REG - HSS Hire Group PLC - Results for the 26 week period ended 1 July 2023
28/09/2023 07:00
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RNS Number : 9101N HSS Hire Group PLC 28 September 2023
HSS Hire Group Plc
Continued strategic progress, well placed for future growth
HSS Hire Group plc ("HSS" or the "Group") today announces results for the 26
week period ended 1 July 2023
Financial Highlights (Unaudited) H1 2023 H1 2022 Change
(26 weeks to 1 July 2023) (26 weeks to 2 July 2022)
Revenue £170.1m £159.9m 6.3%
Adjusted EBITDA(1) £32.1m £32.9m (2.6)%
Adjusted EBITA(2) £11.8m £13.6m (12.9)%
Adjusted profit before tax(3) £5.9m £8.4m £(2.5)m
Adjusted basic EPS 0.66p 0.96p (0.30)p
ROCE(4) 20.0% 23.8% (3.8)pp
Net debt leverage(5) - non IFRS16 1.0x 0.9x (0.1)x
Net debt leverage(5) - IFRS16 1.6x 1.5x (0.1)x
Operating profit £10.8m £10.2m £0.6m
Profit before tax £5.5m £6.5m £(1.0)m
Basic EPS 0.78p 0.86p (0.08)p
Financial Highlights
· Solid trading performance with H1 23 revenue growth +6.3%, ahead
of market(6)
o Continued strong growth in capital-light Services segment(7), +14%,
enabled by technology and expanded supplier partner network
o Rental growth of 2% with fleet utilisation maintained at 56%
· Adjusted EBITDA post material strategic investment broadly in
line with H1 22
o £2.2m invested in additional operating expenditure, including new central
sales team, and £2.4m technology platform capex, both to drive future growth
through new routes to market
o Adjusted EBITDA and Adjusted EBITA up 4% excluding the £2.2m strategic
opex
o Continued strong returns with ROCE at 20%, in line with Group medium term
target
· Robust balance sheet with non-IFRS16 leverage of 1.0x (H1 22:
0.9x)
o Material liquidity headroom to support ongoing strategic investment
· Interim dividend increased by 6% to 0.18 pence per share(8)
Operational Highlights
· Good progress with transformational marketplace growth strategy
o 67 customers successfully transitioned to our HSS Pro self-service
platform with 50% average revenue growth compared to H1 22
o 28% of Group transactions(9) (H1 22: 21%) are now originated through our
self-serve technology platforms: HSS Pro and HSS.com
o Data-driven central sales team delivered 25% growth on targeted customer
portfolios
· Low-cost builders merchant network expanded to 67 locations (June
22: 54) and delivered 23% growth on a same stores basis(10)
o Accelerating migration of remaining HSS branches to this model with 16 to
be closed in H2 23 delivering c£1m annualised cost saving
· ESG plan remains on track to meet key milestones
· 2040 Net Zero action plan and targets(11) validated by SBTi(12)
· Achieved ISO27001 cyber-security accreditation
Current trading and outlook
· The Group has delivered solid results in H1 23, ahead of the
market(6), and demonstrated positive progress against its strategic
initiatives.
· However, the weak macro environment has caused trading in the
first twelve weeks of H2 23 to slow considerably to 2% (H1 23: 6.3%), albeit
with significant week on week variation.
· While the Group's Services segment has continued to deliver
double-digit growth, Rental has been impacted by demand softness across
certain customer segments including RMI and fit-out, exacerbated by seasonal
product weakness.
· Management has responded quickly with targeted action to minimise
costs. This is expected to deliver benefits of approximately £6m in H2 23,
including accelerating the branch migration to the builders merchant model.
· Forward visibility is limited given the weekly volume volatility
that the Group has recently experienced, and as such the Board currently
expects full year Adjusted EBITA to be in the range of £23m to £30m. Even
at the lower end of this range, the Group will deliver the second highest
Adjusted Profit Before Tax in its listed history.
· The Board remains very confident in its transformation strategy
to evolve HSS into a leading marketplace for equipment services. It will
therefore continue to maintain the appropriate balance between shorter term
profitability and future growth. With the early positive results coming from
this strategy despite challenging market conditions, £6.5m strategic
operating expenditure investment and £6m technology roadmap capex for the
full year will remain as planned.
Steve Ashmore, Chief Executive Officer, said:
"I am pleased to report another consecutive period of growth with strong
underlying performance driven by continued double-digit growth in our
capital-light Services segment. We have made great strides delivering our
strategy in the first half of 2023 as our marketplace proposition continues to
develop for our customers and suppliers. The early results underpin our
confidence in our transformational strategy to be the leading marketplace for
equipment services and as such we will continue to invest in the balance of
2023 to build upon this success.
"The macro environment has become more challenging from July; we have
experienced significant volatility of demand in our Rental segment over the
last few weeks which has widened the range of possible performance outcomes
for the balance of the year. However, this will be temporary, and we therefore
plan to leverage our robust balance sheet to sustain investment in the
business, implementing our strategy to ensure that HSS can take full advantage
of the market when it recovers."
Notes
1) 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
2) Adjusted EBITA defined as Adjusted EBITDA less depreciation
3) Adjusted Profit before tax defined as profit before tax excluding amortisation
of brand and customer lists and exceptional items
4) ROCE is calculated as Adjusted EBITA for the 52 weeks to 1 July 2023 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 52 weeks to 1 July 2023 (prior year 52 weeks to 2 July 2022).
6) European Rental Association forecast +3.3%, ONS Construction Output H1 23
+3.4%
7) Historic operating segments will continue to be reported to provide
year-on-year comparative performance as the Group transitions to its new
operating segments
8) All dividends will be paid in cash and no scrip dividend, other dividend
reinvestment plan or scheme or currency election will be offered to
shareholders. Ex-dividend date of 5 October 2023
9) Contracts raised through HSS.com and HSS Pro as a percentage of total
contracts raised in August 2023
10) Merchant locations open for comparable period in both H1 23 and H1 22
11) Net Zero action plan as shared in the 2(nd) edition of the HSS ESG Impact
Report published in Q2 23
12) Science Based Targets initiative
-Ends-
Disclaimer:
This announcement has been prepared solely to provide additional information
to shareholders and meets the relevant requirements of the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority. This announcement
should not be relied on by any other party or for any other purpose.
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 of Group companies and
third-party suppliers. It offers a one-stop shop for all equipment through a
combination of its complementary rental and re-hire business 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: 020 3757 9248 (on 28 September 2023)
Steve Ashmore, Chief Executive Officer Thereafter, please email: Investors@hss.com
Paul Quested, Chief Financial Officer
Phil Golding, 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
This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014 as it forms part of domestic law of the United Kingdom
by virtue of the European Union (Withdrawal) Act 2018, as amended (together,
"MAR"). Upon the publication of this announcement, this inside information is
now considered to be in the public domain. The person responsible for
arranging the release of this announcement on behalf of HSS is Paul Quested,
Chief Financial Officer.
Chief Executive Officer's Report
The Group has progressed well during the first six months of 2023, delivering
a solid set of numbers alongside increased strategic investment, a combination
of additional operating expenditure including the new central sales team, and
technology capex building a platform for continued growth and high returns.
Our two main businesses, HSS ProService and HSS Operations, continue to work
alongside each other, but with their own objectives and performance
frameworks. Both businesses have performed well in the first half of 2023.
HSS ProService
We have invested in both our technology platform and our sales channels, to
extend the range of services we offer and enable more customers to self-serve,
improving loyalty and increasing share of wallet. During the last six months
we have seen the benefits of this investment start to materialise, with
changing customer behaviours and improvement across all these metrics. We
expect to see our investments drive market share growth over the next two
years, enabling margin improvement as the business scales and leverages our
technology platform.
Self-Serve
We now have 67 customers signed up to our HSS Pro platform. The platform
allows these customers to fulfil their own requirements with no need for
active intervention with a HSS colleague unless they wish to. This convenience
is supporting an increase in share of wallet with growth of 50% on average
across these specific customers, significantly faster than those not using the
platform.
In the last three months we have successfully migrated our biggest single
customer on to our HSS Pro platform. During the rest of the year, we plan to
move more of our key accounts on to and drive further volumes through the
self-serve platform.
28% of all contracts are now transacted through our HSS Pro and HSS.com
self-serve technology platforms. This has increased from 21% in H1 22.
Central Sales
Our data-driven central sales team formed of 95 colleagues now manage a
portfolio of over 10,000 customers, utilising our ProPOS platform and our new
Microsoft Dynamics CRM software, This team is promoting our full and expanding
range of products and services through increased customer contact. Revenue
from this portfolio of 10,000 customers is up 25% year to date, with a large
proportion of the growth delivered through our rehire partner network.
Following a significant increase in the first half of the financial year, we
believe the team is now at optimum size. As the team matures and productivity
improves, we will add more customers to their portfolio. This capacity will
also be increased as the central sales colleagues migrate customers to
self-serve at the appropriate time.
Training vertical
We continue to deliver strong growth through our training vertical, achieving
an increase of 17% in H1 23 compared to the prior year. We are seeing
customers across a broad range of end-markets consolidate their training
requirements, taking advantage of our one-stop-shop solution, through a
combination of self-delivered and third-party channels. We have strong digital
penetration with 33% of training revenue now booked online and over 10% of the
courses delivered online. We have enhanced our 'Training Plus' marketplace
proposition (third-party delivered) by expanding our seller network (up 48%
year on year) and therefore our course catalogue (now 750 unique courses).
New Verticals
During the first half of this year we launched two new product verticals:
Equipment Sales and Building Materials. Independent research of our customer
base had previously highlighted that 70-80% of all buyer groups are interested
in an online marketplace offering a range of products and services. We are now
seeing this demand materialise, with customers purchasing both equipment and
building materials, and our supply chain is fulfilling their requirements
well. Our network of builders merchant partners is well placed to supply our
customer base and our sales of materials to date has already surpassed £1m.
On Equipment Sales, we have so far fulfilled over £2m worth of customer
requirements this year. We look forward to adding further product verticals
next year.
HSS Operations
Our Operations business continues to benefit from the route optimisation
software, Satalia, that it rolled out in H1 of last year, with improved
vehicle productivity and reduced carbon footprint. As part of our continuous
improvement and efficiency initiatives, the Operations business has rolled out
further technology in our workshops. We have created a digital service portal
for our technicians to use when servicing our equipment providing enhanced
information, improving process adherence and ultimately driving higher
equipment quality.
We have continued to invest in the HSS Operations equipment fleet, maintaining
strong levels of utilisation.
Network Optimisation
We continue to see good performance through our builders merchant locations.
During the first six months of the year we added a further four locations,
bringing the total to 67. We are now accelerating the migration of the
remaining HSS branches to this lower and variable cost model. By the end of
2023 we plan to add a further 20 builders merchants and close 16 traditional
branches, with annual cost savings of c£1m and redeployment of all impacted
colleagues. There will be some one-off exceptional costs associated with this
change which will mainly be non-cash in nature, namely the impairment of
existing branch assets.
ESG Progress
We were pleased to receive validation of our Net Zero strategy from the
Science Based Targets Initiative in H1 23, an endorsement of our ESG plans. We
continue to be focussed on a 'zero harm' safety environment and have seen
continuous improvement in our safety metrics. Our wider ESG plan continues to
make progress this year with a new improved waste reduction strategy and the
launch of new customer dashboards providing information on carbon footprint.
We have also recently published the second edition of our HSS ESG Impact
Report, which is being well received by customers.
Market Outlook
The construction market provides us with a challenging outlook, with mixed
performance across sectors in the first half, and weakening forecasts for the
second half of 2023. Activity in the housing sector has been particularly weak
and further softening is expected in the short term. Infrastructure has seen
growth in the first half, but this is also expected to soften as the
government has put several major projects on hold. The contrasting fortunes
are evident in the July PMI index showing a range in sentiment from
house-building (43.0) to civil engineering (53.9).
Despite the challenging market, we continue to benefit from the broad spectrum
of customers we serve, the wide range of end markets that they work in, and
the large product range offered through a combination of owned and rehire
assets. The continued strength of our balance sheet and our increasingly
flexible business model mean that we are well positioned to address ongoing
market challenges and uncertainty.
Summary
In summary, during H1 2023 we have accelerated investment in our strategic
initiatives and they are starting to demonstrate success. We strive to
strike the appropriate balance between shorter term profitability and
strategic investment for future transformational growth. Based on the proof
points to date, we remain confident that the strategy will drive long term
growth with improved returns and therefore will continue to invest to scale
these initiatives as planned. These changes will ensure that the Group is well
placed when market conditions normalise.
Group Financial Performance
Revenue and segmental contribution
The H1 23 results are based on 26 weeks of trading, consistent with H1 22.
Revenue in H1 23 was £170.1m, 6.3% higher than the previous period (H1 22:
£159.9m), a solid trading performance delivered through effective strategy
execution against the backdrop of a more challenging macro-environment.
Turning to our segmental performance, historically our segments have been
Rental and Services. However, following the legal and organisational change
(July 22 and January 23 respectively), our new segments are ProService,
Operations and Ireland. However, given that it is not feasible to measure H1
FY22 in these segments, FY23 will be a transitional year for segment
reporting.
Based on our historic segments, Rental and related revenues were £101.2m in
H1 23 (H1 22: £99.3m), 1.9% higher than in H1 22, with high utilisation
maintained at 56% despite a larger fleet. Contribution is £67.5m (H1 22:
£64.9m). Margin increased to 66.7% (H1 22: 65.3%) with continued price
management and focus on operational efficiency.
Services revenue has increased by 13.7% to £68.9m (H1 22: £60.6m).
Contribution increased to £10.4m (H1 22: £9.1m). This double-digit growth
continues to evidence demand for an easy to access one-stop-shop that has been
further delivered by improved customer experience via ongoing technology
enhancements and broadening the third party rehire supply chain. Margins
continue to be maintained at record high levels of 15.1% (H1 22: 15.1%).
Following our new segments, H1 23 revenues were ProService £151.6m,
Operations £68.4m and Ireland £13.5m, partly offset by intercompany
eliminations of £63.4m in Central. The H1 23 EBITDA were ProService £9.7m,
Operations £27.5m, Ireland £3.7m less £8.8m Central (being intercompany
revenue eliminations and central management costs).
Costs
Cost of sales increased to £85.9m during the period (H1 22: £81.3m) mainly
driven by the growth in the rehire revenue reflecting the continued demand for
the Group's one stop shop.
Distribution costs increased by £1.2m to £15.6m (H1 22: £14.4m). Costs
continue to be tightly managed but have increased due to volume driven uplift
in activity and the combined impact of higher vehicle costs (including rising
fuel and maintenance costs) along with higher salaries.
Administrative expenses increased by £3.4m to £56.6m (H1 22: £53.2m). This
reflects additional overhead investment in the Group's strategy and higher
inflation.
Net finance expenses
Net finance expenses have increased by £1.5m to £5.2m (H1 22: £3.7m) due to
the impact of UK base rate changes on our £70m senior finance facility and
our lease liabilities.
Other operating income
Other operating income of £0.1m (H1 22: £0.3m) relates to sub-let income on
property space not required by the Group.
Exceptional items
Total exceptional items of £0.3m have been recognised in the period. £0.2m
relate to the final costs associated with the Group's restructuring and £0.2m
unwinding of the discount within the onerous contract provision, partly offset
by £0.1m sublease income from vacant stores.
Profitability
With the early positive results of HSS ProService's strategic initiatives, the
Group has invested additional overhead in H1 2023 of £2.2m which has had an
expected impact on profit performance. Without this investment for future
returns, profit measures would have increased.
Adjusted EBITDA of £32.1m in H1 23 is slightly lower than the prior period
(H1 22: £32.9m) by 3%. Whilst Adjusted EBITA decreased to £11.8m (H1 22:
£13.6m) with margin decreasing from 8.5% in H1 22 to 6.9% in the current
year.
The positive performance in Operating Profit of £10.8m, £0.6m higher than
£10.2m H1 FY22 was aided by an extension to our Useful Economic Lives (UEL)
of intangible and tangible fixed assets with more detail covered in notes 9
and 10 to the interim financial statements. This resulted in lower
depreciation and amortisation during H1 23 of £1.0m and £1.3m respectively.
The reduced profitability led to the adjusted basic earnings per share
decreasing to 0.66p in H1 23 from 0.96p in the prior period. Both the basic
earnings per share and diluted basic earnings per share were lower than the
prior period at 0.78p (H1 22 0.86p) and 0.76p (H1 22 0.84p) respectively.
Return on Capital Employed
ROCE decreased to 20% from 24% in the prior year. This has been driven by a
lower EBITDA from strategic initiative led overhead investment and higher
capital employed following continued targeted investment in fleet and
materials and equipment for hire. ROCE is calculated as Adjusted EBITA (last
twelve months) divided by average capital employed, where capital employed is
total assets except intangibles, derivatives and cash, less current
liabilities excluding current debt items.
Net debt
Net debt on 1 July 2023 was £110.6m, an increase of £7.4m from the H1 22
(£103.2m), contributed by the Group's strategic investment (both overhead and
software development) and increased net interest paid following the well
documented rate rises. Continued strong working capital management has
resulted in leverage only marginally increasing to 1.6x from 1.5x (H1 22 as
reported, FY 22: 1.3x).
The debt facilities consist of a £70.0m senior finance facility and an
undrawn revolving credit and overdraft facility of £25.0m, both maturing in
November 2025 but with an option to extend for a further 12 months. Including
cash balances of £36.6m, the Group had access to £61.6m of combined
liquidity at 1 July 2023.
Dividend
The Board has decided to continue with a progressive dividend policy and an
interim dividend of 0.18p per share was approved by the Board on 27 September
2023 and will be paid during November 2023.
Going concern
At 27 September 2023 the Group had sufficient liquidity to operate within
banking covenants for the next fifteen months even under a 'reasonable worst
case' scenario. The reasonable worst case scenario models lower underlying
revenue performance, lower value from strategic initiatives, increase in
debtor days and further interest rate increases.
After reviewing the above, considering current and future developments and
principal risks and uncertainties, and making appropriate enquiries, the
Directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence over a period of at least twelve months
from the date of approval of these financial statements. Accordingly, they
continue to adopt the going concern basis in preparing these unaudited
condensed consolidated financial statements.
Risks and uncertainties
The principal risks and uncertainties that could have a material impact upon
the Group's performance over the remaining 26 weeks of the 2023 financial year
have not changed significantly from those described in the Group's 2022 Annual
Report and are summarised in note 17 of this interim report.
Global inflationary pressures and associated interest rate increases continue
to impact macroeconomic risk and therefore this risk will continue to be
closely monitored for its effect on demand and colleague welfare so that we
can take appropriate actions.
By order of the Board
Steve Ashmore
Director
28 September 2023
HSS Hire Group plc
Unaudited condensed consolidated income statement
Note 26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
Underlying Exceptional items Total Underlying Exceptional items Total
(note 5) (note 5)
£000s £000s £000s £000s £000s £000s
Revenue 3 170,093 - 170,093 159,937 - 159,937
Cost of sales (85,872) - (85,872) (81,254) - (81,254)
-
Gross profit 84,221 - 84,221 78,683 - 78,683
-
Distribution costs (15,562) - (15,562) (14,425) - (14,425)
Administrative expenses (56,347) (209) (56,556) (52,414) (746) (53,160)
Impairment loss on trade receivables and contract assets (1,454) - (1,454) (1,204) - (1,204)
Other operating income 4 - 112 112 57 258 315
-
Operating profit 10,858 (97) 10,761 10,697 (488) 10,209
-
Financial expense 7 (5,035) (187) (5,222) (3,608) (66) (3,674)
Profit before tax 5,823 (284) 5,539 7,089 (554) 6,535
Income tax charge (45) - (45) (449) (449)
Profit for the financial period 5,778 (284) 5,494 6,640 (554) 6,086
Alternative performance measures £000s 26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Adjusted EBITDA 18 32,065 32,917
Adjusted EBITA 18 11,814 13,558
Adjusted profit before tax 18 5,885 8,376
Earnings per share (pence)
Adjusted basic earnings per share 8 0.66 0.96
Adjusted diluted earnings per share 8 0.64 0.94
Basic earnings per share 8 0.78 0.86
Diluted earnings per share 8 0.76 0.84
The notes form part of these condensed consolidated financial statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of comprehensive income
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Profit for the financial period 5,494 6,086
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign (368) 7
operations
Other comprehensive gain/(loss) for the period, net of tax (368) 7
Total comprehensive profit for the period 5,126 6,093
Attributable to owners of the Group 5,126 6,093
The notes form part of these condensed consolidated financial statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of financial position
At 1 At 31 December 2022
July
2023
Note £000s £000s
ASSETS
Non-current assets
Intangible assets 9 151,178 147,867
Property, plant and equipment
- Hire equipment 10 80,539 73,613
- Non-hire assets 10 12,908 14,162
Right of use assets
- Hire equipment 11 3,061 2,736
- Non-hire assets 11 50,993 49,077
Deferred tax asset 7,968 7,515
306,647 294,970
Current assets
Inventories 4,020 3,779
Trade and other receivables 12 85,679 86,068
Cash 36,622 47,709
126,321 137,556
Total assets 432,968 432,526
LIABILITIES
Current liabilities
Trade and other payables 13 78,526 88,302
Lease liabilities 14 15,025 13,182
Borrowings 15 5,834 5,168
Provisions 16 4,380 4,258
Current tax liabilities 405 290
104,170 111,200
Non-current liabilities
Lease liabilities 14 44,690 43,110
Borrowings 15 80,814 78,591
Provisions 16 15,510 17,045
Deferred tax liabilities 113 117
141,127 138,863
Total liabilities 245,297 250,063
Net assets 187,671 182,463
EQUITY
Share capital 7,050 7,050
Share premium 45,552 45,552
Merger reserve 97,780 97,780
Foreign exchange translation reserve (790) (422)
Retained earnings 38,079 32,503
Total equity 187,671 182,463
The notes form part of these condensed consolidated financial statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of changes in equity
Share capital Share premium Merger reserve Foreign exchange translation reserve Retained earnings Total equity
£000s £000s £000s £000s £000s £000s
At 1 January 2023 7,050 45,552 97,780 (422) 32,503 182,463
Profit for the period - - - - 5,494 5,494
Foreign currency translation differences arising on consolidation of foreign - - - (368) - (368)
operations
Total comprehensive profit for the period - - - (368) 5,494 5,126
Transactions with owners recorded directly in equity
Share-based payment charge - - - - 82 82
At 1 July 2023 7,050 45,552 97,780 (790) 38,079 187,671
Share capital Share premium Merger reserve Foreign exchange translation reserve Retained earnings Total equity
£000s £000s £000s £000s £000s £000s
At 2 January 2022 7,050 45,552 97,780 (754) 12,273 161,901
Profit for the period - - - - 6,086 6,086
Foreign currency translation differences arising on consolidation of foreign - - - 7 - 7
operations
Total comprehensive profit for the period - - - 7 6,086 6,093
Transactions with owners recorded directly in equity
Share-based payment charge - - - - 358 358
At 2 July 2022 7,050 45,552 97,780 (747) 18,717 168,352
The notes form part of these condensed consolidated financial statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of cash flows
Note 26 weeks ended Restated(1)
1 July 2023
26 weeks
ended
2 July 2022
£000s £000s
Profit for the financial period 5,494 6,086
Adjustments for:
- Tax 45 449
- Amortisation 6 956 2,851
- Depreciation 6 17,881 17,749
- Accelerated depreciation relating to hire stock customer losses and hire 6 2,808 1,666
stock write offs
- Profit on disposal of property, plant and equipment and right of use assets 6 (438) (64)
- Share-based payment charge 82 358
- Foreign exchange gains on operating activities (161) (40)
- Finance expense 7 5,222 3,674
Changes in working capital (excluding the effects of disposals and exchange
differences on consolidation):
- Inventories (241) (423)
- Trade and other receivables 12 617 (1,775)
- Trade and other payables 13 (9,994) 1,954
- Provisions 16 (1,772) (1,800)
Net cash flows from operating activities before purchase of hire equipment 20,499 30,685
Purchase of hire equipment 10 (14,163) (14,404)
Cash generated from operating activities 6,336 16,281
Net interest paid (4,471) (3,228)
Income tax (paid)/received (614) (1,238)
Net cash generated from operating activities 1,251 11,815
Cash flows from investing activities
Purchases of non-hire property, plant, equipment and software 10,11 (5,147) (3,670)
Proceeds on disposal of non-hire property, plant and equipment 6 315 -
Net cash used in investing activities (4,832) (3,670)
Cash flows from financing activities
Capital element of lease liability payments and hire purchase arrangements 14 (7,506) (11,725)
Net cash paid in financing activities (7,506) (11,725)
Net decrease in cash (11,087) (3,580)
Cash at the start of the period 47,709 42,269
Cash at the end of the period 36,622 38,689
(1) As discussed in Note 3 of these interim financial statements, restatements
have been made to comparative figures regarding the treatment of certain
leases between right of use and hire purchase arrangements.
The notes form part of these condensed consolidated financial statements.
HSS Hire Group plc
Notes forming part of the unaudited condensed consolidated financial
statements
1. General information
The Company is a public limited company, is quoted on the AIM market of the
London Stock Exchange and is incorporated and domiciled in the United Kingdom.
The address of the registered office is Building 2, Think Park, Mosley Road,
Manchester M17 1FQ. These condensed consolidated financial statements comprise
the Company and its subsidiaries (the 'Group') and cover the 26 week period
ended 1 July 2023.
The Group is primarily involved in providing tool and equipment hire and
related services in the United Kingdom and the Republic of Ireland.
The condensed consolidated financial statements were approved for issue by the
Board on 27 September 2023.
The condensed consolidated financial statements do not constitute the
Statutory Accounts within the meaning of Section 434 of the Companies Act 2006
and have not been subject to audit by the Group's auditor. Statutory Accounts
for the year ended 31 December 2022 were approved by the Board on 26 April
2023 and delivered to the Registrar of Companies. The auditor's report on
those accounts was unqualified and did not contain a statement under Section
498(2) or (3) of the Companies Act 2006.
2. Basis of preparation and significant accounting policies
The condensed consolidated financial statements for the 26 weeks ended 1 July
2023 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The condensed consolidated financial statements should be read in conjunction
with the Group's Annual Report and Accounts for the year ended 31 December
2022, which were prepared in accordance with IFRS as adopted by the UK (IFRS).
Accounting policies are consistent with those in the Statutory Accounts for
the year ended 31 December 2022 except where specifically included below.
Going concern
At 1 July 2023, the Group's financing arrangements consisted of a drawn senior
finance facility of £70.0m, an undrawn revolving credit facility of £19.0m
and undrawn overdraft facilities of £6.0m. Cash at 1 July 2023 was £36.6m,
providing liquidity headroom of £61.6m. Both the senior finance facility and
revolving credit facility are subject to net debt leverage and interest rate
cover financial covenant tests each quarter. At the reporting date the Group
had significant headroom against these covenants.
The Directors continue to model via a number of scenarios current
macroeconomic factors such as increasing inflation and interest rates. At 27
September 2023 the Group had sufficient liquidity to operate within banking
covenants for the period to 28 December 2024 even under a 'reasonable worst
case' scenario. The reasonable worst case scenario models lower underlying
revenue performance, lower value from strategic initiatives, increase in
debtor days and further interest rate increases.
After reviewing the above, considering current and future developments and
principal risks and uncertainties, and making appropriate enquiries, the
Directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence over a period of at least fifteen months
from the date of approval of these financial statements. Accordingly, they
continue to adopt the going concern basis in preparing these unaudited
condensed consolidated financial statements.
Prior period restatement
In the Group's 2022 Annual Report, it identified the need to restate the
balance sheets at 1 January 2022 and 26 December 2020 where hire equipment
subsequently financed by hire purchase agreements had been reclassed to
Property, Plant and Equipment from Right of Use assets. This reclassification
includes the corresponding adjustment between lease liabilities and
borrowings. This restatement has no impact on income statement, net assets or
reserves.
The only restatements included within these interim financial statements that
were not in the 2022 Annual Report relate to certain tabular disclosures in
respect of movements on the balance sheet and presentation of items within the
cash flow statement during the comparative period ended 2 July 2022.
Change in Accounting Estimates
Intangible Assets
During the period, the estimate for the useful economic lives of software
assets has been reviewed and updated from not exceeding four years in the
previous year, to not exceeding ten years. More details of the change in
accounting estimate can be found in the Intangible Assets note (see note 9).
Tangible Fixed Assets
In addition to the change noted above, the Group has conducted a review of the
useful economic lives of hire stock assets and has extended the lives of
certain types of assets. More details of the change in accounting estimate can
be found in the Tangible Fixed Assets note (see note 10).
3. Segmental reporting
As disclosed in the Group's 2022 Annual Report, the Group completed a
significant internal restructuring exercise to support its long-term strategic
objectives. This included the creation of a new divisional structure,
separating out the ProService and Operations businesses:
· HSS ProService - Digital marketplace business focussed on
customer and supplier acquisition. Technology driven, extremely scalable and
uniquely differentiated including training services.
· HSS Operations - Fulfilment business including power generation,
focused on health and safety and quality, with circular economy credentials,
comprehensive national footprint and high customer satisfaction.
Since the start of the current financial period the Group's Chief Operating
Decision Maker, identified as the Board of Directors, have changed their
internal reporting to reflect the two divisions that have been created.
During the review of operating segments, the Group has identified that one
operating segment, HSS Operations Ireland ('Ireland'), the Group's operations
in the Republic of Ireland, has exceeded the IFRS 8 threshold test for
separate presentation and has therefore not been aggregated with the wider
Operations segment and is instead shown as a standalone segment. The Group
continues to present separately costs relating to central management within
the "Central" heading in the segments disclosure. This also includes the
elimination of revenue between trading segments. Under the new divisional
structure, it is possible to allocate more costs against the relevant
underlying segments and accordingly the level of central costs shown within
this category has fallen, making it not directly comparable with the former
'Central' heading previously used by the Group.
As a result of this the Group's operating segments have changed from those
presented in the prior year. Under IFRS 8 Operating Segments, comparatives
should be restated when reportable segments change as a result of internal
restructuring. The Group has not previously had the ability to reliably
separate the results, assets and cash flows of the business between the
Operations and ProService divisions. IFRS 8 Operating Segments allows for
comparatives to be omitted where the information is unavailable and would
involve excessive cost to create. The availability of information prior to the
restructure is such that the Group are not able to present comparatives under
the newly identified reportable segments.
To ensure that comparable segmental information is available to the users of
the financial statements, the Group have presented two segmental reporting
disclosures for the current period's results. After the period of transition
for FY23, the Group will only present the newly identified reportable
segments.
The reportable segments identified in the previous period were 'Rental (and
related revenue)' and 'Services'. Rental and related revenue comprises the
rental income earned from owned tools and equipment, including powered access,
power generation and HVAC assets, 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. These ceased to be reportable segments in FY23 and will not be
presented in the FY24 Annual Report.
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 26 week period ending 1 July 2023 (26 weeks ending
2 July 2022: None).
26 weeks ending 1 July 2023
ProService Operations Ireland Central Total
£000s £000s £000s £000s £000s
Total revenue (including intergroup) 151,641 68,361 13,541 (63,450) 170,093
Adjusted EBITDA 9,746 27,479 3,678 (8,838) 32,065
Less: Depreciation (801) (17,982) (1,371) (97) (20,251)
Adjusted EBITA 8,945 9,497 2,307 (8,935) 11,814
Less: Exceptional items (non-finance) (97)
Less: Amortisation (956)
Operating profit 10,761
Net finance expenses (5,222)
Profit before tax 5,539
Central includes the elimination of revenue between trading segments, the
largest being between HSS Operations and HSS ProService, along with central
management costs to support the businesses.
As at 1 July 2023
ProService Operations Ireland Central Total
£000s £000s £000s £000s £000s
Additions to non-current assets
Property, plant and equipment 228 15,284 3,256 - 18,768
Right of use assets 1,147 8,922 312 245 10,626
Intangible assets 3,762 484 - - 4,246
Non-current assets net book value
Property, plant and equipment 580 83,419 9,448 - 93,447
Right of use assets 3,573 47,470 2,628 383 54,054
Intangible assets 67,503 75,980 7,510 185 151,178
Deferred tax assets 7,968 7,968
Current assets 126,321 126,321
Current liabilities (104,170) (104,170)
Non-current liabilities (141,127) (141,127)
Net assets 187,671
Included within intangible assets is goodwill of £115.9m. Historically, the
Group's goodwill has been allocated to HSS Core - UK, HSS Core - Ireland and
HSS Power. Under the newly identified reporting segments, the Group has now
allocated HSS Core - UK goodwill between ProService and Operations of £35.1m
and £67.2m respectively. There has been no change to the goodwill allocated
to HSS Core - Ireland or HSS Power.
This allocation is based on the current estimated value in use for the
segments and will be updated at the year end once a full year of trading
results are available.
26 weeks ending 1 July 2023 (Historic segments)
Rental Services Central Total
(and related revenue)
£000s £000s £000s £000s
Total revenue from external customers 101,174 68,919 - 170,093
Contribution 67,525 10,404 - 77,929
Branch and selling costs (30,507) (30,507)
Central costs (15,357) (15,357)
Adjusted EBITDA 32,065
Less: Exceptional items (non-finance) (97) (97)
Less: Depreciation and amortisation (10,831) (766) (9,610) (21,207)
Operating profit 10,761
Net finance expenses (5,222)
Profit before tax 5,539
As at 1 July 2023 (Historic segments)
Rental Services Central Total
(and related revenue)
£000s £000s £000s £000s
Additions to non-current assets
Property, plant and equipment 17,788 5 975 18,768
Right of use assets 1,012 269 9,345 10,626
Intangible assets - 3,762 484 4,246
Non-current assets net book value
Property, plant and equipment 80,541 125 12,781 93,447
Right of use assets 3,061 726 50,267 54,054
Intangible assets 138,160 10,467 2,551 151,178
Deferred tax asset 7,968 7,968
Current assets 126,321 126,321
Current liabilities (104,170) (104,170)
Non-current liabilities (141,127) (141,127)
Net assets 187,671
26 weeks ended 2 July 2022 (Historic segments)
Rental Services Central Total
(and related revenue)
£000s £000s £000s £000s
Total revenue from external customers 99,311 60,626 - 159,937
Contribution 64,872 9,129 - 74,001
Branch and selling costs (26,740) (26,740)
Central costs (14,344) (14,344)
Adjusted EBITDA 32,917
Less: Exceptional items (non-finance) (488) (488)
Less: Depreciation and amortisation (12,295) (224) (9,701) (22,220)
Operating profit 10,209
Net finance expenses (3,674)
Profit before tax from continuing operations 6,535
As at 31 December 2022 (Historic segments)
Rental Services Central Total
(and related revenue)
£000s £000s £000s £000s
Additions to non-current assets
Property, plant and equipment 30,436 49 5,461 35,935
Right of use assets 2,220 521 7,672 10,413
Intangible assets 3,052 35 2,505 5,592
Non-current assets net book value
Property, plant and equipment 73,613 138 14,024 87,775
Right of use assets 2,736 614 48,463 51,813
Intangible assets 145,430 67 2,370 147,867
Deferred tax assets 7,515 7,515
Current assets 137,556 137,556
Current liabilities (111,200) (111,200)
Non-current liabilities (138,863) (138,863)
182,463
4. Other operating income
26 weeks 26 weeks ended
2 July 2022
ended
1 July 2023
£000s £000s
Sublease rental and service charge income 112 315
During the period sub-let rental income of £0.1m (26 weeks ended 2 July 2022:
£0.3m) was received on properties no longer used by the Group for trading
purposes.
5. Exceptional items
Items of income or expense have been shown as exceptional because of their
size and nature or because they are outside the normal course of business.
During the 26 weeks ended 1 July 2023 the Group has recognised exceptional
items as follows:
Included in administrative expenses Included in other operating income Included in finance expense Total 26 weeks ended
1 July 2023
£000s £000s £000s £000s
Onerous property costs/(credits) 10 (112) 18 (84)
Costs relating to restructure 208 - - 208
Onerous contract (9) - 169 160
Total 209 (112) 187 284
During the 26 weeks ended 2 July 2022, the Group recognised exceptional items
analysed as follows:
Included in administrative expenses Included in other operating income Included in finance expense Total 26 weeks ended
2 July 2022
£000s £000s £000s £000s
Onerous property costs/(credits) 12 (258) 13 (233)
Costs relating to restructure 945 - - 945
Onerous contract (211) - 53 (158)
Total 746 (258) 66 554
Costs related to onerous properties: branch and office closures (incurred in
2023 and 2022)
In the 26 weeks ended 1 July 2023 an exceptional credit of £0.1m has been
recognised within other operating income, this mainly relates to sublease
income on vacant stores (2022: credit of £0.3m).
Cost relating to restructuring (incurred in 2023 and 2022)
Following the changes made to its operating network in Q4 2020 and the
roll-out of HSS Pro in Q1 2021, the Group finalised the restructuring exercise
in the prior period. This related primarily to the legal separation of the HSS
Operations and HSS Pro Service divisions into distinct entities, with the
legal separation completed on 3 July 2022.
In the current period, additional fees of £0.2m (2022: costs of £0.9m) have
been incurred in respect of liquidation for the now dormant holding companies
and accession to the banking group for new group companies as part of this
legal restructure. The remaining costs of this programme are not expected to
be material.
6. Depreciation and amortisation expense
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Amortisation 956 2,861
Depreciation 20,251 19,359
Amounts charged in respect of depreciation: 26 weeks ending 1 July 2023 As restated(1)
26 weeks ending 2 July 2022
Property, plant and equipment Right of use assets Total Property, plant and equipment Right of use assets Total
£000s £000s £000s £000s £000s £000s
Depreciation (notes 10,11) 9,897 7,984 17,881 10,039 7,710 17,749
Accelerated depreciation relating to hire stock lost by customers or written 2,680 128 2,808 1,371 295 1,666
off (notes 10,11)
Loss on disposal of other assets (notes 10,11) 259 115 374 56 - 56
Total depreciation per notes 10,11 12,836 8,227 21,063 11,466 8,005 19,471
Profit on surrender of leases (163) (340) (503) (120) - (120)
Proceeds on disposal of property, plant and equipment (315) - (315) - - -
Dilapidations profit on surrender of leases (4) - (4) - - -
Accelerated depreciation included in exceptionals 10 - 10 8 - 8
Total depreciation per the income statement 12,364 7,887 20,251 11,354 8,005 19,359
(1) As discussed in Note 3 of these interim financial statements, certain
notes have been changed following a prior period restatement relating to the
classification of leases within the Group's FY22 Annual Report between
property, plant and equipment and right of use assets.
Amounts charged in respect of amortisation:
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Intangible assets
Amortisation (note 9) 935 2,851
Loss on write off 21 10
Total amortisation 956 2,861
7. Finance income and expense
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Senior finance facility 2,462 1,269
Amortisation of debt issue costs 254 254
Lease liabilities and hire purchase arrangements 2,094 1,936
Interest unwind on discounted provisions 358 94
Revolving credit facility, including commitment fees 108 132
Other interest received (54) (11)
Net finance expense 5,222 3,674
8. Earnings per share
Basic earnings per share:
Profit after tax Weighted average number of shares Earnings after tax per share
£000s 000s pence
26 weeks ended 1 July 2023 5,494 704,988 0.78
26 weeks ended 2 July 2022 6,086 704,988 0.86
Basic earnings per share is calculated by dividing the result attributable to
equity holders by the weighted average number of ordinary shares in issue for
that period.
Diluted earnings per share:
Profit after tax Weighted average number of shares Earnings after tax per share
£000s 000s pence
26 weeks ended 1 July 2023 5,494 726,283 0.76
26 weeks ended 2 July 2022 6,086 722,559 0.84
Diluted earnings per share is calculated using the result attributable to
equity holders 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 and warrants.
All of the Group's potentially dilutive equity derivative securities were
dilutive for the purpose of diluted basic earnings per share for the period
(26 weeks ending 2 July 2022: all equity derivative securities were dilutive).
The following is a reconciliation between the basic earnings per share and the
adjusted basic earnings per share:
26 weeks ended 1 July 2023 26 weeks ended 2 July 2022
Pence pence
Basic earnings per share 0.78 0.86
Add back:
Exceptional items per share 0.04 0.08
Amortisation of customer relationships and brands per share 0.01 0.18
Tax per share 0.01 0.06
Charge:
Tax charge at prevailing rate (0.18) (0.22)
Adjusted basic earnings per share 0.66 0.96
The following is a reconciliation between the diluted earnings per share and
the adjusted diluted earnings per share:
26 weeks ended 1 July 2023 26 weeks ended 2 July 2022
pence pence
Diluted earnings per share 0.76 0.84
Add back:
Adjustment to basic loss per share for the impact of dilutive securities
Exceptional items per share 0.04 0.08
Amortisation of customer relationships and brands per share 0.01 0.18
Tax per share 0.01 0.06
Charge:
Tax charge at prevailing rate (0.18) (0.22)
Adjusted diluted earnings per share 0.64 0.94
The weighted average number of shares for the purposes of calculating the
diluted earnings per share are as follows:
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
Weighted average number of shares Weighted average number of shares
000s 000s
Basic 704,988 704,988
LTIP share options 3,003 4,687
Restricted stock grant 18,209 12,801
CSOP options 83 83
Diluted 726,283 722,559
9. Intangible assets
Goodwill Customer relationships Brands Software Total
£000s £000s £000s £000s £000s
Cost
At 1 January 2023 115,855 25,400 22,585 32,764 196,604
Additions - - - 4,246 4,246
Disposals - - - (3,827) (3,827)
At 1 July 2023 115,855 25,400 22,585 33,183 197,023
Amortisation
At 1 January 2023 - 25,291 327 23,119 48,737
Charge for the period - 45 17 873 935
Disposals - - - (3,827) (3,827)
At 1 July 2023 - 25,336 344 20,165 45,845
Net book value
At 1 July 2023 115,855 64 22,241 13,018 151,178
Goodwill Brands Software Total
Customer relationships
£000s £000s £000s £000s £000s
Cost
At 2 January 2022 115,855 25,400 22,590 31,856 195,701
Additions - - - 2,764 2,764
At 2 July 2022 115,855 25,400 22,590 34,620 198,465
Amortisation
At 2 January 2022 - 23,301 298 24,454 48,053
Charge for the period - 1,270 17 1,564 2,851
At 2 July 2022 - 24,571 315 26,018 50,904
Net book value
At 2 July 2022 115,855 829 22,275 8,602 147,561
Goodwill Customer relationships Brands Software Total
£000s £000s £000s £000s £000s
Cost
At 2 January 2022 115,855 25,400 22,590 31,856 195,701
Additions - - - 5,592 5,592
Disposals - - (5) (4,684) (4,689)
At 31 December 2022 115,855 25,400 22,585 32,764 196,604
Amortisation
At 2 January 2022 - 23,301 298 24,454 48,053
Charge for the period - 1,990 34 3,290 5,314
Disposals - - (5) (4,625) (4,630)
At 31 December 2022 - 25,291 327 23,119 48,737
Net book value
At 31 December 2022 115,855 109 22,258 9,645 147,867
The Group tests property, plant and equipment, goodwill and indefinite life
brands for impairment annually and considers at each reporting date whether
there are indicators that impairment may have occurred.
During the year, as part of a routine review of the useful lives of assets,
the Group considered how the new Operations and ProService divisional
structure impacted the intended use, and by extension the lifespan, of certain
Intangible assets. Specifically, the Group considered their core operating
systems used by Operations and ProService, Spanner and Brenda, and related
intangible assets.
In response to the new divisional structure and following an extensive review
process, the Directors revised the estimated useful economic life of both
assets from four to ten years. The Directors consider this to reflect the most
reliable estimate of the minimum period of operation for the systems in their
current form.
The impact of this change was a reduction in amortisation for these assets of
£1.3m during the current financial period. Details of the total impact on the
change for the 2023 financial year will be included in the Group's 2023 Annual
Report.
10. Property, plant and equipment
Land & buildings Plant & machinery Materials & equipment held for hire Total
£000s £000s £000s £000s
Cost
At 1 January 2023 35,045 29,196 174,508 238,749
Transferred from right of use assets - - 242 242
Additions 575 405 17,788 18,768
Disposals (360) (40) (9,958) (10,358)
Remeasurement - - - -
Foreign exchange differences (32) (3) (302) (337)
At 1 July 2023 35,228 29,558 182,278 247,064
Accumulated depreciation
At 1 January 2023 23,957 26,122 100,895 150,974
Transferred from right of use assets - - 169 169
Charge for the period 1,278 666 7,953 9,897
Disposals (102) (40) (7,278) (7,420)
Foreign exchange differences (3) - - (3)
At 1 July 2023 25,130 26,748 101,739 153,617
Net book value
At 1 July 2023 10,098 2,810 80,539 93,447
The transferred from right of use assets category represents the acquisition
of ROU assets at expiry of the lease in cases where the title is transferred
to the Group.
Land & buildings Plant & machinery Materials & equipment held for hire Total
£000s £000s £000s £000s
Cost
At 2 January 2022 - as previously reported 37,303 43,163 133,674 214,140
Restatement(1) - - 26,457 26,457
At 2 January 2022 - as restated 37,303 43,163 160,131 240,597
Transferred to right of use assets - - (1,504) (1,504)
Transferred from right of use - as previously reported - - 4,498 4,498
Restatement(1) - - (3,761) (3,761)
Transferred from right of use - as restated - - 737 737
Additions - as previously reported 221 685 15,416 16,322
Restatement(1) - - 2,352 2,352
Additions - as restated 221 685 17,768 18,674
Disposals - as previously reported (266) (41) (7,086) (7,393)
Restatement(1) - - (13) (13)
Disposals - as restated (266) (41) (7,099) (7,406)
Remeasurement - as previously reported (790) - - (790)
Restatement(1) - - 1,504 1,504
Remeasurement - as restated (790) - 1,504 714
Foreign exchange differences 4 9 71 84
At 2 July 2022 36,472 43,816 171,608 251,896
Accumulated depreciation
At 2 January 2022 - as previously reported 25,453 39,408 89,342 154,203
Restatement(1) - - 7,666 7,666
At 2 January 2022 - as restated 25,453 39,408 97,008 161,869
Transferred from right of use assets - as previously reported - - 2,140 2,140
Restatement(1) - - (1,403) (1,403)
Transferred from right of use assets - as restated - - 737 737
Charge for the period - as previously reported 1,163 833 6,091 8,087
Restatement(1) - - 1,952 1,952
Charge for the period - as restated 1,163 833 8,043 10,039
Disposals - as previously reported (209) (42) (5,682) (5,933)
Restatement(1) - - (47) (47)
Disposals - as restated (209) (42) (5,729) (5,980)
Foreign exchange differences - - 1 1
At 2 July 2022 26,407 40,199 100,060 166,666
Net book value
At 2 July 2022 10,065 3,617 71,548 85,230
(1) As discussed in Note 3 of these interim financial statements, certain
notes have been changed following a prior period restatement relating to the
classification of leases within the Group's FY22 Annual Report between
property, plant and equipment and right of use assets.
Land & buildings Plant & machinery Materials & equipment held for hire Total
£000s £000s £000s £000s
Cost
At 2 January 2022 37,303 43,163 160,131 240,597
Transferred from right of use assets - - 283 283
Additions 4,919 592 30,435 35,946
Disposals (4,606) (14,561) (16,686) (35,853)
Remeasurement (2,497) - - (2,497)
Foreign exchange differences 28 2 243 273
Transfers (102) - 102 -
At 31 December 2022 35,045 29,126 174,508 238,749
Accumulated depreciation
At 2 January 2022 25,453 39,408 97,008 161,869
Transferred from right of use assets - - 261 261
Charge for the year 2,433 1,501 16,654 20,588
Disposals (3,927) (14,621) (13,189) (31,737)
Foreign exchange differences (2) (5) - (7)
Transfers - (161) 161 -
At 31 December 2022 23,957 26,122 100,895 150,974
Net book value
At 31 December 2022 11,088 3,074 73,613 87,775
During the year, as part of a routine review of the useful lives of assets,
the Group revised the useful economic lives of assets included within the
"material and equipment held for hire" class of property, plant and equipment.
As part of this review, the Group have considered the levels of disposals and
write offs for these assets, as well as their period of service in the
business and anticipated remaining useful economic lives.
The product of this review was that certain assets useful lives were extended
but remained within the original estimates as disclosed in note 4f of the
Group's 2022 Annual Report, with one exception. The Group's powered access
equipment had previously been depreciated over between five and ten years but
has been revised to between five and fifteen years from the start of the
current period.
The impact of this change was a reduction in depreciation for these assets of
£1.0m during the current financial period. Details of the total impact on the
change for the 2023 financial year will be included in the Group's 2023 Annual
Report.
11. Right of use assets
Property Vehicles Equipment for hire Total
Equipment for internal use
£000s £000s £000s £000s £000s
Cost
At 1 January 2023 56,895 31,613 520 3,606 92,634
Additions 2,152 7,462 - 1,012 10,626
Transferred to property, plant and equipment - - - (242) (242)
Disposals (4) (547) (200) (179) (930)
Foreign exchange differences (64) (35) - - (99)
At 1 July 2023 58,978 38,493 320 4,197 101,989
Accumulated depreciation
At 1 January 2023 20,540 18,909 502 870 40,821
Charge for the period 4,028 3,453 17 486 7,984
Transferred to property, plant and equipment - - - (169) (169)
Disposals (4) (432) (200) (51) (687)
Foreign exchange differences (5) (9) - - (13)
At 1 July 2023 24,559 21,921 319 1,137 47,935
Net book value
At 1 July 2023 34,419 16,573 1 3,061 54,054
The transferred to property, plant and equipment category represents the
acquisition of ROU assets at expiry of the lease in cases where the title is
transferred to the Group.
Property Vehicles Equipment for internal use Equipment for hire Total
£000s £000s £000s £000s £000s
Cost
At 2 January 2022 - as previously reported 56,847 26,283 520 25,339 108,989
Restatement(1) - - - (23,011) (23,011)
At 2 January 2022 - as restated 56,847 26,283 520 2,328 85,978
Additions - as previously reported - 1,451 - 3,700 5,151
Restatement(1) - - - (2,352) (2,352)
Additions - as restated - 1,451 - 1,348 2,799
Remeasurements - as previously reported - - - 1,504 1,504
Restatement(1) - - - (1,504) (1,504)
Remeasurements - as restated - - - - -
Transferred to property, plant and equipment - - - (3,761) (3,761)
Restatement(1) - - - 3,761 3,761
Transferred to property, plant and equipment - as restated - - - - -
Disposals - as previously reported (71) (334) - (489) (894)
Restatement(1) - - - 13 13
Disposals - as restated (71) (334) - (476) (881)
Foreign exchange differences 4 12 - - 16
At 2 July 2022 56,780 27,412 520 3,200 87,912
Accumulated depreciation
At 2 January 2022 - as previously reported 15,104 12,773 444 4,688 33,009
Restatement(1) - - - (4,220) (4,220)
At 2 January 2022 - as restated 15,104 12,773 444 468 28,789
Transferred to property, plant and equipment - as previously reported - - - (1,403) (1,403)
Restatement(1) - - - 1,403 1,403
Transferred to property, plant and equipment - as restated - - - - -
Charge for the period - as previously reported 3,878 3,296 29 2,459 9,662
Restatement(1) - - - (1,952) (1,952)
Charge for the period - as restated 3,878 3,296 29 507 7,710
Disposals - as previously reported (71) (334) - (227) (632)
Restatement(1) - - - 47 47
Disposals - as restated (71) (334) - (180) (585)
At 2 July 2022 18,911 15,735 473 795 35,914
Net book value
At 2 July 2022 37,869 11,677 47 2,405 51,998
(1) As discussed in Note 3 of these interim financial statements, certain
notes have been changed following a prior period restatement relating to the
classification of leases within the Group's FY22 Annual Report between
property, plant and equipment and right of use assets.
Property Vehicles Equipment for internal use Equipment for hire Total
£000s £000s £000s £000s £000s
Cost
At 2 January 2022 56,847 26,283 520 2,328 85,978
Additions 2,290 5,903 - 2,220 10,413
Transferred to property, plant and equipment - - - (293) (293)
Disposals (2,273) (548) - (649) (3,470)
Foreign exchange differences 31 (25) - - 6
At 31 December 2022 56,895 31,613 520 3,606 92,634
Accumulated depreciation
At 2 January 2022 15,104 12,773 444 468 28,789
Transfers to property, plant and equipment - - - (271) (271)
Charge for the year 7,458 6,522 58 868 14,906
Disposals (2,022) (386) - (195) (2,603)
At 31 December 2022 20,540 18,909 502 870 40,821
Net book value
At 31 December 2022 36,355 12,704 18 2,736 51,813
Disclosures relating to lease liabilities are included in note 14.
12. Trade and other receivables
26 week period ended 1 July 2023
Gross Provision for impairment Provision for credit notes Net of provision
£000s £000s £000s £000s
Trade receivables 74,452 (3,479) (5,969) 65,004
Accrued income 8,911 (92) - 8,819
Trade receivables and contract assets 83,363 (3,571) (5,969) 73,823
Net investment in sublease 677 - - 677
Other debtors 4,357 - - 4,357
Prepayments 6,822 - - 6,822
Total trade and other receivables 95,219 (3,571) (5,969) 85,679
Year ended 31 December 2022
Gross Provision for impairment Provision for credit notes Net of provision
£000s £000s £000s £000s
Trade receivables 77,308 (3,343) (5,554) 68,411
Accrued income 10,543 (106) - 10,437
Trade receivables and contract assets 87,851 (3,449) (5,554) 78,848
Net investment in sublease 712 - - 712
Other debtors 3,493 - - 3,493
Prepayments 3,015 - - 3,015
Total trade and other receivables 95,071 (3,449) (5,554) 86,068
The following table details the movements in the provisions for credit notes
and impairment of trade receivables and contract assets:
26-week period ended Year ended
1 July 2023 31 December 2022
Provision for impairment Provision for credit notes Provision for impairment Provision for credit notes
£000s £000s £000s £000s
Balance at the beginning of the period (3,449) (5,554) (3,931) (3,225)
Increase in provision (1,454) (4,750) (1,667) (6,278)
Utilisation 1,332 4,335 2,149 3,949
Balance at the end of the period (3,571) (5,969) (3,449) (5,554)
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:
At 1 July 2023 Current 0-60 days past due 61-365 days past due 1-2 years past due Total
Trade receivables and contract assets 66,330 7,574 8,210 1,249 83,363
Expected loss rate 1.1% 3.0% 19.0% 83.7% 4.3%
Provision for impairment charge 740 224 1,561 1,046 3,571
At 31 December 2022 Current 0-60 days past due 61-365 days past due 1-2 years past due Total
Trade receivables and contract assets 71,292 7,747 7,262 1,550 87,851
Expected loss rate 0.9% 2.8% 20.9% 69.4% 3.9%
Provision for impairment charge 638 218 1,517 1,076 3,449
Contract assets consist of accrued income.
The provision for impairment 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 macroeconomic
uncertainty leading to pressures on businesses facing staff and material
shortages and, more latterly, increased inflation. At the balance sheet date,
similar to 2022, the Group considers that historical losses are not a reliable
predictor of future failures and has exercised judgement in the expected loss
rates across all categories of debt. In so doing the Group has applied an
adjusted risk factor of 1.25x (2022: 1.25x) to reflect the increased risk of
future insolvency. 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.
In line with the requirements of IFRS 15, provisions are made for credit notes
expected to be raised after the reporting date for income recognised during
the period.
The combined provisions for bad debt and credit notes amount to 11.4% of trade
receivables and contract assets at 1 July 2023 (31 December 2022: 10.2%).
13. Trade and other payables
1 July 31 December
2023 2022
£000s £000s
Current
Trade payables 42,785 41,693
Other taxes and social security costs 4,447 4,718
Other creditors 1,712 2,010
Accrued interest on borrowings 677 534
Accruals 27,622 38,689
Deferred income 1,283 658
78,526 88,302
14. Lease liabilities
1 July 31 December 2022
2023
£000s £000s
Current
Lease liabilities 15,025 13,182
Non-current
Lease liabilities 44,690 43,110
59,715 56,292
The interest rates on the Group's lease liabilities are as follows:
1 July 31 December 2022
2023
Equipment for hire Fixed 10.6 to 19.1% 11.1 to 19.1%
Other Fixed 3.5 to 9.5% 3.5 to 6.0%
The weighted average interest rates on the Group's lease liabilities are as
follows:
1 July 31 December 2022
2023
Lease liabilities 6.2% 6.1%
The Group's leases have the following maturity profile:
1 July 31 December 2022
2023
£000s £000s
Less than one year 19,124 16,227
Two to five years 38,763 36,798
More than five years 13,542 15,133
71,429 68,158
Less interest cash flows: (11,714) (11,866)
Total principal cash flows 59,715 56,292
The maturity profile, excluding interest cash flows of the Group's leases is
as follows:
1 July 31 December 2022
2023
£000s £000s
Less than one year 15,025 13,182
Two to five years 33,544 30,690
More than five years 11,146 12,420
59,715 56,292
The lease liability movements are detailed below: Property Vehicles Equipment for hire and internal use Total
£000s £000s £000s £000s
At 1 January 2023 39,268 13,472 3,552 56,292
Additions 2,153 7,462 994 10,609
Discount unwind 1,196 305 290 1,791
Payments (including interest) (4,502) (2,695) (1,637) (8,834)
Disposals (34) (106) - (140)
Foreign exchange differences (3) - - (3)
At 1 July 2023 38,078 18,438 3,199 59,715
Property Vehicles Equipment for hire and internal use Total
£000s £000s £000s £000s
At 2 January 2022 44,879 14,247 2,339 61,465
Additions 2,290 5,903 2,090 10,283
Discount unwind 2,460 444 3 2,907
Payments (including interest) (10,144) (7,023) (880) (18,047)
Disposals (217) (107) - (324)
Foreign exchange differences - 8 - 8
At 31 December 2022 39,268 13,472 3,552 56,292
15. Borrowings
1 July 31 December 2022
2023
£000s £000s
Current
Hire purchase arrangements 5,834 5,168
Non-current
Hire purchase arrangements 11,947 9,978
Senior finance facility 68,867 68,613
80,814 78,591
The senior finance facility is stated net of transaction fees of £1.1m (31
December 2022: £1.4m) which are being amortised over the loan period.
The nominal value of the Group's loans at each reporting date is as follows:
1 July 31 December 2022
2023
£000s £000s
Hire purchase arrangements 17,781 15,146
Senior finance facility 70,000 70,000
The interest rates on the Group's borrowings are as follows:
1 July 31 December 2022
2023
Hire purchase arrangements Floating % above NatWest base rate 2.2% to 2.5% 2.3 to 2.9%
Revolving credit facility Floating % above SONIA 3.0% 3.0%
Senior finance facility Floating % above SONIA 3.0% 3.0%
The weighted average interest rates on the Group's borrowings are as follows:
1 July 31 December 2022
2023
Hire purchase arrangements Floating % above NatWest base rate 6.9% 6.0%
Revolving credit facility Floating % above SONIA 7.9% 6.4%
Senior finance facility Floating % above SONIA 7.9% 6.4%
The Group had undrawn committed borrowing facilities of £36.3m at 1 July 2023
(2022: £36.3m), including £11.3m (2022: £11.3m) of finance lines to fund
hire fleet capital expenditure not yet utilised. Including net cash balances,
the Group had access to £72.9m of combined liquidity from available cash and
undrawn committed borrowing facilities at 1 July 2023 (2022: £84.0m).
The Group's borrowings have the following maturity profile:
1 July 2023 31 December 2022
Hire purchase arrangements Senior finance facility Hire purchase arrangements Senior finance facility
£000s £000s £000s £000s
Less than one year 6,656 5,550 5,718 2,235
Two to five years 12,976 77,740 10,670 74,245
19,632 83,290 16,388 76,480
Less interest cash flows: (1,851) (13,290) (1,242) (6,480)
Total principal cash flows 17,781 70,000 15,146 70,000
16. Provisions
Onerous property costs Dilapidations Onerous contracts Total
£000s £000s £000s £000s
At 1 January 2023 117 11,380 9,806 21,303
Additions 128 12 - 140
Utilised during the period (128) (85) (1,645) (1,858)
Unwind of provision 2 187 169 358
Impact of change in discount rate - - - -
Releases (27) (1) - (28)
Foreign exchange - (25) - (25)
At 1 July 2023 92 11,468 8,330 19,890
Of which:
Current 41 1,307 3,032 4,380
Non-current 51 10,161 5,298 15,510
92 11,468 8,330 19,890
Onerous Dilapidations Onerous contracts Total
property costs
£000s £000s £000s £000s
At 2 January 2022 186 10,174 13,463 23,823
Additions - 4,430 - 4,430
Utilised during the period (7) (58) (3,289) (3,354)
Unwind of provision 1 113 - 114
Impact of change in discount rate (6) (2,822) (368) (3,196)
Releases (57) (467) - (524)
Foreign exchange - 10 - 10
At 31 December 2022 117 11,380 9,806 21,303
Of which:
Current 47 1,232 2,979 4,258
Non-current 70 10,148 6,827 17,045
117 11,380 9,806 21,303
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
releases are the result of early surrenders being agreed with landlords - the
associated liabilities are generally limited to the date of surrender but were
provided for to the date of the first exercisable break clause to align with
the recognition of associated lease liabilities.
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.
17. Risks and uncertainties
The principal risks and uncertainties which could have a material impact upon
the Group's performance over the remaining 26 weeks of the 2023 financial year
have not changed significantly from those set out on pages 38 to 41 of the
Group's 2022 Annual Report, which is available at
https://www.https://www.hsshiregroup.com/investor-relations/financial-results/.
These risks and uncertainties are:
1) Macroeconomic conditions;
2) Competitor challenge;
3) Strategy execution;
4) Customer service;
5) Third party reliance;
6) IT infrastructure;
7) Financial risk;
8) Inability to attract and retain personnel;
9) Legal and regulatory requirements;
10) Safety; and
11) Environment, Social and Governance ('ESG').
With global inflationary pressures and associated interest rate increases the
main risk expected to affect the Group in the remaining 26 weeks for the 2023
financial year is macroeconomic conditions.
The conflict in Ukraine, pandemic recovery and Brexit have contributed to
labour shortages, inflation and interest rate rises. Therefore, this risk will
continue to be closely monitored for its effect on demand and colleague
welfare so that we can take appropriate actions.
18. Alternative performance measures
Earnings before interest, taxation, depreciation and amortisation (EBITDA) and
Adjusted EBITDA, earnings before interest, tax and amortisation (EBITA) and
Adjusted EBITA and Adjusted profit before tax are alternative, non-IFRS and
non-Generally Accepted Accounting Practice (GAAP) performance measures used by
the Directors and Management to assess the operating performance of the Group.
- EBITDA is defined as operating profit before depreciation and amortisation.
For this purpose, depreciation includes depreciation charge for the year on
property, plant and equipment and on right of use assets; the net book value
of hire stock losses and write-offs; the net book value of other fixed asset
disposals less the proceeds on those disposals; impairments of right of use
assets; the net book value of right of use asset disposals, net of the
associated lease liability disposed of; and the loss on disposal of
sub-leases. Amortisation is calculated as the total of the amortisation charge
for the year and the loss on disposal of intangible assets. Exceptional items
are excluded from EBITDA to calculate Adjusted EBITDA.
- EBITA is defined by the Group as operating profit before amortisation.
Exceptional items are excluded from EBITA to calculate Adjusted EBITA.
- Adjusted profit before tax is defined by the Group as profit before tax,
amortisation of customer relationships and brand related intangibles as well
as exceptional items.
The Group discloses Adjusted EBITDA, Adjusted EBITA and Adjusted profit before
tax as supplemental non-IFRS financial performance measures because the
Directors believe they are useful metrics by which to compare the performance
of the business from period to period and such measures like Adjusted EBITDA,
Adjusted EBITA and Adjusted profit before tax are broadly used by analysts,
rating agencies and investors in assessing the performance of the Group.
Accordingly, the Directors believe that the presentation of Adjusted EBITDA,
Adjusted EBITA and Adjusted profit before tax provides useful information to
users of the financial statements.
As these are non-IFRS measures, other entities may not calculate the measures
in the same way and hence are not directly comparable.
Adjusted EBITDA is calculated as follows:
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Operating profit 10,761 10,209
Add: Depreciation of property, plant and equipment and right of use assets 20,251 19,359
Add: Amortisation of intangible assets 956 2,861
EBITDA 31,968 32,429
Add: Exceptional items (non-finance) 97 488
Adjusted EBITDA 32,065 32,917
Adjusted EBITA is calculated as follows:
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Operating profit 10,761 10,209
Add: Amortisation of intangible assets 956 2,861
EBITA 11,717 13,070
Add: Exceptional items (non-finance) 97 488
Adjusted EBITA 11,814 13,558
Adjusted profit before tax is calculated as follows:
26 weeks ended 26 weeks ended
1 July 2023
2 July 2022
£000s £000s
Profit before tax 5,539 6,535
Add: Amortisation of customer relationships and brands 62 1,287
Profit before tax and amortisation of customer relationships and brands 5,601 7,822
Add: Exceptional items (finance and non-finance) 284 554
Adjusted profit before tax 5,885 8,376
19. Post Balance Sheet Events
Based on the ongoing successful performance of the Group's builders merchant
locations, the decision was made to accelerate the migration to this lower
variable cost model over the next twelve months. To this end, in September the
closure of sixteen branches located in England and Wales was announced. This
specific change will reduce ongoing costs by c£1m per annum with expected
exceptional costs of between £2.1m and £2.4m, the majority non-cash and
asset impairment related. All impacted branch colleagues have been informed of
the changes and it is anticipated that they will all migrate to new roles
within this model. Work is now underway with the Group's property
restructuring specialist to review all possible options with the remaining
property leases.
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