REG - HSS Hire Group PLC - Results for the 52 week period ended 31 Dec 2022
27/04/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230427:nRSa6209Xa&default-theme=true
RNS Number : 6209X HSS Hire Group PLC 27 April 2023
HSS Hire Group Plc
Second consecutive year of double-digit revenue growth, supported by launch of
marketplace business
HSS Hire Group plc ("HSS" or the "Group") today announces results for the 52
week period ended 31 December 2022
Financial Highlights ( ) FY22 FY21 Change Like-for-like(2) change
Continuing operations(1) (52 weeks to 31 December 2022) (53 weeks to 1 January 2022)
Revenue £332.8m £303.3m 9.7% 10.7%
Adjusted EBITDA(3) £71.6m £69.8m 2.6% 5.0%
Adjusted EBITA(4) £32.0m £31.7m 1.0% 6.4%
Adjusted profit before tax(5) £21.0m £10.7m 95% 130%
Adjusted basic EPS 2.41p 1.25p 93% 130%
ROCE(6) 22.8% 22.1% 0.7pp
Net debt leverage(7) - non IFRS16 0.8x 0.9x 0.1x
Net debt leverage(7) - IFRS16 1.3x 1.5x 0.2x
Other statutory extracts (Underlying(9))
Operating profit £26.6m £26.5m 0.4% 6.9%
Profit before tax £18.9m £8.0m 138% 198%
Basic EPS 2.90p 1.05p 177% 260%
Strong revenue performance driven by capital-light Services business
o Like-for-like(2) revenues 11% ahead of FY21
o Services revenue like-for-like growth of 14% with contribution margin
increasing 0.8pp
o Rental revenue like-for-like(2) growth of 9% with fleet utilisation of 57%
£10m increase in Adjusted profit before tax alongside improved returns
o Like-for-like(2) Adjusted EBITDA and Adjusted EBITA up 5% and 6%
respectively
o Significant increase in Adjusted profit before tax and Adjusted basic EPS
reflecting continued growth, operational gearing and lower interest cost
o Technology-led, lower-cost operating model enabling further improvement in
ROCE to 22.8% (FY21: 22.1%)
Robust balance sheet with leverage at 0.8x(10)
o Net debt(10) £41.5m (FY21: £45.4m) reflecting improved profitability and
working capital management
o Strong free cash flow generation of £28.4m despite increased capex
investment
o Recommending final dividend(11) of 0.37p bringing the total dividend for
the year to 0.54p
Strategy implementation ahead of schedule with ProService business well
positioned for growth
o Nine customers successfully transitioned to our HSS Pro self-service
platform with average growth of 45% post migration and positive feedback.
Strong pipeline of customers lined up to use the platform.
o Further investment in data-driven central sales team; delivered 10%
revenue growth in Q4 22 with improving trend
o Training business delivered 16% growth and record profit levels,
reflective of clear customer demand
o Low-cost builders merchant network expanded to 63 locations (December 21:
55), and delivered 22% growth on a same store basis(12)
o Continued technology enhancements improved enquiry conversion to 74%
(FY21: 71%) with over 20% of transactions through our online channel
o Excellent progress with our 2040 Net Zero action plan, recognised with
increases in all independent rating assessments
Current trading and outlook
o Q1 23 revenue growth, EBITDA and EBITA in line with management
expectations
o Expanded ProService offer to include building materials through our
merchant partner network and equipment sales including small tools
o Capex investment forecast in 2023 is expected to be £34-£38m including
c£5m to support further delivery of our technology roadmap
o Management remains confident that full year EBITA will be in line with
market expectations
Steve Ashmore, Chief Executive Officer, said:
"HSS achieved a second consecutive year of double-digit revenue growth in 2022
with our technology-led strategy continuing to deliver strong results. The
business has been restored to full health, supported by motivated and engaged
colleagues who are fully embracing our innovative customer-offering.
We continue to deploy new technologies across both HSS ProService and HSS
Operations with all these initiatives remaining on track or ahead of plan. In
ProService, our digital self-serve portal - HSS Pro - is delivering stronger
than anticipated results. Our growing pipeline of customers waiting to be
onboarded to the portal reflects the significant need and demand that exists
for our evolving marketplace proposition and differentiates HSS in the
fragmented building services market. For HSS Operations, our technology has
enabled enhancement to the service we offer while efficiently managing our
well invested fleet.
Our systems are also working to support our ESG agenda, allowing both HSS and
our customers to make data driven choices on carbon emissions.
We have started 2023 well, building on the previous year's momentum, and our
focus remains firmly on sustaining our growth and upholding our position as
the technology frontrunner in our sector."
Notes
1) Results for FY22 and FY21 are on a continuing operations basis
(excluding Laois Hire Limited and All Seasons Hire Limited sold in April 2021
and September 2021 respectively)
2) Like-for-like performance excludes the impact of the following in
FY21: additional week's trading and non-recurring COVID related benefits
associated with a business interruption insurance claim and the Republic of
Ireland wage subsidy scheme. EPS measures normalised for the capital raise
in FY20.
3) 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
4) Adjusted EBITA defined as Adjusted EBITDA less depreciation
5) Adjusted Profit before tax defined as profit before tax excluding
amortisation of brand and customer lists and exceptional items
6) ROCE is calculated as Adjusted EBITA for the 52 weeks to 31
December 2022 divided by the average of total assets less current liabilities
(excluding intangible assets, cash and debt items) over the same period
7) Net debt leverage is calculated as closing net debt divided by
adjusted EBITDA for the 52 weeks to 31 December 2022 (prior year 53 weeks to 1
January 2022).
8) 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 31
December 2022
9) Performance excluding exceptional items (principally related to the
Group legal restructure and subsequent strategy refresh)
10) Non-IFRS16 basis
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 8 June 2023
12) Merchant locations open for comparable period in both FY22 and FY21
-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 27 April 2023)
Steve Ashmore, Chief Executive Officer Thereafter, please email: Investors@hss.com
Paul Quested, Chief Financial Officer
Phil Golding, Head of Group Finance
Teneo
Tom Davies Tel: 07557 491 860
Charles Armitstead Tel: 07703 330 269
Numis Securities (Nominated Adviser and Broker) Tel: 020 7260 1000
Stuart Skinner
George Price
CHAIRMAN'S STATEMENT
Dear Shareholder
I am delighted to report another year of strong results for HSS and further
strategic progress that is setting us apart in our industry.
The Group is now producing consistently strong results and we continue to be
driven by our vision: to be the market-leading, digitally-led brand for
equipment services.
Our results
The Group has delivered further revenue growth and enhanced returns on
capital. These results, which are outlined in more detail by our CFO, Paul
Quested, in the CFO's Financial Review, have enabled us to maintain a strong
balance sheet and we have been pleased to reinstate the dividend for
shareholders earlier this year. The proposed final dividend payment of 0.37p
reflects the continued confidence the Board has in the management team and
its execution of our strategy.
Our strategic progress
The Board and management team see a great opportunity to address the ongoing
challenges faced by both customers and suppliers in what is a very
fragmented, digitally-immature and undifferentiated equipment hire market.
With this opportunity in mind, we have executed three strategic priorities
this year.
Firstly, on 3 July 2022 we completed the legal restructuring around our two
divisions, HSS ProService and HSS Operations. ProService is an asset-light,
technology-driven business and its formal separation gives it complete focus
on successful customer acquisition and enquiry conversion. HSS Operations is
an asset-owning fulfilment business focusing on delivering service,
efficiency and the highest standards of health and safety. HSS Operations
is a key supplier to ProService.
The second significant development this year is with our Brenda technology
platform. Brenda has come a long way since we started its development in 2019
and we continue to make enhancements to extend its reach, taking advantage of
its modular, scalable codebase. This year we have made improvements to one of
its key interfaces, HSS Pro, which is a self-serve platform designed for
larger customers, giving them widespread access to our products and services
while enhancing controls and visibility over their purchasing.
Another major element of our technology journey this year has been the
development of our extended offering on hss.com, which was launched in early
2023. I am confident this will drive further growth in Services revenue
through better conversion and wider product penetration. Our CEO, Steve
Ashmore, talks more about the roll-out of HSS Pro and the upgrade of hss.com
in his CEO's Statement.
The third significant area of progress I wanted to highlight is the expansion
of our Central Sales team. This initiative was made possible by the
2021 launch of HSS ProPOS. This is the Brenda technology interface designed
specifically for colleagues, allowing them to access the full range of
products and services on a single, easy-to-use platform accessible via a
variety of devices. We have been able to build a highly productive, flexible
and adaptive, strongly motivated Central Sales team driven by data insight. We
now have over 40 individuals working in this structured environment, managing
a portfolio of over 5,000 customers and achieving revenue growth through
enhanced customer insight and cross-selling. We have recently upgraded
our CRM tool to Microsoft Dynamics to further improve performance.
As in previous years, during FY22 we have been unwilling to rest on our
laurels, continuing to push forward with technology enhancements and new ways
of working. On behalf of the Board, I would like to thank our colleagues for
their ongoing commitment and hard work.
ESG
This year the team has made considerable progress with our ESG agenda. We
worked closely with specialist consultant Sustainable Advantage in the first
half of FY22 to create a new ESG roadmap, with clear goals and governance
ultimately overseen by the Board. The culmination of that activity was the
publication of our first ESG Impact Report in June which set out our ESG
objectives, including our Net Zero 2040 ambition.
I was delighted that EcoVadis, one of the global leaders in ESG accreditation,
awarded us its silver medal at the first time of asking. This 'advanced'
rating puts us in the top 10% of companies in our sector, and reflects the
hard work and dedication put in by our colleagues in recent years. The
continued progress with health and safety has also been pleasing to see, with
improvements on all three metrics: RIDDORs, Lost Time accident and All Injury
frequency rates in FY22. These are impressive results given the low levels
already delivered in earlier years.
Our Board
We continue to benefit from a stable and experienced Board, with no Director
having served for fewer than five years. 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 reinstate a 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 0.37p,
making 0.54p for the full year. Assuming the dividend is approved at the
Annual General Meeting, it will be paid on 14 July 2023 to shareholders
on the register on 9 June 2023.
Outlook
We have seen several years of consistent results for the Group, and this
momentum has continued into 2022. I would like to thank my fellow Board
members for their support and express my gratitude to our colleagues for their
hard work and contribution to our achievements over the year.
Our strategic progress, delivered by our colleagues and underpinned by
technology, continues to set the Group apart and, combined with the strength
of our balance sheet, positions us well for future transformational growth.
Alan Peterson OBE
Chairman
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to report on a strong performance for HSS and would like to
extend my thanks to all my colleagues for their exceptional dedication to the
Group and continued high level of engagement over the last year.
After a good set of results and significant strategic progress in FY21, we set
out some ambitious goals for FY22 to improve returns further and continue
differentiating our proposition to meet the converging needs of customers
and suppliers in the building services sector. I am pleased to say the teams
delivered on our plan and we are now very well positioned to maintain this
momentum in FY23, with several of our technology developments now
reaching fruition.
Our year in summary
Strong financial performance
We entered the year with positive trading momentum which carried through to
FY22. Like-for-like revenues were approximately 11% ahead of the prior year,
driven by increasing conversion rates, builders merchant growth and excellent
Services performance.
Improved conversion rates were driven by the use of HSS ProPOS, the colleague
interface of our technology platform Brenda. HSS ProPOS allows all sales
colleagues to fulfil enquiries there and then on behalf of customers across
our entire range of products, from small drills to large earth-moving
equipment and site accommodation. This technology is now accounting for c60%
of contracts raised and, as we roll it out further, we expect conversion rates
to continue to grow.
The ongoing expansion of our builders merchant network also supported revenue
growth. We continue to be very pleased with the performance of this channel
and consistently receive positive feedback from our builders merchant partners
who continue to grow in number. During FY22 we opened a further eight
carefully selected locations which are performing well. Although we are very
happy with our current network, we continue to look for opportunities
to strengthen it.
In Q2 2022, we began to expand our central sales team following an
outstanding performance from a newly established group of Business
Development Managers who had been supporting a portfolio of several hundred
customers since June 2021. Armed with our HSS ProPOS technology and
incentivised to cross-sell, this team delivered over 3x revenue growth on its
portfolios and significantly expanded share of wallet with these customers
over a period of just 12 months. Since then, we have grown this highly
productive, data-driven team to over 40 colleagues and we plan to grow it
further in FY23.
Incorporation of HSS ProService
We changed our organisational model in FY21 forming the ProService and the HSS
Operations teams. Following this, in H1 FY22 a key focus was the legal
separation of these two divisions, which we completed on 3 July 2022. This
now gives complete focus for each division, with ProService targeting
customer acquisition and technology development, and HSS Operations
concentrating on service, operational efficiency and safety.
Following additional development work on HSS Pro and a significant increase
in product content covering our extended range, in October 2022 we rolled this
platform out to our first major customer, a top 20 UK contractor. This has
been a great success and we now have a pipeline of customers lined up to
adopt this technology. Our largest customer, Amey, is due to migrate onto this
platform as part of our recent contract extension.
The second technology milestone involves our website. We have consistently
achieved industry-leading levels of web traffic to hss.com and have seen over
20% of orders consistently raised online since the pandemic. In May 2022, we
were delighted to be awarded the Catalogue of the Year 2022 at the HAE &
EHA Hire Awards, recognising the quality of the digital catalogue on HSS.com.
At HSS we never stand still; we constantly strive to Make It Better, and with
our website we were keen to improve the way we present our extended range.
Until recently, the transactional capability on hss.com was limited to
HSS-owned products, with reduced product content, availability and pricing for
products in our extended rehire range. Following the re-platforming of hss.com
on Brenda, customers can raise orders across our entire range from small
drills to large earth-moving equipment and site accommodation on our website,
quickly and easily. This transformation mirrors the one we made in 2021 when
we launched HSS ProPOS to our colleagues, giving them the same step change
in access to equipment. Back then, we saw significant improvements in
conversion rate and revenue growth, something we now expect to be repeated
over the next year as customers increase their adoption of our online channel.
ESG roadmap
Following the ESG benchmarking review we carried out in FY21, we put in place
a new ESG roadmap including a set of clear objectives for FY22. In Q1 FY22 we
set up our ESG committee, conducted a materiality assessment across all
stakeholders and commissioned a third party, Sustainable Advantage, to
undergo a net zero assessment for us. This allowed us to agree a new set of
objectives, including a Net Zero 2040 target, which we published in April in
our FY21 Annual Report, and then subsequently in June in our first ever
ESG Impact Report. The report sets out in more detail our plans and
initiatives to achieve those objectives.
Since the publication of the Impact Report, our ESG committee has overseen
the delivery of a series of initiatives that puts us on target to deliver
our objectives. Our achievements this year are detailed in the ESG section,
but would like to highlight four significant achievements:
1 In FY21 we transferred our electricity supply to renewable sources and,
despite volatility in the energy markets, we committed to retaining
these during FY22. In December we were also able to take the final step
of transferring our Irish electricity supply to renewable sources.
2 The roll-out of Satalia route optimisation technology to our HSS Operations
teams has delivered a 14% reduction in mileage per job (FY22 versus FY21)
and has reduced our carbon emissions by over 195,696kg. Transport mileage is
the major contributor to our scope 1 and 2 emissions, so this is
a significant step on our journey to net zero.
3 There has been an across-the-board improvement in our safety statistics to
record levels. Our RIDDOR rate improved from 0.11 to 0.02, Lost time
accident frequency improved from 0.46 to 0.40 and our All Accident frequency
rate improved from 3.68 to 3.24. Whilst we are very proud of these
improvements, we continue to strive for a zero-accident environment, and this
will remain a key priority in FY23.
4 We undertook our colleague engagement survey in November and I am pleased to
say we had a record level of responses, with a 92% completion rate (compared
with 81% last year) and our engagement score remained at our all-time high of
76%, well above the industry average of 50%. I believe it is so important to
keep our teams engaged and this will continue to be an area we focus on.
Given the progress made on our roadmap, we were delighted that EcoVadis
classified us in its 'Advanced' category following a comprehensive audit of
our ESG credentials this year. This puts us in the top 10% of companies in our
industry.
I am excited about our ESG roadmap and, as Chair of our ESG Forum, look
forward to personally driving this agenda over the coming years.
Amey renewal
At the end of the year we were delighted to agree a contract extension that
will see us working with our largest customer, Amey, for another two years. We
have operated a managed service contract for Amey since 2016, inheriting its
supply chain and consolidating its equipment requirements through a single
HSS team. Amey values the one-stop shop solution we offer and the additional
controls and visibility the HSS team provides. As part of the extension we
have agreed to migrate the services onto HSS Pro to drive additional
benefits for Amey and we are currently rolling this out.
Strategy
We continue to see significant opportunity in our market, and we remain
focused on the three objectives outlined in last year's Annual Report:
1 CAPITALISING ON CONVERGING CUSTOMER AND SUPPLIER REQUIREMENTS
2 TAKING ADVANTAGE OF MARKET CONDITIONS
3 CONTINUING TO DIFFERENTIATE OUR OFFERING
Capitalising on converging customer and supplier requirements
Significant challenges persist in the equipment rental market for customers
and suppliers; both experience difficulties and high costs associated with
transactions. Customers have broad requirements and consequently must access
lots of suppliers, frequently struggling to control their expenditure. They
have high administration costs, frequently experience invoicing issues, and
often have limited buying power.
Similarly, suppliers, ranging from local specialist plant hirers to national
generalist hirers, have lots of end markets to serve, many customers
to target but most have a lack of reach. There are large acquisition costs
associated with targeting the market and returns can be limited
by underutilised resources.
We believe we can address these challenges through our technology-led business
model. We provide one place for all buying needs and managing the order
lifecycle, offering central visibility and control. Customers benefit from our
buying power, and they receive one invoice which is accurate to their actions.
Suppliers have one place where they can access thousands of customers,
benefiting from our brand recognition, website traffic and credit management
controls. They receive a single monthly payment and drastically reduce
their administration costs whilst enhancing their utilisation and returns.
Our network of suppliers drives excellent availability, making our solution
more attractive to customers, which in turn drives further opportunity for
suppliers. We believe that, by focusing on the needs of customers and
suppliers, we can deliver significant growth.
Taking advantage of market conditions
The £5.7bn equipment rental market in the UK is highly fragmented with
approximately 4,000 suppliers, the biggest of which represents only c10% of
the market. Market consolidation is difficult, requiring large deployment of
capital with no guarantees of share gain. The barriers to entry are small
so consolidation of smaller players can often be followed by their
re-emergence. There is also limited differentiation with most suppliers
offering the same brands of equipment in particular categories, with similar
delivery and collection service levels.
We believe our business model takes advantage of these market conditions,
offering an alternative, low-capital way of bringing together fragmented
supplier and customer bases through a single platform ensuring simple, fast,
and frictionless user journeys. We are committed to scaling up our business
to drive customer retention and supplier adoption and we see opportunities
to replicate the model across other product verticals such as training and
equipment sales.
Continuing to differentiate our offering
We are differentiated by our technology, our scale and our operating model.
Technology is the key to our operating model, enabling the rapid matching of
customers' and suppliers' needs, addressing their challenges and driving
down their costs. Our technology development roadmap focuses on three areas
that enhance our differentiation:
1 Providing suppliers and customers with greater control and visibility by
enhancing our self-serve user interfaces
2 Adding product verticals beyond equipment hire to improve the one-stop shop
proposition
3 Deploying our technology amongst our salesforce to make every customer
touchpoint more effective
The combined scale of our customer and supplier networks provides a
significant barrier for technology-focused new entrants to our market. We
will continue to broaden and deepen our supplier network to drive greater
availability and customer retention, whilst reinforcing our advantage.
Our operating model is unique. The legal restructuring around HSS ProService
and HSS Operations gives complete focus for each division, with ProService
targeting customer acquisition, enquiry conversion and technology development,
and HSS Operations concentrating on service, operational efficiency and
safety.
Outlook
The Group has good momentum and a healthy balance sheet following several
years of strong performance. We have an operating model and technology
platform that set us apart from the competition and believe we can take
significant market share by persistently seeking to address
the long-established challenges faced by customers and suppliers in our
market.
Our technology is well established and we have an exciting roadmap to evolve
it further. Our team is highly engaged and motivated to deliver on our
ambitions. We have the scale of both customer and supplier networks, with
significant opportunity to increase share of wallet with customers and improve
utilisation for suppliers.
Whilst the UK economy faces headwinds in 2023, we believe our team is in great
shape and we have the right organisational structure to create clarity
of direction for our colleagues. In a challenging market our one-stop shop
proposition aimed at reducing customers' procurement costs will be
particularly attractive, continuing to differentiate us from peers.
We continue to target Services revenue growth of 10ppts above the market and
I remain excited about the prospects for the Group in FY23.
Once again, I would like to thank all my colleagues for their efforts during
FY22.
Steve Ashmore
Chief Executive Officer
FINANCIAL REVIEW
STRONGER BALANCE SHEET, WELL POSITIONED FOR GROWTH
The Group has achieved another year of excellent financial results. Double
digit like-for-like revenue growth combined with effective price and cost
management, has enabled a step change in profit before tax.
£m FY22 FY21 FY22 versus FY21
Revenue Rental 206.2 191.2 7.9%
Services 126.6 112.1 12.9%
Group 332.8 303.3 9.7%
Contribution(2) Rental 138.4 132.6 4.4%
Services 19.3 16.2 18.9%
Group 157.7 148.8 6.0%
Adjusted EBITDA(3) 71.6 69.8 2.6%
Adjusted EBITA(3) 32.0 31.7 1.0%
Adjusted profit before tax(3) 21.0 10.7 95.4%
1 Results are for continuing operations and on a reported basis (with
FY21 having an extra week of trading).
2 Contribution is defined as revenue less cost of sales (excluding
depreciation and exceptional items), distribution costs and directly
attributable costs (for each segment).
3 These measures are not reported on a segmental basis because branch
and selling costs, central costs and exceptional items (non-finance) are
allocated centrally rather than to each reportable segment.
Overview
FY22 has been another positive year for the Group, delivering double-digit
revenue growth and a significant increase in profit before tax, all against
the backdrop of well-documented global inflationary pressures. As always this
is testament to the hard work and commitment demonstrated by each and every
colleague across the business.
Our revenue performance was underpinned by continued technology development
with £5.6m invested in FY22, further embedding relationships with our builder
merchant partners and efficient hire fleet investment, leveraging insight from
our various tools which has enabled asset utilisation and ROCE to increase
again. Despite significant inflationary pressures, effective price management
and cost control has enabled EBITA margins to be maintained at an underlying
level.
Following FY21's successful refinancing, our interest expense has materially
reduced which has supported a step change in profit before tax of £10.5m
and basic earnings per share more than doubling. Based on the Group's cash
generation, net debt has reduced further with leverage now at 1.3x. Our
strong balance sheet and continued positive trajectory supported another major
milestone for the Group in FY22 with the reintroduction of a dividend. As
part of a progressive dividend policy, the Board are recommending a final
dividend.
We also successfully legally restructured the Group in FY22 into HSS
ProService (focussed on customer acquisition and enquiry conversion) and HSS
Operations (focussed on service, efficiency and returns). The final
operational changes were made at the start of FY23, including rebasing our
internal reporting around the new structures and, as such, will adapt our
segmental reporting to reflect this going forward.
We have our technology, organisation and balance sheet in place and, through
the flexible, low-cost, scalable model we are well positioned for growth.
Revenue
Group revenue grew by 9.7% to £332.8m (FY21: £303.3m), driven by growth in
both our Rental and Services businesses as we continue to effectively
execute our strategy.
Group revenue growth is one of our KPIs as, combined with estimates of market
size and growth rates, it provides us with a measure of our market share.
Segmental performance
Rental and related revenues
Our Rental revenues grew as we continued to drive improved conversion through
HSS Pro, expanded the builders merchant network to 63 (December 2021: 55) and
increased hire fleet investment where customer demand and returns were
strong. Revenues grew 7.9% to £206.2m (FY21: £191.2m) and accounted for 62%
of revenue (FY21: 63%). 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 £138.4m (FY21: £132.6m) was up 4.4%.
Services
Services revenues increased by 12.9% to £126.6m (FY21: £112.1m), accounting
for 38% (FY21: 37%) of Group revenue. Customers continue to value the one-stop
shop that our Services division provides and our technology platforms,
supported by a large network of supply chain partners, are making every
transaction even easier and therefore enabled exceptional growth in the
financial year.
Combined with effective margin management through our Brenda platform,
contribution from Services increased 18.9% to £19.3m (FY21: £16.2m).
Costs
Our cost analysis set out below is on a reported basis and therefore includes
exceptional costs.
Our cost of sales increased by 12.6% to £164.7m (2021: £146.3m) reflecting
increased sales through our Services division and the impact of higher
fuel costs.
Distribution costs increased by £8.4m to £30.3m (2021: £21.9m) mainly due
to revenue growth, higher vehicle costs (including rising fuel and maintenance
costs), along with higher salaries, mainly from the one off cost of living
payments to colleagues.
Administrative expenses increased by £12.1m, principally due to exceptional
items. On an underlying basis, costs increased by £1.4m mainly due to
investment in the central sales team as part of the strategy and inflation
including one off cost of living payments made to colleagues.
Adjusted EBITDA and Adjusted EBITA
Our Adjusted EBITDA for FY22 was 2.6% higher at £71.6m (FY21: £69.8m)
driven by improved revenue through our lower-cost operating model. Adjusted
EBITDA margins reduced to 21.5% (FY21: 23.0%) reflective of the increased mix
of revenue through our Services division. Adjusted EBITDA and EBITDA margin
are included in our KPIs.
Our Adjusted EBITA for FY22 was 1.0% higher at £32.0m (FY21: £31.7m), a
combination of improved EBITDA, partly offset by increased depreciation.
Adjusted EBITA margin decreased 0.8pp to 9.6% (FY21: 10.4%). Adjusting for
non-recurring items in FY22 (cost of living payments) and FY21 (Covid-19
related one off benefits), underlying margins were flat. Adjusted EBITA and
EBITA margin are included in our KPIs.
Other operating income
Total other operating income of £0.5m relates to sub-lease rental and service
charge income related to non-trading properties. This compares with
£1.7m in FY21 which included £1.2m of insurance proceeds following a
successful claim under our business interruption policy.
Operating profit
Our operating profit decreased by £10.1m to £24.4m (FY21: operating profit
£34.5m). This was mainly due to the exceptional items. Excluding such items,
operating profit increased £0.1m.
Exceptional items
Exceptional costs totalled £2.4m. This included costs of £3.2m to complete
the Group's legal restructuring around its two core divisions of ProService
(sales acquisition) and HSS Operations (fulfilment) and the subsequent
ProService strategy refresh including evaluating options to create increased
shareholder value. These costs were partly offset by exceptional credits of
£0.8m from the release of onerous contract and property provisions.
Finance costs
Net financial expense decreased significantly to £7.8m (FY21: £28.5m). The
charge for FY21 included £9.7m of exceptional costs associated with the
early prepayment of the Group's senior finance facility as part of the
successful refinancing completed in November 2021. The new debt facility is
lower in quantum and at significantly reduced interest rates. As such ongoing
finance expenses are materially lower.
Taxation
The Group had a tax credit for the year of £3.9m (FY21: £1.2m).
Deferred tax assets have been recognised to the extent that management
considers it probable that tax losses will be utilised in the short term. In
FY22 a three-year (FY21: one-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, significantly improved in FY22 driven by the improved performance of
the business and the significantly reduced annual interest charge from the
successful refinancing.
Prior period restatement
Following a review of the accounting treatment of hire equipment subsequently
financed by hire purchase agreements, a reclassification i) from Right of Use
assets to Property, Plant and Equipment and ii) lease liabilities to
borrowings has taken place. There is no impact on the Group's income
statement, reserves or net assets.
Capital expenditure
Additions to Intangible assets, Property, Plant and Equipment and Right of Use
hire equipment in the year were £43.8m (FY21: £34.2m). Investment in
technology to support the strategic growth of the business totalled £5.6m
(FY21: £4.3m). Investment in hire fleet to support our Rental business was
£32.7m (FY21: £27.1m) with decisions informed from our insight tools to
maximise returns.
Return on capital employed
Our ROCE for FY22 was 22.8%, an increase of 0.7ppts over FY21. The expansion
of our capital-light technology-led operating model underpinning this
performance. ROCE is one of our KPIs.
Trade and other receivables
Gross trade debtors increased 5% over FY22 as revenue increased throughout the
financial year. A strong focus on cash collections is core to the business
and forms part of colleagues' objectives. Despite this focus on collections,
macroeconomic uncertainty remains and, as such, we continue to provide at
levels above the historic loss rate. The evolving situation is monitored on an
ongoing basis.
Provisions
Provisions reduced £2.5m to £21.3m (FY21: £23.8m). The vast majority of
this reduction relates to the ongoing annual payments related to the onerous
contract associated with Unipart.
Cash generated from operations
Net cash generated from operating activities was £39.0m, a decrease of £5.6m
compared to FY21. The benefit from improved profit before tax and lower
interest costs offset by increased hire equipment investment to support the
growth of our Rental division and working capital movements.
Leverage and net debt
Net debt reduced £10.3m to £94.3m (FY21: £104.6m) and at 31 December 2022
the Group had access to £84.0m (1 January 2022: £78.1m) of combined
liquidity from available cash and undrawn borrowing facilities. With the
improved adjusted EBITDA and lower net debt, leverage reduced to 1.3x (FY21:
1.5x). Leverage or Net Debt Ratio is one of our KPIs.
Use of alternative performance measures to assess and monitor performance
In addition to the statutory figures reported in accordance with IFRS, we use
alternative performance measures (APMs) to assess the Group's ongoing
performance. The main APMs we use are Adjusted EBITDA, Adjusted EBITA,
Adjusted profit before tax, Adjusted earnings per share, leverage (or Net
Debt Ratio) and ROCE, which are included in our KPIs.
We believe that Adjusted EBITDA, a widely used and reported metric amongst
listed and private companies, presents a 'cleaner' view of the
Group's operating profitability in each year by excluding exceptional costs,
finance costs, tax charges and non-cash accounting elements
such as depreciation and amortisation.
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 FY22 to calculate annual bonuses payable
to Executive Directors.
Adjusted profit before tax was modified during FY22 to include amounts
relating to amortisation of software. Comparative figures have been restated
to reflect this change.
Analysts and investors also assess our earnings per share using an adjusted
earnings per share measure, calculated by dividing an adjusted profit after
tax by the weighted average number of shares in issue over the period. This
approach aims to show the implied underlying earnings of the Group.
The Adjusted profit before tax figure comprises the reported profit before
tax of the business, 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 (currently 19%) to give an adjusted profit after tax.
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.
Paul Quested
Chief Financial Officer
RISK management
Managing RISK and Uncertainty
Effective risk management underpins everything we do at HSS and is embedded
within our culture as a business. We employ a comprehensive risk management
process to identify, assess and mitigate risks to ensure we deliver on our
strategic objectives.
Ownership
The Board has overall responsibility for the business strategy and managing
the risk associated with its delivery, setting the risk appetite, tolerance
and culture to achieve goals. The Audit Committee plays a key supporting role
through monitoring the effectiveness of risk management and the control
environment, reviewing and requesting deep dives on emerging risk areas and
directing and reviewing independent assurance.
The Group's Executive Management Team (EMT) has overall responsibility for
day-to-day risk management. Mark Shirley, HSS's Risk and Assurance Director,
maintains the Group's risk register which is reviewed in detail by the EMT on
a quarterly basis with changes to the risk landscape, assessment and
mitigating actions agreed.
Identification And Assessment
Risks are identified through a variety of sources, both internal and external,
to ensure that developing risk themes are considered. This process is focused
on those risks which, if they occurred, would have a material financial or
reputational impact on the Group.
Management identifies the controls in place for each risk and assesses the
impact and likelihood of the risk occurring, taking into account the effect
of these controls, with the result being the residual risk. This assessment is
compared with the Group's risk appetite to determine whether further
mitigating actions are required.
All risks have an overall EMT owner responsible for the day-to-day
management. Health and safety 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 two committees, a CEO-led ESG Forum that is
responsible for communication, engagement and evaluation of risks and
opportunities, and an ESG committee that oversees improvement actions
and monitors progress.
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),
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
Global inflationary pressures and associated interest rate increases have
impacted macroeconomic risk in FY22. The conflict in Ukraine, pandemic
recovery and Brexit have contributed to labour shortages, inflation
and interest rate rises.
This risk in FY23 will be closely monitored for its effect on demand and
colleague welfare so that we can take appropriate actions. In FY22 two
separate payments were made to colleagues earning below £35,000 to help
offset the effects of inflation.
ESG risk
As part of the Group's commitment to the recommendations of the Task Force on
Climate-Related Financial Disclosures (TCFD), climate related risks and
opportunities have been considered across multiple timeframes. These will be
integrated into our standard risk processes in FY23.
fy22 risk management developments
The Group has continued to improve its approach to the management of risk and
assurance throughout the year. The focus in FY22 was on enhancing and
leveraging our reporting and technology, supporting the Group's strategic
technology roadmap delivery, and working more collaboratively with outside
specialists to better understand and manage risk.
· Worked with specialist ESG partners to establish targets and an
implementation plan, supporting governance process. As a consequence of this
work, we achieved Silver medal status with EcoVadis, the globally recognised
sustainability rating - ranking the Group in the 91st percentile for the
industry.
· Increased the amount of guidance, reference and training material
accessible to colleagues through mobile technology (The Gateway), to ensure
that help is always available to remote colleagues such as drivers.
· Enhanced EMT review process of audit work and risks to improve
the speed of response to emerging issues.
· Started our path to ISO 27001 Information Security Management
accreditation, completing our stage 1 audit.
· Increased internal audit engagement in assessing and shaping
controls for new processes and systems, conducting audits on new technology,
and adding audits focused on merchants and virtual branches.
· Developed succession plans for risk and assurance colleagues
covering internal audit and HSEQ. Training was introduced on incident
management across both teams to increase geographic coverage.
FY23 planned improvements to risk management
Significant progress has been made in the last year developing reporting
tools and guidance, and reference material available on mobile devices. The
focus in FY23 is 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.
· Achieve ISO 27001 Information Security Management accreditation
and work with third parties to continually enhance cyber risk management.
· Broaden the focus, flexibility and skill set of HSEQ, Internal
Audit and Operational Management through training and knowledge sharing. This
includes the roll-out of incident management and investigation training to
operational management.
· Improve the quality of branch standards and service CRSA audits
performed by regional managers by aligning to Internal Audit specific location
audits.
· Introduce audits relating to the new central sales team, adapting
approach to the changing needs of the business and allowing direct comparison
with physical locations.
· Establish monitoring of our approved SBTi's to support our
journey to net zero.
· Increase the size of our supply chain auditing team to ensure all
suppliers are aligned with our expected standards and supporting the business
strategic growth.
PRINCIPAL RISKS AND UNCERTAINITIES
Key risk Description and impact How we mitigate What we have done in FY22
1. Macro-economic 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. The business brought forward capital expenditure in Q1 to mitigate against
by any decline in the macroeconomic environment.
supply issues and inflationary pressures.
Ongoing monitoring and modelling of performance, which is reviewed regularly
Global inflationary pressures and associated interest rate increases impact on by the EMT. Price increases clearly communicated to customers.
Risk Movement: demand and therefore financial performance.
Lower and flexible cost operating model, mitigating against any downturn in Maintained tight cost control measures.
None future demand.
Reverse stress test impact of economic slowdown and higher inflation.
Owner:
Mitigating action plans developed to respond to uncertain macroeconomic
Steve Ashmore (Chief Executive Officer) environment.
2. Competitor challenge A highly competitive and fragmented industry, with the chance that increased Differentiated technology platforms, including fully integrated self-serve Increase in technology investment leading to the launch of HSS Pro
competition could result in excess capacity, therefore creating pricing interfaces for customers, suppliers and colleagues, providing fast and (self-service platform) and cash on HSS ProPOS (allowing cash customers to
pressure and adverse impacts on planned growth. efficient user journeys. transact through our Brenda technology) in Q4 FY22. In addition, a
significant amount of development has gone towards the
Risk Movement: Through our continually expanding supply chain, the Group gives customers a
re-platforming of hss.com onto Brenda, which we plan to roll out in FY23,
one-stop shop providing access to a huge range of products and complementary extending the range of products online.
None services such as training courses.
Expansion of the builders merchant network, growing to 63 branches, increasing
Owner: Our organisational structure allows for strong focus on sales acquisition. local presence in key markets.
Steve Gaskell (Group Strategy Director) We have a low-cost operating model, providing national coverage from 38 CDCs, The completion of the legal restructuring around HSS ProService and HSS
35 branches and 63 flexible builders merchants. Operations, which we completed on 3 July 2022, will provide complete focus for
each division; ProService targeting customer acquisition and enquiry
conversion and Operations concentrating on service, operational efficiency and
safety.
Expansion of our supply chain to 700+ suppliers.
3. Strategy execution Failure to successfully implement the Group's strategic plans could lead to A clearly defined and communicated strategic plan is in place. Our strategic aims were supported by five underpinning projects focused on:
lower than forecast financial performance in terms of both revenue growth
technology, sales acquisition, standout service, legal restructure and ESG.
and cost savings. Clear governance structure, with defined accountabilities. Each strategic
initiative is sponsored by an EMT member. The legal restructure of individual businesses was completed in July, which
Risk Movement:
will drive greater focus for our management teams.
Implementation of projects is monitored by the EMT, including resource
None allocation. The standout service project was completed with the full roll-out of Satalia
software nationally and the associated improvement in vehicle efficiency and
Regular updates, including initiative specific deep dives, provided to the carbon savings.
Board.
Owner: Our ESG project achieved all its initial milestones. This initiative will
continue into FY23 and beyond with a clear set of milestones.
Steve Gaskell (Group Strategy Director)
Similarly, our technology and sales acquisition projects made significant
progress and continue into FY23.
Created our strategic project plan for FY23 with clear milestone plans
to deliver.
4. Customer service The provision of the Group's expected service levels depend on its ability to National reach and presence through CDCs, branches, builders merchant partners The risk description has been widened to cover the importance of managing
efficiently transport the hire fleet across the network to ensure it is in and online. customer relationships to ensure we are appropriately paid for services
the right place, at the right time and of the appropriate quality.
provided.
Diverse range of rehire suppliers provides ongoing flexibility to ensure
Risk Movement: Management of customer relationships is important to ensure appropriate continuity of supply for customers. Expansion of the merchant model to 63 current locations.
payment is received for the quality of service provided.
None
Clear business continuity plans to maintain supply. Refining of new routing and scheduling software. We have reduced our mileage
Any disruption in supply, quality or relationship management can reduce
by c12%, saving on average one mile per job.
revenue and drive additional costs into the business. Extensive and continued training to ensure testing and repair quality
standards are maintained. Central sales team expansion, increasing engagement with customers.
Owner:
Audits and reporting covering quality, contracts and complaints.
Tom Shorten (Chief Commercial Officer)
Business accreditations are maintained, including ISO 9001, providing
customers with confidence in the quality of the services provided.
5. Third party reliance A significant amount of Group revenue is derived from the Services business Third party rehire suppliers are subject to rigorous onboarding processes. Plans initiated to increase supplier audit capabilities, matching the growth
which is dependent on the performance of third party service providers.
in the supply chain.
Each supplier is subject to demanding service level agreements with
Other third parties, such as builders merchants, are an increasingly important performance monitored on an ongoing basis. Refinement of supplier onboarding and audit processes to cover ESG.
Risk Movement: part of the operating model.
The wide and diverse range of rehire suppliers provides flexibility to select
None If any third parties become unable to provide reliable equipment, refuse to those who meet required service levels.
fulfil their obligations or violate laws or regulations, there could be a
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
Owner: location.
Tom Shorten (Chief Commercial Officer)
6. IT infrastructure The Group requires an IT system that is appropriately resourced to support Third party specialists are used to assess the appropriateness of IT Cyber security enhancements such as multi-factor authentication (MFA)
the business. An IT system malfunction may affect the ability to manage controls, including the risk of malicious or inadvertent security attacks. for all remote access and enhanced processes for joiners, movers and
operations and distribute hire equipment and service to customers, affecting
leavers implemented.
revenue and reputation. Firewalls, antivirus software, endpoint detection and clean up tools are used
Risk Movement:
to protect against malicious attempts to penetrate the business IT Enhanced patching policy and process.
An internal or external security attack could lead to a potential loss of environment and remove malware or similar agents.
None confidential information and disruption to transactions with customers and
ISO 27001 stage 1 audit completed, and Cyber Essentials
suppliers. Procedures to update supplier security patches. certification achieved.
Regular disaster recovery tests conducted and appropriate back-up servers to
Owner: manage the risk of primary server failure.
Paul Quested (Chief Financial Officer) 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 A strong balance sheet, lower debt and underlying interest cost mitigated the
reasonable cost. our net debt KPI). impact of higher interest costs, with every 1% increase in the base rate
increasing the interest charge by c£0.7m.
Some customers may be unwilling or unable to fulfil the terms of their rental Extensive credit checking for account customers with strict credit control
Risk Movement: agreements. Bad debts and credit losses can arise due to service issues or over a diversified customer base. Invested in additional resource to improve debt management.
fraud.
None
Credit insurance in place to minimise exposure to larger customer default Developed and embedded dispute management modules to ensure invoices are paid
Unauthorised, incorrect or fraudulent payments may lead to financial loss or risk. when they fall due.
delays which could affect relationships with suppliers and lead to a
disruption in supply. Investigation team focused on minimising Group's exposure to fraud.
Owner:
High inflation leads to base interest rate increases and therefore adversely Clearly defined authorisation matrix governing payments and amendments.
Paul Quested impacts cash flow.
(Chief Financial Officer)
8. Inability to attract, train and retain personnel The Group needs to ensure the appropriate human resources are in place to Market rates are regularly benchmarked to ensure competitive pay and benefits A refreshed ED&I strategy launched.
support the existing and future growth of the business. packages.
Refresh of employer brand and recruitment practices, including a new careers
Failure to attract and retain the necessary high-performing colleagues could Training for colleagues is provided at all levels to build capability and website and the introduction of a one-click application process to attract
Risk Movement: adversely impact financial performance. improve compliance. Training is role related, and behaviour focused, via diverse talent.
blended learning.
None Global inflationary pressures impact ability to retain colleagues.
Two payments made to colleagues to provide support with rising prices and
Colleague engagement surveys are conducted, with actions taken as a result of interest rates.
feedback.
Owner: Recruitment programmes working with third parties such as prisons offering
opportunities to ex-offenders,
Max Morgan
(Group HR Director) Initiatives such as Earn as you Learn.
9. Legal and regulatory requirements Failure to comply with laws or regulation, leading to material misstatement Robust governance is maintained within the Group, including a strong Stepping up of ESG activities, including introduction of both a Committee and
and potential legal, financial and reputational liabilities for financial structure, assurance provision from internal and external audit, Forum which regularly meet.
non‑compliance. and employment of internal specialist expertise supported by suitably
qualified and experienced external practitioners. Refresher training completed by colleagues relating to cyber security.
Risk Movement:
Training and awareness programmes focusing on anti-bribery, anti-modern Significant internal reorganisation project completed to simplify the Group
Decreasing slavery, anti-facilitation of tax evasion and data protection legislation. structure, liquidate various subsidiaries and reduce administrative burden and
compliance requirements.
Whistleblowing process in place providing colleagues with the ability to raise
non-compliance issues.
Owner:
Daniel Joll (General
Counsel)
10. Safety The Group operates in industries where safety is paramount for colleagues, Clear Health and Safety policy with ongoing risk management and monitoring of A review and refresh of driver training was undertaken with additional
customers and the general public. accidents and incidents. reference material and reporting information made available to support drivers
to undertake their role safely.
Failure to maintain high safety standards could lead to the risk of serious Health and Safety leadership forum chaired by the CEO and comprising senior
Risk Movement: injury or death. managers with responsibility for setting direction and monitoring progress. Increased safety communication, including three dedicated safety weeks held
to promote safe working.
None Fully skilled HSEQ team and internal investigators providing assurance and
support. Launched 'The Gateway', a one-stop health and safety portal for reporting
incidents, training, and guidance which can be accessed remotely on mobile
Mandatory training programmes for higher-risk activities. devices.
Owner:
The Group is ISO 45001 Health and Safety accredited. Combined with our underlying mitigating actions; these helped reduce
Steve Ashmore (Chief Executive) RIDDORs and Lost Time accidents by 80% and 10% respectively.
11. Environmental, Social and Governance (ESG) If the Group fails to set and meet appropriate ESG goals, there may be an The Group has a comprehensive set of procedures in place to minimise adverse An ESG Impact Report was published in June, identifying clear targets,
adverse reputational impact with stakeholders and it could limit ability to environmental impact, including procurement of electricity from renewable including net zero by 2040. These are based on three key strategic
trade with customers. This could result in revenue reduction, deterring people sources, third party monitoring of utility consumption and waste management. priorities: materially reduce operational GHG emissions, provide customers
from joining the business and limiting attractiveness to investors.
with access to sustainable products and proactive engagement with our supply
Risk Movement:
Procedures are in place to manage social and governance risks, many of which chain.
More detail on ESG is contained within the Task Force on Climate-Related are covered in key risks 8, 9 and 10.
Decreasing Financial Disclosures (TCFD).
An ESG roadmap with robust SBTs set with a Director appointed
The Group is ISO 14001 Environmental Management accredited. to lead programme.
An ESG Forum that is responsible for communication, engagement and evaluation Evaluation of scope 1, 2 and 3 emissions within the business.
Owner: of risks and opportunities.
EcoVadis Silver medal was granted in August, classifying the business
Steve Gaskell (Group Strategy Director) An ESG Committee that oversees improvement actions and monitors progress. in 'Advanced' status and at the 91st percentile in the industry.
Monthly Board updates on ESG progress. All electricity supply is now derived from renewable sources.
SUSTAINABILITY AT HSS
Our people
Our colleagues are the heart of our business, and key to setting us apart
within our industry. Our aim is to ensure they are safe, valued, supported,
developed, and rewarded for the hard work they do for our business and
customers.
Innovative ways of working
Our technology innovation has allowed us to create systems which make day-to-day working processes easier for our teams, and we continued this momentum into FY22. Our HSS ProPOS system has continued to grow and develop, and to further support our sales strategy we launched our new Customer Relationship Management (CRM) system in December, making sales administration and customer relationship management easier than ever.
To enhance our customer and colleague experience we created a new sales function based in our Manchester head office, spanning business development and customer improvement activities. With these teams co-located, we've been able to create a collaborative, competitive and rewarding working environment, keeping the teams engaged and allowing us to roll out sales development training so they can upskill together and create lasting careers with HSS.
Health and safety
Safety is at the forefront of our working practices, and it flows through our
communications and operational activities at all levels, driven from the top
down by our CEO, Steve Ashmore. We're proud that our RIDDOR rates have reduced
and we finished FY22 with only one RIDDOR for the reporting period. This
demonstrates our colleagues' commitment to keeping safety top of the agenda.
Colleague development
We take a blended approach to learning and development to ensure all our
colleagues have opportunities to grow their skills, knowledge and careers.
Whether it's apprenticeships, e-learning, video modules or classroom-based
training, we strive to tailor our approach and offer colleagues the chance to
progress and build a long-term career with HSS.
One of our key successes in FY22 has been our 'Earn As You Learn' programme,
which upskills our drivers from 3.5 to 7 tonne vehicles. 11 colleagues have
completed their training, with a further 25 expected to complete it early in
FY23. This initiative has created a clear career path for drivers wanting to
progress and has aided in retention in traditionally high-turnover driving
roles.
Our biggest risk area within the Group is Operations, as often these roles
involve handling equipment, loading and unloading vehicles and driving. To
offer more support to these teams, we launched our 'Safety Starts with Me'
campaign, implementing a range of actions such as new safety notice boards and
signage, new PPE, and regular team huddles to discuss key safety topics and
drive best practice.
We had 18 colleagues successfully complete our nine-month development
programme. They took part in workshops focused on leading people, managing
change, and personal effectiveness, equipping them with the skills to take the
next steps in their careers with HSS. Four of the colleagues who completed the
programme have since secured promotions or new roles within the Group.
Colleague engagement
Our annual colleague survey helps drive our engagement agenda for the year,
informing Groupwide initiatives, as well as local level activities to ensure
HSS is the best place to work. This year we had our highest ever completion
rate, with 92% of our colleagues providing a response. Our overall engagement
score remained high at 76%, a good result considering the change projects we
have implemented over the past two years and the impact of macroeconomic
conditions on living standards.
One of our key engagement initiatives this year was to address the pressures
many of our colleagues were facing in relation to the rising cost of living.
As well as communicating our benefits and financial wellbeing support, we made
a one-off payment of £750 to colleagues earning under £35,000 per annum.
Throughout FY22, we have run our usual engagement campaigns, including our
peer-to-peer recognition campaign 'Love Your Colleague' around Valentine's
Day, and an educational campaign for Pride across our communications and
social channels. To ensure we reached more of our operational colleagues, we
introduced 'Wellbeing Wednesdays', one day each month where the management
team would visit depots and join the local teams to discuss wellbeing topics,
highlighting our benefits and support.
We continue to see success from our apprenticeship programmes, with colleagues
enrolled from level 2 to level 7 in a broad range of disciplines. We also
introduced two new programmes this year, for team leaders and operational
management, which are helping to improve our internal management capabilities.
We ended FY22 with 39 delegates in active programmes, and enrolment re-opened
for FY23.
Equality, Diversity & Inclusion
At HSS we are committed to creating a diverse, inclusive workforce, where
everyone is made to feel welcome and valued, and during FY22 we have made some
tangible progress against our ED&I strategy.
We established a colleague council which meets quarterly, sharing ideas and
insights from across the colleague population to help drive positive progress.
We have also completely revised our ED&I training, adopting a top down
approach with our Management and Executive teams completing the training first
so they can lead on this topic within their own organisations. Once the
management training is complete, we will then roll out our mandatory
e-learning to all other colleagues in FY23.
Communities
As well as providing a supportive, engaging and progressive workplace for our
colleagues, we are committed to giving back to the communities we operate
within. This year we continued our partnership with the Lighthouse Club, a
charity which supports the construction industry on health and wellbeing. As
well as a corporate donation, our colleagues held a range of fundraising
activities such as golf days, competitions and games to raise further funds
throughout the year.
We supported two charities helping families and children impacted by the war
in Ukraine. In addition, we supported a number of our customers with
charitable outreach work throughout FY22, such as the Green Corridor
initiative through Heathrow Airport. The initiative supports local people with
special educational needs, creating opportunities for them to learn new
skills. Throughout the year, we donated a range of equipment for their
horticultural activities. We have also worked with our Onsite partners in
central London, donating a percentage of their spend to the charity of their
choice. For example, the Multiplex Onsite at 30 Grosvenor Square which
supports Willow, a charity providing special days out for seriously ill 16 to
40-year-olds.
Our environment
In FY22, we produced our inaugural ESG Impact Report, which is available
on-line, detailing progress and future plans as we navigate our ESG journey.
We've committed to achieve net zero by 2040 and the report explains our
materiality-based approach to our ESG strategy and disclosure.
This Annual Report outlines how we are driving practical and positive
environmental and social changes as a business, in partnership with our key
stakeholders, along with appropriate amendments to our already strong
governance.
Our ESG impact report
The report is a blueprint for the future as we strive to deliver positive
changes for our people, planet and performance. Amongst other things, the
report sets out:
· Our vision, values and purpose
· Our sustainability journey
· ESG commitments and targets
· Governance
· Carbon footprint
· Net Zero 2040 roadmap
· Supply chain and other stakeholder Engagement
· Equality, Diversity and Inclusion
· Health and safety
· Learning and development
· Community engagement
Innovation
At HSS, we pride ourselves in driving innovation within the hire industry and
this has always been key to enabling us to implement positive change across
our Group. When it comes to our ESG programme and hitting our ambitious 2040
net
zero goals, innovation is especially important. In line with this thinking, we
are working hard to improve our ESG offering to our customers to help them
meet their net zero targets, as well as our own.
One important example of this is our Innovation Roadshows, which ran between
February and October 2022. We held a roadshow each month across the length and
breadth of the UK, inviting our suppliers to collaborate and showcase their
ranges and technology to our customers and sales teams. The purpose of these
events was to highlight our eco-friendly product lines and the environmental
improvements these can help our customers drive across their own sites and
locations. Products showcased included hydrogen powered lighting towers, solar
powered welfare units, solar-hybrid Hydrotreated Vegtable Oil (HVO) compatible
generators, electric plant, electric powered access and electric grounds care
equipment.
Given the success of the roadshows, we are planning to repeat these throughout
FY23, making them even bigger and better in order to reach more customers.
HSS ProService has continued to focus on improving and streamlining our
customer journey and, with increasing numbers of customers looking for more
sustainable product lines and CO2 data, we will be launching enhancements to
our Brenda system in early FY23 to help meet this requirement.
Science based targets (SBT)
In our 2022 ESG Impact Report, we set out our ambition to be net zero by 2040.
To achieve this, we are taking several steps and a materiality-based approach
to our ESG goals. To further demonstrate our commitment to accelerate the
reduction of our
greenhouse gas (GHG) emissions, in October 2022 we signed up to the UN-backed
Science Based Targets initiative (SBTi).
We have publicly set near and long-term Companywide emissions reduction
targets and have made the decision to align with a 1.5°C rise in global
temperatures compared with pre-industrial levels through the Business Ambition
for 1.5°C campaign.
Our net zero by 2040 and 1.5°C temperature alignments are more ambitious than
those mandated by the SBTi, demonstrating how seriously we are taking our ESG
commitments. We believe these goals are crucial to futureproofing our
business, the planet, and the people and communities we work with.
Customer sustainability metrics
In FY22, we experienced a dramatic rise in the number of end users, government
bodies and customers requesting carbon data and other ESG-related information,
something we expect to continue as more of these drive their own ESG
strategies. To better support this demand, we kick-started a number of pilot
projects in FY22, working in partnership with a number of key customers to
understand their ESG requirements. Our aim is to take advantage of the lessons
learned and understand how we
can provide customers with greater transparency in their selection and use of
more eco-friendly products, and more sustainable solutions. The intention is
to expand these initiatives throughout FY23 to support all our stakeholders on
their own ESG journeys.
To externally assess where we are on our own ESG journey, we participated in
the CDP and EcoVadis ESG surveys in FY22. We have made excellent progress,
evidenced by an increase in our CDP rating. Furthermore, we have been awarded
a Silver EcoVadis medal for the first time, placing HSS as a leader in our
industry sector and in the 91st percentile overall, testament to our hard work
and progress on our ESG strategy.
Our supply chain has a significant impact on our ESG performance and has been
an increasing area of focus. In Q2 FY22, we sent out our first full ESG
supplier surveys, aiming to benchmark where our suppliers are on their ESG
journeys. The surveys covered the fundamental elements of ESG for their
businesses, but also probed how they are thinking about the emissions of their
businesses, product lines, and their future operations. In FY23, we intend to
build on this baseline information and place more focus on our supply chain's
emissions, innovation pipeline, governance practices and look to partner more
closely with suppliers who share our ESG vision, helping us to collaboratively
drive change in our industry.
Low carbon fleet
As we look to further reduce the emissions of our vehicle fleet, we continue
to invest in hybrid and electric vehicles, encouraging our company car users
to select these options as well. During FY22, as vehicle leases expired, we
moved to 33% of our company car fleet being electric (EV) or Hybrid (PHEV),
with a further 30% of vehicles with emissions less than 120g CO2. With 120
cars (30 EV, 66 PHEV) on order and mostly due for delivery in the first half
of FY23, our fleet will soon comprise over 60% EV or PHEV.
One of the challenges we face is that the range of EVs currently available is
insufficient given the mileage undertaken. Our 45 mobile fitters' vans are a
good example, as these vehicles do a high mileage per day. After an in-depth
study we are now replacing them with PHEVs that still have on average 55%
lower CO2 emissions, whilst providing appropriate range to ensure we satisfy
our customer service requirements.
Looking at our commercial vehicle fleet, we have focused on depots which
average lower delivery distances from their respective locations, to ensure we
balance our ESG goals and the limitations of the current vehicle technology
against delivering the high level of service our customers expect. These
locations with lower average delivery mileages are mainly in the South of
England, and we have ordered 40 PHEV drop sides due to arrive in the first
half of FY23.
We remain committed to taking advantage of the very latest in EV and PHEV
technology as the ranges improve, and we are working alongside various
innovative suppliers to find the best solutions. We have engaged with a new
start up, BE-EV, which in December 2022 began testing a prototype van at our
Central Distribution Centre in Bootle. The prototype is fitted with telematics
which provide invaluable data to help advance the technology further. We
remain committed to exploring new and developing technologies as they come to
market and offer practicable solutions to helping us reduce our carbon
emissions without adversely affecting customer service or efficiency.
Technology in relation to our fleet is not solely restricted to vehicle
operation. In the second half of FY21, HSS Operations introduced a
leading-edge AI software called Satalia, which enables our daily routing of
deliveries and collections to be as efficient as possible. Throughout FY22, we
have continued to embed and improve the software and it has reduced our
average journey in FY22 by over one mile. Whilst this may sound insignificant,
throughout the full year period it equates to more than 525,103 miles and
195tCO2 in total per annum, a significant impact on our overall emissions.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
Note Year ended 31 December 2022 Year ended 1 January 2022
Underlying Exceptional items (note 4) Total Underlying Exceptional items (note 4) Total
£000s £000s £000s £000s £000s £000s
Revenue 2 332,777 - 332,777 303,269 - 303,269
Cost of sales (164,647) - (164,647) (146,271) - (146,271)
Gross profit 168,130 - 168,130 156,998 - 156,998
(30,325) - (30,325) (21,915) - (21,915)
Distribution costs
Administrative expenses (109,554) (2,774) (112,328) (108,368) 7,933 (100,435)
Impairment loss on trade receivables and contract assets 11 (1,667) - (1,667) (1,835) - (1,835)
Other operating income 3 8 539 547 1,602 106 1,708
Operating profit 26,592 (2,235) 24,357 26,482 8,039 34,521
5 (7,650) (176) (7,826) (18,510) (9,945) (28,455)
Financial expense
Profit before tax 18,942 (2,411) 16,531 7,972 (1,906) 6,066
Income tax credit 6 3,946 - 3,946 1,239 1,239
Profit from continuing operations 22,888 (2,411) 20,477 9,211 (1,906) 7,305
Profit on disposal of discontinued operations - - - - 41,242 41,242
Profit from discontinued operations, net of tax - - - - 5,179 5,179
Profit for the financial period 22,888 (2,411) 20,477 9,211 44,515 53,726
Alternative performance measures £000s
Adjusted EBITDA 71,572 69,777
Adjusted EBITA 31,965 31,657
Adjusted profit before tax 20,966 10,731
Earnings per share (pence)
Adjusted basic earnings per share 7 2.41 1.25
Adjusted diluted earnings per share 7 2.34 1.22
Basic earnings per share 7 2.90 1.05
Diluted earnings per share 7 2.83 1.02
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Year ended Year ended
31 December 2022 1 January
2022
£000s £000s
Profit for the financial period 20,477 53,726
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign 332 (720)
operations
Foreign currency disposal as part of business divestiture - (49)
Other comprehensive gain/(loss) for the period, net of tax 332 (769)
Total comprehensive profit for the period 20,809 52,957
Attributable to owners of the Group 20,809 52,957
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 DECEMBER 2022
Note Year ended As restated(1)
31 December 2022 Year ended
£000s 1 January 2022
£000s
ASSETS
Non-current assets
Intangible assets 8 147,867 147,648
Property, plant and equipment
Hire equipment 9 73,613 63,123
Non-hire equipment 9 14,162 15,605
Right of use assets
Hire equipment 10 2,736 1,860
Non-hire equipment 10 49,077 55,329
Deferred tax asset 16 7,515 2,404
294,970 285,969
Current assets
Inventories 3,779 2,682
Trade and other receivables 11 86,068 78,680
Cash and cash equivalents 47,709 42,269
137,556 123,631
Total assets 432,526 409,600
EQUITY
Share capital 17 7,050 7,050
Share premium 17 45,552 45,552
Foreign exchange translation reserve (422) (754)
Other reserves 97,780 97,780
Retained earnings 32,503 12,273
Total equity 182,463 161,901
LIABILITIES
Current liabilities
Trade and other payables 12 88,302 78,704
Lease liabilities 13 13,182 14,052
Borrowings 14 5,168 5,258
Provisions 15 4,258 4,713
Current tax liability 290 293
111,200 103,020
Non-current liabilities
Lease liabilities 13 43,110 47,413
Borrowings 14 78,591 78,008
Provisions 15 17,045 19,110
Deferred tax liabilities 16 117 148
138,863 144,679
Total liabilities 250,063 247,699
Total equity and liabilities 432,526 409,600
1 The Group has identified the need to make a correction to the balance sheets
at 1 January 2022 and 26 December 2020 where hire equipment purchased under
financing agreements had been reclassed to Property, Plant and Equipment from
Right of Use assets. This reclassification includes the corresponding
adjustment between lease liabilities and borrowings.
The Financial Statements were approved and authorised for issue by the Board
of Directors on 26 April 2023 and were signed on its behalf by:
Paul Quested
Director
26 April 2023
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Share Share Warrant Merger Foreign Retained Total
capital
premium
reserve
reserve
exchange translation
earnings
equity
reserve
£000s £000s £000s £000s
£000s £000s
£000s
At 27 December 2020 6,965 45,580 2,694 97,780 15 (45,444) 107,590
Profit for the period - - - - - 53,726 53,726
Foreign currency translation differences arising on consolidation of foreign - - - - (720) - (720)
operations
Foreign currency disposal as part of business divestiture - - - - (49) - (49)
Total comprehensive (loss)/profit for the period - - - (769) 53,726 52,957
Transactions with owners recorded directly in equity:
Warrants exercised 85 - (2,694) - - 2,694 85
2020 share issue cost - (28) - - - - (28)
Share-based payment charge - - - - - 1,374 1,374
Share-based payment transfer to reserves - - - - - (77) (77)
At 1 January 2022 7,050 45,552 - 97,780 (754) 12,273 161,901
Profits for the period - - - - - 20,477 20,477
Foreign currency translation differences arising on consolidation - - - - 332 - 332
of foreign 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
As at 31 December 2022 7,050 45,552 - 97,780 (422) 32,503 182,463
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
Note Year ended As restated(1)
31 December 2022 Year ended
£000s 1 January 2022
£000s
Profit for the financial period 20,477 53,726
Adjustments for:
- Tax 6 (3,946) (1,156)
- Profit on disposal of discontinued operations - (41,242)
- Amortisation 5,314 5,310
- Depreciation 35,494 36,128
- Accelerated depreciation relating to hire stock customer losses and hire 3,951 3,761
stock write-offs
- Impairment of property, plant and equipment and right of use assets - 497
- Loss on disposal of property, plant and equipment and right of use assets 486 2
- Lease disposals 13 (324) (6,222)
- Loss on disposal of intangibles 59 311
- Capital element of receipts from net investment in sublease 255 -
- Share-based payment charge 951 1,374
- Foreign exchange loss/(gain) on operating activities 35 (506)
- Finance expense 5 7,826 28,527
Changes in working capital (excluding the effects of disposals and exchange
differences on consolidation):
- Inventories (1,097) 252
- Trade and other receivables (6,616) (6,999)
- Trade and other payables 9,472 23,671
- Provisions 268 (8,401)
Net cash flows from operating activities before purchase of hire equipment 72,605 89,033
Purchase of hire equipment 9 (24,538) (17,468)
Cash generated from operating activities 48,067 71,565
Interest paid (6,836) (26,628)
Income tax paid (2,220) (779)
Net cash generated from operating activities 39,011 44,158
Cash flows from investing activities
Proceeds on disposal of business, net of cash disposed of - 62,813
Proceeds on disposal of assets as part of business divestiture - 526
Purchases of non-hire property, plant, equipment and software 8, 9 (10,571) (6,651)
Net cash (used in)/generated from investing activities (10,571) 56,688
Cash flows from financing activities
Dividends paid (1,181) -
Facility arrangement fees (35) (1,946)
Proceeds from capital raise net of share issue costs paid - (1,471)
Proceeds from borrowings (third parties) - 70,000
Repayment of borrowings - (199,182)
Capital element of lease liability payments (15,140) (17,829)
Capital element of hire purchase arrangement payments (6,644) (5,722)
Net cash paid from financing activities (23,000) (156,250)
Net increase/(decrease) in cash 5,440 (55,304)
Cash at the start of the year 42,269 97,573
Cash at the end of the year 47,709 42,269
1 The Group has identified the need to make a correction to the balance sheets
at 1 January 2022 and 26 December 2020 where hire equipment purchased under
financing agreements had been reclassed to Property, Plant and Equipment from
Right of Use assets. This reclassification includes the corresponding
adjustment between lease liabilities and borrowings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
1. Basis of preparation
The Group's financial information has been prepared in accordance with
International Financial Reporting Standards as adopted by the UK (IFRS) and on
a basis consistent with those policies set out in our audited financial
statements for the year ended 31 December 2022 (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 1 January 2022. The financial statements were approved by the Board
on 26 April 2023.
The financial information for the year ended 31 December 2022 and the year
ended 1 January 2022 does not constitute the company's statutory accounts for
those years. Statutory accounts for the year ended 1 January 2022 have been
delivered to the Registrar of Companies. The statutory accounts for the year
ended 31 December 2022 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
The auditors' reports on the accounts for the years ended 31 December 2022 and
1 January 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 31 December 2022 will be
posted to shareholders in early May 2023.
Going concern
At 31 December 2022, 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 £47.7m providing liquidity headroom of £72.7m (2021:
£65.5m). 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 57% and 134% headroom against these covenants
respectively (2021: 44% and 49%).
The Directors have prepared a going concern assessment up to 27 April 2024,
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, 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 Group's base case for the 12 months to 27 April 2024
assumes a step change in growth through the effective execution of the Board
approved strategic initiatives.
The Board has considered various downside scenarios including a 'reasonable
worst case' driven by macroeconomic downturn reducing demand and leading to
volume decline, strategic initiatives delivering lower than forecast growth
and 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.
Prior period restatement
The Group has identified the need to make a correction to the balance sheets
at 1 January 2022 and 26 December 2020 where hire equipment subsequently
financed by hire purchase agreements has been reclassed to Property, Plant and
Equipment from Right of Use assets. This reclassification includes the
corresponding adjustment between lease liabilities and borrowings. There is no
impact on income statement, net assets or reserves as a result of this
restatement.
To correct the presentation of these balances in the prior year, the Group has
restated the balance sheet and associated note disclosures as at 1 January
2022.
The impact on the 1 January 2022 balance sheet is set out below:
1 January 2022 Adjustments 1 January 2022 (Restated)
£000s £000s £000s
Non-current assets:
Property, plant and equipment - Hire equipment 44,332 18,791 63,123
Right of use assets - Hire equipment 20,651 (18,791) 1,860
Current liabilities:
Lease liabilities 19,310 (5,258) 14,052
Borrowings - 5,258 5,258
Non-current liabilities:
Lease liabilities 57,255 (9,842) 47,413
Borrowings 68,166 9,842 78,008
2. Segment reporting
The Group's operations are segmented into the following reportable segments:
· Rental and related revenue; and
· Services.
Rental and related revenue comprises the rental income earned from owned tools
and equipment, including powered access, power generation together with
directly related revenue such as resale (fuel and other consumables),
transport and other ancillary revenues.
Services comprise the Group's HSS OneCall rehire business and HSS Training.
HSS OneCall provides customers with a single point of contact for the hire of
products that are not typically held within HSS's fleet and are obtained from
approved third party partners; HSS Training provides customers with specialist
safety training across a wide range of products and sectors.
Contribution is defined as segment operating profit before branch and selling
costs, central costs, depreciation, amortisation and exceptional items.
All segment revenue, operating profit, assets and liabilities are
attributable to the principal activity of the Group, being the provision of
tool and equipment hire and related services in, and to customers in, the
United Kingdom and the Republic of Ireland. No single customer represented
more than 10% of Group revenue in the year (2021: no customer was more than
10%).
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 16,531
Income tax 3,946
Profit for the financial period 20,477
Year ended 31 December 2022
Rental (and related Services Central Total
revenue) £000s £000s £000s
£000s
Additions to non-current assets
Property, plant and equipment 30,436 49 5,461 35,935
Right of use assets 2,220 521 7,672 10,413
Intangibles 3,052 35 2,505 5,592
Non-current assets net book value
Property, plant and equipment 73,613 138 14,024 87,775
Right of use assets 2,736 614 48,463 51,813
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)
182,463
Year ended 1 January 2022
Rental (and related Services Central Total
revenue) £000s £000s £000s
£000s
Total revenue from external customers 191,158 112,111 - 303,269
Contribution 132,583 16,209 - 148,792
Branch and selling costs (49,229) (49,229)
Central costs (29,786) (29,786)
Adjusted EBITDA 69,777
Less: Exceptional items 8,039 8,039
Less: Depreciation and amortisation (22,350) (826) (20,119) (43,295)
Operating profit 34,521
Net finance expenses (28,455)
Profit before tax from continuing operations 6,066
Income tax charge 1,239
Profit after tax from continuing operations 7,305
Profit on disposal of discontinued operations 41,242
Profit for the year from discontinued operations 5,179
Profit for the financial period 53,726
As restated(1)
Year ended 1 January 2022
Rental (and related revenue) Services Central Total
£000s £000s £000s £000s
Additions to non-current assets
Property, plant and equipment 25,815 16 2,750 28,581
Right of use assets 1,301 56 6,826 8,183
Intangibles 2,928 39 1,361 4,328
Non-current assets net book value
Property, plant and equipment 63,123 129 15,476 78,728
Right of use assets 1,860 384 54,945 57,189
Intangibles 143,553 836 3,259 147,648
Deferred tax assets 2,404 2,404
Current assets 123,631 123,631
Current liabilities (103,020) (103,020)
Non-current liabilities (144,679) (144,679)
161,901
3. Other operating income
Year ended Year ended
31 December 2022
1 January 2022
£000s £000s
COVID 19 Government grant income: Job retention schemes - 232
Insurance proceeds (net of fees) - 1,203
Sub-lease rental and service charge income 547 273
547 1,708
During the year, the Group received sub-let rental income of £0.5m (2021:
£0.3m) on vacant properties.
During the prior year, the Group recognised £0.2m as a result of earlier
participation in the Republic of Ireland's job retention scheme. The income
was received during 2020 with recognition deferred pending confirmation of
eligibility in 2021.
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 31 December 2022 the Group has
recognised exceptional items as follows:
Included in administrative expenses Included in other operating income Included in finance Year ended
£000s £000s expense 31 December 2022
£000s £000s
Onerous property costs 112 (539) 26 (401)
Costs relating to restructure 3,182 - - 3,182
Onerous contract (520) - 150 (370)
Total 2,774 (539) 176 2,411
During the year ended 1 January 2022, the Group recognised exceptional costs
analysed as follows:
Included in administrative expenses Included in other operating income Included in finance Year ended
£000s £000s expense 1 January 2022
£000s £000s
Onerous property (credits)/costs (7,982) (106) 223 (7,865)
Costs expensed on refinancing - - 9,730 9,730
Costs relating to restructure 556 - - 556
Onerous contract (257) - (8) (265)
Capital raise and AIM listing (250) - - (250)
Exceptional items - continuing operations (7,933) (106) 9,945 1,906
Profit arising on business divestiture - discontinued operations (41,242) - - (41,242)
Total (49,175) (106) 9,945 (39,336)
Exceptional items incurred in 2022 and 2021
Costs related to onerous properties: branch and office closures
In October 2020 the Group announced a decision to permanently close 134 stores
as part of an acceleration of strategy. Since that date the Group has been
working to agree exits from these and pre-existing dark stores. An exceptional
credit of £0.4m has been recognised in 2022 (2021: £7.9m). In the current
year this relates primarily to sublet rental income received where properties
have been sublet; amounts from sublet rental income have been included in
other operating income. In the prior year this credit mainly related to the
release of lease liabilities, onerous property cost and dilapidations
provisions on surrender of properties following the branch closures.
Costs related to restructure
Following the changes made to our operating network in Q4 2020 and the
roll-out of HSS ProPOS in Q1 2021, the Group completed the legal separation of
HSS ProService in July 2022. Following this legal separation, a detailed
strategy refresh was undertaken working with third party advisors to develop
the growth plans for HSS ProService and evaluate opportunities to create
greater shareholder value. Fees incurred relating to the restructure and
strategy refresh in the year ended 31 December 2022 amount to £3.2m (2021:
£0.6m).
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 £9.8m (2021: £13.5m). The
discount rate used to calculate the present value of the provision is the
five-year UK gilt rate of 3.62% (2021: 0.81%). Application of the new discount
rate at the balance sheet date resulted in a credit to the income statement
of £0.5m (2021: £0.3m), recognised as exceptional in line with the original
provision. An interest charge (discount unwind) of £0.15m (2021: £0.01m) was
recognised through exceptional finance costs.
Exceptional items incurred in 2021 only
Capital raise and AIM listing
In 2020 the Group successfully completed a capital raise to strengthen its
balance sheet and moved its listing to AIM in January 2021. An over-accrual of
legal costs of £0.3m was released in 2021. Costs that related specifically to
the capital raise were deducted from the net proceeds and included in the
share premium account.
Costs expensed on refinancing
In October 2021, following the sale of All Seasons Hire Limited (see business
divestitures below) the Group repaid £50.0m of the senior finance facility in
place at that time. The early repayment resulted in a prepayment penalty of
£1.9m. In November 2021 the Group completed a refinancing exercise. A new
senior finance facility of £70.0m was agreed at a significantly reduced
interest rate. The early repayment of the previous facility resulted in a
prepayment penalty of £4.5m. Repayments of the senior finance facility led to
accelerated amortisation of debt issue costs of £3.3m.
Business divestiture
To enable the Group to strengthen its balance sheet and focus on its strategic
priority to Transform the Tool Hire business, the Group made two strategic
divestments during 2021:
Laois Hire Services Limited
Laois Hire Services Limited, the Irish large plant hire business, was sold to
Briggs Equipment Ireland Limited on 7 April 2021. Proceeds of the disposal,
net of transaction costs, were £10.0m, generating a profit on disposal of
£3.2m.
All Seasons Hire Limited
All Seasons Hire Limited, a cooling and heating provider, was sold to Cross
Rental Services Limited with the transaction completing on 29 September 2021.
Proceeds of the disposal, net of transaction costs, were £54.3m, generating
a profit on disposal of £38.0m.
As part of these transactions, the Group entered into commercial agreements to
cross-hire equipment to ensure the broadest possible distribution of, and
customer access to, each party's existing fleet.
5. Finance expense
Year ended Year ended
31 December 2022 1 January 2022
£000s £000s
Senior finance facility 3,041 12,653
Senior finance facility prepayment penalties - 6,430
Debt issue costs 473 1,896
Lease and hire purchase arrangements 3,908 3,950
Interest unwind on discounted provisions 150 15
Revolving credit facility - 58
Interest on financial instruments - -
Bank loans and overdrafts 254 153
Accelerated amortisation of debt issue costs - 3,300
7,826 28,455
6. Income tax charge
(a) Analysis of tax credit in the year
Year ended Year ended
31 December 2022 1 January 2022
£000s £000s
Current tax charge
UK corporation tax on the result for the year 1,495 1,151
Adjustments in respect of prior years (299) (80)
Total current tax charge 1,196 1,071
Deferred tax credit for the year
Deferred tax credit for the year (5,493) (2,319)
Deferred tax impact of change in tax rate (40) (117)
Adjustments in respect of prior years 391 126
Total deferred tax credit (5,142) (2,310)
Income tax credit (3,946) (1,239)
(b) Factors affecting the income tax 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 31 December 2022 Year ended 1 January
£000s 2022
£000s
Profit before tax 16,531 6,066
Profit before tax multiplied by the effective standard rate of corporation tax 3,141 1,153
of 19% (2021: 19%)
Effects of:
Unprovided deferred tax movements on short-term temporary differences and (2,530) (2,958)
capital allowance timing differences
Adjustments in respect of prior years 92 46
Expenses not deductible for tax purposes 1,096 2,437
Recognition of brought forward tax losses (5,367) (2,000)
Utilisation of unrecognised tax losses brought forward (449) -
Foreign tax suffered 111 200
Impact of change in tax rate (40) (117)
Income tax credit (3,946) (1,239)
The charge of £1.1m (2021: £2.4m) 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 year. The
credit of £5.4m (2021: £2.0m) arises from the recognition of a deferred tax
asset in respect of prior period losses not previously recognised. Based upon
forecasts, the Group considers the recognition criteria in IAS 12 have been
met.
(c) Factors that may affect future tax charge
The standard rate of UK corporation tax will increase to 25% from 1 April
2023. The increased rate has been used to calculate the above deferred tax
disclosures except where it is known the temporary differences will unwind
before the new rate applies, in which case the existing rate of 19% has been
used.
At 31 December 2022 the Group had an unrecognised deferred tax asset relating
to losses of £13.1m (2021 (restated): £21m). The gross balance at 31
December 2022 was £52.3m (2021 (restated): £84.0m).
At 31 December 2022 the Group also had an unrecognised deferred tax asset
relating to temporary differences on plant and equipment, intangible assets
and provisions of £9.8m (2021: £15.2m). The gross balance at 31 December
2022 was £39.4m (2021 (restated): £60.0m).
The gross balances as at 1 January 2022 on unrecognised temporary differences
temporary differences on plant and equipment, intangible assets and provisions
have been restated to decrease by £20.0m due to input errors in the
preparation of the FY21 financial statements.
These potential deferred tax assets have not been recognised on the basis that
it is not sufficiently certain when taxable profits that can be utilised to
absorb the reversal of the temporary difference will occur.
7. Earnings per share
Basic earnings per share calculated on a continuing operations basis:
Profit after tax from continuing operations Weighted average number of shares Earnings per share from continuing operations
£000s 000s pence
Year ended 31 December 2022 20,477 704,988 2.90
Year ended 1 January 2022 7,305 696,821 1.05
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 calculated on a continuing operations basis:
Profit after tax from continuing operations Diluted weighted average number of shares Earnings per share from continuing operations
£000s 000s pence
Year ended 31 December 2022 20,477 723,950 2.83
Year ended 1 January 2022 7,305 714,816 1.02
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 2022 and 2021.
The following is a reconciliation between the basic earnings per share and the
adjusted basic earnings per share on a continuing operations basis:
Year ended 31 December 2022 Year ended 1 January
pence 2022
pence
Basic earnings per share 2.90 1.05
Add back:
Exceptional items per share(1) 0.34 0.27
Amortisation of customer relationships and brands per share (2) 0.29 0.40
Tax credit per share (0.56) (0.18)
Charge:
Tax charge at prevailing rate (0.56) (0.29)
Adjusted basic earnings per share 2.41 1.25
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 on a continuing operations basis:
Year ended 31 December 2022 Year ended 1 January 2022
pence pence
Diluted earnings per share 2.83 1.02
Add back:
Adjustment to basic earnings per share for the impact of dilutive securities
Exceptional items per share (1) 0.33 0.27
Amortisation of customer relationships and brands per share(2) 0.28 0.39
Tax credit per share (0.55) (0.17)
Charge:
Tax credit at prevailing rate (0.55) (0.29)
Adjusted diluted earnings per share 2.34 1.22
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 31 December 2022 Year ended 1 January 2022
Weighted average number of shares Weighted average number of shares
000s 000s
Basic 704,988 696,821
LTIP share options 3,843 8,296
Restricted stock grant 15,036 8,988
CSOP options 83 711
Diluted 723,950 714,816
8. Intangible assets
Goodwill Customer relationships Brands Software Total
£000s £000s £000s £000s £000s
Cost
At 2 January 2022 115,855 25,400 22,590 31,856 195,701
Additions - - - 5,592 5,592
Disposals(1) - - (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
Disposals(1) - - (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 year.
Goodwill Customer relationships Brands Software Total
£000s £000s £000s £000s £000s
Cost
At 27 December 2020 124,877 26,744 23,222 27,580 202,423
Additions - - - 4,328 4,328
Disposals - - - (52) (52)
Business disposal (9,018) (1,344) (632) - (10,994)
Foreign exchange differences (4) - - - (4)
At 1 January 2022 115,855 25,400 22,590 31,856 195,701
Amortisation
At 27 December 2020 - 21,348 622 21,955 43,925
Charge for the year - 2,675 84 2,551 5,310
Disposals - - - (52) (52)
Business disposal - (722) (408) - (1,130)
At 1 January 2022 - 23,301 298 24,454 48,053
Net book value
At 1 January 2022 115,855 2,099 22,292 7,402 147,648
Analysis of goodwill, indefinite life brands, other brands and customer
relationships by cash generating unit:
Goodwill Indefinite life brands Other Customer relationships Total
brands
£000s £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
Goodwill Indefinite Other Customer relationships Total
brands
£000s life brands
£000s £000s
£000s
£000s
Allocated to
HSS Core 109,802 21,900 - 1,900 133,602
HSS Power 6,053 - 392 199 6,644
At 1 January 2022 115,855 21,900 392 2,099 140,246
The remaining life of intangible assets other than goodwill and indefinite
life brands is between nil and 12 years (2021: nil and 13 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.
The Group has three (2021: two) cash generating units (CGUs): HSS Core UK, HSS
Core Ireland and HSS Power.
During the 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).
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 (2021: five years) together with a
terminal value using a long-term growth rate. The key assumptions underpinning
the recoverable amounts of the CGUs tested for impairment are those regarding
the discount rate, forecast inflation rate, forecast revenue, EBITDA and
capital expenditure including cash flows required to maintain the Group's
right of use assets.
The key variables applied to the VIU calculations were determined as follows:
· Cash flows were derived based on the budget for 2023 and model of the
business for the following two years (to the end of 2025).
· Operational activity then had a long-term growth rate applied to it while
capital expenditure was specifically adjusted to reflect expectations of spend
in the following years, giving a model of five years in total after which a
terminal value was calculated. The long-term growth factor used was 2.0% for
each of the CGUs (2021: 2.0%).
· A pre-tax discount rate of 12.2% (2021: 9.44%), calculated by reference
to a weighted average cost of capital (WACC) based on an industry peer group
of quoted companies and including a 2.0% premium reflective of the Group's
market capitalisation.
An impairment may be identified if changes to any of the factors mentioned
above become significant, including under-performance of the Group against
forecast, negative changes in the UK tool hire market or a deterioration in
the UK economy, which would cause the Directors to reconsider their
assumptions and revise their cash flow projections.
Based on the VIU modelling and impairment testing, the Directors do not
consider an impairment charge to be required in respect of any of the
property, plant and equipment, goodwill or indefinite life brand
assets carried in the balance sheet at 31 December 2022 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. Given the level of headroom in VIU these
calculations show, the Directors did not envisage reasonably possible changes,
either individually or in combination, to the key assumptions that would be
sufficient to cause an impairment charge at the balance sheet date. The
Directors also noted that the market capitalisation of the Group at the
balance sheet date was below the consolidated net asset position - which is
an indicator that an impairment may exist. On consideration of various
factors, including the concentrated shareholder base and recent shareholder
and investor activity, they concluded that an impairment was not required in
this regard.
In respect of HSS Core UK (the larger CGU) at 31 December 2022, the headroom
between VIU and carrying value of the related assets was £229.5m. The
Directors' sensitivity analysis, with regard to HSS Core UK, shows that an
increase in the discount rate to 22.2% or a reduction in the long-term growth
rate to a decline of 14.5% would eliminate the headroom shown. Furthermore,
the Directors' sensitivity analysis shows that no impairment would be required
to the HSS Core UK CGU until the actual EBITDA was 26.6% lower than forecast.
In addition, the Directors have assessed the combined impact of the long-term
growth rate falling to zero and an increase in the discount rate of 1% to
13.2%. This shows that the headroom drops to £139.1m for HSS Core UK.
In respect of HSS Power (the smallest CGU) at 31 December 2022, the headroom
between VIU and carrying value of the related assets was £8.4m (2021:
£30.9m). The Directors' sensitivity analysis, with regard to HSS Power,
shows that an increase in the discount rate to 16.1% (2021: 24.1%) or a
reduction in the long-term growth rate to a decline of 3.4% (2021: decline of
30.3%) would eliminate the headroom shown. Furthermore, the Directors'
sensitivity analysis shows that no impairment would be required to the Power
CGU until the actual EBITDA was 10.0% (2021: 29.8%) lower than forecast. In
addition, the Directors have assessed the combined impact of the long-term
growth rate falling to zero (2021: zero) and an increase in the discount rate
of 1% to 13.2% (2021: 10.44%). This shows that the headroom drops to £2.4m
(2021: £18.6m) for HSS Power.
In respect of HSS Core Ireland at 31 December 2022, the headroom between VIU
and carrying value of the related assets was £16.4m. The Directors'
sensitivity analysis, with regard to HSS Core Ireland, shows that an increase
in the discount rate to 21.8% or a reduction in the long-term growth rate to a
decline of 13.8% would eliminate the headroom shown. Furthermore, the
Directors' sensitivity analysis shows that no impairment would be required to
the HSS Core Ireland CGU until the actual EBITDA was 18.3% lower than
forecast. In addition, the Directors have assessed the combined impact of the
long-term growth rate falling to zero and an increase in the discount rate of
1% to 13.2%. This shows that the headroom drops to £9.8m for HSS Core
Ireland.
9. Property, plant and equipment
Land & Plant & Materials & equipment held for hire Total
buildings
machinery
£000s £000s
£000s £000s
Cost
At 2 January 2022 37,303 43,163 160,131 240,597
Transferred from right of use assets - - 283 283
Additions 4,919 592 30,435 35,946
Disposals(1) (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
Disposals(1) (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.
Land & Plant & Materials & equipment held for hire Total
buildings
machinery
£000s £000s
£000s £000s
Cost
At 27 December 2020 - as previously reported 58,419 55,315 149,534 263,268
Restatement(1) - - 28,550 28,550
At 27 December 2020 - as restated 58,419 55,315 178,084 291,818
Transferred from right of use assets - as previously reported - - 8,742 8,742
Restatement(1) - - (8,519) (8,519)
Transferred from right of use assets - as restated - - 223 223
Additions - as previously reported 2,011 755 18,558 21,324
Restatement(1) - - 7,257 7,257
Additions - as restated 2,011 755 25,815 28,581
Disposals - as previously reported (22,394) (11,193) (16,515) (50,102)
Restatement(1) - - (831) (831)
Disposals - as restated (22,394) (11,193) (17,346) (50,933)
Business disposal (702) (1,683) (26,064) (28,449)
Foreign exchange differences (31) (31) (581) (643)
At 1 January 2022 37,303 43,163 160,131 240,597
Accumulated depreciation
At 27 December 2020 - as previously reported 45,208 50,580 99,105 194,893
Restatement(1) - - 9,417 9,417
At 27 December 2020 - as restated 45,208 50,580 108,522 204,310
Transferred from right of use assets - as previously reported - - 5,200 5,200
Restatement(1) - - (4,990) (4,990)
Transferred from right of use assets - as restated - - 210 210
Charge for the year - as previously reported 2,543 1,710 12,482 16,735
Restatement(1) - - 3,641 3,641
Charge for the year - as restated 2,543 1,710 16,123 20,376
Impairment 264 - - 264
Disposals - as previously reported (22,325) (11,171) (13,145) (46,641)
Restatement(1) - - (402) (402)
Disposals - as restated (22,325) (11,171) (13,547) (47,043)
Business disposal (231) (1,485) (14,148) (15,864)
Foreign exchange differences (6) (56) (322) (384)
Transfers - (170) 170 -
At 1 January 2022 25,453 39,408 97,008 161,869
Net book value
At 1 January 2022 11,850 3,755 63,123 78,728
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.
10. Right of use assets
Property Vehicles Equipment for internal use Equipment held for hire Total
£000s £000s £000s £000s £000s
Cost
At 2 January 2022 56,847 26,283 520 2,328 85,978
Additions 2,290 5,903 - 2,220 10,413
Transferred to property, plant and equipment - - - (293) (293)
Disposals (2,273) (548) - (649) (3,470)
Foreign exchange differences 31 (25) - - 6
At 31 December 2022 56,895 31,613 520 3,606 92,634
Accumulated depreciation
At 2 January 2022 15,104 12,773 444 468 28,789
Transferred to property, plant and equipment - - - (271) (271)
Charge for the period 7,458 6,522 58 868 14,419
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
Property Vehicles Equipment for internal use Equipment held for hire Total
£000s £000s £000s £000s £000s
Cost
At 27 December 2020 - as previously reported 61,253 23,681 562 21,998 107,494
Restatement(1) - - - (20,497) (20,497)
At 27 December 2020 - as restated 61,253 23,681 562 1,501 86,997
Additions - as previously reported 1,882 5,000 - 8,558 15,440
Restatement(1) - - - (7,257) (7,257)
Additions - as restated 1,882 5,000 - 1,301 8,183
Re-measurements 3,407 128 (12) - 3,523
Transfers to property, plant and equipment - as previously reported - - - (4,462) (4,462)
Restatement(1) - - - 4,297 4,297
Transfers to property, plant and equipment - as restated - - - (165) (165)
Business disposal (1,304) (1,662) (30) - (2,996)
Disposals - as previously reported (8,755) (859) - (755) (10,369)
Restatement(1) - - - 446 446
Disposals - as restated (8,755) (859) - (309) (9,923)
Amount re-recognised on disposal of sublease 544 - - - 544
Foreign exchange differences (180) (5) - - (185)
At 1 January 2022 56,847 26,283 520 2,328 85,978
Accumulated depreciation
At 27 December 2020 - as previously reported 15,403 6,854 327 1,422 24,006
Restatement(1) - - - (1,364) (1,364)
At 27 December 2020 - as restated 15,403 6,854 327 58 22,642
Transfers to property, plant and equipment - as previously reported - - - (920) (920)
Restatement(1) - - - 768 768
Transfers to property, plant and equipment - as restated - - - (152) (152)
Charge for the period - as previously reported 7,840 7,099 147 4,307 19,393
Restatement(1) - - - (3,641) (3,641)
Charge for the period - as restated 7,840 7,099 147 666 15,752
Impairments 233 - - - 233
Business disposal (397) (538) (30) - (965)
Disposals - as previously reported (7,975) (642) - (121) (8,738)
Restatement(1) - - - 17 17
Disposals - as restated (7,975) (642) - (104) (8,721)
At 1 January 2022 15,104 12,773 444 468 28,789
Net book value
At 1 January 2022 41,743 13,510 76 1,860 57,189
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
31 December 2022 1 January 2022
Gross Provision for impairment Provision for Net of provision Gross Provision for impairment Provision for Net of provision
£000s £000s credit notes £000s £000s £000s credit notes £000s
£000s £000s
Trade receivables 77,308 (3,343) (5,554) 68,411 73,873 (3,884) (3,225) 66,764
Accrued income 10,543 (106) - 10,437 4,165 (47) - 4,118
Total trade receivables and contract assets 87,851 (3,449) (5,554) 78,848 78,038 (3,931) (3,225) 70,882
Net investment in sublease 712 - - 712 961 - - 961
Other debtors 3,493 - - 3,493 1,282 - - 1,282
Prepayments 3,015 - - 3,015 5,555 - - 5,555
Total trade and other receivables 95,071 (3,449) (5,554) 86,068 85,836 (3,931) (3,225) 78,680
Included in other debtors is £1.0m (2021: £nil) relating to tax receivables.
The following table details the movements in the provisions for impairment of
trade receivables and contract assets and credit notes:
31 December 2022 31 December 2022 1 January 2022 1 January 2022
Provision for impairment Provision for Provision for impairment Provision for
£000s credit notes £000s credit notes
£000s £000s
Balance at the beginning of the period (3,931) (3,225) (3,023) (2,458)
Increase in provision (1,667) (6,278) (1,835) (3,746)
Utilisation 2,149 3,949 910 2,752
Business disposal - - 17 227
Balance at the end of the period (3,449) (5,554) (3,931) (3,225)
The bad debt provision based on expected credit losses and applied to trade
receivables, all of which are current assets, is as follows:
31 December 2022 Current 0-60 days 61-365 days 1-2 years Total
past due past due past due
Trade receivables and contract assets 71,292 7,747 7,262 1,550 87,851
Expected loss rate 0.9% 2.8% 20.9% 69.4% 3.9%
Provision for impairment charge 638 218 1,517 1,076 3,449
1 January 2022 Current 0-60 days 61-365 days 1-2 years Total
past due past due past due
Trade receivables and contract assets 44,209 22,847 9,376 1,606 78,038
Expected loss rate 1.0% 2.4% 19.7% 68.7% 5.0%
Provision for impairment charge 435 544 1,848 1,104 3,931
Contract assets consist of accrued income.
The bad debt provision is estimated using the simplified approach to expected
credit loss methodology and is based upon past default experience and the
Directors' assessment of the current economic environment for each of the
Group's ageing categories.
The Directors have given specific consideration to the macroeconomic
uncertainty leading to pressures on businesses facing staff and material
shortages and, more latterly, increased inflation. At the balance sheet date,
similar to 2021, 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 (2021: 1.50x) to reflect the
increased risk of future insolvency. In so doing the provision has been
increased by £0.7m (2021: £1.2m) from that which would have been required
based on loss experience over the past two years. As in the prior year,
historical loss rates have been increased where debtors have been identified
as high risk with a reduction applied to customer debt covered by credit
insurance.
The total amount expensed was £3.1m (2021: £2.8m). 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 10.2% of trade
receivables and contract assets at 31 December 2022 (2021: 9.2%). A 0.5%
increase in the combined provision rate would give rise to an increased
provision of £0.4m (2021: £0.4m).
12. Trade and other payables
Year ended 31 December 2022 Year ended
£000s 1 January 2022
£000s
Current
Trade payables 41,693 43,062
Other taxes and social security costs 4,718 5,175
Other creditors 2,010 1,308
Accrued interest on borrowings 534 271
Accruals 38,689 28,494
Deferred income 658 394
88,302 78,704
13. Lease liabilities
31 December 2022 As restated(1)
£000s 1 January 2022
£000s
Current
Lease liabilities 13,182 14,052
Non-current
Lease liabilities 43,110 47,413
56,292 61,465
The interest rates on the Group's lease liabilities are as follows:
31 December 2022 As restated(1)
1 January 2022
Equipment for hire Fixed 11.1 to 19.1% 11.1 to 19.1%
Other Fixed 3.5 to 6.0% 3.5 to 6.0%
The weighted average interest rates on the Group's borrowings are as follows:
31 December 2022 As restated(1)
1 January 2022
Lease liabilities 6.1% 5.7%
The lease liability movements are detailed below:
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
Discount unwind 2,460 444 3 2,907
Payments (including interest) (10,144) (7,023) (880) (18,047)
Disposals (217) (107) - (324)
Foreign exchange differences - 8 - 8
At 31 December 2022 39,268 13,472 3,552 56,292
Property Vehicles As restated(1) As restated(1)
£000s £000s Equipment for hire and internal use Total
£000s £000s
Lease liability movement
At 27 December 2020 57,181 16,861 1,771 75,813
Additions 1,981 5,029 1,418 8,428
Re-measurements 3,407 128 (13) 3,522
Discount unwind 2,805 535 5 3,345
Payments (including interest) (13,209) (7,012) (842) (21,063)
Disposals (6,006) (216) - (6,222)
Business disposal (1,063) (1,048) - (2,111)
Foreign exchange differences (217) (30) - (247)
At 1 January 2022 44,879 14,247 2,339 61,465
The Group's leases have the following maturity profile:
31 December 2022 As restated(1)
£000s 1 January 2022
£000s
Less than one year 16,227 17,415
Two to five years 36,798 38,566
More than five years 15,133 19,353
68,158 75,334
Less interest cash flows: (11,866) (13,869)
Total principal cash flows 56,292 61,465
The maturity profile, excluding interest cash flows, of the Group's leases is
as follows:
31 December 2022 As restated(1)
£000s 1 January 2022
£000s
Less than one year 13,182 14,052
Two to five years 30,690 31,575
More than five years 12,420 15,838
56,292 61,465
14. Borrowings
31 December 2022 As restated(1)
£000s 1 January 2022
£000s
Current
Hire purchase arrangements 5,168 5,258
Non-current
Hire purchase arrangements 9,978 9,842
Senior finance facility 68,613 68,166
78,591 78,008
The senior finance facility is stated net of transaction fees of £1.4m (2021:
£1.8m) which are being amortised over the loan period.
The nominal value of the Group's loans at each reporting date is as follows:
31 December 2022 1 January 2022
£000s £000s
Hire purchase arrangements 15,146 15,100
Senior finance facility 70,000 70,000
Revolving credit facility - -
85,146 85,100
The senior finance facility and revolving credit facility 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 31 December
2022 (2021: £35.8m), including £11.3m (2021: £12.6m) of finance lines to
fund hire fleet capital expenditure not yet utilised. Including net cash
balances, the Group had access to £84.0m of combined liquidity from available
cash and undrawn committed borrowing facilities at 31 December 2022 (2021:
£78.1m).
The interest rates on the Group's borrowings are as follows:
31 December 2022 1 January 2022
Hire purchase arrangements Floating percentage above NatWest base rate 2.3 to 2.9% 2.4 to 3.3%
Senior finance facility Floating percentage above SONIA 3.0% 3.0%
Revolving credit facility Floating percentage above SONIA 3.0% 3.0%
The weighted average interest rates on the Group's borrowings are as follows:
31 December 2022 1 January 2022
Hire purchase arrangements 6.0% 2.7%
Senior finance facility 6.4% 3.0%
Revolving credit facility 6.4% 3.0%
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:
31 December 2022 As restated(1)
1 January 2022
Hire purchase arrangements Borrowings Hire purchase arrangements Bo
rr
£000s £000s £000s ow
in
gs
£0
00
s
Less than one year 5,718 2,235 5,600 2,235
Two to five years 10,670 74,245 10,190 76,498
16,388 76,480 15,790 78,733
Less interest cash flows:
Hire purchase arrangements (1,242) - (690) -
Senior finance facility - (6,480) - (8,733)
Total principal cash flows 15,146 70,000 15,100 70,000
15. Provisions
Onerous property Dilapidations Onerous Total
contracts
costs £000s
£000s
£000s
£000s
At 2 January 2022 186 10,174 13,463 23,823
Additions - 4,430 - 4,430
Utilised during the period (7) (58) (3,289) (3,354)
Unwind of provision 1 113 - 114
Impact of change in discount rate (6) (2,822) (368) (3,196)
Releases (57) (467) - (524)
Foreign exchange - 10 - 10
At 31 December 2022 117 11,380 9,806 21,303
Of which:
Current 47 1,232 2,979 4,258
Non-current 70 10,148 6,827 17,045
117 11,380 9,806 21,303
Onerous property Dilapidations Onerous Total
contracts
costs £000s
£000s
£000s
£000s
At 27 December 2020 3,959 12,677 17,018 33,654
Additions 86 1,471 - 1,557
Utilised during the period (212) (2,538) (3,290) (6,040)
Unwind of provision (1) 24 (8) 15
Impact of change in discount rate (31) (457) (257) (745)
Releases (3,615) (643) - (4,258)
Business disposal - (361) - (361)
Foreign exchange - 1 - 1
At 1 January 2022 186 10,174 13,463 23,823
Of which:
Current 70 1,453 3,190 4,713
Non-current 116 8,721 10,273 19,110
186 10,174 13,463 23,823
Onerous 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 £nil (2021: £0.1m) and the release of the provision of £0.1m
(2021: £3.6m) have been treated as exceptional and are included in the
property cost credit of £0.1m (2021: £3.0m). The releases are the result of
early surrenders being agreed with landlords - the associated liabilities are
generally limited to the date of surrender but provided to the date of the
first exercisable break clause to align with recognition of associated lease
liabilities.
The liabilities, assessed on a property-by-property basis, are expected to
arise over a period of up to four years (2021: five years) with the weighted
average age of the onerous property costs being 2.73 years (2021: 3.30 years).
The onerous property cost provision has been discounted at a rate of 3.62%
(2021: 0.81%). 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
outflow of funds, requiring the exercise of judgement applied to existing
facts and circumstances, which can be subject to change. The estimates used by
management in the calculation of the provision take into consideration the
location, size and age of the properties. The weighted average dilapidations
provision at 31 December 2022 was £8.83 per square foot (psf) (2021: £7.53
psf). The increase is mainly due to a revision of the £ per square foot
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 31 December 2022 of £1.1m (2021: £1.5m).
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 3.62%
and 3.70% respectively (2021 0.81% and 0.97% respectively). A 1% increase in
both the discount rates at 31 December 2022 would decrease the dilapidations
provision by £0.6m (2021: £0.6m). The inflation rate applied in the
calculation of the dilapidations provision was 5% for year 1 and thereafter
2.5% (2021: 3% average was used). The Directors have noted the significant
pressure on inflation towards the end of 2021 and especially in 2022 but the
expectation is that inflation has now peaked and that it would gradually come
down in 2023 with levels returning to around 2% again from 2024 onwards.
The aggregate movement in additions, releases and change in discount rate of
£1.1m has generated £1.1m of asset additions, remeasurements 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 31 December 2022
£9.8m is payable over the period to 2026 (2021: £13.5m) and £3.3m has been
paid during the year (2021: £3.3m). The provision has been remeasured to
present value by applying a discount rate of 3.62% (2021: 0.81%). A 1%
increase in the discount rate at 31 December 2022 would decrease the provision
by £0.2m (2021: £0.3m).
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) Tax losses Property, plant and equipment and other items Acquired intangible assets Total
£000s £000s £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 asset/(liability) Tax losses Property, plant and equipment and other items Acquired intangible assets Total
£000s £000s £000s £000s
At 27 December 2020 - 66 (326) (260)
Credit to the income statement - continuing operations 2,000 289 21 2,310
Charge to the income statement - discontinuing operations - - (12) (12)
Eliminated on disposal of business - 49 169 218
At 1 January 2022 2,000 404 (148) 2,256
Deferred tax assets have been recognised to the extent that management
considers it probable that tax losses will be utilised in the short term. 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. In the year ended 31 December 2022 a three-year (2021:
one-year) recognition window has been applied. If this window were to be
decreased to a period of one year, in line with the recognition window in the
prior year, the deferred tax asset would decrease by £5.2m from £7.5m to
£2.3m.
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 31 December 2022 £0.1m (2021: £0.1m) of the deferred tax liability is
expected to crystallise after more than one year.
At 31 December 2022 the Group had an unrecognised deferred tax asset relating
to losses of £13.1m (2021 (restated): £21.0m). The gross balance at 31
December 2022 was £52.3m (2021 (restated): £84.0m).
At 31 December 2022 the Group also had an unrecognised deferred tax asset
relating to temporary differences on plant and equipment, intangible assets
and provisions of £9.8m (2021: £15.2m). The gross balance at 31 December
2022 was £39.4m (2021 (restated): £60.0m).
The gross balances as at 1 January 2022 on unrecognised temporary differences
for losses and temporary differences on plant and equipment, intangible assets
and provisions have been restated to decrease by £10.0m and £20.0m
respectively due to input errors in the preparation of the FY21 financial
statements.
Additionally, the unrecognised deferred tax assets for losses as at 01 Jan
2022 were restated to increase these by £3.1m to correct the substantively
enacted rate that was used from 19% to 25%.
These potential deferred tax assets have not been recognised on the basis that
it is not sufficiently certain when taxable profits that can be utilised to
absorb the reversal of the temporary difference will occur.
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 2 January 2022 and 31 December 2022 704,987,954 7,050 45,552
Ordinary shares Ordinary shares Share premium
Number £000s £000s
At 27 December 2020 696,477,654 6,965 45,580
2020 share issue cost - - (28)
Shares issued 8,510,300 85 -
At 1 January 2022 704,987,954 7,050 45,552
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR GGGDSRGDDGXRRecent news on HSS Hire
See all newsREG - HSS Hire Group PLC - Notice of Results
AnnouncementREG - HSS Hire Group PLC - Sale of Power Generator Businesses
AnnouncementREG - HSS Hire Group PLC - Holding(s) in Company
AnnouncementREG - HSS Hire Group PLC - Purchase of Shares
AnnouncementREG - HSS Hire Group PLC - Interim Dividend
Announcement