REG - HSS Hire Group PLC - Results for the 52 week period ended 30 Dec 2023
01/05/2024 07:15
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RNS Number : 7154M HSS Hire Group PLC 01 May 2024
HSS Hire Group Plc
Resilient performance, continued strategic progress
HSS Hire Group plc ("HSS" or the "Group") today announces results for the 52
week period ended 30 December 2023
Financial Highlights ( ) FY23 FY22 Change
Continuing operations(1) (52 weeks to 30 December 2023) (52 weeks to 31 December 2022)
Revenue £349.1m £332.8m 5%
Adjusted EBITDA(2) £65.1m £71.6m (9%)
Adjusted EBITA(3) £24.3m £32.0m (24%)
Adjusted profit before tax(4) £11.9m £21.0m (43%)
Adjusted basic EPS 1.29p 2.41p (46%)
ROCE(5) 16.2% 22.8% (6.6pp)
Net debt leverage(6) - IFRS16 1.7x 1.3x (0.4x)
Net debt leverage(7) - non IFRS16 1.2x 0.8x (0.4x)
Other statutory extracts (Underlying(8))
Operating profit £22.4m £26.6m (16%)
Profit before tax £11.8m £18.9m (£7.1m)
Basic EPS 0.60p 2.90p (2.30p)
Financial Highlights
• Solid trading performance with revenue growth +5%, outperforming the market(9)
• Growth despite demand softness across certain customer segments and for
seasonal products
• Another year of double-digit Services revenue growth, up 12%, enabled by
technology
• Rental growth of 1%, with strong performance from the Builders Merchant
network
• Second highest Profit Before Tax in Group's listed history(10)
• £5.1m additional investment in operating expenditure and £1.3m non-recurring
technology capex, both to drive future growth through new routes to market
• Adjusted EBITDA and EBITA margins at 18.7% and 7.0%, increasing to 20.1% and
8.4% respectively when excluding this strategic opex
• Continued strong returns with ROCE above the Group's cost of capital
• Robust balance sheet with reported non-IFRS16 leverage at 1.2x (FY22: 0.8x)
• Material liquidity headroom to support ongoing investment in the
technology-driven marketplace strategy
• Sale of ABird and APEX completed 7 March 2024 for Enterprise Value of £23.25m
with proceeds used to reduce debt and further strengthen the balance sheet
• Recommending final dividend(11) of 0.38p bringing total dividend for the year
to 0.56p, an increase of 4% (FY22: 0.54p)
Operational Highlights
• Momentum building with transformational marketplace growth strategy
• 1,000 customers have now transacted on our self-service marketplace platform
with 30% average revenue growth(12)
• 24% of Group's transactions(13) (FY22: 14%) are now originated through our
self-serve technology platforms: ProService Marketplace and HSS.com
• Low-cost builders merchant network expanded to 89 locations (December 22: 63)
and delivered 21% growth on a same stores basis(14)
• Successful migration of 16 traditional HSS branches to builders merchant model
in Q4 23 delivering c£1m annualised cost saving
• Further expansion plans underway with 10 new locations to open in H1 24
• Continued progress with sustainability strategy and on track to meet key
milestones
• 2040 Net Zero action plan and targets(15) validated by SBTi(16)
• Progress externally recognised with EcoVadis(17) Gold Award for sustainability
Current trading and outlook
• Q1 24 revenue growth of 3% driven by ProService with the Group's historic
Services segment continuing to deliver double-digit growth, despite continued
softness in certain customer segments and the impact of the mild winter on
seasonal products
• Management remains mindful of uncertain macro-economic conditions and
accordingly continue to manage costs, while also benefiting from the Group's
lower-cost operating model
• Capex investment forecast in 2024 is expected to be £26-£29m including c£3m
to support the Group's marketplace strategy
• Management remains confident that full year EBITA will be in line with market
expectations
Steve Ashmore, Chief Executive Officer, said:
"I am pleased to report another year of significant strategic progress
alongside resilient financial performance, delivering revenue growth ahead of
the market despite a more challenging macro-environment. We have made big
strides implementing clear focussed strategies for our two divisions
ProService and Operations, with early positive results providing the
confidence to accelerate strategic investment to evolve HSS into a leading
marketplace for equipment services. Customers are engaging with our
marketplace platform at an exponential rate, valuing the ease it brings and
resulting in significant revenue growth.
We continue to make good progress embedding our ESG agenda in everything we do
and are on track to deliver our SBTi validated Net Zero action plan. During
the year we have been working alongside both customers and suppliers to
enhance reporting to help ensure effective ESG decisions are being made across
the whole supply chain and will shortly be launching new technology enabling
customers to make product decisions based on carbon emissions. I was delighted
that all of this progress was recognised by EcoVadis with the award of their
gold medal sustainability rating.
We are more confident than ever in our strategy and the strength of our
technology platforms. We are well placed to take full advantage when the
market recovers".
Notes
1) Results for FY23 and FY22 are on a continuing operations basis
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) Adjusted Profit before tax defined as profit before tax excluding amortisation
of brand and customer lists and exceptional items
5) ROCE is calculated as Adjusted EBITA for the 52 weeks to 30 December 2023
divided by the average of total assets less current liabilities (excluding
intangible assets, cash and debt items) over the same period
6) Net debt leverage is calculated as closing net debt divided by adjusted EBITDA
for the 52 weeks to 30 December 2023 (prior year 52 weeks to 31 December
2022).
7) Net debt leverage non-IFRS16 is calculated as closing net debt excluding
non-hire equipment leases divided by adjusted EBITDA less right of use
depreciation and interest on non-hire equipment for the 52 weeks to 30
December 2023 (prior year 52 weeks to 31 December 2022).
8) Performance excluding exceptional items
9) European Rental Association forecast 2023 +3.4%, ONS Construction Output 2023
+2.4%
10) Group listed in February 2015
11) 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 23 May 2024, Record date of 24 May 2024 and
Payment date of 2 July 2024
12) Based on all customers that have used our self-serve marketplace platform
before 1st March 2024. Growth calculated based on total customer spend January
and February 2024 compared to January and February 2023.
13) Contracts raised through HSS.com and HSS Pro as a percentage of total
contracts raised in March 2023 and March 2024
14) Merchant locations open for comparable period in both FY23 and FY22
15) Net Zero action plan as shared in the 2nd edition of the HSS ESG Impact Report
published in Q2 23
16) Science Based Targets initiative
17) EcoVadis is one of the world's largest providers of independent business
sustainability ratings
-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 1 May 2024)
Steve Ashmore, Chief Executive Officer Thereafter, please email: Investors@hss.com
Paul Quested, Chief Financial Officer
David Smith, Director of Group Finance
Teneo
Tom Davies Tel: 07557 491 860
Giles Kernick Tel: 020 7420 3155
Numis Securities (Nominated Adviser and Broker) Tel: 020 7260 1000
Stuart Skinner
George Price
CHAIRMAN'S STATEMENT
DEAR SHAREHOLDER
"I am pleased to report on another good year with the Group delivering a
resilient performance set against a challenging and uncertain market. The
Group has delivered another year of good results, despite an uncertain
economic backdrop, whilst continuing to invest in our strategy as we focus on
being the market-leading, digitally-led brand for equipment services."
Our results
The Group has delivered further revenue growth and consistently high returns
on capital. These results, which are outlined in more detail by our CFO, Paul
Quested, in the Financial Review, have enabled a strong balance sheet to be
maintained. As such, I am pleased to report a proposed final dividend payment
of 0.38p reflecting the continued confidence the Board has in the management
team and its execution of our strategy.
Our strategic progress
The Board and management team are pleased with the strategic progress the
Group has made during FY23 and believe both divisions, ProService and
Operations, are well placed going forward. ProService has developed a
technology platform helping it to become what we believe is the leading
marketplace for building services in the UK, aggregating buyers and sellers
across a broad range of products and services. Operations has evolved its
model, driving efficiency and reducing its impact on the environment whilst
maintaining high levels of safety, quality and colleague engagement.
Operations continues to be a leading national provider of hire equipment and
the largest supplier to ProService.
I would like to highlight significant areas of progress in each of our
businesses in FY23.
Starting with ProService, the team has made great progress with the
development of our digital marketplace. In addition to our expansive equipment
rental offering, we rolled out both new and wider ranges of non-rental
products for our customers (we call them 'product verticals') in the areas of
Equipment Sales and Building Materials, and in December we launched version
2.0 of our marketplace platform. With both developments, results have been
positive and it is interesting to see customer and supplier behaviours evolve
as we further deploy our technology. More details about our progress with
self-service and new product verticals are provided by our CEO, Steve Ashmore,
in his CEO's statement.
During FY23 the ProService team also completed the establishment of a Central
Sales function in our office in Manchester, designed to reach more customers
through a leaner model whilst improving cross-selling. We have proven that a
centralised sales function, powered by data and enabled with technology, can
deliver great customer service in an efficient way.
Moving on to Operations, the team has deployed new technology into our
workshops, designed to improve quality standards, reduce customer exchanges
and further improve our fleet efficiency and carbon footprint. In addition,
the team has accelerated the transformation of our branch network into the
builders merchant model that we first tested back in 2020. This model provides
opportunity for growth, removes fixed costs, strengthens relationships with
our Building Materials product vertical suppliers and delivers convenience for
customers.
The Group's ESG agenda continues to be very important for the Board, and I am
pleased to say we have made some important progress this year. We had our Net
Zero plan audited by the SBTi (Science Based Targets initiative) which
approved them as being in line with the ambition to limit global warming to
1.5°C. During the year we have launched a new waste reduction project,
published our second ESG Impact Report, launched customer CO(2) reporting and
rolled out colleague ESG training. All this progress was recognised in the
recent EcoVadis audit which resulted in our award of Gold status. You can read
more about our ESG journey in the Sustainability at HSS section.
The progress the teams have made in FY23 is impressive and reflects one of the
Group's key values: to Make It Better.
Divestment of specialist Power business
On 7 March 2024, we announced the sale of our specialist Power businesses,
ABird and Apex, to CES Global. This divestment further strengthens our balance
sheet and allows us to continue to focus on our customer proposition,
technology development and operational excellence. Specialist power generation
continues to be part of our customer proposition and CES Global will be a key
supplier to our ProService division going forward.
Equipment Quality
We continue to operate a well-invested fleet with high safety and quality
standards.
Our Board
The Group continues to benefit from a stable and experienced Board. We remain
custodians of the HSS brand, supporting senior management with their strategic
decisions, reviewing the Company's risk profile and monitoring progress in
areas such as our ESG roadmap and technology development programme.
The Board continues to engage with all stakeholders to ensure HSS operates
with transparency, integrity and in the interests of our colleagues and
stakeholders.
Dividends
We have been pleased to continue our progressive dividend policy this year,
which is designed to ensure sustainability through the economic cycle, taking
into account underlying profit generation and balance sheet strength.
Having considered the Group's outlook and financial position, and all
stakeholders' interests, the Board is recommending a final dividend of 0.38p,
making 0.56p for the full year. Assuming the dividend is approved at the
Annual General Meeting, it will be paid on 2 July 2024 to shareholders on the
register on 24 May 2024.
Outlook
We have seen another good year of strategic progress for the Group, delivering
robust financial results in an uncertain economic environment. I would like to
thank my fellow Board members for their support and express my gratitude to
our colleagues for their ongoing commitment, hard work and contribution to our
achievements over the year.
The strategic progress made across the Group this year, delivered by our
colleagues and underpinned by our investment in technology, makes each of our
two divisions well positioned for future growth.
Alan Peterson OBE
Chairman
CHIEF EXECUTIVE OFFICER'S STATEMENT
"The Group has delivered a solid performance alongside further strategic
progress and I would like to extend my thanks to all my colleagues for their
continued dedication and hard work over the last year."
We entered the year off the back of a strong set of results in FY22, with a
robust balance sheet and a new operating model built around two divisions:
ProService and Operations. This foundation, combined with positive emerging
KPIs from each business, gave us the confidence to accelerate investment in
our strategy of becoming the market-leading, digitally-led brand for equipment
services. We took this decision to continue our investment in operating costs
for future growth against the backdrop of uncertainties in the wider UK
economy. It is within this context that I can now reflect on a progressive
year, during which we have delivered a resilient financial performance
alongside significant investment in our strategy.
OUR YEAR IN SUMMARY
Strong financial performance
Our revenue growth has continued to outperform the market, with like-for-like
revenues 4.9% ahead of the prior year, enabled through the ongoing expansion
of our successful builders merchant network, early adoption of self-service
and support from new product verticals. We have continued to expand our
Central Sales team and develop our technology platform, investing £5.1m
during the year. Whilst doing so, we have maintained a strong balance sheet
and industry-leading returns, which Paul discusses in more detail in the
Financial Review.
Self-service technology
Following successful self-service trials with a small number of large
contractors in Q4 FY22, we decided to extend trials to over 500 small and
medium sized customers in FY23. These trials have shown good results with
strong adoption rates and significant growth in revenue from this set of
customers. In December 2023 we launched version 2.0 of our self-service
marketplace platform with new and improved functionality for customers and we
are now rolling out this channel to more of our customers during FY24.
I believe that our self-service technology really differentiates us from the
competition. It provides customers with a marketplace platform to access a
wide range of building products and services, offering a single point of
ordering and control. Results from the trials undertaken in FY23 show strong
levels of interest from our customers, with the potential for improved loyalty
as they get used to the convenience of a single, easy-to-use platform. We
expect to see self-service rates increase markedly in FY24, creating the
opportunity to significantly reduce the cost-to-serve thereafter.
New product verticals
Our technology platform allows us to quickly launch new product verticals,
enhancing the one-stop shop experience for customers, particularly for those
using our self-service marketplace platform. In FY24 we launched two
significant new product verticals, Equipment Sales and Building Materials,
with both seeing good customer adoption. Our integrated technology platform
means that these new products are readily available to customers across all
channels, whether they choose to self-serve, visit a builders merchant or
contact us via email or phone.
In Equipment Sales we partnered with Toolbank to provide an offering of over
30,000 tools, fittings, consumables and personal protective equipment (PPE) to
our customers. Whilst relatively small in value compared with equipment hire,
these resale products provide convenience for customers and add users to our
marketplace which we believe will further enhance loyalty to ProService. We
fulfilled orders for almost 1,000 customers by the end of the year, reflecting
the power of our offering and the underlying demand for a one-stop shop in the
building services market.
In Building Materials we already had a pre-established network of over 20
merchant partners keen to sell their products into our customer base.
We conducted a trial in H1 encouraging our salesforce to promote this offering
to customers and setting up a small team to process resultant orders.
Following a positive start we decided to make the offering available more
widely. In September, we introduced a new 'Building Materials' tile on our
technology platform, making it accessible to all customers whether they are
self-serving through ProService or the hss.com website, or through our sales
teams. By Q4 we were regularly generating over £75k of revenue per week from
Building Materials, serving over 400 customers.
In FY24 we expect to gain further momentum in Equipment Sales and Building
Materials sales, and intend to roll-out, other product verticals on our
technology platform.
Central Sales
During H1 2023, we grew our Central Sales team demonstrating the benefit of a
centralised model for greater customer reach, enhanced cross-selling and
improved efficiency. Armed with our HSS ProPOS technology and driven by data,
this team was given a portfolio of over 10,000, largely SME customers to
manage. During the year this portfolio has delivered revenue growth 20 ppts
ahead of other SME customers, at higher levels of productivity. Having proved
this model we are now in the process of rationalising our overall sales
acquisition and order-taking organisation, to drive further productivity
benefits and enhanced customer experience.
Operational efficiency and customer service
Operations has had another successful year, continuing to deliver
market-leading levels of customer service whilst striving for ongoing
efficiency gains and carbon reduction.
Following the roll-out of Satalia route optimisation software in FY22, the
Operations team has successfully trialled more new technology in FY23, the
Digital Service Portal (DSP), which is designed to improve equipment
standards, reduce customer downtime and lower our cost to serve. This year the
team will be introducing QR coding for products in our fleet, which will mark
the final step in our transition to a paperless operational transaction.
Builders merchants network
Our well-established builders merchant network delivered revenue growth on a
same stores basis in excess of 20%, significantly ahead of the market. This
variable, lower-cost model provides builders merchants' customers with a
convenient solution to equipment hire, in addition to providing a great
working environment for our colleagues. During FY23 we accelerated the
transition from the traditional HSS branch network to builders merchants,
opening a further 26 locations, which we look forward to seeing mature over
the coming year.
In FY24 we will complete this network transition, opening further builders
merchants in England, Wales, Scotland and Northern Ireland.
ESG roadmap
As Chair of our ESG Forum I am pleased to report that we have continued the
successful delivery of our ESG roadmap, staying on track to achieve our Net
Zero 2040 target as well as our near-term objectives. We continue to work with
consultant, Sustainable Advantage, which monitors our progress, prioritises
our activities and provides examples of best practice from other industries.
We also engaged auditors EcoVadis and CDP, global leaders in ESG
accreditation, to independently assess our progress.
Our achievements are once again detailed in the Sustainability section, but
for now I would like to highlight three significant achievements:
1. We launched our customer CO(2) reporting suite, rolling it out to several key
accounts. This reporting allows customers to understand the carbon footprint
of their hiring activities and make better choices to reduce carbon.
2. In May 2023, the SBTi completed its audit of our plans to reduce GHG emissions
and has approved them as being in line with the ambition to limit global
warming by 1.5°C. We were the first in our sector to achieve this approval in
May 2023.
3. In September we were delighted to be awarded Gold status by EcoVadis following
its audit of our business. This puts us in the 95th percentile in our peer
group and reflects the significant progress we have made.
During the year we also launched a new waste reduction programme, continued on
our journey of fleet electrification, rolled out colleague ESG training,
completed a Biodiversity impact assessment and completed over 250 supplier
audits as part of our new ESG accreditation programme. We look forward to
realising the benefits of these activities in the years to come.
You can read more about ESG in our second Impact Report published in June
which is available on our website.
STRATEGY
We separated our business in FY22 with the creation of ProService and
Operations: two distinct divisions to take advantage of our fragmented market
and capitalise on customer and supplier requirements. Each division has a
clear focus to advance their differentiated propositions, defined through
their visions and strategic objectives.
ProService
To become the market-leading marketplace for building services
ProService has three strategic objectives:
1. Enhance our market-leading proposition
ProService addresses customers' demand for a one-stop shop. As such, we will
continue to introduce new product verticals, expanding our offering within
equipment hire and beyond into areas such as training and resale. We have been
encouraged by the uptake of our equipment sales and building materials product
verticals in FY23 and will increase activity here in FY24.
Our in-house technology developers are constantly striving to improve the user
journey for customers, suppliers and colleagues. Following the launch of
ProService version 2.0 in December 2023, our team will be closely monitoring
user behaviours with a view to optimising the self-service platform even
further. This will include enhancing content, covering additional product
photos, videos and 'how-to' guides. We will also drive ESG, showing customers
carbon credentials of alternative products and offering carbon reporting.
2. Expand both our buyer and seller network
As we constantly strive for market-leading availability, we will deepen our
seller base, both in equipment hire and new product categories. A specific
area of focus for us in FY24 will be the ongoing expansion of our Training
Plus network of third party trainers, offering courses well beyond technical
equipment training.
We will focus on brand promotion and improved messaging, to drive buyer and
supplier loyalty. Buyer acquisition will be data driven and increasingly
targeted at different customer segments.
We will build on the progress made during FY23 with our supplier audit
programme, helping to reduce upstream carbon footprint, increase buyer choice
and improve carbon reporting.
3. Drive self-service adoption
We have seen strong appetite from customers for a self-service platform, both
from market research and the trials carried out so far. It is now a priority
for us to promote this self-service channel to all customers, drive improved
engagement and enable greater loyalty. Alongside this we will streamline other
channels to ensure a consistent, high-quality customer experience, which also
results in a leaner cost-to-serve model, enabled by the centralisation and
automation of activities.
Operations
To become the most efficient, high-quality rental operator in the UK
Operations has clear strategic objectives:
1. Lead with ESG
We will always prioritise the safety and wellbeing of our customers and
colleagues, while continuing to pursue our Net Zero 2040 pledge alongside our
shorter-term ESG objectives. There are many ongoing activities in this area
(see later in our ESG section). Priorities include reducing carbon footprint
with ongoing distribution efficiencies together with further migration to
electric vehicles (EVs). We also continue to prioritise the ongoing reduction
in the carbon footprint of our physical network (linking to objectives 2 and 3
below).
2. Optimise our network
Our Operations business is currently completing the transition from
fixed-cost, low-footfall traditional hire branches to variable, low-cost,
high-footfall builders merchant locations. As this network is finalised it
also provides an opportunity to optimise the distribution network that
supports it.
3. Focus on customer service
We look to technology to improve our levels of service and efficiency. We will
continue to leverage the benefits of our Satalia route optimisation software
and explore the potential to introduce narrower time windows for customers.
The roll-out of our DSP, which I mentioned earlier, will improve equipment
standards and efficiency.
Divestment of specialist Power business
On 7 March 2024, we announced the sale of our specialist Power businesses,
ABird and Apex, to CES Global. ABird and Apex have been a valued part of our
Group business for a number of years, and will continue to provide an
important element of our customer proposition as they will be a key specialist
power generation supplier to ProService going forward. The teams at ABird and
Apex have made an excellent contribution to the Group and I am confident that
this change in ownership will give them the specialist support they need to
continue to grow. For the HSS Group, the divestment creates yet more focus on
technology development, enhanced customer focus and operational excellence. I
would like to thank all my ex-colleagues at ABird and Apex for their
contributions over the years, and wish them every success for the future.
OUTLOOK
Following significant strategic investment in FY23 the Group retains a healthy
balance sheet and industry-leading returns. We continue to operate in a
challenging UK economy, impacted by wider uncertainty in global markets, but
our lower-cost, technology-enabled operating model positions us well. The
investment we have made over the last 12 months puts us in a strong position
to capitalise as markets recover.
Our self-service marketplace technology provides the foundation to drive
customer loyalty and revenue growth, whilst providing opportunities to further
optimise our operating model in future years. The scale of our customer and
supplier networks sets us apart from other marketplace startups and our team
continues to be highly engaged and motivated to deliver on our ambitions.
We enter 2024 with our business in great shape to continue taking market share
and providing an alternative technology-driven, lower-cost operating model.
Our one-stop shop proposition, combined with our self-service marketplace
solution, provides customers with the opportunity to reduce their procurement
costs which will be particularly relevant irrespective of market conditions.
We have made significant progress in recent years, transforming our customer
proposition through the reorganisation of our business and the introduction of
new technology. I believe these changes will deliver market share gains,
enhanced customer service and greater productivity across the Group, as we
leverage new product verticals, improved routes to market and our
differentiated technology over the coming year. I am confident that this will
deliver improved shareholder returns through progressive improvements in
earnings per share. I remain excited about the prospects for the Group in FY24
and beyond.
I would like to thank all my colleagues once again for their efforts during
FY23, and the continued support of our Chairman, the Board and all our
Shareholders.
Steve Ashmore
Chief Executive Officer
FINANCIAL REVIEW
"With continued investment in our marketplace strategy and strong
balance sheet, we are well positioned for growth."
OVERVIEW
The Group has delivered a resilient financial performance in a challenging
market. Revenue growth has outperformed the market with high returns
consistently achieved, a strong balance sheet maintained and investment in our
strategy stepped up.
FY23 has been a resilient year for the Group against the backdrop of market
uncertainty. Revenue growth of 4.9% has outperformed the market and,
throughout a period of material strategic change, industry-leading returns and
a strong balance sheet have been maintained. As always, this is testament to
the hard work and commitment demonstrated by each and every colleague across
the business.
Strategic investment has been centred around our marketplace business with
£5.5m invested in the further development of our Brenda technology platform
and £5.1m increased overhead including our Central Sales team, product
expansion and in-housing senior technology leaders from the third party
developer. This investment sets the Group up for future growth, building on
already impressive Services performance with revenue growth of 12.0% in the
year.
There has been continued focus on ensuring a leaner operating model. This
included accelerating the transition from traditional branches to builders
merchants. Exceptional costs of £2.2m were recognised in relation to these
changes.
While profitability fell year on year, the strategic investment accounted for
a material element of this reduction. The Board will always focus on
maintaining the appropriate balance between shorter-term profitability and
future growth.
Alongside our strong balance sheet, we now have our technology and
organisation in place and, through the flexible, low-cost, scalable model we
are well positioned to deliver improved returns in the future.
Revenue
Group revenue grew by 4.9% to £349.1m (FY22: £332.8m), driven by 12.0%
growth in our Services business and 0.5% growth in our Rental business.
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.
HSS's revenue recognition accounting policy includes the judgment that some of
the Group's contracts with customers contain leases. Accordingly, the policy
explains that the Group's hire and rehire revenue streams fall within the
scope of IFRS 16 Leases.
Segmental performance
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:
· ProService - Digital marketplace business focused on customer and
supplier acquisition. Technology driven, extremely scalable and uniquely
differentiated including training services.
· Operations - Fulfilment business including power generation,
focused on health and safety and quality, with circular economy credentials,
comprehensive national footprint and high customer satisfaction.
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
ProService and Operations businesses. IFRS 8 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 is 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 has 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 table below provides the FY23 revenues, EBITDA and EBITA from our new
segments. Central includes intercompany eliminations reflecting the high level
of trading between Operations and ProService and central management costs.
£m FY23 Revenue FY23 Adjusted EBITDA FY23 Adjusted
EBITA
ProService 311.0 14.4 12.8
Operations 135.8 58.3 22.3
Ireland 27.4 6.9 3.9
Central (125.1) (14.5) (14.7)
Total 349.1 65.1 24.3
To enable comparability we continue to disclose our old operating segments of
Rental and Services.
Rental and related revenues
Rental revenues increased marginally by 0.5% to £207.3m (FY22: £206.2m) and
accounted for 59% of Group revenue (FY22: 62%). The growth was underpinned by
strong like-for-like performance through our builders merchants and targeted
investment in high-demand product categories, which all performed well despite
softening demand in certain buyer segments and the impact of mild weather on
our seasonal product. 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
£136.7m (FY22: £138.4m) was down 1.3%, reflecting the mix of revenues
towards larger customers, growth of lower-margin ancillary revenue and
continued inflationary pressure on distribution costs.
Services
Services revenues increased by 12.0% to £141.8m (FY22: £126.6m), accounting
for 41% (FY22: 38%) of Group revenue. Customers continue to value
our one-stop shop marketplace proposition underpinned by our Brenda
technology platform and large network of supply chain partners. Over recent
years, we have consistently delivered double-digit revenue growth and our
continued investment to make the customer experience even easier puts the
Group in a positive position for the future.
Contribution from Services increased by 1.4% to £19.5m (FY22: £19.3m).
Costs
Our cost analysis set out below is on a reported basis and therefore includes
exceptional costs.
Our cost of sales increased by 9.3% to £180.0m (2022: £164.6m), mainly
volume driven, with another year of double-digit growth in Services revenues.
Distribution costs increased by 4.7% to £31.7m (2022: £30.3m) mainly due to
a combination of revenue growth and inflationary pressures impacting driver
salaries, fuel and third party haulage.
Administrative expenses increased by 2.7% to £115.3m (2022: £112.3m)
principally due to additional overhead investment to support delivery of the
Group's strategy.
Adjusted EBITDA and Adjusted EBITA
Our Adjusted EBITDA for FY23 was £6.5m lower at £65.1m (FY22: £71.6m) with
margins reduced to 18.7% (FY22: 21.5%), reflective of the mix of revenue
towards Services and £5.1m (FY22: £0.8m) strategic investment for future
growth. Adjusting for the strategic investment, underlying margin was 20.1%.
Adjusted EBITDA and EBITDA margin are included in our KPIs.
Our Adjusted EBITA for FY23 was £24.3m (FY22: £32.0m), a combination of
reduced EBITDA and increased depreciation. The increased depreciation is from
£0.9m property, plant and equipment which is net of a £2.7m benefit from the
extension of the useful economic life for Powered Access equipment and £0.3m
right of use assets. Adjusted EBITA margin decreased 2.6pp to 7.0% (FY22:
9.6%). Adjusting for the strategic investment, underlying margin was 8.4%.
Adjusted EBITA and EBITA margin are included in our KPIs.
Other operating income
Total other operating income of £0.1m (FY22: £0.5m) relates to sub-lease
rental and service charge income related to non-trading properties. The value
has reduced from FY22 as we have surrendered non-trading leases.
Operating profit
Our operating profit decreased by £4.5m to £19.9m (FY22: £24.4m). This was
mainly due to strategic investment in the year.
Exceptional items
Our exceptional costs are summarised in the table below:
FY23 FY22
£m
£m
Onerous property costs 0.8 (0.4)
Costs relating to branch network restructure 1.5 -
Costs relating to group restructure 0.2 3.2
Onerous contract 0.3 (0.4)
Total 2.8 2.4
Exceptional costs totalled £2.8m (FY22 £2.4m). This included £1.7m costs
relating to restructuring, primarily from the further transition of moving
from traditional branches to builders merchants. This compares with £3.2m in
FY22 which included the costs to complete the Group's legal restructuring. The
remaining costs of £1.1m relate to onerous contract and property provisions,
which compare with exceptional credits from provision releases of £0.8m in
FY22.
The total costs for accelerating the transition from traditional branches to
builders merchants was £2.1m, £1.5m within costs relating to restructure and
£0.6m within onerous property costs.
Finance costs
Net financial expense increased to £10.9m (FY22: £7.8m) due to UK base rate
interest increases. These costs are summarised in the table below:
FY23 FY22
£m
£m
Senior finance facility 5.3 3.0
Interest on hire purchase arrangements 0.8 1.0
IFRS 16 lease liabilities 3.6 2.9
Other 1.4 0.9
Total finance costs 11.1 7.8
Bank interest received (0.2) -
Net finance expense 10.9 7.8
Taxation
The Group had a tax charge for the year of £4.7m (FY22: tax credit of
£3.9m). This represents £5.6m (FY22: £5.1m credit) deferred tax charge,
partly offset by £0.8m (FY22: £1.2m charge) current tax credit. The change
in deferred tax is partly from last year's move to a deferred tax asset based
on a three-year recognition window rather than one year, followed by a FY23
reduction in deferred tax asset, reflecting a more cautious outlook based on
macroeconomic uncertainty.
Deferred tax assets have been recognised to the extent that management
considers it probable that tax losses will be utilised. In FY23 a three-year
(FY22: three-year) recognition window has been applied.
Reported and adjusted earnings per share
Our basic and diluted earnings per share, both on a reported and adjusted
basis, reduced in FY23 driven by lower profits from the demand softness in
certain end markets, reflective of the mix of revenue towards Services and
£5.1m (FY22 £0.8m) strategic investment for future growth.
Capital allocation
Our goal is to create long-term shareholder value. In FY23 we have focused on
investing in our marketplace business, providing a differentiated proposition
in the market for both customers and suppliers. The foundations laid in FY23
set the Group up for future growth and improved shareholder returns.
Dividend
With a strong balance sheet and confidence in the strategy, the Board remains
committed to a progressive dividend policy. As such a final dividend of 0.38p
is recommended, bringing the full year to 0.56p, an increase of 4% over the
prior year (FY22: 0.54p).
Capital expenditure
Additions to Intangible assets, property, plant and equipment and right of use
hire equipment in the year were £40.2m (FY22: £43.8m). Investment in
technology, principally in our Brenda platform to support future marketplace
business growth, totalled £7.1m (FY22: £5.6m). This included £1.3m to
acquire full IP of the source code underpinning the Brenda platform.
Investment in hire fleet to support our Rental business was £30.6m (FY22:
£32.7m) with decisions informed from our insight tools to maximise returns.
Return on capital employed
We believe that our ROCE remains market-leading. In FY23 we achieved 16.2%
which was a decrease of 6.6% from FY22, but still comfortably in excess of our
weighted cost of capital. A reduction was expected as we invested to support
the future growth of the marketplace business, both in terms of overheads and
software development. Our underlying ROCE excluding this investment was 19.6%
(FY22: 23.3%). ROCE is one of our KPIs.
Trade and other receivables
Gross trade debtors increased 2% over FY23, following increased revenue
throughout the financial year. There has been significant focus and improved
performance on cash collections. However, with the ongoing macroeconomic
uncertainty, we continue to adapt our processes and systems to mitigate this
risk (refer to Principal Risk and Uncertainties section) and have applied an
adjusted risk factor to expected loss rates in determining the provision for
impairment which increased the provision by £0.7m.
Provisions
Provisions reduced £2.7m to £18.6m (FY22: £21.3m). The vast majority of
this reduction relates to the ongoing annual onerous contract payments to
Unipart following the exit from the National Distribution and Engineering
Centre in 2018. At 30 December 2023, the remaining balance on this provision
was £6.8m.
Cash generated from operations
Net cash generated from operating activities was £20.2m, a decrease of
£18.8m compared with FY22. The reduction is mainly from lower EBITA, higher
interest costs and movements in working capital, including settlement of FY22
exceptional costs and the ESA award.
Leverage and net debt
Net debt increased £17.3m to £111.6m (FY22: £94.3m) and at 30 December 2023
the Group had access to £68.2m (31 December 2022: £84.0m) of combined
liquidity from available cash and undrawn borrowing facilities. With the
reduced Adjusted EBITDA and higher net debt, leverage increased to 1.7x (FY22:
1.3x). Leverage 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 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 for the year by excluding exceptional costs, finance
costs, tax charges and non-cash accounting elements such as depreciation and
amortisation.
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. This metric was used in FY23 to calculate annual bonuses payable to
Executive Directors.
The Adjusted profit before tax figure comprises the reported profit before
tax, amortisation of customer relationships and brands-related intangibles as
well as exceptional costs added back. This amount is then reduced by an
illustrative tax charge at the prevailing rate of corporation tax (a blended
rate of 23.5% has been used following the increase to 25% in April 2023) to
give an Adjusted profit after tax.
Analysts and investors also assess our earnings per share using an Adjusted
earnings per share measure, calculated by dividing 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 calculation of Adjusted EBITDA and Adjusted EBITA can vary between
companies, and a reconciliation of Adjusted EBITDA and Adjusted EBITA to
operating profit and Adjusted profit before tax to profit before tax is
provided in the Consolidated Financial Statements. A reconciliation of
reported profit per share to Adjusted earnings per share is provided in the
Consolidated 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.
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.
Post balance sheet events
On 7 March 2024, the Group sold ABird and Apex (the Power businesses) within
the Group to a third party, CES Global. The businesses were sold for an
enterprise value of £23.25m, with customary working capital and debt
adjustments resulting in a cash consideration of £20.7m. Net assets disposed
were £20.7m (including consolidation related intangibles of £6.4m) for a
gain before transaction costs of £nil. In connection with the sale of the
businesses the Group has incurred transaction costs of £0.7m in 2024.
Subsequent to the sale, proceeds of £12.5m on the sale of the Power
businesses were used to make a partial repayment of the Group's senior loan
facility, reducing the total liability from £70.0m at the year end to
£57.5m.
Based on the ongoing successful performance of the Group's builders merchant
locations, the decision was made during FY23 to accelerate the migration to
this lower variable cost model. To this end, in March 2024 the further closure
of four branches located in England and Scotland was approved reducing ongoing
costs by c£0.7m per annum, with expected exceptional costs of between £0.8m
and £1.3m
Paul Quested
Chief Financial Officer
RISK MANAGEMENT
MANAGING RISK AND UNCERTAINTY
"Effective risk management underpins everything we do at HSS, from strategy
development to managing day-to-day activities. We employ a comprehensive risk
management process to help the Group identify emerging risks, assessing impact
and ensuring appropriate mitigating actions are put in place."
Ownership
The Board has overall responsibility for the business strategy and managing
the risks associated with its delivery, setting the risk appetite, tolerance
and culture to achieve its 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
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 key developing 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
and ESG are key areas in our industry and, as such, require collective
ownership to continually improve. There is an established Executive Health and
Safety Forum which is made up of the EMT, Operational Managing Directors and
the Risk and Assurance Director. The forum meets bi-monthly (and more
frequently if required) to review trends, incidents and issues. For ESG we
have an ESG Committee that oversees improvement actions and monitors risk and
opportunities, and the EMT reviews ESG progress on a monthly basis.
Monitoring
The Risk and Assurance Director reports and meets with the EMT monthly 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 lines 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 specific risk such as Health, Safety, Environment and Quality (HSEQ),
Supply Chain Auditors, Performance Reporting, and Control Risk Self-Assessment
(CRSA) audits undertaken by regional management.
· The third line of defence- Functions that provide independent
assurance, in the HSS case primarily Internal Audit.
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 sets 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.
Macroeconomic risk
This risk continues to be one of the main risks facing the Group with a
combination of domestic and global issues likely to impact UK growth and
therefore demand. We have faced an unprecedented period of macroeconomic
uncertainty over recent years, starting with Brexit and followed by a
pandemic, international conflict, global inflationary pressures and resultant
interest rate rises. While inflation pressure has started to ease, we
recognise that escalating conflicts in 2024 have the potential to adversely
affect energy costs and disrupt global shipping which could impact supply
chain lead times and equipment costs. We continue to focus on the direct
impact of these macroeconomic conditions on the Group and the mitigating
actions that can be taken. While the uncertainty continues to evolve, the
Group's risk rating remains unchanged due to actions taken. The transition to
a lower-cost and flexible operating model have been key in combating
inflationary pressures and a higher cost of borrowing. Credit control systems
and procedures continue to be enhanced, mitigating the risk of increased
levels of customer insolvency.
ESG risk
ESG risk is integrated into our risk management process as part of the Group's
commitment to the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), and climate-related risks and opportunities have
been considered across multiple timeframes. These are covered in more detail
in the Sustainability at HSS section.
FY23 risk management developments
The focus in FY23 was on broadening the organisation's risk and assurance
capacity and capability to increase coverage as well as ensuring flexibility
to evolve with our changing business.
• Achieved ISO 27001 Information Security Management accreditation to enhance
cyber risk management.
• Incident management and investigation training provided to all operational
management and assurance team members to help improve standards
and reporting.
• Revised branch standards (CRSA audits) performed by regional managers
by aligning to Internal Audit specific location audits.
• Introduced new Central Sales audit, monitoring the standards of our
Manchester-based team.
• Quarterly ESG risk reviews instigated to ensure the Group progresses
on its journey to net zero.
• Implemented new supply chain policy with defined standards for third party
suppliers and increased the size of the supply chain auditing team to ensure
compliance with this policy.
FY24 planned improvements to risk management process
The focus for FY24 will be on improving performance standards through
broadened, focused and increased capacity alongside targeted activity on
specific risk areas.
• Introduce balanced scorecards to evaluate locations and departments, using a
blend of audit scores and performance data, with a focus on safety and
standards. This will support the identification of improvement areas
alongside recognition of good performance.
• Refresh the Group's safety brand through a combination of campaigns and
enhanced targeted training linked to the balanced scorecard insight and
recognition of role model behaviours.
• Implementation of enhanced, more dynamic credit governance processes including
quarterly fraud and security reviews of trends and emerging threats, new
process introduction and targeted training for customer-facing colleagues.
• Develop a new customer complaints module to give better insight into supply
chain performance.
• Embed the supply chain audit process ensuring adherence to revised policy.
• Expand the frequency and depth of risk reviews of third party service
suppliers, regularly assessing the security and contingency measures in place
to ensure continuity of supply.
PRINCIPAL RISKS AND UNCERTAINTIES
Key risk Description and impact How we mitigate What we have done in FY23
1. MACROECONOMIC CONDITIONS The Group's sales and profits, either volume or price, are adversely impacted The Group is not over-exposed to any one area or segment. We have continued to maintain tight cost control measures, taking decisive
by any decline in the macroeconomic environment.
action during the year in response to softness in certain customer segments
Movement - None
Ongoing monitoring and modelling of macroeconomic indicators and performance, whilst ensuring we adequately invest in the strategy and monitor
International conflicts, inflationary pressures and the higher cost of both of which are reviewed regularly by the EMT. implementation.
Owner: borrowing lowers growth, affecting demand, supply chains and financial
Steve Ashmore performance. Lower and flexible cost operating model, mitigating against any downturn in We have reduced long-term costs in our operating model, including moving more
Chief Executive Officer future demand. standalone branches to builders merchants.
The Group's Procurement team worked with suppliers to ensure that any supply
chain disruption was minimised including, where appropriate, seeking
alternative providers.
Reverse stress-test impact of economic slowdown and higher interest rates.
Mitigating action plans developed to respond to uncertain macroeconomic
environment.
2. COMPETITOR CHALLENGE A highly competitive and fragmented industry, with the chance that increased Differentiated technology platforms, including fully integrated self-service Following the creation of two distinct divisions in ProService and Operations,
competition could result in excess capacity, therefore creating pricing interfaces for customers, suppliers and colleagues, providing fast and clearly defined visions and strategic objectives have been created for each,
Movement - None pressure and adverse impacts on planned growth. efficient user journeys. providing focus to advance their differentiated propositions.
Owner: Through our continually expanding supply chain, the Group gives customers a Each division has delivered its strategic roadmap during the year, both based
Steve Gaskell Group Strategy Director one-stop shop providing access to a huge range of products and complementary on technology investment to enhance the customer experience.
services such as training courses.
The Group continues to monitor innovation outside of the equipment rental
Our organisational structure allows for a strong focus on sales acquisition. market to enable the propositions to further evolve.
We have a low-cost operating model, providing national coverage from a network
of CDCs, builders merchants and traditional branches.
3. STRATEGY EXECUTION Failure to successfully implement the Group's strategic plans alongside lower A clearly defined and communicated strategic plan is in place. The Group has continued to implement against initiative milestones
than expected realised benefits lead to reduced forecast financial performance
underpinning the strategic plan.
Movement - None in terms of revenue growth and cost savings. Clear governance structure, with defined accountabilities. Each strategic
initiative is sponsored by an EMT member. Enhanced KPI reporting has been implemented to monitor delivery of expected
Owner:
benefits for each initiative and take appropriate actions to ensure that they
Steve Gaskell Group Strategy Director Implementation of projects is monitored by the EMT, including resource remain on track.
allocation.
Regular updates, including initiative specific deep dives, provided to the
Board.
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 merchant partners Extensive training put in place for all new colleagues.
efficiently transport the hire fleet across the network to ensure it is in the and online.
Movement - None right place, at the right time and of the appropriate quality.
The Digital Service Portal was introduced to digitally capture images of
Diverse range of rehire suppliers provides ongoing flexibility to ensure equipment serviced and repaired, helping to improve quality and enhance
Owner: Management of customer relationships is important to ensure appropriate continuity of supply for customers. training for colleagues working in engineering roles.
Tom Shorten Chief Commercial Officer payment is received for the quality of service provided.
Clear business continuity plans to maintain supply. A central team to manage pricing was introduced (trading desk) to improve
Any disruption in supply, quality or relationship management can reduce
consistency on pricing and discounts.
revenue and drive additional costs into the business. Extensive and continued training to ensure testing and repair quality
standards are maintained.
Audits and reporting covering quality, contracts and complaints.
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 onboarding processes. Given the importance of the Brenda platform to the Group strategy, we brought
which is dependent on the performance of third party service providers.
the third party developers and technical teams who have worked on the
Movement - None
Each supplier is subject to demanding service level agreements with technology development in-house. This provides greater control and reduces
Other third parties, such as builders merchants, are an increasingly important performance monitored on an ongoing basis. third party reliance.
Owner: part of the operating model.
Tom Shorten Chief Commercial Officer
The wide and diverse range of rehire suppliers provides flexibility to select The majority of our remaining traditional HSS branches were migrated to the
If any third parties become unable to provide reliable equipment, refuse to those who meet required service levels. builders merchant model. This included the introduction of new partners, all
fulfil their obligations or violate laws or regulations, there could be a
subject to our extensive assessment process.
negative impact on the Group's operations leading to an adverse impact on Extensive commercial and risk assessment process undertaken before and after
profitability and reputation. entering into a relationship with a builders merchant or opening a new An enhanced supply chain policy was introduced for third party rehire
location. suppliers. This included a supplier tiered risk assessment dependent upon type
of equipment provided and was supported by investment in supply chain
assurance with two new dedicated auditors employed and an expanded audit
programme.
6. IT INFRASTRUCTURE The Group requires an IT system that is appropriately resourced to support the Third party specialists are used to assess the appropriateness of IT controls, The cyber security plan continues to evolve to counter emerging threats and
business. An IT system malfunction may affect the ability to manage operations including the risk of malicious or inadvertent security attacks. was externally recognised with the award of Cyber Essentials certification and
Movement - None and distribute hire equipment and service to customers, affecting revenue and
ISO 27001 accreditation.
reputation. Firewalls, antivirus software, endpoint detection and clean-up tools are used
Owner:
to protect against malicious attempts to penetrate the business IT environment Investment has continued in IT infrastructure including the completion of the
Paul Quested Chief Financial Officer An internal or external security attack could lead to a potential loss of and remove malware or similar agents. first phase of our server upgrade plan and improved business continuity such
confidential information and disruption to transactions with customers and
as enhanced data and systems back-up procedures.
suppliers. Procedures to update supplier security patches.
Further security enhancements to systems including reduced phishing risk
Multi-factor Authentication login security technology in place for all through email gateway implementation and expanding Single Sign On (SSO)
colleagues remotely accessing the Group's systems. protocols across other Group systems.
Regular disaster recovery tests conducted and appropriate back-up servers to Raised cyber security awareness across all colleagues through innovative
manage the risk of primary server failure. communication and revised mandatory training. Monthly phishing simulations
were run to assess effectiveness.
Cross-departmental Data Governance team to ensure that business processes are,
and continue to be, adequate.
Ongoing resilience and penetration testing.
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 The inherent risk increased due to higher levels of customer insolvency. Our
reasonable cost. our net debt KPI). comprehensive mitigating actions mean there is no movement in the residual
Movement - Inherent increase
risk.
Some customers may be unwilling or unable to fulfil the terms of their rental Extensive credit checking for account customers with strict credit control
Owner: agreements. Bad debts and credit losses can arise due to service issues or over a diversified customer base. Our strong balance sheet, lower debt and underlying interest cost mitigated
Paul Quested Chief Financial Officer fraud.
the impact of higher interest costs, with every 1% increase in the base rate
Comprehensive risk reporting including regular detailed credit limit reviews. increasing the interest charge by c£0.7m.
Unauthorised, incorrect or fraudulent payments may lead to financial loss or
delays which could affect relationships with suppliers and lead to a Credit insurance in place to minimise exposure to larger customer default The Group is evolving to a more dynamic, system-led credit governance
disruption in supply. risk. approach. During the year this included the implementation of credit checking
functionality at the point of order.
High inflation leads to base interest rate increases and therefore adversely Investigation team focused on minimising the Group's exposure to fraud.
impacts cash flow.
Clearly defined authorisation matrix governing payments and amendments.
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 Continued evolution of our wellbeing strategy based on improved data and
support the existing and future growth of the business. packages. insight from third party partners. This provided greater understanding of the
Movement - None
challenges being experienced by different demographics and job roles to inform
Failure to attract and retain the necessary high-performing colleagues could Training for colleagues is provided at all levels to build capability and specific actions.
Owner: adversely impact financial performance. improve compliance. Training is role related and behaviour focused, via
Max Morgan Group HR Director
blended learning. Differentiated pay awards were implemented during the year, focused on giving
Global inflationary pressures impact ability to retain colleagues.
lower-paid colleagues more to offset inflationary pressures.
Colleague engagement surveys are conducted, with actions taken as a result of
feedback. A new discounts platform was launched, providing all colleagues access to
discounts on everyday items.
Recruitment programmes working with third parties such as prisons offering
opportunities to ex-offenders, Colleague development has been broadened with wider apprenticeship and
leadership development offerings.
Initiatives such as Earn as you Learn.
Ensured we remain an attractive inclusive employer by evolving our ED&I
agenda and governance, the Aim Hire programme (targeting multiple individuals
including ex-military and ex-offenders) and more diversified employer
branding.
9. LEGAL AND REGULATORY REQUIREMENTS Movement - None Failure to comply with applicable law and regulation could have severe Robust governance is maintained within the Group, including a strong financial Continued focus on ESG activities, leading to further awards for the Group.
ramifications, including reputational damage and/or financial loss or penalty. structure, assurance provision from internal and external audit, and
Owner: employment of internal specialist expertise supported by suitably qualified Increased mandatory training programme with particular focus on cyber security
Daniel Joll General Counsel and experienced external practitioners. and the social element of ESG.
Training and awareness programmes focusing on a variety of key topics such as Voluntarily liquidated various subsidiaries, simplifying the Group structure
anti-bribery, anti-modern slavery, anti-facilitation of tax evasion, data as well as reducing administrative burden and compliance requirements.
protection legislation, ED&I and price collusion have all been in place
during 2023.
Whistleblowing process in place providing colleagues with the ability to raise
non-compliance issues, which the Company Secretary discusses with the Audit
Committee and the Board.
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 Incident management and investigation training was provided to all operational
customers and the general public. accidents and incidents. management and assurance team members to help improve coverage as well as
Movement - None
standards and reporting.
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
Owner: injury or death. managers with responsibility for setting direction and monitoring progress. Worked with the Group's new insurance provider to identify improvement
Steve Ashmore Chief Executive Officer
opportunities based on third party best practice.
Fully skilled HSEQ team and internal investigators providing assurance and
support. Safety communication has increased with four dedicated safety weeks held to
promote safe working.
Mandatory training programmes for higher-risk activities.
Use of telematics to improve road safety, highlighting how a vehicle is being
The Group is ISO 45001 Health and Safety accredited. driven and providing insight to operational management for actions to be
taken.
Whilst RIDDORS have unfortunately increased by two, our other category of
serious accident Lost Time have significantly reduced. The management team
were given the target of reducing serious accidents, which they have done by
26%.
11. 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 SBTi targets were submitted and approved with the action plan to deliver net
adverse reputational impact with stakeholders and it could limit ability to environmental impact, including procurement of electricity from renewable zero on track. These are monitored by the Board and the EMT.
Movement - None trade with customers. This could result in revenue reduction, deterring people sources, third party monitoring of utility consumption and waste management.
from joining the business and limiting attractiveness to investors.
The Group's second ESG Impact Report was published in June 2023.
Owner:
Procedures are in place to manage social and governance risks, many of which
Tom Shorten Chief Commercial Officer are covered in key risks 8, 9 and 10. ESG credentials were assessed externally by EcoVadis, which has upgraded our
rating and awarded the HSS Group 'Gold status' for 2022/23, placing HSS in the
The Group is ISO 14001 Environmental Management accredited. top 5% of companies assessed.
An ESG Committee that oversees improvement actions and monitors progress. Started an assessment of how our sites impact on biodiversity. This led to the
production of the HSS Sites Biodiversity Report, identifying whether the
Monthly Board updates on ESG progress. business has operational activities near biodiverse sensitive areas and
potential environmental risk, impact and mitigation measures.
SUSTAINABILITY AT HSS
Our People
"Our colleagues are at the heart of our business, and across our Group we are
committed to creating a diverse and rewarding workplace for everyone."
Health and safety
Our health & safety governance is driven from the top down, with Steve
Ashmore leading our Executive Health & Safety forum which meets quarterly.
The forum reviews performance, processes and policy, and monitors colleague
training and engagement activity, reporting back to the Board.
We have a zero-tolerance approach to health and safety across the Group, which
centres on our three core pillars of correct PPE, robust safety training, and
challenging unsafe behaviours in our locations. Safety commitments form a key
part of our colleague objectives, as well as management performance, and our
senior leadership teams are responsible for driving localised activity within
their own areas.
We have unfortunately seen an increase in RIDDORs for FY23, and we have taken
immediate action to address these through communications and engagement
activity such as safety weeks, forums, and a complete rebrand of our safety
activity for roll-out in 2024. We are confident that we can improve this
performance moving forward.
Colleague development
We are committed to ensuring that every colleague is given the training they
need to excel in their role and develop their skills to build a career with
HSS. We do this through a blended approach, with classroom-based and
e-learning tailored to role and topic area.
As we further embedded the new Central Sales team we created in 2022, we
rolled out bespoke training activities to support them in growing their
confidence selling our Group proposition, with ongoing coaching and
development from our Learning and Development team. We have also rolled these
modules out to our wider salesforce e-learning.
This year we launched two new soft skill development programmes, aimed at
developing our existing colleagues who we believe could be our future
managers. 'Rising Stars' is aimed at colleagues in HSS Operations who we
believe could be future team leaders. Through a series of workshops we helped
them develop and learn new skills around communication, customer service,
profit and loss, and people management. 'Introduction to Management' is aimed
at helping new or existing managers grow their skills and confidence in their
role, and this supplemented our existing 'Leaderships Development' programme
which sees our current leadership teams training the next potential leaders
in our business.
Colleague engagement
Our annual engagement survey is key to driving activity across our Group
business, centrally and locally within individual teams, departments and
locations. For 2023, we saw another strong response rate of 89% across the
Group, and our engagement index remained high at 74%, significantly above the
national average of 62%.
These responses and comments feed action plans within the various areas of our
business, driven by our leadership teams throughout the following year.
Keeping our colleagues informed on the progress and performance of our
business is key to our engagement strategy. Alongside our weekly blog from
Steve Ashmore, we ran our digital roadshow in December, inviting colleagues
from across the Group to share their progress and projects from 2023. We also
took the time to celebrate and reward those colleagues going above and beyond.
Health and wellbeing
Since we introduced our wellbeing strategy over six years ago, we have worked
hard to adapt and shape the activity to what our colleagues want, as well as
wider societal impacts. This year with the continued cost of living impacts,
we have worked alongside our benefits partners, Salary Finance and Royal
London, on campaigns around financial education, as well as introducing
MyDiscounts, our new discount and cashback portal to help colleagues manage
their day-to-day expenses.
In 2023 we have also utilised more of the data available to us, adapting
communications activity to the topics raised by our Employee Assistance
Programme feedback to ensure we are addressing topics that matter to
colleagues in real time. This has helped us shape activity around seasonal
depression, conflicts with colleagues and resilience.
We have seen an increase in colleague-led activity this year, with managers in
our locations designing their own activity for Wellbeing Wednesdays, as well
as peer-led mental wellbeing groups in Think Park. This demonstrates the
impact on colleagues when we break down the stigma around talking about mental
health, it allows them to feel more comfortable being their true selves at
work and offer each other that peer support which can be so important.
ED&I - Fostering a diverse workforce
The hire industry is traditionally very similar to the construction industry,
with the majority of colleagues being white and male, but this is something we
are dedicated to challenging. To ensure a robust governance structure across
all levels of our Group business, we have an ED&I steering committee,
which comprises Executive and Managing Director-level leaders from across our
business, as well as representatives from our HR and communications teams.
This group is responsible for driving the ED&I strategy, escalating key
areas and progress updates to the Executive Team and Board. This activity
is fed by the ED&I council, made up of colleague volunteers from various
different ethnicities, age groups and backgrounds, all passionate
about driving ED&I activity and acting as diversity champions within
their respective areas. These groups are actively shaping our strategy
and activity, ensuring that colleague input is key to driving us forward in
this important area.
This year we also committed to the Government's Disability Confident scheme,
demonstrating our commitment to creating opportunities for everyone to feel
welcome and comfortable within our business, and covering activity from
recruitment and beyond.
Charities and communities
We are passionate about ensuring we have a positive impact within the many
communities we work in across the UK and Republic of Ireland, and throughout
the year we undertake a range of charitable initiatives driven by our
colleagues and customers.
Working alongside our account customers such as Canary Wharf Contractors and
Sir Robert McAlpine, we've supported Maggie's and Spread a Smile, working
together on everything from comedy nights, golf events and five-a-side
football matches. We've also been helping the next generation of football
stars by sponsoring sports kit for kids teams such as St Mawgan Under 9's. We
also partnered with our partners at Lords Builders Merchants to go head to
head in a charity football game to raise money for The UK Sepsis Trust.
At our head office in Manchester we've run various charity and engagement
campaigns, such as Christmas Jumper day for Save the Children, and clothing
collections for Cancer Research. Our colleagues input into this activity, and
we ensure that we support a range of charities, nationally and locally. These
are just a few examples from 2023 which demonstrate our commitment to working
alongside our customers, suppliers and colleagues to drive a positive impact
within the communities we work in, and we look forward to continuing this work
throughout 2024.
Gender Split
As we aim to increase our percentage of female colleagues across the Group to
25% by 2025, we have made some good progress in 2023.
Our industry is typically male dominated, but we have rolled out a number of
initiatives to encourage more women into our business, adapting job
descriptions and working patterns, as well as continuing the progress built by
our Internal Women's Networking Group to open the discussion and drive
activity to support our target of 25% by 2025. This is an area of focus we
will continue to progress in 2024.
Aim hire
Our Aim Hire programme has significantly grown throughout 2023, creating
opportunities for various groups to join our business. We signed the Armed
Forces Covenant and are actively promoting roles for ex-military personnel, as
well as the families of actively serving personnel who may be looking
for work.
We have also seen positive growth in our activity working alongside various
prisons to create opportunities for ex-offenders and people on release on
temporary licence to join our business across a range of roles and locations.
We have worked direct with a number of regional prisons, as well as alongside
charities such as Inside Job to help create awareness of the roles and support
we can offer and the dedicated colleagues we have welcomed into our business
as a result of this programme.
Our Environment
In FY23 we released our second ESG Impact Report. We have committed to publish
this report annually so that we can keep ourselves accountable to the ESG
vision, strategy and goals we have publicly set out. This paperless report is
available to anyone online and goes into detail about our ESG journey.
Our focus sub-goals
SDG No. 7.A. Target - 40% company car fleet electric by 2025. Achieved 27% in
2023; with cars currently on order we will achieve the 2025 target.
SDG No. 13.2. Target- 46.2% GHG Scopes 1 and 2 by 2030. With our current
projects, we are on track to achieve this.
How are we contributing?
We remain committed to sourcing the latest products and are continually expand
our offering. We continue to build on our greener alternatives offering,
making it easier than ever for our customers to make environmentally conscious
choices.
Greener alternatives
Another major achievement in 2023 was identifying greener alternatives to
traditional fuel-based products that are commonly hired. Developing a database
of over 63,000 products, we will implement a greener alternative product
prompt for customers who elect to utilise our self-service platform,
ProService. This real-time, practical and seemingly relatively simple change
will broaden our customers' knowledge and choices of the latest product
innovations available via HSS. Customers can make informed, data-driven
decisions on steps they can take to reduce their CO2 emissions at product or
contract level, real time.
Science Based Targets initiative
In order to achieve our ambitious Net-Zero target date of 2040 we understand
that we need to take a materiality-based approach to our ESG goals to
drastically reduce our operational GHG emissions in an achievable glide-path.
In 2022 we made our submission to the SBTi. In May of 2023 we were one of the
first UK/ROI based companies in our sector to have our near-term targets
validated. This means that our near and long-term emissions reduction targets,
whilst drastic, are achievable. We've also committed to align with a 1.5ºC
rise in global temperatures compared with pre-industrial levels through the
Business Ambition for 1.5ºC campaign. This achievement is a great milestone
on the road to reaching our goals.
EcoVadis gold
In 2023 we again participated in the EcoVadis audit after previously being
awarded Silver in our inaugural year. In 2023 our ESG progress was evidenced
by our Gold award, which demonstrates the hard work and collaboration that
many HSS colleagues have inputted to achieve this recognition. This Gold award
puts us in the top 5% of EcoVadis accredited organisations globally on issues
pertaining to the environment, ethics, labour and human rights, and
sustainable procurement.
Customer carbon reporting
Through continuous dialogue with our customers and suppliers on ESG elements
we recognised that one of the biggest challenges facing industry at the moment
is the lack of readily available, manufacturer-provided, Life Cycle Analysis
(LCA) data. This data would enable all our stakeholders to have true
visibility over the impact their business has on the environment.
Unfortunately, LCA data from manufacturers is not being produced quickly
enough. This is why we conduct annual ESG audits of our entire supply chain
to focus pressure upstream for various ESG information. However, in the
meantime we have identified that the 'use' and 'transport' phases of an LCA
have the most impact in our particular industry and have developed an in-house
hybrid database of all the products we offer our customers.
Using this database, in 2023 we ran a series of pilot CO2 reporting projects
with a variety of different sized customers. These pilots were delivered in
collaboration with our customers and provided us with the opportunity to
develop a refined in-house customer carbon reporting capability.
These unique tools allow our customers to make informed, data-driven decisions
that allow them to meet their own emissions reduction targets. Following
successful pilots, in 2024 we will add the customer carbon reporting
functionality to customers who use ProService - our innovative self-service
platform.
Zero waste to landfill
We recognise that in order to reach our ambitious goals, we need to go much
further than just reducing our operational GHGs. A key area of focus for us is
our zero waste to landfill ambition and we are aiming to achieve 95% landfill
diversion by 2025.
To support this goal, we have developed a series of initiatives such as the
introduction of dry mixed recycling bins in all our locations, and monthly
reporting of all our waste streams to identify locations with unusually high
levels of waste generation. Using league tables, respective business leaders
have targeted conversations with locations to discuss practical changes that
reduce our waste, in accordance with the waste hierarchy.
After two-way dialogue we developed mandatory e-learning training for all
colleagues on waste management and reduction, so that everyone understands how
they can play their part, and why it is important that they do - across every
aspect of our business.
Supplier sustainability rating
We understand that applying pressure upstream on our supply chain is a vital
part of our ESG journey. So that we are actively driving positive change
within our industry, we now have a process that enables us to audit our entire
supply chain on the progress of their own ESG journeys annually.
In 2023 we received an encouraging 68% response rate to our ESG audits and we
hope to advance this further during 2024. Using this audit information, we
have developed a weighted scoring system and have ranked our suppliers' ESG
maturity, creating a benchmark from which to build on.
To support this, we have trained our procurement managers, supply chain
managers and buyers on ESG elements and sustainable procurement.
To encourage more sustainable behaviour in our supply chain, in Q4 2023 we
started to introduce a supplier tiering system. This system, supported by our
revolutionary in-house self-service technology solution ProService, will
offer commercial and financial incentives to reward suppliers that align
with our ambitious ESG vision, strategy and goals, which in turn
will benefit all our stakeholders.
HSS Sites, key bio-diverse area (KBA) report
HSS has always fostered a strong reputation for effective governance which we
feel is necessary for an ethical, profitable and environmentally sustainable
business. This is one of the reasons that we submitted a voluntary Task Force
on Climate-related Financial Disclosures (TCFD) report in 2022, a year prior
to it being mandatory for our business.
With the Taskforce for Nature-related Financial Disclosures (TNFD) on the
horizon we have produced our first ever HSS Sites Biodiversity Report. This
report identifies whether our business has operational activities that are
proximal to biodiversity sensitive areas and details our potential
environmental risk, impact and mitigation measures. This report provides an
early indication of potential concerns regarding biodiversity, and serves to
give guidance that can be used for informed decision-making within the group.
Innovation roadshows
At HSS we understand that technology is moving at an astonishing pace and new
products are hitting the market at an almost constant rate; however, some are
simply not suitable for the hire and construction market due to their
extensive use and conditions on site. So that we remain at the forefront of
suitable technological advancements we have continued with our now
well-established innovation roadshows.
These regional roadshows aim to bring together HSS colleagues, customers,
distribution suppliers and manufacturers to collaboratively meet, share
knowledge and get hands-on experience of some of the new and innovative
equipment available via HSS. In 2023 we held our first ever innovation
roadshow in Belfast, Northern Ireland and look forward to expanding their
reach even further in 2024 to the benefit of all our stakeholders.
Data shows that there has been a 73% average increase in orders for the new
types of greener products showcased at these events.
Fleet
We have continued to make progress on our journey to transitioning our company
car and operational fleet of vehicles into low-carbon alternatives or EVs
where practicably possible, given current business requirements. In 2023,
as vehicle leases expired, we moved to 69% of our company car fleet being
either plug-in hybrid EVs (PHEV's) or EVs with a further 30% of vehicles with
emissions of less than 120g CO2. This means we are on target to achieve our
2030 goal to exceed 60% of our company car fleet being either PHEVs or EVs,
and have already exceeded our 2025 goal of 40%.
Unfortunately, EV and PHEV technology still is not able to deliver the mileage
we require to maintain our high level of customer service. However, we are
taking action where we can; for example, we have converted 50% of our mobile
engineer fleet to low-emission PHEV vans, and as the EV range improves we are
investigating the trial of EV mobile fitter vans in our fleet. Furthermore, we
are actively exploring the possibility of converting current EV estate cars,
on the fleet into mobile fitter vans and look forward to sharing our progress.
We aren't just stopping there: our partnership with Microlise means that we
can monitor our drivers' habits and behaviours on the road, such as excessive
acceleration and braking, all of which can potentially be unsafe, burn
unnecessary fuel and potentially damage our brand reputation. This software
enables our operation managers to review this data and have targeted
conversations with our driver colleagues, so that we are completing jobs
safely, economically and with reduced environmental impact.
Satalia AI is continuing to achieve benefits as we further embed it into our
daily operations. Delivering better customer service, by providing more
scheduled slots for our customers coupled with a lower carbon footprint by
supplying real-time milage optimisation of our fleet.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 DECEMBER 2023
Year ended 30 December 2023 Year ended 31 December 2022
Note Underlying Exceptional items (note 4) Total Underlying Exceptional items (note 4) Total
£000s £000s £000s £000s £000s £000s
Revenue 2 349,110 - 349,110 332,777 - 332,777
Cost of sales (179,978) - (179,978) (164,647) - (164,647)
Gross profit 169,132 - 169,132 168,130 - 168,130
Distribution costs (31,747) - (31,747) (30,325) - (30,325)
Administrative expenses (112,888) (2,498) (115,386) (109,554) (2,774) (112,328)
Impairment loss on trade receivables and contract assets 11 (2,183) - (2,183) (1,667) - (1,667)
Other operating income 3 49 41 90 8 539 547
Operating profit 22,363 (2,457) 19,906 26,592 (2,235) 24,357
Net finance expense 5 (10,573) (353) (10,926) (7,650) (176) (7,826)
Profit before tax 11,790 (2,810) 8,980 18,942 (2,411) 16,531
Income tax (charge)/credit 6 (4,743) - (4,743) 3,946 - 3,946
Profit for the financial period 7,047 (2,810) 4,237 22,888 (2,411) 20,477
Alternative performance measures (£000s)
Adjusted EBITDA 65,136 71,572
Adjusted EBITA 24,306 31,965
Adjusted profit before tax 11,915 20,966
Earnings per share (pence)
Adjusted basic earnings per share 7 1.29 2.41
Adjusted diluted earnings per share 7 1.25 2.34
Basic earnings per share 7 0.60 2.90
Diluted earnings per share 7 0.58 2.83
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 DECEMBER 2023
Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
Profit for the financial period 4,237 20,477
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign (231) 332
operations
Other comprehensive (loss)/gain for the period (231) 332
Total comprehensive profit for the period attributable to owners of the Group 4,006 20,809
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 DECEMBER 2023
Note Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
ASSETS
Non-current assets
Intangible assets 8 152,982 147,867
Property, plant and equipment 9 93,183 87,775
Of which - Hire equipment 9 81,191 73,613
Of which - Non-hire equipment 9 11,992 14,162
Right of use assets 10 51,811 51,813
Of which - Hire equipment 10 2,592 2,736
Of which - Non-hire equipment 10 49,219 49,077
Deferred tax asset 16 2,012 7,515
299,988 294,970
Current assets
Inventories 3,823 3,779
Trade and other receivables 11 93,441 86,068
Cash and cash equivalents 31,931 47,709
129,195 137,556
Total assets 429,183 432,526
EQUITY
Share capital 17 7,050 7,050
Share premium 17 45,552 45,552
Foreign exchange translation reserve (653) (422)
Other reserves 97,780 97,780
Retained earnings 33,456 32,503
Total equity 183,185 182,463
LIABILITIES
Current liabilities
Trade and other payables 12 85,317 88,302
Lease liabilities 13 14,548 13,182
Borrowings 14 5,545 5,168
Provisions 15 4,816 4,258
Current tax liability - 290
110,226 111,200
Non-current liabilities
Lease liabilities 13 42,822 43,110
Borrowings 14 79,015 78,591
Provisions 15 13,753 17,045
Deferred tax liabilities 16 182 117
135,772 138,863
Total liabilities 245,998 250,063
Total equity and liabilities 429,183 432,526
The Financial Statements were approved and authorised for issue by the Board
of Directors on 30 April 2024 and were signed on its behalf by:
Paul Quested
Director
30 April 2024
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 DECEMBER 2023
Share Share Merger Foreign Retained Total
capital
premium
reserve
exchange
earnings
equity
£000s
£000s
£000s
translation
£000s
£000s
reserve
£000s
At 2 January 2022 7,050 45,552 97,780 (754) 12,273 161,901
Profit for the period - - - - 20,477 20,477
Foreign currency translation differences arising on consolidation of foreign - - - 332 - 332
operations
Total comprehensive profit for the period - - - 332 20,477 20,809
Transactions with owners recorded directly in equity:
Dividends paid - - - - (1,198) (1,198)
Share-based payment charge - - - - 951 951
At 31 December 2022 7,050 45,552 97,780 (422) 32,503 182,463
Profit for the period - - - - 4,237 4,237
Foreign currency translation differences arising on consolidation of foreign - - - (231) - (231)
operations
Total comprehensive profit for the period - - - (231) 4,237 4,006
Transactions with owners recorded directly in equity:
Dividends paid - - - - (3,877) (3,877)
Share-based payment charge - - - - 593 593
As at 30 December 2023 7,050 45,552 97,780 (653) 33,456 183,185
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 DECEMBER 2023
Note Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
Profit for the financial period 4,237 20,477
Adjustments for:
- Tax 6 4,743 (3,946)
- Amortisation 1,943 5,314
- Depreciation 33,673 35,494
- Accelerated depreciation relating to hire stock customer losses and hire 6,653 3,951
stock write-offs
- Accelerated depreciation of other property, plant and equipment 1,459 -
and right of use assets
- Loss on disposal of property, plant and equipment and right of use assets 2,504 486
- Lease disposals 13 (1,795) (324)
- Loss on disposal of intangibles - 59
- Capital element of receipts from net investment in sublease 143 255
- Share-based payment charge 593 951
- Foreign exchange loss/(gain) on operating activities (23) 35
- Finance expense 5 10,926 7,826
Changes in working capital (excluding the effects of disposals and exchange
differences on consolidation):
- Inventories (44) (1,097)
- Trade and other receivables (5,767) (6,616)
- Trade and other payables (2,327) 9,472
- Provisions (3,192) 268
Net cash flows from operating activities before purchase of hire equipment 53,726 72,605
Purchase of hire equipment 9 (22,789) (24,538)
Cash generated from operating activities 30,937 48,067
Interest paid (9,550) (6,836)
Income tax repaid (1,183) (2,220)
Net cash generated from operating activities 20,204 39,011
Cash flows from investing activities
Proceeds on disposal of non-hire property, plant and equipment 541 -
Purchases of non-hire property, plant, equipment and software 8,9 (10,090) (10,571)
Net cash used in investing activities (9,549) (10,571)
Cash flows from financing activities
Dividends paid (3,877) (1,181)
Facility arrangement fees (35) (35)
Capital element of lease liability payments (15,729) (15,140)
Capital element of hire purchase arrangement payments (6,703) (6,644)
Net cash used in financing activities (26,344) (23,000)
Net (decrease)/increase in cash and cash equivalents (15,689) 5,440
Net effects of foreign exchange on cash and cash equivalents (89) -
Cash and cash equivalents at the start of the year 47,709 42,269
Cash and cash equivalents at the end of the year 31,931 47,709
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 DECEMBER 2023
1. BASIS OF PREPARATION
The Group Financial Statements of HSS Hire Group plc have 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 30 December 2023 (which will be
available at www.hsshiregroup.com/ investor-relations/financial-results).
These policies are consistent with those shown in the audited financial
statements for the year ended 31 December 2022, with the exception of certain
revenue streams which are now recognised under IFRS 16. The change in
accounting policy had no effect on the measurement of revenue in the current
or preceding financial year. Further detail is provided in note 4 of the
audited financial statements for the year ended 30 December 2023. The
financial statements were approved by the Board on 30 April 2024.
The financial information for the year ended 30 December 2023 and the year
ended 31 December 2022 does not constitute the company's statutory accounts
for those years. Statutory accounts for the year ended 31 December 2022 have
been delivered to the Registrar of Companies. The statutory accounts for the
year ended 30 December 2023 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 30 December 2023 and
31 December 2022 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 30 December 2023 will be
posted to shareholders in early May 2024.
Going concern
At 30 December 2023, the Group's financing arrangements consisted of a fully
drawn senior finance facility of £70.0m, an undrawn revolving credit facility
(RCF) of £19.0m and undrawn overdraft facilities of £6.0m. Cash at the
balance sheet date was £31.9m providing liquidity headroom of £56.9m (2022:
£72.7m). Both the senior finance facility and RCF are subject to a net debt
leverage and interest cover financial covenant tests each quarter. At the
financial year end the Group had 44% and 54% headroom against these covenants
respectively (2022: 57% and 134% respectively). The Directors have prepared a
going concern assessment up to 28 June 2025, which confirms that the Group is
capable of continuing to operate within its existing facilities and can meet
its covenant tests during that period. With regard to the assessment of going
concern, the Directors have reviewed the Group's cash flow forecasts, taking
into account strategic initiatives and sensitivity analysis based on the
possible changes in trading performance in an uncertain market environment.
The Directors have considered the impact of the expiration of the Group's
Senior Finance Facility in November 2025, shortly after the end of the going
concern assessment period. The Directors expect to refinance before the
expiration date, with no impact on going concern.
The Board has considered various downside scenarios including a 'reasonable
worst case' driven by macroeconomic downturn and assumes reducing demand with
decline in our revenue generated from the Group's owned assets, lower than
historic growth from third party supply (rehire) rental revenue, our strategic
cost initiatives deliver less than planned, wage inflation is above forecast,
rehire margins are lower than forecast and there is an increase in debtor
days.
This reasonable worst case scenario has been modelled without mitigating
actions and 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 the Financial
Statements included within this Annual Report.
2. SEGMENT 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:
· ProService - Digital marketplace business focused on customer and
supplier acquisition. Technology driven, extremely scalable and uniquely
differentiated including training services.
· 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, has changed its internal
reporting to reflect the two divisions that have been created.
As a result of this, the Group's operating segments have changed from those
presented in the prior year. Under IFRS 8 Operating Segments (IFRS 8),
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 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 any comparatives under the newly
identified reportable segments. To ensure that comparable segmental
information is available to the users of the Financial Statements, the Group
has 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 rehire business and training
business. These ceased to be reportable segments in FY23 and will not
be presented in the FY24 Annual Report.
The Group continues to present separately the costs relating to central
management within the 'Central' heading in the disclosure. This segment 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 comparable with the former
'Central' heading used by the Group.
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 except for the HSS Operations - Ireland segment whose revenues are
derived from customers in the Republic of Ireland. No single customer
represented more than 10% of Group revenue in the current year (2022: none).
Year ended 30 December 2023
ProService Operations - UK Operations - Ireland Central Total
£000s £000s £000s £000s £000s
Equipment hire and related revenue 264,934 122,615 23,305 (116,933) 293,921
Sale of goods and related services 26,593 13,231 4,130 (8,213) 35,741
Other services rendered 19,448 - - - 19,448
Total revenue 310,975 135,846 27,435 (125,146) 349,110
Adjusted EBITDA 14,407 58,299 6,920 (14,490) 65,136
Less: Depreciation (1,573) (36,023) (3,067) (167) (40,830)
Adjusted EBITA 12,834 22,276 3,853 (14,657) 24,306
Less: Amortisation (1,943)
Less: Exceptional items (non-finance) (2,457)
Operating profit 19,906
Net finance expenses (10,926)
Profit before tax 8,980
The timing of the satisfaction of performance obligations as it relates to
revenue recognition is shown below:
Year ended 30 December 2023
ProService Operations - UK Operations - Ireland Central Total
£000s £000s £000s £000s £000s
Revenue from operating lease 236,446 100,727 20,913 (97,280) 260,806
Revenue recognised at a point in time 55,081 35,119 6,522 (27,866) 68,856
Revenue recognised over time 19,448 - - - 19,448
Total revenue recognised 310,975 135,846 27,435 (125,146) 349,110
Central includes the elimination of revenue between trading segments, the
largest being between Operations - UK and ProService, along with central
management costs to support the businesses.
Year ended 30 December 2023
ProService Operations - UK Operations - Ireland Central Total
£000s £000s £000s £000s £000s
Additions to non-current assets
Property, plant and equipment 458 26,081 5,539 - 32,078
Right of use assets 3,037 15,100 741 309 19,187
Intangibles 5,718 1,340 - - 7,058
Net book value
Property, plant and equipment 649 82,242 10,292 - 93,183
Right of use assets 4,477 44,311 2,601 422 51,811
Intangibles 71,613 73,859 7,510 - 152,982
Deferred tax assets 2,012 2,012
Current assets 129,195 129,195
Current liabilities (110,226) (110,226)
Non-current liabilities (135,772) (135,772)
Net assets 183,185
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 HSS Core Operations of
£38.0m and £64.3m respectively. There has been no change to the goodwill
allocated to HSS Core - Ireland or HSS Power.
Year ended 30 December 2023 (Historic segments)
Rental (and related revenue) Services Central Total
£000s £000s £000s £000s
Total revenue from external customers 207,273 141,837 - 349,110
Contribution 136,661 19,532 - 156,193
Branch and selling costs (62,055) (62,055)
Central costs (29,002) (29,002)
Adjusted EBITDA 65,136
Less: Exceptional items (non-finance) (2,457) (2,457)
Less: Depreciation and amortisation (23,052) (1,488) (18,233) (42,773)
Operating profit 19,906
Net finance expenses (10,926)
Profit before tax 8,980
Income tax charge (4,743)
Profit after tax 4,237
Year ended 30 December 2023 (Historic segments)
Rental Services Central Total
(and related revenue)
£000s £000s £000s
£000s
Additions to non-current assets
Property, plant and equipment 29,551 11 2,516 32,078
Right of use assets 1,062 753 17,372 19,187
Intangibles - 5,718 1,340 7,058
Net book value
Property, plant and equipment 81,191 115 11,877 93,183
Right of use assets 2,592 1,008 48,211 51,811
Intangibles 138,097 11,751 3,134 152,982
Deferred tax assets 2,012 2,012
Current assets 129,195 129,195
Current liabilities (110,226) (110,226)
Non-current liabilities (135,772) (135,772)
Net assets 183,185
Year ended 31 December 2022
Rental (and related revenue) Services Central Total
£000s £000s £000s £000s
Total revenue from external customers 206,175 126,602 - 332,777
Contribution 138,439 19,271 - 157,710
Branch and selling costs (53,612) (53,612)
Central costs (32,526) (32,526)
Adjusted EBITDA 71,572
Less: Exceptional items (2,235) (2,235)
Less: Depreciation and amortisation (22,998) (359) (21,623) (44,980)
Operating profit 24,357
Net finance expenses (7,826)
Profit before tax from continuing operations 16,531
Income tax charge 3,946
Profit after tax from continuing operations 20,477
Year ended 31 December 2022
Rental (and related revenue) Services Central Total
£000s £000s £000s £000s
Additions to non-current assets
Property, plant and equipment 30,436 49 5,461 35,946
Right of use assets 2,220 521 7,672 10,413
Intangibles 3,052 35 2,505 5,592
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
Intangibles 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)
Net assets 182,463
3. OTHER OPERATING INCOME
Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
Property sublease rental and service charge income 90 547
During the year, the Group received sublet rental income of £0.1m (2022:
£0.5m) on vacant properties.
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 30 December 2023 the Group has
recognised exceptional items as follows:
Included in Included in Included in Year ended
administrative
other operating income
finance expense
30 December 2023
expenses
£000s
£000s
£000s
£000s
Onerous property costs 838 (41) 42 839
Costs relating to branch network restructure 1,467 - - 1,467
Costs relating to group restructure 221 - - 221
Onerous contract (28) - 311 283
Total 2,498 (41) 353 2,810
During the year ended 31 December 2022, the Group recognised exceptional items
analysed as follows:
Included in Included in other operating income Included in Year ended
administrative
£000s
finance expense
31 December 2022
expenses
£000s
£000s
£000s
Onerous property costs 112 (539) 26 (401)
Costs relating to group restructure 3,182 - - 3,182
Onerous contract (520) - 150 (370)
Total 2,774 (539) 176 2,411
Exceptional items incurred in 2023 and 2022
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 closed stores. In the
current year, expenses incurred in respect of historic closures included
within exceptional items were £0.2m (2022: credit of £0.4m). In the prior
year, the credit related primarily to sublet rental income received where
properties have been sublet; amounts from sublet rental income are included
within other operating income.
Also included within onerous property costs during the current year are the
costs to create provisions for the UK branch network restructure discussed in
more detail below. The costs of creating these provisions amounted to £0.6m
(2022: £nil). Amounts in respect of accelerated depreciation arising on the
exit of these trading locations is included within the costs relating to
restructuring category.
Costs related to group restructure
In the previous year, the Group completed the legal separation of HSS
ProService. The majority of the costs associated with this separation were
incurred in the prior year, a total of £0.2m of residual costs were incurred
in the current year (2022: £3.2m). Costs associated with the separation in
the prior year include a detailed strategy refresh, working with third party
advisors to develop the growth plans for HSS ProService and evaluate
opportunities to create greater shareholder value.
Costs related to branch network restructure
During the current year, the Group took the strategic decision to migrate the
remaining UK HSS branches to the Builder's Merchant model. The impact of the
change includes the closure of 16 branches during the current year, with
additional closures approved by the Board subsequent to the year-end. This
strategic initiative is expected to generate annual cost savings of c£1m and
all impacted colleagues have been redeployed to new locations.
The total costs incurred in respect of the UK branch network restructure were
£1.5m (2022: £nil). These costs materially all relate to accelerated
depreciation on the exit of these trading locations. These costs are incurred
where useful economic life estimates for assets at these branches, which
cannot be repurposed elsewhere, have been revised downwards to the expected
closure date.
Separately to the above, in the previous year, the Group completed the legal
separation of HSS ProService. The majority of the costs associated with this
separation were incurred in the prior year, a total of £0.2m of residual
costs were incurred in the current year (2022: £3.2m). Costs associated with
the separation in the prior year include a detailed strategy refresh, working
with third party advisors to develop the growth plans for HSS ProService and
evaluate opportunities to create greater shareholder value.
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 early
2018. The liability at the balance sheet date is £6.8m (2022: £9.8m). The
discount rate used to calculate the present value of the provision is the
five-year UK gilt rate of 3.98% (2022: 3.62%). Application of the new discount
rate at the balance sheet date resulted in a credit to the income statement
of £28k (2022: credit of £368k), recognised as exceptional in line with the
original provision. An interest charge (discount unwind) of £0.3m (2022:
£0.2m) was recognised through exceptional finance costs.
5. NET FINANCE EXPENSE
Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
Interest on senior finance facility 5,278 3,041
Debt issue costs 506 473
Interest on lease liabilities 3,620 2,907
Interest on hire purchase arrangements 775 1,001
Unwind on discounted provisions 693 150
Interest on other bank loans and overdrafts 169 254
Other interest payable 83 -
Gross finance expense 11,124 7,826
Bank interest receivable (198) -
Net finance expense 10,926 7,826
6. INCOME TAX CHARGE
a) Analysis of tax charge/(credit) in the year
Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
Current tax (credit)/charge
UK corporation tax on the result for the year 236 1,495
Adjustments in respect of prior years (1,061) (299)
Total current tax (credit)/charge (825) 1,196
Deferred tax charge/(credit) for the year
Deferred tax charge/(credit) for the year 4,935 (5,493)
Deferred tax impact of change in tax rate (27) (40)
Adjustments in respect of prior years 660 391
Total deferred tax credit 5,568 (5,142)
Income tax charge/(credit) 4,743 (3,946)
b) Factors affecting the income tax charge/(credit) in the year
The tax assessed on the profit for the year differs from the standard UK
corporation rate of tax. The differences are explained below:
Year ended Year ended
30 December 2023
31 December 2022
£000s
£000s
Profit before tax 8,980 16,531
Profit before tax multiplied by the effective standard rate of corporation tax 2,110 3,141
of 23.5% (2022: 19.0%)
Effects of:
Unprovided deferred tax movements on short-term temporary differences and (2,715) (2,530)
capital allowance timing differences
Adjustments in respect of prior years (402) 92
Expenses not deductible for tax purposes 283 1,096
Derecognition/(recognition) of brought forward tax losses and temporary timing 6,485 (5,367)
differences
Utilisation of unrecognised tax losses brought forward (739) (449)
Differential in oversees tax rates (252) -
Foreign tax suffered - 111
Impact of change in tax rate (27) (40)
Income tax charge/(credit) 4,743 (3,946)
The charge of £0.3m (2022: £1.1m) arising in respect of expenses not
deductible is mainly attributable to costs associated with share options
awarded to some employees, the Group exiting property leases and removing
dormant entities from the Group structure. This amount has decreased in the
current year due to the lower level of properties exited during the previous
year. The charge of £6.5m (2022: credit of £5.4m) arises from the reduction
in deferred tax assets in respect of the utilisation of forecast losses in the
three-year (2022: three-year) recognition window.
c) Factors that may affect future tax charge
The standard rate of UK corporation tax increased to 25% from 1 April 2023.
The increased rate has been used to calculate the above deferred tax
disclosures.
At 30 December 2023 the Group had an unrecognised deferred tax asset relating
to losses of £21.1m (2022: £13.1m). The gross value of this balance at 30
December 2023 was £84.5m (2022: £52.3m).
At 30 December 2023 the Group also had an unrecognised deferred tax asset
relating to temporary differences on plant and equipment, intangible assets
and provisions of £3.1m (2022: £9.8m). The gross value of this balance at 30
December 2023 was £12.5m (2022: £39.4m).
The unrecognised 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 difference will occur.
7. EARNINGS PER SHARE
Basic earnings per share:
Profit after tax Weighted average number of shares Earnings
£000s
000s
per share
Pence
Year ended 30 December 2023 4,237 704,988 0.60
Year ended 31 December 2022 20,477 704,988 2.90
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 year.
Diluted earnings per share:
Profit after tax Diluted weighted average Earnings
£000s
number of
per share
shares
Pence
000s
Year ended 30 December 2023 4,237 728,238 0.58
Year ended 31 December 2022 20,477 723,950 2.83
Diluted earnings per share is calculated using the profit 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) and restricted stock grants.
All of the Group's potentially dilutive equity derivative securities were
dilutive for the purpose of diluted earnings per share in both 2023 and 2022.
The following is a reconciliation between the basic earnings per share and the
adjusted basic earnings per share:
Year ended Year ended
30 December 2023
31 December 2022
Pence
Pence
Basic earnings per share 0.60 2.90
Add back:
Exceptional items per share(1) 0.40 0.34
Amortisation of customer relationships and brands per share(2) 0.02 0.29
Tax charge/(credit) per share 0.67 (0.56)
Charge:
Tax charge at prevailing rate (0.40) (0.56)
Adjusted basic earnings per share 1.29 2.41
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 of customer relationships and brands per share is
calculated as the amortisation charge on customer relationships and brands
divided by the weighted average number of shares in issue through the year.
The following is a reconciliation between the diluted earnings per share and
the adjusted diluted earnings per share:
Year ended Year ended
30 December 2023
31 December 2022
Pence
Pence
Diluted earnings per share 0.58 2.83
Add back:
Exceptional items per share(1) 0.39 0.33
Amortisation of customer relationships and brands per share(2) 0.02 0.28
Tax charge/(credit) per share 0.66 (0.55)
Charge:
Tax charge at prevailing rate (0.40) (0.55)
Adjusted diluted earnings per share 1.25 2.34
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 of customer relationships and brands per share is
calculated as the amortisation charge on customer relationships and brands
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 is as follows:
Year ended Year ended
30 December 2023
31 December 2022
Weighted average number of shares
Weighted average number of shares
000s
000s
Basic 704,988 704,988
LTIP share options 3,003 3,843
Restricted stock grant 20,164 15,036
Company Share Option Plan (CSOP) options 83 83
Diluted 728,238 723,950
8. INTANGIBLE ASSETS
Customer relationships
Goodwill £000s Brands Software Total
£000s £000s £000s £000s
Cost
At 1 January 2023 115,855 25,400 22,585 32,764 196,604
Additions - - - 7,058 7,058
Disposals - - - (360) (360)
At 30 December 2023 115,855 25,400 22,585 39,462 203,302
Amortisation
At 1 January 2023 - 25,291 327 23,119 48,737
Charge for the year - 91 34 1,818 1,943
Disposals - - - (360) (360)
At 30 December 2023 - 25,382 361 24,577 50,320
Net book value
At 30 December 2023 115,855 18 22,224 14,885 152,982
Customer relationships
Goodwill £000s Brands Software Total
£000s £000s £000s £000s
Cost
At 2 January 2022 115,855 25,400 22,590 31,856 195,701
Additions - - - 5,592 5,592
Disposals1 - - (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 year - 1,990 34 3,290 5,314
Disposals1 - - (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
1 As part of the internal legal restructuring an asset verification
exercise was conducted. As a result, intangible assets, with a gross book
value of £4.6m and accumulated depreciation of £4.6m, have been disposed
during the prior year.
Analysis of goodwill, indefinite life brands, other brands and customer
relationships by cash generating unit:
Indefinite life brands Other Customer relationships
brands
Goodwill £000s
£000s Total
£000s
£000s £000s
Allocated to
HSS Core Operations 64,328 - - - 64,328
HSS ProService 37,964 21,900 - - 59,864
HSS Core - Ireland 7,510 - - - 7,510
HSS Power 6,053 - 324 19 6,396
At 30 December 2023 115,855 21,900 324 19 138,098
Indefinite Other Customer relationships
brands
Goodwill life brands
£000s Total
£000s
£000s £000s £000s
Allocated to
HSS Core - UK 102,292 21,900 - - 124,192
HSS Core - Ireland 7,510 - - - 7,510
HSS Power 6,053 - 358 109 6,520
At 31 December 2022 115,855 21,900 358 109 138,222
The remaining life of intangible assets other than goodwill and indefinite
life brands is between nil and 11 years (2022: nil and 12 years). For the
purpose of calculating Adjusted EBITDA and Adjusted EBITA, amortisation
is calculated as the total of the amortisation charge for the year and the
loss on disposal of intangible assets. For the purpose of calculating Adjusted
profit before tax, amortisation of customer relationships and brands
is calculated as the total amortisation charge for the year and the loss on
disposal of customer relationships and brands.
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.
During the prior year, the Group completed a restructure which included the
legal creation of HSS Hire Ireland Limited in the Republic of Ireland.
Following this restructure, the HSS Core CGU was subdivided into HSS Core - UK
and HSS Core - Ireland and, in line with IAS 36, the goodwill allocated based
on each CGU's value in use (VIU).
As part of this process and first disclosed in the Group's interim Financial
Statements, the Goodwill historically allocated to HSS Core - UK had to be
allocated to HSS ProService and HSS Core Operations - UK for the first time.
This was done using a VIU-based allocation and the table above shows the
allocation between CGUs. The identification of segments, CGUs and the
allocation of the Goodwill balance is all considered to be part of a
significant judgement in the current year.
The recoverable amounts of the goodwill and indefinite life brands, which are
allocated to CGUs, are estimated from VIU calculations which model pre-tax
cash flows for the next five years (2022: 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, long-term growth rate, forecast 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 2024 and model
for the following two years (to the end of 2026).
· Operational activity then had a long-term growth rate applied 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 (2022: 2.0%).
· A pre-tax discount rate of 13.3% (2022: 12.2%), calculated by
reference to a weighted average cost of capital based on an industry peer
group of quoted companies and including a 3.1% premium reflective
of the Group's market capitalisation (2022: 2.0%).
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 30 December 2023 for any of the CGUs. The
Directors carried out sensitivity analysis on various inputs to the models,
including growth rates and discount rates, which did not result in an
impairment charge for any CGU. The level of headroom in all CGUs except HSS
Power was sufficient that the Directors did not believe a reasonably possible
change could trigger an impairment.
In respect of HSS Power, further evidence became available subsequent to the
balance sheet date for the recoverable amount of the CGU, as the HSS Power
business was sold on 8 March 2024. As the carrying value of goodwill allocated
to HSS Power would be measured as the higher of the value in use calculation
and the fair value less costs to sell, even if estimates used in the value in
use calculation changed unfavourably, the evidence for the fair value less
costs of disposal would be sufficient to confirm that no impairment was
required 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.
The following tables summarise the results of sensitivity testing and scenario
modelling on the headroom from impairment testing in respect of the Group's
CGUs in the current and prior period:
At 30 December 2023
HSS HSS HSS HSS Operations - Ireland
ProService Core Operations Power
Headroom between VIU and carrying value before sensitivity £25.3m £31.5m £2.2m £10.9m
Discount rate required to eliminate the headroom above 16.3% 15.7% 14.5% 19.7%
Long-term growth rate required to eliminate the headroom above (2.0%) (1.4%) 0.4% (7.8%)
The permanent reduction in EBITDA before an impairment would be triggered 9.2% 5.6% 3.1% 14.2%
Headroom with 0% long-term growth and an increase of 1% to the discount rate 3.3m (£0.3m) (£2.0m) £5.5m
before mitigating actions
At 31 December 2022
HSS HSS HSS
Core - UK Power Core - Ireland
Headroom between VIU and carrying value before sensitivity £229.5m £8.4m £16.4m
Discount rate required to eliminate the headroom above 22.2% 16.1% 21.8%
Long-term growth rate required to eliminate the headroom above (14.5%) (3.4%) (13.8%)
The reduction in EBITDA before an impairment would be triggered 26.6% 10.0% 18.3%
Headroom with 0% long-term growth and an increase of 1% to the discount rate £139.1m £2.4m £9.8m
9. PROPERTY, PLANT AND EQUIPMENT
Materials & equipment held for hire
Land & Plant & £000s
buildings
machinery Total
£000s
£000s £000s
Cost
At 1 January 2023 35,045 29,196 174,508 238,749
Transferred from right of use assets - - 372 372
Transferred to right of use assets - - (483) (483)
Additions 1,680 847 29,551 32,078
Disposals (724) (8,128) (22,753) (31,605)
Re-measurement (216) - - (216)
Foreign exchange differences (26) (3) (141) (170)
At 30 December 2023 35,759 21,912 181,054 238,725
Accumulated depreciation
At 1 January 2023 23,957 26,122 100,895 150,974
Transferred from right of use assets - - 323 323
Transferred to right of use assets - - (380) (380)
Charge for the year 2,531 1,248 15,296 19,075
Disposals (444) (8,124) (16,382) (24,950)
Accelerated depreciation on exit of trading locations 507 9 - 516
Foreign exchange differences (12) - (4) (16)
Transfers - (115) 115 -
At 30 December 2023 26,539 19,140 99,863 145,542
Net book value
At 30 December 2023 9,220 2,772 81,191 93,183
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 has 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 result of this
review was that certain assets' useful lives were extended but remained within
the original estimates as disclosed in the Group's 2022 Consolidated Financial
Statements, 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; this was due to evidence that this
equipment was being consistently used for a period in excess of its original
estimate. The total impact of the change was a reduction in depreciation for
these assets of £2.7m in the current financial period; the impact on future
periods is expected to be materially the same as the current year subject to
the impact of future additions and disposals. All changes to estimates have
been applied prospectively.
Accelerated depreciation on exit of trading locations relates to additional
depreciation charged as a result of reductions to specific useful economic
lives when branches cease operations early.
Materials & equipment held for hire
Land & Plant & £000s
buildings
machinery
Total
£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
Disposals1 (4,606) (14,561) (16,686) (35,853)
Re-measurement (2,497) - - (2,497)
Foreign exchange differences 28 2 243 273
Transfer (102) - 102 -
At 31 December 2022 35,045 29,196 174,508 238,749
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
Disposals1 (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
1 As part of the internal legal restructuring an asset verification
exercise was conducted. As a result, land and buildings and plant and
machinery assets, with a net book value of £0.5m (£18.0m gross book value
less £17.5m accumulated depreciation), have been disposed during the year.
The transferred from right of use category represents the acquisition of right
of use assets at expiry of the lease in cases where the title is transferred
to the Group.
Included within property, plant and equipment are assets against which charges
have been registered as security against their acquisition through hire
purchase arrangements. The total value of assets subject to these securities
at the balance sheet date was £20.5m (2022: £19.3m).
10. RIGHT OF USE ASSETS
Equipment for internal use
£000s Equipment held for hire
Property Vehicles £000s Total
£000s £000s £000s
Cost
At 1 January 2023 56,895 31,613 520 3,606 92,634
Additions 5,243 12,882 - 1,062 19,187
Re-measurements (608) - - - (608)
Transferred to property, plant and equipment - - - (372) (372)
Transferred from property, plant and equipment - - - 483 483
Disposals (8,558) (16,573) (520) (645) (26,296)
Foreign exchange differences (37) (14) - - (51)
At 30 December 2023 52,935 27,908 - 4,134 84,977
Accumulated depreciation
At 1 January 2023 20,540 18,909 502 870 40,821
Transferred to property, plant and equipment - - - (323) (323)
Transferred from property, plant and equipment - - - 380 380
Charge for the period 6,625 6,976 18 979 14,598
Accelerated depreciation on exit of trading locations 943 - - - 943
Disposals (6,787) (15,582) (520) (364) (23,253)
At 30 December 2023 21,321 10,303 - 1,542 33,166
Net book value
At 30 December 2023 31,614 17,605 - 2,592 51,811
Accelerated depreciation on exit of trading locations relates to additional
depreciation charged as a result of reductions to specific useful economic
lives when branches cease operations early.
Equipment for internal use
£000s Equipment held for hire
Property Vehicles £000s Total
£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
Transferred to property, plant and equipment - - - (271) (271)
Charge for the period 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
The transferred to property, plant and equipment category represents the
acquisition of right of use assets at expiry of the lease in cases where the
title is transferred to the Group.
11. TRADE AND OTHER RECEIVABLES
30 December 2023 31 December 2022
Provision for
Provision for impairment credit notes
£000s £000s Net of provision Provision for impairment Provision for Net of provision
Gross £000s Gross £000s credit notes £000s
£000s £000s £000s
Trade receivables 76,620 (3,607) (5,528) 67,485 77,308 (3,343) (5,554) 68,411
Accrued income 13,318 (103) - 13,215 10,543 (106) - 10,437
Total trade receivables and contract assets 89,938 (3,710) (5,528) 80,700 87,851 (3,449) (5,554) 78,848
Net investment in sublease 569 - - 569 712 - - 712
Other debtors 5,846 - - 5,846 3,493 - - 3,493
Prepayments 6,326 - - 6,326 3,015 - - 3,015
Total trade and other receivables 102,679 (3,710) (5,528) 93,441 95,071 (3,449) (5,554) 86,068
Included in other debtors is £2.8m (2022: £1.0m) relating to tax
receivables.
The following table details the movements in the provisions for impairment of
trade receivables and contract assets and credit notes:
30 December 2023
30 December 2023 Provision for impairment Provision for 31 December 2022 Provision for 31 December 2022
£000s credit notes impairment Provision for
£000s £000s credit notes
£000s
Balance at the beginning of the period (3,449) (5,554) (3,931) (3,225)
Increase in provision (2,183) (4,166) (1,667) (6,278)
Utilisation 1,922 4,192 2,149 3,949
Balance at the end of the period (3,710) (5,528) (3,449) (5,554)
The bad debt provision based on expected credit losses and applied to trade
receivables, all of which are current assets, is as follows:
61-365 days
0-60 days past due 1-2 years
Current past due £000s past due Total
30 December 2023 £000s £000s £000s £000sl
Trade receivables and contract assets 73,810 7,594 7,031 1,503 89,938
Expected loss rate (%) 0.6% 2.4% 24.1% 90.6% 4.1%
Provision for impairment 469 184 1,696 1,361 3,710
61-365
days
0-60 days
1-2 years
past due
Current past due
past due Total
£000s
31 December 2022 £000s £000s £000s £000s
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 638 218 1,517 1,076 3,449
Contract assets consist of accrued income which is invoiced to customers in
the next financial period.
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 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 increasing 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. In so doing the provision has been
increased by £0.7m (2022: £0.7m) 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 £3.0m (2022: £3.1m). Unless the counterparty
is in liquidation, these amounts are still subject to enforcement actions.
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 10.3% of trade
receivables and contract assets at 30 December 2023 (2022: 10.2%). A 0.5%
increase in the combined provision rate would give rise to an increased
provision of £0.4m (2022: £0.4m).
12. TRADE AND OTHER PAYABLES
Year ended Year ended
30 December 2023 31 December 2022
£000s £000s
Current
Trade payables 50,410 41,693
Other taxes and social security costs 4,631 4,718
Other creditors 1,020 2,010
Accrued interest on borrowings 716 534
Accruals 27,204 38,689
Deferred income 1,336 658
85,317 88,302
All deferred income relates to goods and services to be provided to customers in the next financial period.
13. LEASE LIABILITIES
Year ended Year ended
30 December 2023 31 December 2022
£000s £000s
Lease liabilities - Current 14,548 13,182
Lease liabilities - Non-current 42,822 43,110
57,370 56,292
The interest rates on the Group's lease liabilities are as follows:
30 December 2023 31 December 2022
Equipment for hire 10.6 to 19.1% 11.1 to 19.1%
Fixed
Other 5.7 to 6.1% 3.5 to 6.0%
Fixed
The weighted average interest rates on the Group's borrowings are as follows:
30 December 2023 31 December 2022
Lease liabilities 6.4% 6.1%
The lease liability movements are detailed below:
Property Vehicles Equipment for hire and internal use Total
£000s £000s £000s £000s
Lease liability movement
At 1 January 2023 39,268 13,472 3,552 56,292
Additions 5,167 12,955 1,126 19,248
Re-measurements (720) - - (720)
Unwind of discount 2,320 764 536 3,620
Payments (including interest) (9,483) (7,924) (1,942) (19,349)
Disposals (584) (1,091) - (1,675)
Foreign exchange differences (28) (18) - (46)
At 30 December 2023 35,940 18,158 3,272 57,370
Property Vehicles Equipment for hire and internal use Total
£000s £000s £000s £000s
Lease liability movement
At 2 January 2022 44,879 14,247 2,339 61,465
Additions 2,290 5,903 2,090 10,283
Unwind of discount 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
The Group's leases have the following maturity profile:
30 December 2023 31 December 2022
£000s £000s
Less than one year 17,735 16,227
Two to five years 37,765 36,798
More than five years 13,375 15,133
68,875 68,158
Less interest cash flows: (11,505) (11,866)
Total principal cash flows 57,370 56,292
The maturity profile, excluding interest cash flows, of the Group's leases is
as follows:
30 December 2023 31 December 2022
£000s £000s
Less than one year 14,548 13,182
Two to five years 31,737 30,690
More than five years 11,085 12,420
57,370 56,292
14. BORROWINGS
30 December 2023 31 December 2022
£000s £000s
Current
Hire purchase arrangements 5,545 5,168
Non-current
Hire purchase arrangements 9,930 9,978
Senior finance facility 69,085 68,613
79,015 78,591
The senior finance facility is stated net of transaction fees of £0.9m (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:
30 December 2023 31 December 2022
£000s £000s
Hire purchase arrangements 15,475 15,146
Senior finance facility 70,000 70,000
Revolving credit facility - -
85,475 85,146
The senior finance facility and revolving credit facility are covered by
composite company unlimited multilateral guarantee across all group
subsidiaries and are secured over the assets of Hampshire TopCo Limited and
Hero Acquisitions Limited and all of its subsidiaries. These subsidiaries
comprise all of the trading activities of the Group. The £25.0m revolving
credit facility includes a £6.0m overdraft facility and in 2021 also included
a £1.8m guarantee arrangement to secure the Group's card-acquiring services
provided by a third party, which concluded during 2022.
The Group had undrawn committed borrowing facilities of £36.3m at 30 December
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 £68.2m of combined liquidity from available
cash and undrawn committed borrowing facilities at 30 December 2023 (2022:
£84.0m).
The interest rates on the Group's borrowings are as follows:
30 December 2023 31 December 2022
Hire purchase arrangements Floating percentage above NatWest base rate 2.2 to 2.5% 2.3 to 2.9%
Senior finance facility Floating percentage above SONIA 3.0% 3.0%
Revolving credit facility Floating percentage above SONIA 3.0% 3.0%
The margin above of 3.0% that applies to the senior finance facility and
revolving credit facility is subject to a ratchet mechanism, the output of
which ranges from 2.75% to 3.50%. The specific margin to apply is dependent on
the Group's net leverage position and updated quarterly based on the latest
position.
The weighted average interest rates on the Group's borrowings are as follows:
30 December 2023 31 December 2022
Hire purchase arrangements 7.7% 6.0%
Senior finance facility 8.2% 6.4%
Revolving credit facility 8.2% 6.4%
Amounts under the revolving credit facility are typically drawn for a one to
three month borrowing period, with the interest set for each borrowing period
based upon SONIA and a fixed margin.
The Group's borrowings have the following maturity profile:
30 December 2023 31 December 2022
Hire purchase arrangements Borrowings Hire purchase arrangements Borrowings
£000s £000s £000s £000s
Less than one year 6,333 5,733 5,718 2,235
Two to five years 10,805 75,096 10,670 74,245
17,138 80,829 16,388 76,480
Less interest cash flows:
Hire purchase arrangements (1,663) - (1,242) -
Senior finance facility - (10,829) - (6,480)
Total principal cash flows 15,475 70,000 15,146 70,000
15. PROVISIONS
Onerous property costs Dilapidations Onerous Total
£000s £000s contracts £000s
£000s
At 1 January 2023 117 11,380 9,806 21,303
Additions 492 230 - 722
Utilised during the period (60) (508) (3,289) (3,857)
Unwind of discount 5 377 311 693
Impact of change in discount rate - 907 (28) 879
Unused amounts reversed - (1,153) - (1,153)
Foreign exchange - (18) - (18)
At 30 December 2023 554 11,215 6,800 18,569
Of which:
Current 271 1,477 3,068 4,816
Non-current 283 9,738 3,732 13,753
554 11,215 6,800 18,569
Onerous property costs Dilapidations Onerous Total
£000s £000s contracts £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 discount 1 113 - 114
Impact of change in discount rate (6) (2,822) (368) (3,196)
Unused amounts reversed (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
additions of £0.5m (2022: £nil) and the release of the provision of £nil
(2022: £0.1m) have been treated as exceptional and are included in the
property cost charge of £0.8m (2022: credit of £0.1m). These additions
relate primarily to the UK branch network restructure. The releases in the
prior year 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.
The liabilities, assessed on a property-by-property basis, are expected to
arise over a period of up to six years (2022: four years) with the weighted
average period expected for onerous property costs being 2.64 years (2022:
2.73 years). The onerous property cost provision is discounted at a rate of
3.48% (2022: 3.62%), representing a short-term risk free rate based upon UK
5-year GILT rates. Sensitivity analysis has not been conducted due to the
immaterial nature of the remaining provision.
Dilapidations
An amount equal to the provision for dilapidation is recognised as part of the
asset of the related property. 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
out-flow 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 30 December 2023 was £8.61 per square foot (psf) (2022: £8.83
psf). The increase is mainly due to a revision of the £ psf estimates in line
with actual expenditure on the exit of properties. 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 possibly 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 30 December 2023 of £1.2m (2022: £1.1m).
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 3.48%
and 3.54% respectively (2022: 3.62% and 3.7% respectively). A 1% increase in
both the discount rates at 30 December 2023 would decrease the dilapidations
provision by £0.5m (2022: £0.6m). The inflation rate applied in the
calculation of the dilapidations provision was 5% for year 1 and thereafter
2.5% (2022: 5% for year 1 and a 2.5% average used thereafter).
The aggregate movement in additions, releases and change in discount rate of
has generated a net decrease of £0.1m (2022: increase of £1.1m) to
property, plant and equipment through asset additions, re-measurements and
disposals.
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 30 December 2023
£6.8m is payable over the period to 2026 (2022: £9.8m) and £3.3m has been
paid during the year (2022: £3.3m). The provision has been re-measured to
present value by applying a discount rate of 3.98% (2022: 3.62%). A 1%
increase in the discount rate at 30 December 2023 would decrease the
provision by £0.1m (2022: £0.2m).
16. DEFERRED TAX
Deferred tax is provided in full on taxable temporary differences under the
liability method using applicable tax rates.
Deferred tax asset/(liability) Other temporary timing differences Tax losses Property, plant Acquired Total
£000s £000s and equipment intangible £000s
and other items assets
£000s £000s
At 1 January 2023 - 7,367 148 (117) 7,398
(Charge)/credit to the income statement 1,130 (6,485) (244) 31 (5,568)
At 30 December 2023 1,130 882 (96) (86) 1,830
Deferred tax asset/(liability) Tax losses Property, plant Acquired Total
£000s and equipment intangible £000s
and other items assets
£000s £000s
At 2 January 2022 2,000 404 (148) 2,256
Credit/(charge) to the income statement 5,367 (256) 31 5,142
At 31 December 2022 7,367 148 (117) 7,398
Deferred tax assets have been recognised to the extent that management
considers it probable that tax losses will be utilised. Due to trading losses
in prior years, the Directors expect to phase in the recognition of taxable
losses expected to be utilised in the medium and long term as they can better
assess the probability of their utilisation. The level of losses to be
utilised is measured by reference to the Board approved budget and 3-year
plan, which, is also used to determine value in use for the Group's cash
generating units. In the year ended 30 December 2023 a three-year (2022:
three-year) recognition window has been applied.
The net deferred tax liability on property, plant and equipment and other
items, and the deferred tax liability on acquired intangible assets, are
stated after offset of deferred tax assets from available tax losses of £2.9m
(2022: £0.3m) and £5.5m (2022: £5.5m) respectively.
At 30 December 2023 the Group had an unrecognised deferred tax asset relating
to losses of £21.1m (2022: £13.1m). The gross value of the balance at 30
December 2023 was £84.5m (2022: £52.3m).
At 30 December 2023 the Group also had an unrecognised deferred tax asset
relating to temporary differences on plant and equipment, intangible assets
and provisions of £3.1m (2022: £9.8m). The gross value of the balance at 30
December 2023 was £12.5m (2022: £39.4m).
A deferred tax liability of £0.1m has been recognised on the net book value
of acquired intangibles. This amount has not been offset against deferred tax
assets elsewhere in the Group due to there being no legal right of offset in
the relevant tax jurisdictions.
At 30 December 2023 £0.1m (2022: £0.1m) of the deferred tax liability is
expected to crystallise after more than one year.
17. SHARE CAPITAL
The number of shares in issue and the related share capital and share premium
are as follows:
Ordinary shares Ordinary shares Share premium
Number £000s £000s
At 1 January 2023 and 30 December 2023 704,987,954 7,050 45,552
18. POST BALANCE SHEET EVENTS
Sale of Power businesses
Subsequent to the year end, on 7 March 2024, the Group sold ABird Superior
Limited, ABird Limited and Apex Generators Limited (together the 'Power'
businesses within the Group) to a third party, CES Global. The businesses
were sold for an enterprise value of £23.25m, with customary working capital
and debt adjustments resulting in a cash consideration of £20.7m. Net assets
disposed were £20.7m (including consolidation related intangibles of £6.4m)
for a gain before transaction costs of £nil. In connection with the sale of
the businesses the Group has incurred transaction costs of £0.7m in 2024.
The disposed entities contributed £26.5m revenues to the group, and
management expect to retain a majority of the revenues on an ongoing basis
through a continuing supplier agreement between ProService and the disposed
entities.
Subsequent to the sale, proceeds of £12.5m on the sale of the Power
businesses were used to make a partial repayment of the Group's senior loan
facility, reducing the total liability from £70.0m at the year end to
£57.5m.
UK branch network
Based on the ongoing successful performance of the Group's builders merchant
locations, the decision was made during FY23 to accelerate the migration to
this lower variable cost model. To this end, in March 2024 the further closure
of four branches located in England and Scotland was approved. This change
will reduce ongoing costs by c£0.7m per annum with expected exceptional costs
of between £0.8m and £1.3m, the majority of which are property related.
Dividends
Subsequent to the year end, on 30 April 2024, a final dividend of 0.38p per
share was approved by the Board. This will be paid in cash during July 2024
and had an ex-dividend date of 23 May 2024.
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. END FR DDGDSCSXDGSGRecent news on HSS Hire
See all newsREG - HSS Hire Group PLC - Results for the 52 week period ended 30 Dec 2023
AnnouncementREG - HSS Hire Group PLC - Directorate Change
AnnouncementREG - HSS Hire Group PLC - Notice of Results
AnnouncementREG - HSS Hire Group PLC - Sale of Power Generator Businesses
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Announcement