensure that we meet these commitments and improve our scores
across all areas.
Materiality Assessment
Stage 2 of this ESG project has been to carry out a materiality assessment to
gauge the ESG requirements of our colleagues, customers, suppliers, our Board
and our biggest shareholders. This materiality assessment was concluded in
March 2022 and has informed our new set of ESG objectives. The results of
these surveys will continue to inform our ESG priorities and activity
throughout 2022.
Net Zero Analysis
We decided to carry out a comprehensive independent analysis of our Scope 1, 2
and 3 carbon emissions across the HSS Group. Following the conclusion of this
work, we have clear and realistic goals for reducing our gross emissions over
the coming years which has culminated in the net zero pledge outlined in our
ESG Objectives.
ESG Impact Report
Following the comprehensive work in stages 1-3 we will publish our first ever
ESG Impact Report in Q2 2022. This will showcase the progress we have made and
set out our plan going forward. The report will also confirm our objectives
for 2025 and beyond.
ESG objectives
The culmination of these five areas of activity now means we have a very clear
ESG plan and well defined objectives.
Our key objectives include:
1. Net Zero pledge by 2040
2. Submit science-based targets in 2022
3. 40% of company cars and vans electric by 2025
4. 10% of commercial fleet (HGVs) electric or other low-carbon
technology by 2025
5. 16% of fuel through ABird and Apex generators is HVO (or other
low-carbon fuel) by 2025
6. 6% of orders for large generators are fulfilled by low-carbon
products (e.g. hybrid machines) by 2025
7. 100% of electricity is sourced from renewable providers
8. Achieve 95% zero waste to landfill by 2025
9. Achieve ISO 50001: 2018 accreditation for Energy Management
10. All products in our fleet to have 'Eco' classification and credentials,
and 20% of capex is spent on 'Eco' products by 2025
11. Targeting a zero RIDDOR environment by 2025
12. Adoption of the following UN Sustainable Development Goals by the end of
2022:
SDG3: Good Health and Wellbeing
SDG7: Affordable and Clean Energy
SDG8: Decent Work & Economic Growth
SDG9: Industry, Innovation and Infrastructure
SDG12: Responsible Consumption & Production
SDG13: Climate Action
13. Adoption of the TCFD reporting framework by Q1 2023
In addition, we have various ESG activities in 2022, including the creation of
an ESG policy, a community investment policy, a gap analysis against the
Government's Social Value model, creation of a CEO-led ESG forum (akin to our
successful H&S forum), new carbon reporting for customers, enhanced ESG
integration with suppliers and improved DE&I reporting.
In summary, we have a clear ESG plan, a defined set of objectives and a
management framework that ensures we will accelerate the progress we have made
in all areas of sustainability.
Consolidated Income Statement
For the year ended 1 January 2022
Note Year ended Year ended
1 January 2022 26 December 2020
Restated(1)
£000s £000s
Revenue 2 303,269 250,063
Cost of sales (146,271) (124,881)
Gross profit 156,998 125,182
Distribution costs (21,915) (25,312)
Administrative expenses (100,435) (112,606)
Impairment losses on trade receivables and contract assets(2) 11 (1,835) (3,085)
Other operating income 3 1,708 11,150
Adjusted EBITDA 2 69,777 59,560
Less: Depreciation (38,120) (46,193)
Adjusted EBITA 31,657 13,367
Less: Exceptional items (non-finance) 4 8,039 (13,016)
Less: Amortisation 8 (5,175) (5,022)
Operating profit/(loss) 34,521 (4,671)
Finance expense 5 (28,455) (24,968)
Adjusted profit/(loss) before tax 13,147 (11,228)
Less: exceptional items (non-finance) 4 8,039 (13,016)
Less: exceptional items (finance) 4 (9,945) (373)
Less: amortisation 8 (5,175) (5,022)
Profit/(loss) before tax 6,066 (29,639)
Income tax credit/(charge) 6 1,239 (42)
Profit/(loss) from continuing operations 7,305 (29,681)
Profit on disposal of discontinued operations 4, 17 41,242 -
Profit from discontinued operations, net of tax(1) 17 5,179 6,100
Profit/(loss) for the financial period 53,726 (23,581)
Earnings/(loss) per share (pence)
Continuing operations
Basic earnings/(loss) per share 7 1.05 (15.13)
Diluted earnings/(loss) per share 7 1.02 (15.13)
Adjusted basic earnings/(loss) per share(3) 7 1.52 (4.64)
Adjusted diluted earnings/(loss) per share(3) 7 1.49 (4.64)
Continuing and discontinued operations
Basic earnings/(loss) per share 7 7.71 (12.02)
Diluted earnings/(loss) per share 7 7.52 (12.02)
Adjusted basic earnings/(loss) per share(3) 7 2.15 (2.03)
Adjusted diluted earnings/(loss) per share(3) 7 2.11 (2.03)
1 As required by IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, the income statement and related notes for the prior
year have been restated to separately present the results of discontinued
operations.
2 Impairment losses on trade receivables and contract assets, as
determined in accordance with IFRS 9 Financial Instruments, previously
included in administration expenses have been shown separately.
3 Adjusted earnings/(loss) per share is defined as profit before tax
with amortisation and exceptional costs added back less tax at the prevailing
rate of corporation tax divided by the weighted average number of ordinary
shares.
Consolidated Statement of Comprehensive Income
For the year ended 1 January 2022
Year ended Year ended
1 January 26 December 2020
2022 £000s
£000s
Profit/(loss) for the financial period 53,726 (23,581)
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign (720) 617
operations
Foreign currency reserve disposal as part of business divestiture (note 17) (49) -
Gains arising on cash flow hedges - 306
Other comprehensive (loss)/gain for the period, net of tax (769) 923
Total comprehensive profit/(loss) for the period 52,957 (22,658)
Attributable to owners of the company 52,957 (22,658)
Consolidated Statement of Financial Position
For the year ended 1 January 2022
Note Year ended Year ended
1 January 26 December 2020
2022 Restated(1)
£000s
£000s
ASSETS
Non-current assets
Intangible assets 8 147,648 158,498
Property, plant and equipment
Hire equipment(1) 9 44,332 50,429
Non-hire assets 9 15,605 17,946
Right of use assets
Hire equipment(1) 10 20,651 20,576
Non-hire assets 10 55,329 62,912
Deferred tax asset 2,404 -
285,969 310,361
Current assets
Inventories 2,682 3,183
Trade and other receivables 11 78,680 75,880
Cash and cash equivalents 42,269 97,573
123,631 176,636
Total assets 409,600 486,997
LIABILITIES
Current liabilities
Trade and other payables 12 (78,704) (61,821)
Lease liabilities 13 (19,310) (23,395)
Borrowings 14 - (15,000)
Provisions 15 (4,713) (7,448)
Current tax liabilities (293) (1)
(103,020) (107,665)
Non-current liabilities
Lease liabilities 13 (57,255) (66,177)
Borrowings 14 (68,166) (179,099)
Provisions 15 (19,110) (26,206)
Deferred tax liabilities (148) (260)
(144,679) (271,742)
Total liabilities (247,699) (379,407)
Net assets 161,901 107,590
EQUITY
Share capital 16 7,050 6,965
Share premium 16 45,552 45,580
Warrant reserves - 2,694
Merger reserve 97,780 97,780
Foreign exchange translation reserve (754) 15
Retained earnings/(deficit) 12,273 (45,444)
Total equity 161,901 107,590
1 Leased assets transferred to right-of-use assets on adoption of IFRS16
were overstated in the prior year due to the inclusion of expired leases.
These have been re-presented as owned assets. The net book value of the assets
as at 26 December 2020 was £6.4m - there is no impact to total non-current
assets.
The Financial Statements were approved and authorised for issue by the Board
of Directors on 27 April 2022 and were signed on its behalf by:
P Quested
Director
27 April 2022
Consolidated Statement of Changes in Equity
For the year ended 1 January 2022
Share Share premium Warrant reserve Merger Foreign exchange translation reserve Cash flow hedging reserve Retained earnings/ (deficit) Total
capital
£000s £000s Reserve £000s £000s £000s Equity
£000s
£000s £000s
At 27 December 2020 6,965 45,580 2,694 97,780 15 - (45,444) 107,590
Profit for the period - - - - - - 53,726 53,726
Foreign currency translation differences arising on consolidation of foreign - - - - (720) - - (720)
operations
Foreign currency reserve disposal as part of business divestiture (note 17) - - - - (49) - - (49)
Total comprehensive (loss)/profit for the period - - - - (769) - 53,726 52,957
Transactions with owners recorded
directly in equity
Warrants exercised 85 - (2,694) - - - 2,694 85
2020 share issue cost - (28) - - - - - (28)
Share-based payment charge - - - - - - 1,374 1,374
Share-based payment transfer to reserves - - - - - - (77) (77)
At 1 January 2022 7,050 45,552 - 97,780 (754) - 12,273 161,901
Share Share premium Warrant reserve Merger Foreign exchange translation reserve Cash flow hedging reserve Retained earnings/ (deficit) Total
capital
£000s £000s Reserve £000s £000s £000s Equity
£000s
£000s £000s
At 29 December 2019 1,702 - 2,694 97,780 (602) (306) (22,316) 78,952
Loss for the period - - - - - - (23,581) (23,581)
Foreign currency translation differences arising on consolidation of foreign - - - - 617 - - 617
operations
Hedging of financial instruments - - - - - 306 - 306
Total comprehensive profit/(loss) for the period - - - - 617 306 (23,581) (22,658)
Transactions with owners recorded directly in equity
Share issue 5,263 45,580 - - - - - 50,843
Share-based payment charge - - - - - - 453 453
At 26 December 2020 6,965 45,580 2,694 97,780 15 - (45,444) 107,590
Consolidated Statement of Cash Flows
For the year ended 1 January 2022
Note Year ended Year ended
1 January 26 December 2020
2022 £000s
£000s
Profit/(loss) after income tax 53,726 (23,581)
Adjustments for:
- Tax 6 (1,156) 15
- Profit on disposal of discontinued operations 17 (41,242) -
- Amortisation 5,310 5,197
- Depreciation 36,128 44,709
- Accelerated depreciation relating to hire stock customer losses and hire 3,761 4,727
stock write-offs
- Impairment of property, plant and equipment and right of use assets 497 11,557
- Disposal of sub-lease - 59
- Loss on disposal of property, plant and equipment and right of use assets 2 2,110
- Lease disposals 13 (6,222) (4,012)
- Capital element of receipts from net investment in sublease 311 356
- Rent concessions 13 - (996)
- Share-based payment charge 1,374 453
- Foreign exchange (gains)/loss on operating activities (506) 535
- Finance expense 5 28,527 25,065
Changes in working capital (excluding the effects of disposals and exchange
differences on consolidation):
- Inventories 252 552
- Trade and other receivables 11 (6,999) 9,845
- Trade and other payables 12 23,671 (1,780)
- Provisions 15 (8,401) (5,181)
Net cash flows from operating activities before purchase of hire equipment 89,033 69,630
Purchase of hire equipment 9 (17,468) (13,673)
Cash generated from operating activities 71,565 55,957
Interest paid (26,628) (22,052)
Income tax (paid)/received (779) 552
Net cash generated from operating activities 44,158 34,457
Cash flows from investing activities
Proceeds from disposal of business, net of cash disposed of 17 62,813 -
Proceeds from disposal of assets as part of business divestiture 17 526 -
Purchases of non-hire property, plant, equipment and software 8, 9 (6,651) (5,814)
Net cash generated from/(used by) investing activities 56,688 (5,814)
Cash flows from financing activities
(Costs associated with)/proceeds from capital raise (net of share issue costs (1,471) 52,335
paid)
Proceeds from borrowings (third parties) 14 70,000 17,200
Facility arrangement fees 14 (1,946) -
Repayment of borrowings 14 (199,182) -
Capital element of lease liability payments 13 (23,551) (23,263)
Net cash (paid)/received from financing activities (156,150) 46,272
Net (decrease)/increase in cash (55,304) 74,915
Cash at the start of the year 97,573 22,658
Cash at the end of the year - continuing operations 42,269 94,978
Cash at the end of the year - discontinued operations - 2,595
Cash at the end of the year 42,269 97,573
Notes to the Consolidated Financial Statements
For the year ended 1 January 2022
1. Basis of preparation
The Group's financial information has been prepared in accordance with
International Financial Reporting Standards as adopted by the UK (IFRS) and on
a basis consistent with those policies set out in our audited financial
statements for the year ended 1 January 2022 (which will be available at
www.hsshiregroup.com/ (www.hsshiregroup.com/)
investor-relations/financial-results). These policies are consistent with
those shown in the audited financial statements for the year ended 26 December
2020. The financial statements were approved by the Board on 27 April 2022.
The financial information for the year ended 1 January 2022 and the year ended
26 December 2020 does not constitute the company's statutory accounts for
those years. Statutory accounts for the year ended 26 December 2020 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 1 January 2022 will be delivered to the Registrar of Companies following
the Company's Annual General Meeting.
The auditors' reports on the accounts for the years ended 1 January 2022 and
26 December 2020 were unqualified and did not contain a statement under 498(2)
or 498(3) of the Companies Act 2006, nor did they draw attention to any
matters by way of emphasis.
The Annual Report and Accounts for the year ended 1 January 2022 will be
posted to shareholders in early May 2022.
Going concern
At 1 January 2022, the Group's financing arrangements consisted of a fully
drawn term loan of £70m, an undrawn revolving credit and overdraft facility
(RCF) of £23.2m and finance lines to fund hire fleet capital expenditure, of
which £12.6m had not been utilised. Both the term loan and RCF are subject
to net debt leverage and interest cover covenant tests each quarter. At the
financial year-end the Group had significant headroom against these covenants.
Cash at 1 January 2022 was £42.3m.
The Directors have prepared a going concern assessment up to 29 April 2023,
which confirms that the Group is capable of continuing to operate within its
existing facilities and can meet its covenant tests during that period. The
key assumptions on which the projections are based include an assessment of
the impact of future market conditions on projected revenues and the capital
investment required to support that level of revenue.
The Group's base case for the 12 months to 29 April 2023 assumes a continued
recovery of revenue during 2022. The Board has considered various downside
scenarios including a 'reasonable worst-case' driven by lower than forecast
market growth rates, the loss of a major customer contract, increased
inflationary pressures and an increase in debtor days. In addition, it
assumes that continued strategic investment in technology does not deliver the
expected uplift in revenue. This reasonable worst-case scenario has been
modelled without mitigating actions and, despite this, the Group is forecast
to maintain headroom against its working capital requirements and financial
covenants within the assessment period.
Whilst the Directors consider that there is a degree of subjectivity involved
in their assumptions, taking into account the adequacy of the Group's
debt facilities, its ability to deploy mitigating actions where appropriate
and the principal risks and uncertainties and, after making appropriate
enquiries, they have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing its
Consolidated Financial Statements.
2. Segment reporting
The Group's operations are segmented into the following reportable segments:
Rental and related revenue; and
Services.
Rental and related revenue comprises the rental income earned from owned tools
and equipment, including powered access and power generation together with
directly related revenue such as resale (fuel and other consumables),
transport and other ancillary revenues.
Services comprise the Group's HSS OneCall rehire business and HSS Training.
HSS OneCall provides customers with a single point of contact for the hire of
products that are either not held within or available from HSS's fleet and are
obtained from approved third party partners; HSS Training provides customers
with specialist safety training across a wide range of products and sectors.
Contribution is defined as segment operating profit before branch and selling
costs, central costs, depreciation, amortisation and exceptional items.
During the year the Group recognised £0.2m in grant income from participation
in the Republic of Ireland's job retention scheme which had been received in
2020 and deferred. In 2020, £9.1m was recognised as a result of participation
in the UK COVID-19 Job Retention Scheme and a similar scheme operated in the
Republic of Ireland. Income has been allocated to segments based on where the
underlying costs were incurred. This resulted in £0.1m (2020: £2.7m) being
allocated to Rental and related contribution, £nil (2020: £0.7m) to Services
contribution, £0.1m (2020: £5.2m) to branch and selling costs, £nil (2020:
£0.3m) to central costs, and £nil (2020: £0.2m) to exceptional items.
In 2020, £0.6m of grant income related to property rates was allocated to
branch and selling costs - no such grant income was received in 2021.
All segment revenue, operating profit, assets and liabilities are attributable
to the principal activity of the Group being the provision of tool and
equipment hire and related services in, and to customers in, the United
Kingdom and the Republic of Ireland. No single customer represented more than
10% of Group revenue in the year (2020: one customer was more than 10%).
Year ended 1 January 2022
Rental Services Central Total
(and related revenue)
£000s £000s £000s
£000s
Total revenue from external customers 191,158 112,111 - 303,269
Contribution 132,583 16,209 - 148,792
Branch and selling costs (49,229) (49,229)
Central costs (29,786) (29,786)
Adjusted EBITDA 69,777
Less: Exceptional items 8,039 8,039
Less: Depreciation and amortisation (22,350) (826) (20,119) (43,295)
Operating profit 34,521
Net finance expenses (28,455)
Profit before tax from continuing operations 6,066
Income tax credit 1,239
Profit after tax from continuing operations 7,305
Profit on disposal of discontinued operations 41,242
Profit for the year from discontinued operations 5,179
Profit for the financial period 53,726
Year ended 1 January 2022
Rental Services Central Total
(and related revenue)
£000s £000s £000s
£000s
Additions to non-current assets
Property, plant and equipment 18,558 16 2,750 21,324
Right of use assets 8,558 56 6,826 15,440
Intangibles 2,928 39 1,361 4,328
Non-current assets net book value
Property, plant and equipment 44,332 129 15,476 59,937
Right of use assets 20,651 384 54,945 75,980
Intangibles 143,553 836 3,259 147,648
Deferred tax assets 2,404 2,404
Current assets 123,631 123,631
Current liabilities (103,020) (103,020)
Non-current liabilities (144,679) (144,679)
161,901
Year ended 26 December 2020
Rest
ated
(1)
Rental Services Central Total
(and related
£000s
£000s
revenue) £000s
£000s
Total revenue from external customers from continuing operations 160,615 89,448 - 250,063
Contribution 116,812 10,737 - 127,549
Branch and selling costs (46,202) (46,202)
Central costs (21,787) (21,787)
Adjusted EBITDA 59,560
Less: Exceptional items (13,016) (13,016)
Less: Depreciation and amortisation (25,134) (600) (25,481) (51,215)
Operating loss (4,671)
Net finance expenses (24,968)
Loss before tax from continuing operations (29,639)
Income tax charge (42)
Profit for the year from discontinued operations 6,100
Loss after tax and discontinued operations (23,581)
1 The notes supporting the income statement have been restated to disclose
continuing operations
Year ended 26 December 2020
Restated(2)
Rental Services Central Total
(and related
revenue) £000s £000s £000s
£000s
Additions to non-current assets
Property, plant and equipment 14,099 59 2,286 16,444
Right of use assets 4,880 - 4,357 9,237
Intangibles 979 861 1,477 3,317
Non-current assets net book value
Property, plant and equipment 50,429 203 17,743 68,375
Right of use assets 20,576 212 62,700 83,488
Intangibles 153,804 1,246 3,448 158,498
Current assets 176,636 176,636
Current liabilities (107,665) (107,665)
Non-current liabilities (271,742) (271,742)
107,590
2 Leased assets transferred to right-of-use assets on adoption of IFRS16 were
overstated in the prior year due to the inclusion of expired leases. These
have been re-presented as owned assets. The net book value of the assets as
at 26 December 2020 was £6.4m - there is no impact to total non-current
assets.
3. Other operating income
Year ended Year ended 26 December 2020
1 January Restated(1)
2022 £000s
£000s
COVID-19 Government grant income: job retention schemes 232 9,118
COVID-19 Government grant income: rates grants - 595
Insurance proceeds (net of fees) 1,203 1,216
Sub-lease rental and service charge income 273 221
1,708 11,150
During the year, the Group recognised £0.2m as a result of earlier
participation in the Republic of Ireland's job retention scheme. The income
was received during 2020 with recognition deferred pending confirmation of
eligibility. In 2020, the Group received and recognised £9.1m of grant income
from the UK COVID-19 Job Retention Scheme and a similar scheme in the
Republic of Ireland; and COVID-19 rates grants of £0.6m. During the year the
Group also received £1.2m (2020: £1.2m) from COVID-19 business interruption
insurance claims. Sub-let rental income of £0.3m (2020: £0.2m) was received
on vacant properties.
1 The notes supporting the income statement have been restated to disclose
continuing operations.
4. Exceptional items
Items of income or expense have been shown as exceptional either because of
their size or nature or because they are outside the normal course
of business. As a result, during the year ended 1 January 2022 the Group has
recognised exceptional items as follows:
Included in administrative expenses Included in other operating income Included in finance expense Year ended
1 January 2022
£000s £000s £000s
£000s
Onerous property (credits)/costs (7,982) (106) 223 (7,865)
Costs expensed on refinancing - - 9,730 9,730
Costs relating to restructure 556 - - 556
Onerous contract (257) - (8) (265)
Capital raise and aim listing (250) - - (250)
Exceptional items continuing operations (7,933) (106) 9,945 1,906
Profit arising on business divestiture - discontinued operations (41,242) - - (41,242)
Total (49,175) (106) 9,945 (39,336)
During the year ended 26 December 2020, the Group recognised exceptional costs
analysed as follows:
Restated(1)
Included Included in distribution costs Included in administrative expenses Included in other operating income Included in finance expense Year ended
in cost
26 December 2020
of sales £000s £000s £000s £000s
£000s
£000s
Onerous property costs - - 7,010 (21) 373 7,362
Network restructure 305 25 4,422 (150) - 4,602
Onerous contract - - 557 - - 557
Capital raise and aim listing - - 868 - - 868
305 25 12,857 (171) 373 13,389
1 The notes supporting the income statement have been restated to disclose
continuing operations.
Exceptional items incurred in 2021 and 2020
Costs related to onerous properties: branch and office closures
In October 2020 the Group announced a decision to permanently close 134 stores
as part of an acceleration of strategy. Since that date the Group has been
working to agree exits from these and pre-existing dark stores. An exceptional
credit of £7.9m has been recognised in 2021 (2020 an exceptional charge of
£7.4m) was recognised. This relates mainly to the release of lease
liabilities, onerous property cost and dilapidations provisions on surrender
of properties following the branch closures.
Right of use (ROU) assets valuing £9.5m were fully impaired following the
decision to close stores in October 2020. As a result, any subsequent
surrender of the associated leases results in a gain on the disposal of
remaining lease liability. 66 of the leases related to October 2020
restructuring were disposed of in the year resulting in a gain of £4.0m
(2020: 60 leases surrendered and net gain of £4.0m). Other dark stores exited
in the year resulted in a gain of £1.0m. The lease liability associated with
the last nine dark stores is £1.1m.
Two closed stores were subject to lease modifications (rent reviews) during
2021. This resulted in the addition of lease liabilities and corresponding ROU
assets - which were immediately impaired - generating a charge of £0.1m.
In 2020, COVID-19 qualifying rent concessions of £0.3m were recognised as an
exceptional credit because they related to stores that were non-trading and
previously had been considered onerous.
An interest charge (discount unwind) of £0.2m (2020: £0.4m) on dark store
liabilities was recognised through exceptional finance costs.
Onerous property cost provisions for rates and utilities associated with
surrendered dark stores have been released resulting in a credit of £3.0m
(figure is net of £1.1m in fees paid, mainly to the Group's restructuring
adviser). In 2020, onerous property costs of £2.1m were recognised, including
£0.4m in advisory fees.
As part of the surrender negotiations to exit dark stores dilapidations
liabilities were agreed and a net credit of £0.2m was recognised. In 2020,
dilapidations assets totalling £1.2m were impaired as a result of the
decision to close branches, following which settlements were agreed for
certain properties resulting in a release of liability of £1.2m. Reassessment
of remaining non-trading store liabilities resulted in a further release of
£0.3m in 2020.
The amounts remaining for onerous contract costs and dilapidations provisions
on dark stores are £0.2m and £1.1m respectively (2020: £4.0m and £3.9m
respectively).
Onerous contract
The Group maintains a provision to cover the expected outflows related to its
onerous contract with Unipart for the NDEC operation which ceased in late 2017
(note 15). The liability at the balance sheet date is £13.5m (2020: £17.0m).
The discount rate used to calculate the present value of the provision is the
5 year UK gilt rate of 0.81% (2020: -0.05%). Application of the new discount
rate at the balance sheet date resulted in a credit to the income statement of
£0.3m (2020: debit of £0.6m), recognised as exceptional in line with the
original provision.
Capital raise and AIM listing
In 2020 the Group successfully completed a capital raise to strengthen its
balance sheet and moved its listing to AIM in January 2021. An over-accrual of
legal costs of £0.3m was released in 2021 (fees totalling £0.9m had been
recognised in 2020). Costs that related specifically to the capital raise
were deducted from the net proceeds and included in the share premium account.
Exceptional items incurred in 2021 only
Costs expensed on refinancing
In October 2021, following the sale of All Seasons Hire Limited (see business
divestitures below and note 17) the Group repaid £50.0m of the senior finance
facility in place at that time. The early repayment resulted in a prepayment
penalty of £1.9m. In November 2021 the Group completed a refinancing
exercise. A new senior finance facility of £70m was agreed at a significantly
reduced interest rate. The early repayment of the previous facility resulted
in a prepayment penalty of £4.5m. Repayments of the senior finance facility
led to accelerated amortisation of debt issue costs of £3.3m.
Costs related to restructure
Following the changes made to its operating network in Q4 2020 and the
roll-out of HSS Pro in Q1 2021, the Group has commenced an exercise to legally
separate the HSS Operations and Pro Service divisions into distinct entities.
Fees incurred relating to the restructure of £0.6m have been recognised as
exceptional. The restructure is expected to complete in 2022 and to cost less
than £2m in total.
Business divestiture
To enable the Group to strengthen its balance sheet and focus on its strategic
priority to Transform the Tool Hire Business, the Group made two strategic
divestments during the year:
Laois Hire Limited, the Irish large plant hire business was sold to Briggs
Equipment Ireland Limited (Briggs) on 7 April 2021. Proceeds of the disposal,
net of transaction costs, were £10.0m generating a profit on disposal of
£3.2m.
All Seasons Hire Limited, a cooling and heating provider was sold to Cross
Rental Services Limited with the transaction completing on 29 September 2021.
Proceeds of the disposal, net of transaction costs, were £54.3m generating a
profit on disposal of £38.0m.
As part of these transactions, the Group entered into commercial agreements to
cross-hire equipment to ensure the broadest possible distribution of, and
customer access to, each party's existing fleet.
Exceptional items incurred in 2020 only
Network restructure (excluding onerous property items)
As a result of the decision to close branches and operate a more flexible
structure, the Group incurred significant other, non-property costs. 300
colleagues were placed at risk of redundancy with the majority leaving the
business on completion of consultation. £1.6m was recognised in this regard.
Property, plant and equipment with a net book value of £2.0m was impaired and
a further £0.8m disposed of. Excess resale stock valued at £0.3m was
written off.
5. Finance expense
Year ended Year ended
1 January 26 December 2020
2022 Restated(1)
£000s
£000s
Senior finance facility 12,653 16,334
Senior finance facility prepayment penalties (note 4) 6,430 -
Debt issue costs 1,896 2,398
Lease liabilities 3,950 4,950
Interest unwind on discounted provisions 15 424
Revolving credit facility 58 382
Interest on financial instruments - 320
Bank loans and overdrafts 153 160
Accelerated amortisation of debt issue costs (note 4) 3,300 -
28,455 24,968
1 The notes supporting the income statement have been restated to disclose
continuing operations.
6. Income tax charge
(a) Analysis of tax charge in the year
Year ended Year ended
1 January 26 December 2020
2022 Restated(1)
£000s
£000s
Current tax charge/(credit)
Uk corporation tax on the result for the year 1,151 78
Adjustments in respect of prior years (80) 17
Total current tax charge 1,071 95
Deferred tax (credit)/charge for the year
Deferred tax credit for the year (2,319) (592)
Deferred tax impact of change in tax rate (117) 13
Adjustments in respect of prior years 126 526
Total deferred tax credit (2,310) (53)
Income tax (credit)/charge (1,239) 42
1 The notes supporting the income statement have been restated to disclose
continuing operations.
(b) Factors affecting the income tax (credit)/charge in the year
The tax assessed on the profit/(loss) for the year differs from the standard
UK corporation rate of tax. The differences are explained below:
Year ended Year ended
1 January
2022 26 December 2020
£000s
Restated(1)
£000s
Profit/(loss) before tax from continuing operations 6,066 (29,639)
Profit/(loss) before tax multiplied by the effective standard rate of 1,153 (5,631)
corporation tax of 19% (2020: 19%)
Effects of:
Unprovided deferred tax movements on short-term temporary differences and (2,958) 3,003
capital allowance timing differences
Adjustments in respect of prior years 46 543
Expenses not deductible for tax purposes 2,437 858
Losses surrendered for no consideration - 1,178
Foreign tax suffered 200 78
Recognition of prior year tax losses (2,000) -
Impact of change in tax rate (117) 13
Income tax (credit)/charge (1,239) 42
1 The notes supporting the income statement have been restated to disclose
continuing operations.
The charge of £2.4m (2020: £0.9m) arising in respect of expenses not
deductible is mainly attributable to costs associated with the Group exiting
property leases and removing dormant entities from the Group structure. The
credit of £2.0m (2020: £nil) arises from the recognition of a deferred tax
asset in respect of prior period losses. Based upon forecasts, the Group
considers the recognition criteria in IAS 12 have been met. In 2020, the
adjustment in respect of prior years relates to an increase in deferred tax
liability due to accelerated capital allowances in earlier periods.
(c) Factors that may affect future tax charge
The standard rate of UK corporation tax will increase to 25% from 1 April
2023. The increased rate has been used to calculate the above deferred tax
disclosures except where it is known the temporary differences will unwind
before the new rate applies, in which case the existing rate of 19% has been
used.
The Group has an unrecognised deferred tax asset relating to temporary timing
differences on plant and equipment, intangible assets and provisions of
£15.2m (2020: £12.8m) and relating to trading losses of £17.9m (2020:
£13.3m). These potential deferred tax assets have not been recognised on the
basis that it is not sufficiently certain when taxable profits that can be
utilised to absorb the reversal of the temporary differences will be made.
7. Earnings per share
Basic earnings/(loss) per share:
Profit/(loss) after tax from total operations Profit/(loss) after tax from continuing operations Weighted average number of shares Earnings/ (loss) after tax from total operations per share Earnings/ (loss) after tax from continuing operations per share
£000s £000s 000s Pence Pence
Year ended 1 January 2022 53,726 7,305 696,821 7.71 1.05
Year ended 26 December 2020 (23,581) (29,681) 196,232 (12.02) (15.13)
Basic earnings/(loss) per share is calculated by dividing the result
attributable to equity holders by the weighted average number of ordinary
shares in issue for that year.
Diluted earnings/(loss) per share:
Profit/(loss) after tax from total Profit/(loss) after tax from continuing operations Diluted weighted average number of shares Earnings/ (loss) after tax from total operations per share Earnings/ (loss) after tax from continuing operations per share
Operations £000s 000s Pence Pence
£000s
Year ended 1 January 2022 53,726 7,305 714,816 7.52 1.02
Year ended 26 December 2020 (23,581) (29,681) 196,232 (12.02) (15.13)
Diluted earnings/(loss) per share is calculated using the profit/(loss) for
the year divided by the weighted average number of shares outstanding assuming
the conversion of potentially dilutive equity derivatives outstanding, being
market value options, nil-cost share options (LTIP shares), restricted stock
grants, deferred bonus shares, Sharesave Scheme share options and warrants.
All of the Group's potentially dilutive equity derivative securities were
dilutive for the purpose of diluted earnings per share (2020: anti-dilutive
for the purpose of diluted basic loss per share).
The following is a reconciliation between the basic earnings/(loss) per share
and the adjusted basic earnings/(loss) per share:
Year ended Year ended Year ended Year ended
1 January
1 January
26 December 2020 26 December 2020
2022 2022
Pence Pence
pence pence
Total operations Continuing operations
Total Continuing operations
operations
Basic earnings/(loss) per share 7.71 1.05 (12.02) (15.13)
Add back:
Exceptional items per share(1) (5.64) 0.27 6.85 6.82
Amortisation per share(2) 0.76 0.74 2.65 2.56
Tax per share (0.17) (0.18) 0.01 0.02
Charge:
Tax (credit)/charge at prevailing rate (0.51) (0.36) 0.48 1.09
Adjusted basic earnings/(loss) per share 2.15 1.52 (2.03) (4.64)
1 Exceptional items per share is calculated as total exceptional items
divided by the weighted average number of shares in issue through the year.
2 Amortisation per share is calculated as the amortisation charge divided
by the weighted average number of shares in issue through the year.
The following is a reconciliation between the diluted earnings/(loss) per
share and the adjusted diluted earnings/(loss) per share:
Year ended Year ended Year ended Year ended
1 January 1 January 26 December 2020 26 December 2020
2022 2022 Pence Pence
Pence Pence Total Continuing operations
Total Continuing operations
operations operations
Diluted earnings/(loss) per share 7.52 1.02 (12.02) (15.13)
Add back:
Exceptional items per share(1) (5.50) 0.27 6.85 6.82
Amortisation per share(2) 0.74 0.72 2.65 2.56
Tax per share (0.16) (0.17) 0.01 0.02
Charge:
Tax (credit)/charge at prevailing rate (0.49) (0.35) 0.48 1.09
Adjusted diluted earnings/(loss) 2.11 1.49 (2.03) (4.64)
1 Exceptional items per share is calculated as total finance and
non-finance exceptional items divided by the diluted weighted average number
of shares in issue through the year.
2 Amortisation per share is calculated as the amortisation charge divided
by the diluted weighted average number of shares in issue through the year.
The weighted average number of shares for the purposes of calculating the
adjusted diluted earnings per share are as follows:
Year ended Year ended
1 January 2022
26 December 2020
Weighted average number of shares
Weighted average number of shares
000s
000s
Basic 696,821 196,232
Ltip share options 8,296 -
Restricted stock grants 8,988 -
Csop options 711 -
Diluted 714,816 196,232
8. Intangible assets
Goodwill Customer relationships Brands Software Total
£000s £000s £000s £000s £000s
Cost
At 27 December 2020 124,877 26,744 23,222 27,580 202,423
Additions - - - 4,328 4,328
Disposals - - - (52) (52)
Business disposal (note 17) (9,018) (1,344) (632) - (10,994)
Foreign exchange differences (4) - - - (4)
At 1 January 2022 115,855 25,400 22,590 31,856 195,701
Amortisation
At 27 December 2020 - 21,348 622 21,955 43,925
Charge for the period - 2,675 84 2,551 5,310
Disposals - - - (52) (52)
Business disposal (note 17) - (722) (408) - (1,130)
At 1 January 2022 - 23,301 298 24,454 48,053
Net book value
At 1 January 2022 115,855 2,099 22,292 7,402 147,648
Goodwill Customer relationships Brands Software Total
£000s £000s £000s £000s £000s
Cost
At 29 December 2019 124,877 26,744 23,222 24,409 199,252
Additions - - - 3,317 3,317
Disposals - - - (146) (146)
At 26 December 2020 124,877 26,744 23,222 27,580 202,423
Amortisation
At 29 December 2019 - 18,694 525 19,655 38,874
Charge for the year - 2,654 97 2,446 5,197
Disposals - - - (146) (146)
At 26 December 2020 - 21,348 622 21,955 43,925
Net book value
At 26 December 2020 124,877 5,396 22,600 5,625 158,498
Analysis of goodwill, indefinite life brands, other brands and customer
relationships by cash generating unit:
Goodwill Indefinite life brands Other Customer relationships Total
£000s £000s Brands £000s £000s
£000s
Allocated to
HSS core 109,802 21,900 - 1,900 133,602
Power generation 6,053 - 392 199 6,644
At 1 January 2022 115,855 21,900 392 2,099 140,246
Goodwill Indefinite life brands Other Customer relationships Total
£000s £000s Brands £000s £000s
£000s
Allocated to
HSS core 111,497 21,900 236 4,397 138,030
Climate control 7,327 - 273 708 8,308
Power generation 6,053 - 191 291 6,535
At 26 December 2020 124,877 21,900 700 5,396 152,873
The remaining life of intangible assets other than goodwill and indefinite
life brands is between nil and 13 years (2020: nil and 14 years). For the
purpose of calculating Adjusted EBITDA and Adjusted EBITA, amortisation, as
disclosed on the face of the income statement, is calculated as the total of
the amortisation charge for the year and the loss on disposal of
intangible assets.
The Group tests property, plant and equipment, right of use assets, goodwill
and brands for impairment annually and considers at each reporting date
whether there are indicators that impairment may have occurred. In identifying
indicators of impairment management considers current market capitalisation,
asset obsolescence or closure, adverse trading performance and any other
relevant wider economic or operational factors.
Following the disposal of All Seasons Hire Limited, which was the sole
component of the Climate Control CGU, the Group has two cash generating units
(CGUs): HSS Core and HSS Power.
The recoverable amounts of the goodwill and indefinite life brands, which are
allocated to CGUs, are estimated from value in use (VIU) calculations which
model pre-tax cash flows for the next five years (2020: five years) together
with a terminal value using a long-term growth rate. The key assumptions
underpinning the recoverable amounts of the CGUs tested for impairment are
those regarding the discount rate, forecast inflation rate, forecast revenue,
EBITDA and capital expenditure including cash flows required to maintain the
Group's right of use assets.
The key variables applied to the VIU calculations were determined as follows:
· Cash flows were derived based on the budget for 2022 and model of
the business for the following two years (to the end of 2024).
· Operational activity then had a long-term growth rate applied to
it while capital expenditure was specifically adjusted to reflect expectations
of spend in the following years giving a model of five years in total after
which a terminal value was calculated. The long-term growth factor used was
2.0% for each of the CGUs (2020: 1.8%).
· A pre-tax discount rate of 9.44% (2020: 9.16%), calculated by
reference to a weighted average cost of capital (WACC) based on an industry
peer group of quoted companies and including a 2.0% premium reflective of the
Group's market capitalisation.
An impairment may be identified if changes to any of the factors mentioned
above become significant, including under performance of the Group against
forecast, negative changes in the UK tool hire market or a deterioration in
the UK economy, which would cause the Directors to reconsider their
assumptions and revise their cash flow projections.
Based on the VIU modelling and impairment testing, the Directors do not
consider an impairment charge to be required in respect of any of the
property, plant and equipment, goodwill or indefinite life brand assets
carried in the balance sheet at 1 January 2022 for either of the CGUs.
The Directors carried out sensitivity analysis on various inputs to the
models, including growth rates, discount rates and percentage reductions to
ongoing cash flows which did not result in an impairment charge for either
CGU. Given the level of headroom in VIU these calculations show, the Directors
did not envisage reasonably possible changes, either individually or in
combination, to the key assumptions that would be sufficient to cause an
impairment charge at the balance sheet date. The Directors also noted that the
market capitalisation of the group at the balance sheet date was below the
consolidated net asset position - which is an indicator that an impairment may
exist. On consideration of various factors including the concentrated
shareholder base and recent shareholder and investor activity they concluded
that an impairment was not required in this regard.
In respect of HSS Core (the more sensitive CGU) at 1 January 2022, the
headroom between VIU and carrying value of the related assets was £156.0m
(2020: £75.1m). The Directors' sensitivity analysis with regard to HSS Core
shows that an increase in the discount rate to 15.0% (2020: 11.5%) or a
reduction in the long-term growth rate to a decline of 6.2% (2020: decline of
0.7%) would eliminate the headroom shown. In addition, the Directors have
assessed the combined impact of the long-term growth rate falling to zero
(2020: zero) and an increase in the discount rate of 1% to 10.44% (2020:
10.16%). This shows that the headroom drops to £65.1m (2020: £53.9m) for HSS
Core but that impairment is not required for either CGU.
9. Property, plant and equipment
Land & buildings Plant & machinery Materials & equipment Total
held for hire
£000s £000s
£000s
£000s
Cost
At 27 December 2020 58,419 55,315 149,534 263,268
Transferred from right of use assets - - 8,742 8,742
Additions 2,011 755 18,558 21,324
Disposals(1) (22,394) (11,193) (16,515) (50,102)
Business disposal (note 17) (702) (1,683) (26,064) (28,449)
Foreign exchange differences (31) (31) (581) (643)
At 1 January 2022 37,303 43,163 133,674 214,140
Accumulated depreciation
At 27 December 2020 45,208 50,580 99,105 194,893
Transferred from right of use assets - - 5,200 5,200
Charge for the year 2,543 1,710 12,482 16,735
Impairment 264 - - 264
Disposals(1) (22,325) (11,171) (13,145) (46,641)
Business disposal (231) (1,485) (14,148) (15,864)
Foreign exchange differences (6) (56) (322) (384)
Transfers - (170) 170 -
At 1 January 2022 25,453 39,408 89,342 154,203
Net book value
At 1 January 2022 11,850 3,755 44,332 59,937
1 Following the reduction in the Group's branch network and surrender of
the majority of dark stores (note 4), an asset verification exercise has been
carried out. As a result, land and buildings and property, plant and equipment
assets with a gross book value of £19.6m, and which had previously been fully
impaired, have been disposed during the year.
The results of the impairment review for property, plant and equipment are
included in note 8.
Land & Plant & Materials & equipment
buildings
machinery
Held for hire Total
£000s £000s
Restated Restated
£000s £000s
Cost
At 29 December 2019 73,505 61,925 179,788 315,218
Transferred to right of use assets at 29 December 2019 - as previously - - (46,888) (46,888)
reported
Restatement(1) - - 15,906 15,906
Transferred to right of use assets - restated - - (30,982) (30,982)
Transferred from right of use assets - as previously reported - - 3,144 3,144
Restatement(1) - - 348 348
Transferred from right of use assets - restated - - 3,492 3,492
Additions 1,284 1,061 14,099 16,444
Disposals (16,408) (7,748) (17,328) (41,484)
Foreign exchange differences 38 77 465 580
At 26 December 2020 58,419 55,315 149,534 263,268
Accumulated depreciation
At 29 December 2019 54,437 55,936 102,994 213,367
Transferred to right of use assets at 29 December 2019 - as previously - - (17,576) (17,576)
reported
Restatement(1) - - 7,843 7,843
Transferred to right of use assets - restated - - (9,733) (9,733)
Transferred from right of use assets - as previously reported - - 1,652 1,652
Restatement(1) - - 377 377
Transferred from right of use assets - restated - - 2,029 2,029
Charge for the year - as previously reported 3,516 2,139 14,518 20,173
Restatement(1) - - 1,683 1,683
Charge for the year - restated 3,516 2,139 16,201 21,856
Impairment 1,789 227 - 2,016
Disposals (14,536) (7,592) (13,004) (35,132)
Foreign exchange differences 2 40 448 490
Transfers - (170) 170 -
At 26 December 2020 45,208 50,580 99,105 194,893
Net book value
At 26 December 2020 13,211 4,735 50,429 68,375
1 'Transferred to right of use assets' category represents the transfer of
assets held under finance lease to right of use (ROU) assets (note 10) on
adoption of IFRS 16. 'Transferred from right of use assets' category
represents the return of ROU assets at expiry of the lease in cases where
title is transferred to the Group. Leased assets transferred to right-of-use
assets on adoption of IFRS 16 were overstated in the prior year due to the
inclusion of expired leases. These have been re-presented as owned assets. The
net book value of the assets at transition was £8.1m - there is no impact to
total non-current assets. The net book value of the total restatement was
£6.4m. The restatement has no impact on the consolidated income statement and
no impact on net assets in the consolidated statement of financial position.
10. Right of use assets
Property Vehicles Equipment for internal use Equipment Total
for hire
£000s £000s £000s
£000s
£000s
Cost
At 27 december 2020 61,253 23,681 562 21,998 107,494
Additions 1,882 5,000 - 8,558 15,440
Re-measurements 3,407 128 (12) - 3,523
Transfers to property, plant and equipment - - - (4,462) (4,462)
Disposals (8,755) (859) - (755) (10,369)
Business disposals (note 17) (1,304) (1,662) (30) - (2,996)
Amount re-recognised on disposal of sublease 544 - - - 544
Foreign exchange differences (180) (5) - - (185)
At 1 January 2022 56,847 26,283 520 25,339 108,989
Accumulated depreciation
At 27 december 2020 15,403 6,854 327 1,422 24,006
Transfers to property, plant and equipment - - - (920) (920)
Charge for the period 7,840 7,099 147 4,307 19,393
Impairments 233 - - - 233
Disposals (7,975) (642) - (121) (8,738)
Business disposals (note 17) (397) (538) (30) - (965)
At 1 January 2022 15,104 12,773 444 4,688 33,009
Net book value
At 1 January 2022 41,743 13,510 76 20,651 75,980
Property Vehicles Equipment for internal use Restated Restated
£000s £000s £000s Equipment Total
for hire
£000s
£000s
Cost
Recognised on transition date at 29 December 2019 - as previously reported 58,014 21,416 789 29,312 109,531
Restatement(1) - - - (8,063) (8,063)
Recognised on transition date - restated 58,014 21,416 789 21,249 101,468
Additions 1,317 3,040 - 4,880 9,237
Re-measurements 6,931 17 - - 6,948
Transfers to property, plant and equipment - as previously reported - - - (3,144) (3,144)
Restatement(1) - - - 562 562
Transfers to property, plant and equipment - restated - - - (2,582) (2,582)
Disposals (5,164) (814) (227) (1,549) (7,754)
Foreign exchange differences 155 22 - - 177
At 26 December 2020 61,253 23,681 562 21,998 107,494
Accumulated depreciation
Transfers to property, plant and equipment - as previously reported - - - (1,652) (1,652)
Restatement(1) - - - 533 533
Transfers to property, plant and equipment - restated - - - (1,119) (1,119)
Charge for the period - as previously reported 10,999 7,613 554 5,370 24,536
Restatement(1) - - - (1,683) (1,683)
Charge for the period - restated 10,999 7,613 554 3,687 22,853
Impairments 9,541 - - - 9,541
Disposals (5,137) (759) (227) (1,146) (7,269)
At 26 December 2020 15,403 6,854 327 1,422 24,006
Net book value
At 26 December 2020 45,850 16,827 235 20,576 83,488
1 Transfers to property, plant and equipment represents the return of ROU
assets at expiry of the lease and where title is transferred to the Group.
Leased assets transferred to right of use assets on adoption of IFRS16 were
overstated in the prior year due to the inclusion of expired leases. These
have been re-presented as owned assets. The net book value of the assets at
transition was £8.1m - there is no impact to total non-current assets. The
overall correction to net book value at 27 December 2020 is £6.4m. The
restatement has no impact on the consolidated income statement and no impact
on net assets in the consolidated statement of financial position.
Right of use (ROU) assets are depreciated over the lease term on a
straight-line basis, except where the Group expects to exercise the right to
take ownership of the assets at the end of the lease; in such cases the assets
are depreciated over the useful life and transferred to property, plant and
equipment at the end of the lease.
ROU assets are measured at cost comprising the initial measurement of lease
liability, initial direct costs and restoration costs. During the year the
Group recorded re-measurements of £3.4m (2020: £6.9m) on its property leases
due to changes in property footprint, including lease extensions and disposals
following the decision to close 134 branches in 2020 and subsequent
negotiations with landlords to surrender leases. Under HSS accounting policy,
locations that have not been permanently closed are deemed to be part of a
wider cash generating unit (CGU) when being tested for impairment. The act of
permanently closing a location has the effect of separating it from the CGU
and is also a trigger for impairment. During the year rent reviews were
enacted on two closed stores resulting in the recognition and immediate
impairment of additional ROU assets. In 2020 the value of ROU assets impaired
as a result of the decision to permanently close locations is £9.5m.
Disclosures relating to lease liabilities are included in note 13.
11. Trade and other receivables
Year ended 1 January 2022 Year ended 26 December 2020
Gross Provision for impairment Provision for credit notes Net of provision Gross Provision for impairment Provision for credit notes Net of
£000s £000s £000s £000s £000s £000s £000s Provision
£000s
Trade receivables 73,873 (3,884) (3,225) 66,764 66,434 (2,916) (2,458) 61,060
Accrued income 4,165 (47) - 4,118 6,965 (107) - 6,858
Total trade receivables and contract assets 78,038 (3,931) (3,225) 70,882 73,399 (3,023) (2,458) 67,918
Net investment in sub-lease 961 - - 961 1,497 - - 1,497
Other debtors 1,282 - - 1,282 3,502 - - 3,502
Prepayments 5,555 - - 5,555 2,963 - - 2,963
Total trade and other receivables 85,836 (3,931) (3,225) 78,680 81,361 (3,023) (2,458) 75,880
The following table details the movements in the provisions for impairment of
trade receivables and contract assets and credit notes:
1 January 1 January 26 December 2020 26 December 2020
2022
2022
£000s £000s
£000s £000s
Provision Provision for credit notes Provision Provision
For impairment For impairment For credit notes
Balance at the beginning of the year (3,023) (2,458) (1,568) (2,177)
Increase in provision (1,835) (3,746) (3,085) (2,877)
Utilisation 910 2,752 1,630 2,596
Business disposals (note 17) 17 227 - -
Balance at the end of the period (3,931) (3,225) (3,023) (2,458)
The bad debt provision based on expected credit losses and applied to trade
receivables and contract assets, all of which are current assets, is as
follows:
1 January 2022 Current 0 to 60 days past due 61 to 365 days past due 1 to 2 years past due Total
Trade receivables and contract assets 44,209 22,847 9,376 1,606 78,038
Expected loss rate 1.0% 2.4% 19.7% 68.7% 5.0%
Provision for impairment charge 435 544 1,848 1,104 3,931
26 December 2020 Current 0 to 60 days past due 61 to 365 1 to 2 years past due Total
Days past due
Trade receivables and contract assets 61,197 5,902 4,962 1,338 73,399
Expected loss rate 1.4% 4.6% 25.7% 47.5% 4.1%
Provision for impairment charge 839 272 1,276 636 3,023
Contract assets consist of accrued income.
The bad debt provision is estimated using the simplified approach to expected
credit loss methodology and is based upon past default experience and the
Directors' assessment of the current economic environment for each of the
Group's ageing categories.
The Directors have given specific consideration to the level of uncertainty in
the economy driven by the impact of COVID-19, the associated pressures on
businesses facing staff and material shortages and, more latterly, increased
inflation. At the balance sheet date, similar to 2020, the Group has not seen
a marked increase in debt write-offs. However, as has been widely reported,
there is an expectation that the situation will deteriorate as companies that
continued trading only as a result of Government support fail now that the
support has been withdrawn. Given these facts, the Group considers that
historical losses are not a reliable predictor of future failures and has
exercised judgement in increasing the expected loss rates across all
categories of debt. In so doing the provision has been increased by around
£1.2m (2020: £1.2m) from that which would have been required based on loss
experience over the past two years. As in the prior year, historical loss
rates have been increased where debtors have been identified as high risk with
a reduction applied to customer debt covered by credit insurance.
The total amount expensed was £2.8m (2020: £4.1m). Unless the counter-party
is in liquidation, these amounts are still subject to enforcement action.
Following a review of the Annual Report and Accounts for the year ended 26
December 2020 by the FRC's Corporate Reporting Review Team, the presentation
of the income statement has been changed to separately disclose the impairment
loss on trade receivables of £1.8m (2020: £3.1m) on the face of the
consolidated income statement. Previously it was included within
administrative expenses (which has now decreased by the corresponding amount
of £1.8m (2020: £3.1m). There was no impact on profit.
In line with the requirements of IFRS 15, provisions are made for credit notes
expected to be raised after year-end for income recognised during the year.
The combined provisions for bad debt and credit notes amount to 9.2% of trade
receivables and contract assets at 1 January 2022 (2020: 7.5%). A 0.5%
increase in the combined provision rate would give rise to an increased
provision of £0.4m (2020: £0.4m).
12. Trade and other payables
1 January 26 December 2020
2022 £000s
£000s
Current
Trade payables 43,062 23,957
Other taxes and social security costs 5,175 5,109
Other creditors 1,308 2,300
Accrued interest on borrowings 271 3,442
Accruals 28,494 26,907
Deferred income 394 106
78,704 61,821
13. Lease liabilities
1 January 26 December 2020
2022 £000s
£000s
Current
Lease liabilities 19,310 23,395
Non-current
Lease liabilities 57,255 66,177
76,565 89,572
The interest rates on the Group's lease liabilities are as follows:
1 January 2022 26 December 2020
Equipment for hire Floating %age above NatWest base rate (2020: LIBOR) 2.4 to 3.3% 2.4 to 2.9%
Other Fixed 3.5 to 6.0% 3.5 to 6.0%
The weighted average interest rates on the Group's lease liabilities are as
follows:
1 January 26 December 2020
2022
Lease liabilities 4.8% 4.8%
The lease liability movements are detailed below:
Property Vehicles Equipment Total
for hire and internal use
£000s £000s
£000s
£000s
At 27 December 2020 57,181 16,861 15,530 89,572
Additions 1,981 5,029 8,591 15,601
Re-measurements 3,407 128 (12) 3,523
Discount unwind 2,805 535 5 3,345
Payments (including interest) (13,209) (7,012) (6,675) (26,896)
Disposals (6,006) (216) - (6,222)
Business disposals (note 17) (1,063) (1,048) - (2,111)
Foreign exchange differences (217) (30) - (247)
At 1 January 2022 44,879 14,247 17,439 76,565
Property Vehicles Equipment Total
for hire and internal use
£000s £000s
£000s
£000s
Recognised on transition 60,609 21,331 17,369 99,309
Additions 1,301 3,040 4,896 9,237
Re-measurements 6,931 17 - 6,948
Discount unwind 3,622 661 779 5,062
Payments (including interest) (10,241) (8,213) (7,514) (25,968)
Covid-19 rental concessions (996) - - (996)
Disposals (4,012) - - (4,012)
Foreign exchange differences (33) 25 - (8)
At 26 December 2020 57,181 16,861 15,530 89,572
The Group's leases have the following maturity profile:
1 January 26 December 2020
2022 £000s
£000s
Less than one year 23,015 27,452
Two to five years 48,755 55,544
More than five years 19,354 23,483
91,124 106,479
Less interest cash flows:
Lease liabilities (14,559) (16,907)
Total principal cash flows 76,565 89,572
The maturity profile, excluding interest cash flows, of the Group's leases is
as follows:
1 January 26 December 2020
2022 £000s
£000s
Less than one year 19,310 23,395
Two to five years 41,417 47,030
More than five years 15,838 19,147
76,565 89,572
14. Borrowings
1 January 26 December 2020
2022 £000s
£000s
Current
Senior finance facility - 15,000
Non-current
Senior finance facility 68,166 161,899
Revolving credit facility - 17,200
68,166 179,099
The Senior finance facility is stated net of transaction fees of £1.8m (2020:
£5.0m) which are being amortised over the loan period.
The nominal value of the Group's loans at each reporting date is as follows:
1 January 26 December 2020
2022 £000s
£000s
Senior finance facility 70,000 181,982
Revolving credit facility - 17,200
70,000 199,182
On 9 November 2021, the Group refinanced, replacing the existing Senior
finance facility and Revolving credit facility (RCF). The new finance facility
consists of a Senior finance facility of £70.0m and a Revolving credit
facility (RCF) of £25.0m both of which expire on 9 November 2025 with an
option to extend for a further 12 months.
The Senior finance facility and RCF are secured over the assets of a Group
company, Hampshire BidCo Limited and Hero Acquisitions Limited, and all of its
subsidiaries. These subsidiaries comprise all of the trading activities of the
Group. The overall £25.0m RCF includes a £6.0m overdraft facility and a
£1.8m guarantee arrangement to secure the Group's card-acquiring services
provided by a third party.
The Group had undrawn committed borrowing facilities of £35.8m at 1 January
2022 (2020: £20.7m), including £12.6m of finance lines to fund hire fleet
capital expenditure not yet utilised. Including net cash balances, the Group
had access to £78.1m of combined liquidity from available cash and undrawn
committed borrowing facilities at 1 January 2022 (2020: £118.3m).
The interest rates on the Group's borrowings are as follows:
1 January 26 December 2020
2022
Senior finance facility Floating %age above SONIA (2020: LIBOR) 3.0% 8.0%
Revolving credit facility Floating %age above SONIA (2020: LIBOR) 3.0% 2.5 to 3.0%
The weighted average interest rates on the Group's borrowings are as follows:
1 January 26 December 2020
2022
Borrowings 3.0% 9.8%
Amounts under the RCF are typically drawn for a one- to three-month borrowing
period, with the interest set for each borrowing period based upon SONIA
(2020: LIBOR) and a fixed margin.
The Group's borrowings have the following maturity profile:
Borrowings Borrowings
1 January
2022 26 December 2020
£000s £000s
Less than one year 2,235 30,581
Two to five years 76,498 208,725
78,733 239,306
Less interest cash flows:
Senior finance facility (8,733) (38,822)
Revolving credit facility - (1,302)
Total principal cash flows 70,000 199,182
15. Provisions
Onerous Dilapidations Onerous contracts Total
Property £000s £000s £000s
costs
£000s
At 27 December 2020 3,959 12,677 17,018 33,654
Additions 86 1,471 - 1,557
Utilised during the period (212) (2,538) (3,290) (6,040)
Unwind of provision (1) 24 (8) 15
Impact of change in discount rate (31) (457) (257) (745)
Releases (3,615) (643) - (4,258)
Business disposals (note 17) - (361) - (361)
Foreign exchange - 1 - 1
At 1 January 2022 186 10,174 13,463 23,823
Of which:
Current 70 1,453 3,190 4,713
Non-current 116 8,721 10,273 19,110
186 10,174 13,463 23,823
Onerous Dilapidations Onerous contracts Total
Property £000s £000s £000s
costs
£000s
At 29 December 2019 4,833 16,209 19,573 40,615
Adoption of IFRS 16 (2,222) - - (2,222)
Additions 5,326 1,452 - 6,778
Utilised during the period (601) (2,726) (3,330) (6,657)
Unwind of provision 7 204 218 429
Impact of change in discount rate 88 747 557 1,392
Releases (3,472) (3,226) - (6,698)
Foreign exchange - 17 - 17
At 26 December 2020 3,959 12,677 17,018 33,654
Of which:
Current 1,328 2,823 3,297 7,448
Non-current 2,631 9,854 13,721 26,206
3,959 12,677 17,018 33,654
Onerous property costs
The provision for onerous property costs represents the current value of
contractual liabilities for future rates payments and other unavoidable costs
(excluding lease costs) on leasehold properties the Group no longer uses. The
additions of £0.1m (2020: £5.3m) and the release of the provision of £3.6m
(2020: £3.5m) have been treated as exceptional and are included in the
property cost credit of £3.0m (2020: £2.1m) (note 4). The releases are the
result of early surrenders being agreed with landlords - the associated
liabilities are generally limited to the date of surrender but provided to the
date of the first exercisable break clause to align with recognition of
associated lease liabilities.
On adoption of IFRS 16, the Company took the practical expedient available to
rely on its assessment of whether a lease was onerous by applying IAS 37
Provisions, Contingent Liabilities and Contingent Assets immediately before
the date of initial application, reducing the carrying value of its right of
use asset on implementation. This resulted in the elimination of onerous
property costs of £2.2m and a corresponding impairment of the right of use
asset on transition date.
The liabilities, assessed on a property-by-property basis, are expected to
arise over a period of up to five years (2020: nine years) with the weighted
average age of the onerous property costs being 3.30 years (2020: 3.76 years).
The onerous property cost provision has been discounted at a rate of 0.81%
(2020: inflated at 0.1%). Sensitivity analysis has not been conducted due to
the immaterial nature of the remaining provision.
Dilapidations
The timing and amounts of future cash flows related to lease dilapidations are
subject to uncertainty. The provision recognised is based on management's
experience and understanding of the commercial retail property market and
third party surveyors' reports commissioned for specific properties in order
to best estimate the future outflow of funds, requiring the exercise of
judgement applied to existing facts and circumstances, which can be subject to
change. The estimates used by management in the calculation of the provision
take into consideration the location, size and age of the properties. The
weighted average dilapidations provision at 01 January 2022 was £7.53 per
square foot (psf) (2020: £6.65 psf). The increase is the result of a 5%
uplift on the rates used for estimates to reflect market conditions and the
changing profile of the estate given the large number of properties
surrendered in the year. Estimates for future dilapidations costs are
regularly reviewed as and when new information is available. Given the large
portfolio of properties, the Directors do not believe it is useful or
practical to provide sensitivities on a range of reasonably possible outcomes
on a site by site basis. Instead, consideration is given to the impact of a
sizeable shift in the average rate. A £1.00 psf increase in the dilapidations
provision would lead to an increase in the provision at 01 January 2022 of
£1.5m (2020: £0.50 psf lead to an increase of £0.7m).
The dilapidations provisions have been discounted depending on the remaining
lease term and the rate is based on the 5 or 10 year UK gilt yields of 0.81%
and 0.97% respectively (2020: ten-year UK gilt yields 0.25%). A 1% increase in
both the discount rates at 01 January 2022 would decrease the dilapidations
provision by £0.6m (2020: £0.7m). The inflation rate applied in the
calculation of the dilapidations provision was 3.0% (2020: 1.8%). The
Directors have noted the significant pressure on inflation towards the end of
2021 and especially in 2022, however most longer-range forecasts still see
inflation returning to 2%. Applying an inflation rate of 5% would result in
the provision increasing by £1.3m.
The aggregate movement in additions, releases and change in discount rate of
£0.4m has generated £0.8m of asset additions and a credit of £0.4m to
exceptionals (note 4).
Onerous contract
The onerous contract represents amounts payable in respect of the agreement
reached in 2017 between the Group and Unipart to terminate the contract to
operate the NDEC. Under the terms of that agreement, at 1 January 2022 £13.5m
is payable over the period to 2026 (2020: £17.0m) and £3.3m has been paid
during the year (2020: £3.3m). The provision has been restated to present
value by applying a discount rate of 0.81% (2020: inflation rate of 0.1%). A
1% increase in the discount rate at 1 January 2022 would decrease the
provision by £0.3m (2020: a 1% increase in the inflation rate would increase
the provision by £0.5m).
16. Share Capital and Capital raise
The number of shares in issue and the related share capital and share premium
are as follows.
Ordinary Ordinary Share
shares
shares
premium
Number £000s £000s
At 27 December 2020 696,477,654 6,965 45,580
2020 share issue cost - - (28)
Shares issued 8,510,300 85 -
At 1 January 2022 704,987,954 7,050 45,552
Warrants issued in 2018 have been exercised during the year ended 1 January
2022.
Ordinary Ordinary Share
shares
shares
premium
Number £000s £000s
At 29 December 2019 170,207,142 1,702 -
Shares issued 526,270,512 5,263 45,580
At 26 December 2020 696,477,654 6,965 45,580
On 8 December 2020 the Group completed a capital raise from existing and new
shareholders resulting in gross proceeds of £52.6m. 526,270,512 ordinary
shares of 1p each were issued for 10p each.
Year ended
26 December 2020
£000
Gross proceeds 52,627
Cost of share issue(1) (1,784)
Net proceeds 50,843
Accounted for as:
Share capital 5,263
Share premium 45,580
50,843
1 £1,492,000 of the £1,784,000 costs had not been paid as at 26 December
2020.
17. Business disposals
To enable the Group to strengthen its balance sheet and focus on its strategic
priority to Transform the Tool Hire Business, the Group made two strategic
divestments during the year ended 1 January 2022:
Laois Hire Limited
Laois Hire Limited, the Irish large plant hire business was sold to Briggs
Equipment Ireland Limited on 7 April 2021. Proceeds of the disposal, net of
transaction costs were £10.0m generating a profit on disposal of £3.2m.
All Seasons Hire Limited
All Seasons Hire Limited, a cooling and heating provider was sold to Cross
Rental Services Limited with the transaction completing on 29 September 2021.
Proceeds of the disposal, net of transaction costs were £54.3m generating a
profit on disposal of £38.0m.
As part of these transactions, the Group entered into commercial agreements to
cross-hire equipment to ensure the broadest possible distribution of, and
customer access to, each party's existing fleet.
The table below shows the assets and liabilities disposed of:
Laois hire limited All seasons Total
£000s Hire limited £000s
£000s
Description of assets and liabilities
Intangible assets (including goodwill) 1,691 8,173 9,864
Property, plant and equipment 5,200 7,385 12,585
Rou assets 686 1,345 2,031
Current assets (excluding cash) 2,509 1,400 3,909
Cash 504 1,035 1,539
Debt - leases (714) (1,397) (2,111)
Current liabilities, excluding debt (2,545) (1,296) (3,841)
Deferred tax liabilities - (218) (218)
Provisions (212) (149) (361)
Foreign exchange reserves (49) - (49)
Net assets disposed of 7,070 16,278 23,348
Proceeds of disposal less transaction costs 9,982 54,325 64,307
Profit on asset sale 283 - 283
Total profit from disposal 3,195 38,047 41,242
The table below shows the result of discontinued operations:
1 January 26 December 2020
2022
£000s
£000s
Result of discontinued operations
Revenue 8,405 19,870
Expenses other than finance costs, amortisation and depreciation (1,100) (10,128)
Amortisation (135) (175)
Depreciation (1,836) (3,397)
Finance costs (72) (97)
Taxation (83) 27
Profit from discontinued operations, net of tax 5,179 6,100
Profit on disposal of discontinued operations 41,242 -
Profit for the period 46,421 6,100
The revenue relating to Laois Hire Limited is £3.0m (2020: £12.8m) with a
loss after tax of £0.2m (2020: profit after tax of £0.2m). The revenue
relating to All Seasons Hire Limited is £5.4m (2020: £7.1m) with a profit
after tax of £5.4m (2020: £5.9m).
The following table shows a summary of the cashflows relating to discontinued
operations:
1 January 26 December 2020
2022
£000s
£000s
Operating cash (outflow)/inflow (644) 2,195
Cash outflow from investing activities (15) (177)
Cash outflow from financing activities (397) (689)
18. Post balance sheet events
War in Ukraine
Following the balance sheet date, the tragic eruption of conflict in Ukraine
has occurred. The war has had a significant impact on macroeconomic factors
and a high degree of uncertainty persists. The Group does not have operations
or direct dependencies in Russia or Ukraine but is exposed to the impact of
inflation and supply chain disruption.
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. END FR FZGZDZNRGZZZRecent news on HSS Hire
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