REG - Kinovo PLC - Final Results
19/08/2022 07:00
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RNS Number : 5398W Kinovo PLC 19 August 2022
19 August 2022
Kinovo plc
("Kinovo" or the "Group")
Final results for the year ended 31 March 2022
Kinovo plc (AIM:KINO), the specialist property services Group that delivers
compliance and sustainability solutions, announces its full year results for
the twelve months ended 31 March 2022.
Financial highlights:
· Revenue from continuing operations increased by 35% to £53.3 million
(2021: £39.4 million)
· Adjusted EBITDA from continuing operations up 102% to £4.2 million
(2021: £2.1 million)
· Underlying operating profit from continuing operations increased by
95% to £4.1 million (2021: £2.1 million)
· Strong adjusted cash conversion from continuing operations of 223%
with £9.4 million in cash generated
· Cash balance at year end of £2.5 million (2021: £1.3 million)
· Net debt significantly reduced by approximately £2.4 million to
£0.34 million from £2.7 million in 2021
· Adjusted earnings per share almost doubled from 2.76p in 2021 to
5.33p in 2022
Operating highlights:
· Strong performance from the underlying business despite considerable
macro-economic pressures
· Streamlined operations focus on three core operations:
o Regulation: delivered 59% of revenues and grew by 30% year-on-year
o Regeneration: grew by 61% during the year, now contributing to 20% of
total revenue
o Renewables: accounts for 21% of total revenue, reporting 32% growth
· Investment in the business development team, contributed to winning a
considerable number of new contracts during the period, diversifying the
client base and increasing three-year visible revenues by 34% year-on-year
from £105.0 million to £140.4 million
· Investment in the training and upskilling of employees led to an
improved operational performance
· Full Microgeneration Certification Scheme (MCS) accreditation
including PAS2030 installer certification, enables access to further
government funding initiatives
· ESGM strategic report sets out our future commitments and key targets
including being carbon neutral in relation to Scope 1 and 2 by March 2023
DCB (Kent) Limited ("DCB"):
· Disposal of DCB to MCG Global Limited ("MCG") for deferred
consideration of up to £5 million
· Agreed to provide working capital support to DCB, which was limited
to a set time period and forecast to be cash neutral
· At time of disposal, there were in existence certain pre-existing
parent company guarantees from Kinovo in relation to the ongoing projects
within DCB, which were to be transferred to MCG following the disposal and
expire on completion of the projects
· DCB did not perform to Kinovo's expectations following the disposal
and working capital support totalling £3.7 million was provided
· In May 2022, DCB went into administration and Kinovo has had to
uphold certain parent company guarantees relating to the construction projects
in existence at the time of the disposal
· Dialogue with DCB clients have been positive, outstanding DCB
projects are under control with costs to complete expected to be approximately
£4 million plus expenses, significantly lower than previous external
expectations, and will be fulfilled by our current cashflow.
Post-period End:
· 28% year-on-year increase in revenues from continuing operations
during Q1 from £10.9 million to £14.0 million
· Adjusted EBITDA from continuing operations for Q1 grew by 24% on the
previous year from £668,000 to £827,000
· Net debt at the end of July 2022 remains comparable to year-end at
£345,000 with a positive cash balance of £2.0 million
· Our banking partner, HSBC UK Bank plc, remains supportive of the
Group; refinancing of HSBC £1.5 million term loan and current overdraft
facilities have been credit committee approved and formal documentation is in
the process of being completed
David Bullen, Chief Executive Officer of Kinovo, commented:
"While the last year has been challenging for Kinovo, we are delighted with
the performance of the underlying business. Revenues increased by 35% and
adjusted EBITDA more than doubled, a direct result of the repositioning
announced last year to focus on three key areas: regulation, regeneration and
renewables. This streamlining of operations has allowed the underlying
business to prioritise what it does best and flourish. Coupled with the
significant investment in our people, upskilling of employees and bringing in
additional expertise, Kinovo is well positioned to negotiate this difficult
macro-economic environment.
A key challenge we faced this year was the fall-out from the disposal of DCB.
We are confident that Kinovo undertook all necessary due diligence, with the
deal being based on sound financial projections that, since completion, have
not performed to our expectations. The outstanding DCB projects are now under
Kinovo's control and we are pleased that the cost to complete will be
significantly lower than previously speculated externally, at around £4
million plus costs, which will be fulfilled by Kinovo's current cashflow. This
disposal was a key component of streamlining operations, and we look forward
to finalising the DCB projects and focusing on the rest of the business, which
is excelling.
We are pleased to have received continued support from our banking partner
HSBC, with our facilities in the process of being completed.
Kinovo is in a strong position moving into FY23, with the revenue and EBITDA
growth achieved last year continuing into Q1. We have complete confidence that
the Group will continue to grow and develop as we reap the rewards of the
team's hard work and investment during the last two years. I look forward to
updating the market on this progress in due course."
Enquiries
Kinovo plc
Sangita Shah, Chairman +44 (0)20 7796 4133
David Bullen, Chief Executive Officer (via Hudson Sandler)
Canaccord Genuity Limited (Nominated Adviser and Sole Broker) +44 (0)20 7523 8000
Corporate Broking:
Andrew Potts
Bobbie Hilliam
Hudson Sandler (Financial PR) +44 (0)20 7796 4133
Dan de Belder
Harry Griffiths
This announcement contains inside information for the purposes of article 7 of
the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the
Market Abuse (Amendment) (EU Exit) Regulations 2019/310. Upon the
publication of this announcement, this inside information is now considered to
be in the public domain.
Chair's statement
A future that shows promise and continued growth
Sangita Shah
Non-Executive Chair
Overview
From the perspective of underlying business results, I am pleased to report
the very strong performance amidst challenging macro-economic conditions. We
have faced labour availability constraints resulting from Brexit, the
continued impacts of the Covid-19 pandemic, cost inflation and supply chain
issues, exacerbated by the war in Ukraine. Despite all of these uncertainties,
the three business divisions reported a combined increase in revenue of 35%
and triple digit adjusted EBITDA growth.
However, whilst our underlying business has been a success, we have
encountered significant problems relating to the disposal of DCB (Kent)
Limited, our former construction division. This is a regrettable situation.
Whilst the Company, along with its legal advisers, believe it conducted the
necessary due diligence regarding the disposal, we recorded a loss on the
disposal of DCB of £12.6 million. Additional details are set out in the
Financial Review and notes 30 and 32 of the financial statements.
Repositioning
In last year's Annual Report, Kinovo set out its strategic repositioning to
focus on three key pillars: Regulation, Regeneration and Renewables. These
pillars are centred around compliance and regulatory work under long-term
contracts, being the foundation of our Company.
This streamlining of operations has allowed Kinovo to focus on areas where we
possess strength and experience while foreseeing significant future growth
opportunities.
Part of this repositioning has allowed us to focus time and capital on these
specific areas. By streamlining our operations, we have been able to invest
significantly in the bid team, as well as training and marketing. The results
of this are evident through the underlying business performance last year,
where we signed five contracts with new clients and one renewal.
ESG
ESG and sustainability are vitally important to us and a key tenet of our
business ethos. We are authentically committed to our people and communities.
For example, Kinovo continues to run prison outreach programmes, visiting
prisons and participating in schemes to assist ex-prisoners with their
rehabilitation and finding work. We also operate a successful apprenticeship
programme that is now in its 30th year, with apprentices making up 10% of our
workforce.
We also operate a number of important environmental initiatives. This year we
achieved PAS 2030 and MCS accreditations, which set out the requirements and
demonstrate the quality for retrofitting domestic low-carbon technologies, and
introduced a "Free of Charge" electric vehicle charging installation scheme
for retailers and leisure operators. While still in its early stages, we are
developing and initiating a free EV charging installation model that sees
customers sign long-term deals with Kinovo; this will extend beyond our usual
client base of housing associations and councils into hospitality and leisure
companies. We also extended our internal environmental credentials,
increasingly making our workplaces greener through use of EV chargers and
solar panels, and by installing a ground source heat pump at our Head Office.
People
Our people are the lifeblood of the company. They are, and always will be, of
utmost importance to us. We believe our employee initiatives to be among the
best in the property services sector and on AIM. We pride ourselves on ranking
highly in terms of support around mental health and this year we provided
training to a number of employees to become mental health workplace
responders. We are also proud to have developed our employee bonus scheme, and
have run a series of highly effective training programmes and continue to
promote diversity and inclusion throughout the Company.
Looking ahead
The considerable difficulties we encountered from the disposal of our
construction division sadly marred what was an excellent performance within
the underlying business. Having shown the resilience and fortitude to overcome
these difficulties, we very much look forward to putting the DCB issue behind
us and forging forwards.
Sangita Shah
Non-Executive Chair
19 August 2022
Chief Executive Officer's review
Delivered a robust underlying performance
David Bullen
Chief Executive Officer
Overview
Kinovo delivered a strong financial performance in the current year, with
robust underlying growth. The performance of the Group's continuing operations
was all the more impressive given the many external challenges affecting the
business community in general, including the effects of the Covid-19 pandemic,
Russia's invasion of Ukraine, labour availability, cost inflation and supply
chain pressures.
The performance was achieved as a result of the rebranding and repositioning
of the Group as reported in last year's Annual Report, with our growth being
driven by prioritising and focusing on our core strengths. We are now fully
focused on our three strategic pillars ("3Rs"): Regulation, Regeneration and
Renewables, and have continued to invest in key personnel and processes while
simultaneously winning a considerable number of new contracts as well as
extending existing relationships. The significant progress of the underlying
business, despite the challenging environment, is a testament to the hard work
and commitment of our people.
During the period, revenue from continuing operations increased by 35% to
£53.3 million (2021: £39.4 million), with adjusted EBITDA rising by 102% to
£4.2 million (2021: £2.1 million). Net debt fell to £0.3 million (2021:
£2.7 million); a reduction of £10.5 million since 2019.
Our Regulation pillar, which assures safety and regulatory compliance in homes
and workplaces, remains the foundation of our business, contributing to 59% of
our revenues and delivering 30% growth during the year. Our Regeneration
pillar benefits from remedial works that are borne out of our regulatory
compliance focus and also concentrates on planned and reactive maintenance
spanning across all three divisions of mechanical, electrical and building
services. This pillar grew significantly by 61% during the year and now
contributes to 20% of our revenues. Our Renewables pillar has made good
progress, growing by 32% during the year and accounting for 21% of our
revenues. During the year, we obtained our Microgeneration Certification
Scheme accreditation and subsequent PAS2030 certification enabling us access
to government funding initiatives as a fully certified installer of solar
photovoltaics, air source and ground source heat pumps. We have rolled out a
free electric vehicle charger installation pilot scheme, securing customers
under long-term contracts including an initial free period. Our opportunities
in renewables are expected to continue to grow moving forwards.
Rebranding and repositioning
Following our rebranding and repositioning, Kinovo has provided both a clear
understanding of our purpose and a differentiated proposition for our client
base, prioritising our people, the quality of our services, the focus on our
future and an unstinting commitment to make a positive difference to people's
lives and the communities within which we work.
Through our marketing team, this initiative has facilitated deeper engagement
and a closer connection with our stakeholders, strengthening our network and
relationships. By creating our first Company and employee brochures, to
recognising our frontline staff and rewarding individuals who best demonstrate
our core values with employee of the month schemes and delivering our first
ESGM strategy report, the positive development and progress of Kinovo is
favourably recognised.
Business development
Complementing our rebranding and repositioning initiative, as a key driver for
our organic growth prospects, we invested to strengthen the breadth and depth
of our business development team, which is responsible for sourcing and
securing new business opportunities. With the support of our new brand
positioning and materials, the business development team have significantly
leveraged the quality of our bids and streamlined our new business to target
our key focus areas.
The value of this investment has already been demonstrated with a 34% increase
on our three-year visible revenues over the year. During the period, Kinovo
won, renewed or extended a number of contracts increasing our three-year
visible revenues to £140.4 million from £105.0 million in the previous year.
Examples of these include the renewal of our British Gas contract for three
years, a new contract with London Borough of Wandsworth for up to seven years,
and a new contract for up to four years with Sanctuary Housing. A particularly
pleasing feature of our wins has been the increasing diversity of new clients
that we have gained in the process, broadening the Group's penetration in the
South East.
People
Prioritising our people is critical for Kinovo, both in terms of their welfare
and career development, and we have enacted a number of initiatives to
strengthen our dedication to this, ensuring our employees have access to
continued support on both a personal and professional basis, are recognised
and rewarded appropriately and have the opportunity to achieve their full
development potential.
We have aligned all of our recruitment and appraisal processes with our core
values to support our cultural change as an organisation. We have invested in
specific training courses for individuals across the Group and all our
subsidiary heads and senior managers have attended a bespoke Leadership and
Management Training course during the year. This course will be provided to
the next tiers of management and supervisors in the forthcoming year.
We are proud of the progress of our apprenticeship scheme, which now stands at
25 apprentices and represents 10% of our workforce. This demonstrates our
commitment to developing local people and communities, underpinning our
long-term vision for Kinovo. Alongside our apprenticeship scheme, in line with
the growth of the Company, we are pleased to have facilitated a number of
internal promotions amongst our staff across the different levels of
seniority.
The challenges of wage inflation and labour availability in the employment
market, coupled with the increasing cost of living crisis, are all well
documented. In recognition of this, the Company has been proactive in
evaluating its internal position with external benchmarking, which has
resulted in an average pay increase across the Group of over 6%,
post-appraisals, effective 1 April 2022. Specifically, amongst those who
received a pay increase, the average increase equated to almost 9%.
During the year, we also focused on strengthening our wellbeing
responsibilities for our staff. The increasing recognition of mental health in
society, particularly following the pandemic, needs to be observed and we are
playing a leading role among the property services sector in not just
advocating awareness but implementing specific initiatives. We enrolled ten
members of staff to complete certified level two training with St. John's
Ambulance Service as mental health workplace responders and are looking to
roll this scheme out further.
DCB (Kent) Limited ("DCB")
During the year, we announced the disposal of DCB, a non-core construction
division, as part of the streamlining of operations, and in line with our
stated focus on our 3Rs. This was a strategic decision following my
appointment in April 2019; it was always intended that DCB would be separated
from the core operations and was catalysed following the decision by the
founders Chris and Caroline Webster, at the end of June 2021, to resign and
stand down from the business by the end of the 2021 calendar year.
As part of the disposal to MCG Global Limited ("MCG"), Kinovo agreed to
provide working capital support to DCB, which was both time limited and
forecasted to be cash neutral. In addition, at the time of the disposal there
were in existence certain pre-existing parent company guarantees from Kinovo
in relation to the ongoing projects within DCB. These parent company
guarantees were to be transferred to MCG following the disposal and expire on
completion of the projects. The projects were expected to be completed during
2022, except one project which was expected to complete at the end of 2023.
Despite a very robust pipeline of opportunities, disappointingly, DCB did not
perform to Kinovo's expectations following the disposal and Kinovo was
required to provide working capital support totalling £3.7 million. In May
2022, DCB went into administration and Kinovo has had to uphold certain parent
company guarantees relating to nine construction projects in existence at the
time of the disposal, none of which were transferred to MCG prior to the
administration process. Kinovo has therefore taken control of these projects
and is working closely with DCB's clients, making encouraging progress to
provide positive solutions to complete the outstanding projects in a timely
manner. Working with professional construction experts we have reached
agreement, in principle, on a number of projects. We believe the total costs
to complete for the nine projects will be approximately £4.0 million and we
will be able to conclude these projects without the need for further external
funding.
We also advised that we received a Letter Before Action from lawyers acting
for MCG. The Company has taken legal advice, considers any claim brought by
MCG to be without merit and has responded robustly whilst also considering our
own counter claim.
Outlook
We are extremely pleased with the performance of the underlying business and
look forward to developing this further during 2022. The Board remains
conscious of inflationary headwinds, supply pressures and labour availability,
and will maintain a disciplined approach to cost management. Despite these
challenges, our performance in 2021/22, as well as the structured framework
that we now have in place, leaves us confident that 2022/23 will be another
year of strong underlying financial performance with quarter one Adjusted
EBITDA 24% ahead of prior year.
We are in constructive discussions with our banking partner, HSBC UK Bank Plc,
regarding the continuation of the current borrowing facilities and refinance
of the term loan facility due for full repayment in September 2022. HSBC UK
Bank Plc remain supportive and the Group has received formal credit approval
confirming the renewal and refinance of these facilities. However,
documentation is yet to be completed at the date of signing these financial
statements.
David Bullen
Chief Executive Officer
19 August 2022
Financial review
Strong performance from continuing operations
Clive Lovett
Group Finance Director
Trading review
Continuing operations
Kinovo has continued to deliver resilient progress with strong growth in
revenues, earnings and cash generation from its continuing operations, despite
the market challenges of supply chain inflation and material and labour
availability.
Comparative revenues grew 35% to £53.3 million (2021: £39.4 million) for the
year ended 31 March 2022, demonstrating robust recovery from the prior year
impacts of Covid-19.
Gross profit of £12.8 million (2021: £9.3 million) was achieved at a margin
of 23.9% (2021: 23.6%). Underlying administrative expenses of £8.7 million
were up £1.4 million compared with the prior period (2021: £7.3 million)
reflecting the investment in new staff including business development, bonus
provisions and the effect of furlough grants in the prior year.
Adjusted EBITDA* (after the effect of a charge for lease payments) increased
by 102% to £4.2 million (2021: £2.1 million) with operating profit from
continuing operations delivering £3.1 million (2021: £67,000).
Underlying operating profit, excluding non-underlying items, increased by 104%
to £4.1 million (2021: £2.0 million). Non-underlying items were £1.0
million (2021: £1.9 million) including £nil exceptional restructuring costs
(2021: £334,000).
Profit before taxation for continuing operations was £2.8 million (2021: loss
£371,000) and profit after tax was £2.3 million (2021: loss £252,000)
reflecting the uplift in the performance of the continuing operations.
Discontinued operations
The Group's non-core construction business, DCB (Kent) Limited was disposed of
during the year. Loss after tax for the discontinued operations was £549,000
and the loss on disposal amounted to £12.6 million for the year ended 31
March 2022. Further details are set out below and in note 30 to the financial
statements.
Financial position and key indicators
Net debt (excluding lease liabilities) reduced £2.4 million from £2.7
million to £339,000 reflecting improved working capital efficiency and robust
underlying operational cash generation from the continuing operations despite
the cash absorbed by the discontinued operations during the year.
We focus on a range of KPIs to assess our performance. Our KPIs are both
financial and non-financial and ensure that the Group targets its resources
around its customers, operations and finance. Collectively they form an
integral part of the way that we manage the business to deliver our strategic
goals.
The key financial performance indicators for the year are set out below and
described in more detail on pages 16 to 18.
* The Board considers Adjusted EBITDA to be a key Alternative Performance
Measure ("APM") as it is the basis upon which the underlying management
information is prepared and the performance of the business assessed by the
Board. It is also the measure for the covenants under our banking
arrangements.
Year ended Year ended
31 March 31 March
2022 2021
£'000 £'000
Continuing operations
Income statement
Revenue 53,325 39,369
Gross profit 12,767 9,291
Gross margin 23.9% 23.6%
EBITDA1 (excluding effect of lease payments) 4,600 2,763
Adjusted EBITDA2 (including effect of lease payments) 4,237 2,096
Underlying operating profit3 4,091 2,010
Underlying profit before taxation4 3,822 1,572
Profit/(loss) after taxation 2,262 (252)
Basic earnings/(loss) per share5 3.66p (0.42p)
Adjusted earnings per share6 5.33p 2.76p
Cash flow
Net cash generated from operating activities 9,777 5,542
Adjusted net cash generated from operating activities7 9,442 4,360
Adjusted operating cash conversion8 (%) 223% 208%
Financial position
Cash and cash equivalents 2,504 1,293
Term and other loans (2,843) (3,966)
Net debt9 (339) (2,673)
Trade receivables 4,977 5,564
Accrued income 5,247 8,634
Trade payables (12,552) (11,082)
Net (liabilities)/assets (143) 10,862
Discontinued operations
(Loss)/profit after taxation (549) 409
Loss on disposal (12,595) -
Net cash (absorbed)/generated by operating activities (6,117) 272
1. Earnings before interest, taxation, depreciation and amortisation
("EBITDA") and excluding non-underlying items, as set out in note 8 of the
financial statements.
2. Adjusted EBITDA excludes non-underlying items and is stated after
the effect of a charge for lease payments, as set out below.
3. Underlying operating profit is stated before charging
non-underlying items as set out in note 9 of the financial statements.
4. Underlying profit before taxation is stated after finance costs and
before charging non-underlying items.
5. Basic earnings per share is the profit after tax divided by the
weighted average number of ordinary shares.
6. Adjusted earnings per share is the profit before deducting
non-underlying items after tax divided by the weighted average number of
ordinary shares.
7. Net cash generated from continuing operations before tax and after
lease payments and adding back £nil (2021: £334,000) exceptional items in
the period ended 31 March 2022. It is also adjusted to reflect the payment of
deferred HMRC payments to normal terms.
8. Adjusted net cash generated from operating activities divided by
Adjusted EBITDA.
9. Net debt includes term and other loans, and overdraft net of cash,
and excludes lease obligations.
EBITDA reconciliation
Internal financial reporting and reporting under the Group's banking
facilities is focused on Adjusted EBITDA of £4.2 million (2021: £2.1
million) which is stated after the effect of a charge for lease payments.
Set out below is the basis for the calculation of Adjusted EBITDA.
2022 2021
£'000 £'000
Continuing operations
Profit before tax 2,792 (371)
Add back non-underlying items:
Amortisation of customer relationships 940 1,582
Share based payment charge 90 27
Exceptional items - 334
Underlying profit before tax 3,822 1,572
EBITDA adjustments:
Finance costs 269 438
Depreciation of property, plant and equipment 130 82
Depreciation of right-of-use assets 336 654
Amortisation of software costs 44 17
Profit on disposal of property, plant and equipment (1) -
EBITDA 4,600 2,763
Adjustment for lease payments (363) (667)
Adjusted EBITDA 4,237 2,096
Non-underlying items
Non-underlying items are considered by the Board to be either exceptional in
size, one-off in nature or non-trading related items and are represented by
the following:
2022 2021
£'000 £'000
Amortisation of customer relationships 940 1,582
Share based payment charge 90 27
Restructuring costs - 334
Total 1,030 1,943
The share based payment charge reflects the impact attributed to the new share
schemes established in 2021. Additional information on the schemes is set out
in note 28. There is no charge in 2022 for legacy schemes which have
completely vested or the options which have been cancelled.
Restructuring costs in 2021 for continuing operations comprise redundancy and
notice period costs and other related restructuring costs to align operational
skill sets with the strategic repositioning of the business.
Finance costs
Finance expenses were £269,000 (2021: £438,000) and are represented by
interest on bank borrowings and loans, other interest costs and other finance
costs, being the amortisation of debt issue costs. There was no finance income
in the year.
Tax
The Group tax position reflects an underlying charge of £530,000 on
continuing activities set off by tax credits of £128,000 on discontinued
activities and £1.1 million relating to the loss of disposal of DCB (Kent)
Limited. £nil tax was received in the year by continuing operations (2021:
£163,000) due to recovery of tax paid in the prior year.
Overall the Group has no tax liability at 31 March 2022 with approximately
£1.6 million unused tax losses.
The net deferred tax asset at 31 March 2022 was £306,000 (2021: liability
£699,000) comprising a deferred tax liability of £225,000 (2021: £1.1
million), relating to the acquisition of intangible assets, right-of-use
assets and short-term timing differences, and a deferred tax asset of
£531,000 (2021: £387,000), relating to unused tax losses, lease liabilities
and share-based payments.
Earnings per share
Basic earnings per share, from continuing operations, was 3.66 pence (2021:
loss 0.42 pence), based on profit after tax of £2.3 million (2021: loss
£252,000). The weighted average number of shares in issue was adjusted for
the SIP share awards in the year as set out in note 24 of the financial
statements.
Adjusted earnings per share, from continuing operations, excluding
non-underlying items, was 5.33 pence (2021: 2.76 pence). Diluted adjusted
earnings per share was 5.15 pence. There was no earnings per share dilution in
2021 as the outstanding share options granted were priced above the average
share price for the year.
Cash flow performance
Adjusted cash generated from continuing operations was £9.4 million (2021:
£4.4 million) resulting in an adjusted operating cash conversion of 221%
(2021: 208%).
Adjusted operating cash conversion is calculated as cash generated from
continuing operations (after lease payments), after adding back exceptional
item payments of £nil (2021: £334,000) and adjusted for the effects of
deferred HMRC repayments of £136,000 (2021: net deferred £686,000), divided
by Adjusted EBITDA of £4.2 million (2021: £2.1 million), as set out below.
2022 2021
£'000 £'000
Statutory cash generated from operations (see note 25) 3,660 5,814
Adjustment for cash absorbed by/(generated from) discontinued activities 6,117 (272)
Net cash generated from continuing operating activities 9,777 5,542
Less operating lease payments (471) (667)
Less corporation tax received - (163)
9,306 4,712
Add back exceptional restructuring costs - 334
Net adjustment for deferred HMRC payments 136 (686)
Adjusted net cash generated from continuing operating activities 9,442 4,360
Adjusted EBITDA (see above and note 8) 4,237 2,096
Adjusted cash conversion (adjusted operating cash/Adjusted EBITDA) 223% 208%
Total HMRC VAT liabilities of £1.02 million were deferred at 31 March 2021
and were fully repaid by 31 January 2022. In March 2022, the Group agreed
arrangements with HMRC to defer VAT payments and at 31 March 2022 deferred VAT
was £887,000. At the date of approval of the financial statements, £770,000
had been repaid and the remaining £117,000 will be fully repaid by 1
September 2022.
Cash conversion excluding the effect of a charge for lease payments was 208%
(2021: 181%).
The result reflects a combination of rigorous focus on reducing the time from
order to cash receipts by the management teams of the continuing operations,
changes to the purchasing card credit terms and facility and timing of staff
bonus payments.
The Group has a centralised treasury function and actively manages cash flows
on both a daily and longer-term basis. The Group enjoys long-term client
relationships with both its customers, being local government organisations
and other housing associations, and its supply chain partners.
Cash absorbed by discontinued operations amounted to a total of £6.1 million
(2021: cash generated £272,000) including working capital provided post
disposal of the business on 12 January 2022 until 31 March 2022 of £2.5
million.
Net debt
Net debt reduced by £2.4 million in the period (2021: reduced by £4.5
million). At 31 March 2022, net debt amounted to £339,000 (2021: £2.7
million) as analysed in the table below and note 21 for full details of
borrowings.
2022 2021 2020 2019
£'000 £'000 £'000 £'000
Borrowings
Term loans 2,534 3,533 3,333 5,000
Other loans 109 176 235 289
Mortgage loans 200 257 314 371
Overdraft - - 3,351 5,219
2,843 3,966 7,233 10,879
Cash and cash equivalents (2,504) (1,293) (19) (21)
Net debt 339 2,673 7,214 10,858
Discontinued operations
Following its rebranding and strategic review, Kinovo determined that DCB
(Kent) Limited ("DCB"), the Company's construction business, was non-core and
initiated a process to dispose of the business.
On 12 January 2022, DCB was disposed of for an initial consideration of £1
and deferred consideration of up to a maximum of £5.0 million dependent upon
various performance criteria.
Kinovo was committed to providing working capital support (which also included
provisions for recovery of any surplus working capital) until 31 July 2022 and
retained liability under various parent company guarantees for the DCB
construction projects, subject to the acquirer, MCG Global Limited ("MCG"),
endeavouring to transfer the guarantees. The Directors expectation for the
working capital support was that it would be cash neutral.
Despite a very robust pipeline of opportunities, disappointingly, DCB did not
perform to Kinovo's expectations following the disposal and Kinovo was
required to provide working capital support totalling £3.7 million.
On 16 May 2022, DCB filed for administration. Kinovo is the largest creditor
of DCB according to the preliminary report of the joint administrators. As at
the date of the financial statements Kinovo has limited expectation of
recovery of the amounts owed or deferred consideration under the terms of the
disposal of DCB.
DCB did not perform to Kinovo's expectations following the disposal and
working capital funding had been provided, up to the date of administration of
DCB, amounting to £3.7 million and no parent company guarantees had been
transferred to MCG. Under the terms of the parent company guarantees, Kinovo
is responsible for the completion of the projects.
The activities of DCB have been presented as discontinued operations until the
effective transfer of control of the business and the comparatives of the
Consolidated Statement of Comprehensive Income have been re-presented for the
year ended 31 March 2021.
Loss after tax for the discontinued operations was £549,000 (2021: profit
£409,000).
The loss on disposal of DCB amounted to £12.6 million including £3.7 million
write-off of working capital funding provided between January 2022 and April
2022, disposal of £9.9 million net assets including £2.4 million residual
intangible fixed asset comprising goodwill and customer relationship and
capitalised inter-company other net assets of £5.5 million, offset by tax
losses.
The net cost to complete the construction projects is expected to be
approximately £4.0 million plus legal and professional fees and is considered
to be a non-adjusting post balance sheet event as the administration of DCB
was not envisaged at the balance sheet date. Three of the projects also have
performance bonds, which are indemnified by Kinovo plc, totalling £2.10
million. Kinovo has engaged with insurers, underwriters and clients and
although these bonds technically could be called at any time, since DCB
entered into administration, it is recognised by all parties that whilst
discussions are ongoing to identify solutions to enable the projects to be
completed that the bonds would not be called.
Full details of the discontinued trading operations and the loss on disposal
and the non-adjusting post balance sheet event relating to the net costs to
complete the DCB construction projects are set out in notes 30 and 32.
The disposal of DCB has allowed the Group to harmonise its operations and
increase the focus on its three strategic workflow pillars: Regulation,
Regeneration and Renewables. These pillars are centred on compliance-driven,
regulatory-led specialist services that offer long-term contracts, recurring
revenue streams and strong cash generation.
Banking arrangements
The Group's debt facilities at 31 March 2022, with HSBC UK Bank Plc, comprised
a £2.5 million term loan, £2.5 million overdraft facility and £200,000
mortgage loan. The Group also has a £109,000 legacy loan with Funding Circle.
Net debt analysis is set out above and full details of the borrowing
facilities are set out in note 21 of the financial statements.
The financial covenants on the HSBC UK Bank Plc term loan facility are tested
quarterly and they are: (i) achievement of minimum levels of EBITDA; (ii) debt
service cover; and (iii) interest cover. All financial covenants for the year
ended 31 March 2022 were achieved as were the financial covenants on the
unaudited results for the quarter to 30 June 2022.
The scheduled £500,000 quarterly term loan repayment was made on 31 May 2022.
The next quarterly repayment is due on 31 August 2022, which the Group expects
to repay, with the balance on the term loan of £1.5 million scheduled to be
repaid by 30 September 2022.
The Group and HSBC UK Bank Plc are in constructive discussions regarding the
continuation of the current borrowing facilities and refinance of the term
loan facility due for full repayment in September 2022. HSBC UK Bank Plc
remain supportive and the Group has received formal credit approval confirming
the renewal and refinance of these facilities. However, documentation is yet
to be completed at the date of signing these financial statements.
Dividends
A final dividend for the year ended 31 March 2022 was paid in September 2021.
No interim dividend was paid. Due to the loss after tax on non-continuing
activities, the loss on disposal of DCB and the consequent financial position
for Kinovo, the Board does not recommend the payment of a final dividend for
the year ended 31 March 2022. It remains the Board's priority to continue to
reduce the level of net debt and to resume the payment of a dividend as soon
as financial conditions allow.
Going concern
The financial position of the Group, its cash flows, the commitments to the
discontinued operations, liquidity position and borrowing facilities are
described above.
In assessing the Group's ability to continue as a going concern, the Board
reviews and approves the annual budget and longer-term strategic plan,
including forecasts of cash flows.
The Board also reviews the Group's sources of available funds and the level of
headroom available against its committed borrowing facilities and associated
covenants.
After taking into account the above factors, including the expectation that
the HSBC UK Bank Plc term loan facility will be refinanced, and possible
sensitivities in trading performance, the Board has an expectation that Kinovo
and the Group as a whole have adequate resources to continue in operational
existence for the foreseeable future.
Although HSBC UK Bank Plc credit approval has been agreed confirming the
renewal and refinancing of facilities, as the documentation has yet to be
completed and the agreement with clients on the DCB projects was outstanding
at the date of signing the financial statements, technically, a material
uncertainty remains, which may cast significant doubt on the group's ability
to continue as a going concern. Discussions are at an advanced stage on each
of these matters and the Board is confident that new agreements will be
executed. For this reason, the Board continues to adopt the going concern
basis in preparing the consolidated financial statements. Accordingly, these
accounts do not include any adjustments to the carrying amount or
classification of assets and liabilities that would result if the Group were
unable to continue as a going concern. Further detail on going concern are set
out in note 2.1.
Clive Lovett
Group Finance Director
19 August 2022
Independent Auditor's Report to the members of Kinovo plc for the financial
year ended 31 March 2022
Qualified opinion
We have audited the financial statements of Kinovo Plc (the 'group') for the
year ended 31 March 2022 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in
Equity and notes to the financial statements, including significant accounting
policies. The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted International Accounting
Standards.
In our opinion, except for the effects of the matter described in the Basis
for qualified opinion section of our report, the group financial statements:
· give a true and fair view of the state of the group's affairs as at
31 March 2022 and of its loss for the year then ended;
· have been properly prepared in accordance with UK adopted
International Accounting Standards; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for qualified opinion on the group financial statements
DCB (Kent) Limited was disposed of during the year and is consequently
presented as a discontinued operation in the Consolidated Statement of
Comprehensive Income, to which it contributed a loss of £13,144,000 during
the year. This loss comprises the loss for the period up to the date of
disposal of £549,000 and a loss on disposal of £12,595,000, disclosed within
note 30. Following its sale and subsequent administration the accounting
records and all other supporting documentation needed to audit DCB (Kent)
Limited's contribution to the group's comprehensive income during the period
were not available to us, and we were unable to obtain sufficient appropriate
audit evidence in respect of this contribution using alternative means.
In addition, were any adjustment to these figures to be required, the
strategic report would also need to be amended.
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the
audit of the group financial statements section of our report. We are
independent of the group in accordance with the ethical requirements that are
relevant to our audit of the group financial statements in the UK, including
the FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our qualified opinion.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough
understanding of the group's business, its environment and risk profile. We
conducted substantive audit procedures and evaluated the group's internal
control environment. The components of the group are subject to individual
statutory audit and were audited to their own individual materiality by the
group audit team, with the exception of DCB (Kent) Limited for the reasons set
out above.
For all entities that are subject to a full scope audit, we evaluated the
controls in place at those components by performing walkthroughs over the
financial reporting systems identified as part of our risk assessment. We also
reviewed the accounts production process and addressed critical accounting
matters. We then undertook substantive testing on significant classes of
transactions and material account balances.
Emphasis of matter
We draw attention to note 32 in the consolidated financial statements, which
describes the costs to complete in relation to the contracts entered into by
DCB (Kent) Limited that DCB (Kent) Limited was unable to fulfil due to going
into administration. Due to the parent company guarantee put in place prior to
the disposal of DCB (Kent) Limited, the group is liable for completion of the
contracts and has estimated the costs based on the advice of the external
qualified surveyors, who have assessed the net costs to complete for the 9
ongoing projects to be in the region of £4.0 million plus professional fees
and expenses.
Whilst the group used an expert to determine this amount, this is a material
judgement which we considered needed to be highlighted to the users of the
financial statements. Our opinion is not modified in this respect.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the group financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
The key audit matters were:
· Revenue recognition and valuation of accrued Income
· Carrying value of intangible fixed assets
· DCB (Kent) Limited's contribution to the Consolidated Statement of
Comprehensive Income
· Disposal of DCB (Kent) Limited
· Going concern
A description of each matter together with our audit approach is set out
below.
Audit Area and Description Audit Approach
Revenue recognition and valuation of accrued income We selected a sample of contracts where income had been recognised but not
invoiced at the year end and:
The Group had carried out work for customers during the year that had not been
invoiced at the reporting date, which totalled £5,247,000 (2021: · Confirmed that the calculations were arithmetically correct;
£8,634,000), as detailed in note 19. Income has been recognised in respect of
work carried out prior to the reporting date in accordance with the Group's · agreed the calculations to invoices raised after the year end; and
income recognition policy, and in line with the income recognition principles
outlined in IFRS 15. · agreed that the work was performed prior to the year end.
In addition, we reviewed the adequacy of the disclosures under IFRS15, and
performed revenue cut-off testing to cover the risk of fraud.
Carrying value of intangible fixed assets We critically assessed the Directors' assertion that no impairment was
required by reference to trading performance and forecasts.
As a result of the acquisitions made during prior periods, intangible assets
represent a significant part of the total assets of the group. The intangible We considered the appropriateness of the amortisation policy for customer
assets arising on acquisition largely comprise goodwill of £4,192,000 (2021: relationships and reviewed the customer contracts to ensure these are still in
£5,543,000) and customer relationships of £385,000 (2021: £2,489,000), as existence. We have recalculated the amortisation charge.
detailed in note 15.
DCB (Kent) Limited's contribution to the Consolidated Statement of As set out in the Basis for Qualified opinion above, we have qualified our
Comprehensive Income opinion in respect of the contribution of DCB (Kent) Limited to the
Consolidated Statement of Comprehensive Income for the reasons set out in that
As stated in the Basis for qualified opinion paragraph above, we have been paragraph.
unable to obtain sufficient appropriate audit evidence in respect of the
accounting records of DCB (Kent) Limited.
Disposal of DCB (Kent) Limited We critically assessed the Directors' board papers covering each of these
judgement areas, independently evaluating the Directors' assertions in light
The accounting treatment of the disposal of DCB (Kent) Limited included of the available evidence.
significant judgements over the timing of the disposal, whether the timing of
the costs to complete was an adjusting or non adjusting post balance sheet We considered evidence which contradicted the Directors' assertions as part of
event and the timing of write offs, as detailed in notes 4(e), 4(f) and 4(g) this process, as well as evidence which corroborated them.
respectively.
We concluded that the Directors' judgements were on balance appropriate in
light of the available evidence, and reviewed the appropriateness of the
Directors' financial statement disclosures in respect of these matters.
Going concern As noted in the material uncertainty related to going concern paragraph
beneath, there are events or conditions which indicate that a material
As detailed in note 2.1, there are several significant judgements which have uncertainty exists that may cast significant doubt on the group's ability to
been required to be made in the Directors' assessment of the going concern continue as a going concern. The audit work we have conducted in this area is
status of the group and specifically whether a material uncertainty exists in described in the paragraph referred to above.
relation to going concern.
Our application of materiality
The scope and focus of our audit was influenced by our assessment and
application of materiality. We define materiality as the magnitude of
misstatement that could reasonably be expected to influence the readers and
the economic decisions of the users of the financial statements. We use
materiality to determine the scope of our audit and the nature, timing and
extent of our audit procedures and to evaluate the effect of misstatements,
both individually and on the financial statements as a whole.
Due to the nature of the group, we considered income to be the main focus for
the readers of the financial statements, accordingly this consideration
influenced our judgement of materiality. Based on our professional judgement,
we determined materiality for the group to be £669,330 based on one percent
of revenue from both continuing and discontinued operations during the period.
On the basis of our risk assessment, together with our assessment of the
overall control environment, our judgement was that performance materiality
(i.e. our tolerance for misstatement in an individual account or balance) for
the Group was 50% of materiality, namely £334,665.
We agreed to report to the Audit Committee all audit differences in excess of
£33,470, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also reported to the Audit
Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.
Material uncertainty related to going concern
We draw attention to note 2.1 to the financial statements, which indicates
that the group is dependent on the continued support of its bank to continue
in business and meet its liabilities as they fall due. The Board is currently
in constructive discussions regarding the continuation of the current
borrowing facilities and refinance of the term loan facility due for full
repayment in September 2022. HSBC UK Bank Plc remain supportive and the group
has received written notification that the bank's credit team have approved
the renewal and refinance of these facilities. However, documentation is yet
to be completed at the date of signing these financial statements.
Note 2.1 also details that following the administration of DCB (Kent) Limited
the group has ongoing obligations in relation to a number of DCB (Kent)
Limited projects, including £2.10 million of performance bonds, across three
clients, which have been technically callable since DCB (Kent) Limited's
administration on 16 May 2022. The Board is currently in discussions with the
insurers, underwriters and customers to formally agree an optimal way forward
for these projects, including cancelling or novating the performance bonds to
new agreements. Discussions are ongoing at the date of signing these financial
statements although one client has indicated their willingness to cancel their
performance bond amounting to £0.95 million, leaving £1.15 million
outstanding. Whilst management believe that the borrowing facilities will be
able to be refinanced and the performance bonds will not be called, there can
be no certainty in this respect.
As stated in note 2.1, these events or conditions, along with the other
matters as set forth in note 2.1, indicate that a material uncertainty exists
that may cast significant doubt on the group's ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the use of the
going concern basis of accounting in the preparation of the group's financial
statements is appropriate. Our evaluation of the directors' assessment of the
group's ability to continue to adopt the going concern basis of accounting
included:
· a critical assessment of the detailed cash flow projections prepared
by the directors, which are based on their current expectations of trading
prospects, extending the borrowing facilities and the performance bonds not
being called;
· reviewing the terms of the committed borrowing facilities available
to the group;
· reviewing the Board's assessment of the group's obligations resulting
from the administration of DCB (Kent) Limited;
· understanding the trading results for the first quarter of the 2023
year end; and
· reviewing the appropriateness of the disclosures in Note 2.1.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a
material misstatement in the financial statements. If, based on the work we
have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact.
As described in the basis for qualified opinion section of our report, our
audit opinion is qualified because we were unable to obtain sufficient
appropriate audit evidence regarding the amounts presented in discontinued
operations relating to the disposal of DCB (Kent) Limited. We have concluded
that where the other information refers to these amounts or to related amounts
such as the overall loss for the year, it may also be materially misstated for
the same reason.
Opinions on other matters prescribed by the Companies Act 2006
Except for the possible effects of the matter referred to in the Basis for
Qualified Opinion paragraph, in our opinion, based on the work undertaken in
the course of the audit:
· the information given in the Strategic Report and the Directors'
Report for the financial year for which the group financial statements are
prepared is consistent with the financial statements; and
· the Strategic Report and the Directors' Report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
Except for possible effects of the matter referred to in the basis of
qualified opinion section of our report, in the light of the knowledge and
understanding of the group and its environment obtained in the course of the
audit, we have not identified material misstatements in the Strategic Report
or the Directors' Report.
Arising solely from the limitation on the scope of our work relating to the
sale of DCB (Kent) Limited, referred to above:
• we have not obtained all the information and explanations that we
considered necessary for the purpose of our audit; and
• we were unable to determine whether adequate accounting records had
been kept.
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
· certain disclosures of directors' remuneration specified by law are
not made.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement set out
on page 48 the directors are responsible for the preparation of the group
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of group financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the group financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities is available on the FRC's
website at:
https://www.frc.org.uk/auditors/audit-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditors-responsibilities-for
This description forms part of our auditor's report.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
The objectives of our audit in respect of fraud, are; to identify and assess
the risks of material misstatement of the group financial statements due to
fraud; to obtain sufficient appropriate audit evidence regarding the assessed
risks of material misstatement due to fraud, through designing and
implementing appropriate responses to those assessed risks; and to respond
appropriately to instances of fraud or suspected fraud identified during the
audit. However, the primary responsibility for the prevention and detection of
fraud rests with both management and those charged with governance of the
parent company.
Our approach was as follows:
· We obtained an understanding of the legal and regulatory requirements
applicable to the group and considered that the most significant are the
Companies Act 2006, the AIM rules, UK-adopted International Accounting
Standards and UK taxation legislation.
· We obtained an understanding of how the group complies with these
requirements by discussions with management and those charged with governance.
· We assessed the risk of material misstatement of the financial
statements, including the risk of material misstatement due to fraud and how
it might occur, by holding discussions with management and those charged with
governance.
· We inquired of management and those charged with governance as to any
known instances of non-compliance or suspected non-compliance with laws and
regulations, and reviewed board minutes for any evidence.
· Based on this understanding, we designed specific appropriate audit
procedures to identify instances of non-compliance with laws and regulations.
This included making enquiries of management and those charged with governance
and obtaining additional corroborative evidence as required.
There are inherent limitations in the audit procedures described above. We are
less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected
in the financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion.
Other matter
We have reported separately on the parent company financial statements of
Kinovo Plc for the year ended 31 March 2022. That report includes details of
the parent company key audit matters, how we applied the concept of
materiality in planning and performing our audit and an overview of the scope
of our audit. That report includes an emphasis of matter and a material
uncertainty in relation to going concern.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken for no purpose other than to draw to the attention of the company's
members those matters which we are required to include in an auditor's report
addressed to them. To the fullest extent permitted by law, we do not accept or
assume responsibility to any party other than the company and company's
members as a body, for our work, for this report, or for the opinions we have
formed.
Andrew Barford
(Senior Statutory Auditor)
for and on behalf of Moore Kingston Smith LLP, Statutory Auditor
6th Floor
9 Appold Street
London
EC1A 2AP
19 August 2022
Consolidated statement of comprehensive income
for the financial year ended 31 March 2022
12 months to 31 March 2022 12 months to 31 March 2021
Continuing operations Notes Underlying Non- Total Underlying Non- Total
items underlying £'000 items underlying £'000
£'000 items £'000 items
(note 9) (note 9)
£'000 £'000
Revenue 5 53,325 - 53,325 39,369 - 39,369
Cost of sales (40,558) - (40,558) (30,078) - (30,078)
Gross profit 12,767 - 12,767 9,291 - 9,291
Administrative expenses (8,676) (1,030) (9,706) (7,281) (1,943) (9,224)
Operating profit 7 4,091 (1,030) 3,061 2,010 (1,943) 67
Finance cost 11 (269) - (269) (438) - (438)
Profit /(loss) before tax 3,822 (1,030) 2,792 1,572 (1,943) (371)
Income tax (expense)/credit 13 (530) 119
Profit/(loss) for the year attributable to the equity holders of the parent 2,262 (252)
company from continuing operations
Discontinued operations
(Loss)/profit from discontinued operations (note 30) (549) (12,595) (13,144) 409 - 409
Total comprehensive (loss)/income for the period attributable to the equity (10,882) 157
holders of the parent company
Earnings/(loss) per share
From continuing operations:
Basic (pence) 14 3.66 (0.42)
Diluted (pence) 14 3.61 (0.42)
From total operations:
Basic (pence) 14 (17.62) 0.26
Diluted (pence) 14 (17.62) 0.26
The comparative figures for the Consolidated Statement of Comprehensive Income
and the related notes have been reanalysed between continuing and discontinued
operations to allow for comparability with the year ended 31 March 2022
result.
Consolidated statement of financial position
as at 31 March 2022
Notes 2022 2021
£'000 £'000
Assets
Non-current assets
Intangible assets 15 4,780 8,209
Property, plant and equipment 16 1,103 1,307
Right-of-use assets 17 786 1,688
Total non-current assets 6,669 11,204
Current assets
Inventories 18 2,454 2,467
Deferred tax asset 29 306 -
Trade and other receivables 19 10,625 16,726
Cash and cash equivalents 20 2,504 1,293
Total current assets 15,889 20,486
Total assets 22,558 31,690
Equity and liabilities attributable to equity holders of the parent company
Issued capital and reserves
Share capital 24.1 6,213 6,121
Own shares 24.1 (850) (850)
Share premium 24.2 9,245 9,210
Share based payment reserve 28 74 30
Merger reserve 24.3 (248) (248)
Retained earnings (14,577) (3,401)
Total equity (143) 10,862
Non-current liabilities
Borrowings 21 177 2,842
Lease liabilities 22 434 1,183
Deferred tax liabilities 29 - 699
Total non-current liabilities 611 4,724
Current liabilities
Borrowings 21 2,666 1,124
Lease liabilities 22 362 552
Trade and other payables 23 19,062 14,428
Total current liabilities 22,090 16,104
Total equity and liabilities 22,558 31,690
Approved by the Board on 19 August 2022,
Clive Lovett
Group Finance Director
Company registration number: 09095860
Consolidated statement of changes in equity
for the financial year ended 31 March 2022
Issued share Share Own Share based Merger Retained Total
capital premium shares payment reserve earnings equity
£'000 £'000 £'000 reserve £'000 £'000 £'000
£'000
At 1 April 2020 5,872 8,609 - 612 (248) (4,221) 10,624
Profit and total comprehensive income for the year - - - - - 157 157
Issue of share capital (note 24.1) (net of issue costs) 249 601 (850) - - - -
Share based payment charge - - - 30 - - 30
Deferred tax on share options - - - - - 51 51
Transfer to retained earnings for share options cancelled - - - (612) - 612 -
Total transactions with owners recognised directly in equity 249 601 (850) (582) - 663 81
At 31 March 2021 6,121 9,210 (850) 30 (248) (3,401) 10,862
Loss and total comprehensive income for the year - - - - - (10,882) (10,882)
Issue of share capital (note 24.1) (net of issue costs) 92 35 - (46) - - 81
Share based payment charge - - - 90 - - 90
Deferred tax on share options - - - - - - -
Dividend paid - - - - - (294) (294)
Total transactions with owners recognised directly in equity 92 35 - 44 - (294) (123)
At 31 March 2022 6,213 9,245 (850) 74 (248) (14,577) (143)
Consolidated statement of cash flows
for the financial year ended 31 March 2022
Notes 12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Net cash generated from operating activities 25 3,660 5,814
Cash flow from investing activities
Purchase of property, plant and equipment (253) (87)
Purchase of intangible assets (142) (115)
Proceeds on disposal of property, plant and equipment - 20
Net cash used in investing activities (395) (182)
Cash flow from financing activities
Proceeds from borrowings - 7,333
Issue of new share capital (net of share issue costs) 24.1 81 850
Repurchase of own shares for JSOP 24.1 - (850)
Repayment of borrowings (1,123) (7,249)
Interest paid (275) (461)
Principal payments of leases (443) (630)
Dividends paid (294) -
Net cash used in financing activities (2,054) (1,007)
Net increase in cash and cash equivalents 1,211 4,625
Cash and cash equivalents at beginning of year 1,293 (3,332)
Cash and cash equivalents at end of year 2,504 1,293
The cash and cash equivalents for the year ended 31 March 2022 are represented
by cash balances of £2,504,000 (2021: £1,293,000).
Notes to the consolidated financial statements
for the financial year ended 31 March 2022
1. Basis of preparation
Kinovo plc and its subsidiaries (together the "Group") operate in the gas
heating, electrical and general building services industries. The Company is a
public company operating on the AIM market of the London Stock Exchange
("AIM") and is incorporated and domiciled in England and Wales (registered
number 09095860). The address of its registered office is 201 Temple Chambers,
3-7 Temple Avenue, London EC4Y 0DT. The Company was incorporated on 20 June
2014.
The Group's financial statements have been prepared on a going concern basis
under the historical cost convention, and in accordance with UK adopted
International Accounting Standards, the International Financial Reporting
Interpretations Committee ("IFRIC") interpretations issued by the
International Accounting Standards Boards ("IASB") that are effective or
issued and early adopted as at the time of preparing these financial
statements and in accordance with the provisions of the Companies Act 2006.
The Group has adopted all of the new and revised standards and interpretations
issued by the IASB and the International Financial Reporting Interpretations
Committee ("IFRIC") of the IASB, as they have been adopted by the United
Kingdom, that are relevant to its operations and effective for accounting
periods beginning on 1 April 2021.
The preparation of financial statements requires management to exercise its
judgement in the process of applying accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the consolidated financial statements, are
disclosed in notes 2 and 4. The functional and presentational currency of the
Group is Pounds Sterling (£) rounded to the nearest thousand. The principal
accounting policies adopted by the Group are set out in note 2.
2. Summary of significant accounting policies
2.1. Going concern
The Directors have adopted the going concern basis in preparing these accounts
after assessing the risks as set out below and the Group's business
activities, together with factors that are likely to affect its future
development and position, as set out in the Group Chief Executive Officer's
Review on pages 10 and 11.
During the year Kinovo plc disposed of its non-core construction business, DCB
(Kent) Limited. The terms of the disposal allowed for up to £5.0 million
deferred consideration and an expectation that Parent Company Guarantees
(PCG's) provided by Kinovo, on nine construction projects represented by six
clients, would be transferred to the purchaser, or an associate.
On 16 May 2022 DCB entered into administration. The PCG's had not been
transferred and Kinovo consequently has ongoing responsibilities to complete
the projects.
Third party experts have been retained by Kinovo to assess the cost to
complete the projects and Kinovo has engaged with each of the clients of the
construction contracts to facilitate the optimum solution for the parties to
deliver the projects.
Discussions have significantly progressed and Heads of Terms are being agreed
for each of the projects to recommence the construction works and complete the
projects for the clients.
The Directors estimate that the net costs to complete the projects will be
approximately £4.0 million plus fees and expenses, over a period for
completion, ranging from a number of months through to the end of 2023.
Three of the projects also have performance bonds, which are indemnified by
Kinovo plc, totalling £2.10 million. Kinovo has engaged with insurers,
underwriters and clients and although these bonds technically could be called
at any time, since DCB entered into administration, it is recognised by all
parties that whilst discussions are ongoing to identify solutions to enable
the projects to be completed that the bonds would not be called.One client has
indicated their willingness to cancel their performance bond amounting to
£0.95 million, subject to contract, and it is expected that the remaining
performance bonds amounting to £1.15 million will either be cancelled or
novated to new agreements between the parties.
Kinovo has a term loan with HSBC UK Bank Plc which had an outstanding balance
of £2.53 million at 31 March 2022. Since the year end a further £500,000 has
been repaid and a further instalment of £500,000 is due at the end of August
2022, which Kinovo expects to pay, leaving an outstanding balance of £1.53
million which is due for repayment at the end of September 2022.
The Group and HSBC UK Bank Plc are in constructive discussions regarding the
continuation of the current borrowing facilities and refinance of the term
loan facility due for full repayment in September 2022. HSBC UK Bank Plc
remain supportive and the Group has received formal credit approval confirming
the renewal and refinance of these facilities. However, documentation is yet
to be completed at the date of signing these financial statements.
The continuing business traded strongly in the year ended 31 March 2022 and is
expected to grow further, developing existing strong relationships with its'
client base, mobilising the new contracts it has won and securing new business
opportunities through the established business development team.
Kinovo continuing operations has traded ahead of expectations in the quarter
to 30 June 2022, 24% ahead of prior year Adjusted EBITDA.
In assessing the Group's ability to continue as a going concern, the Board
reviews and approves the annual budget and longer-term strategic plan,
including forecasts of cash flows.
In building these budgets and forecasts, the Board has considered the expected
costs to complete the DCB construction projects, the continuing potential
impact of Covid-19 and the market challenges of supply chain inflation and
material and labour availability on the trading of the Group.
Whilst these factors have already been felt strongly, the business has
demonstrated its resilience. The Group reduced its level of net debt during
the year ended 31 March 2022 by £2.4 million reflecting the cash generated by
continuing operations, despite the cash absorbed by the discontinued
operations during the year.
The Directors expect that a combination of the cash generated by the
continuing business together with the expected extension of bank facilities
will enable Kinovo to fund the costs to complete the construction projects and
continue to drive the growth of the core operations.
No equity fund raise is envisaged.
After taking into account the above factors and possible sensitivities in
trading performance, the Board has reasonable expectation that Kinovo plc and
the Group as a whole have adequate resources to continue in operational
existence for the foreseeable future.
Although HSBC UK Bank Plc credit approval has been agreed confirming the
renewal and refinancing of facilities, as the documentation has yet to be
completed and the agreement with clients on the DCB projects was outstanding
at the date of signing the financial statements, technically, a material
uncertainty remains, which may cast significant doubt on the group's ability
to continue as a going concern. Discussions are at an advanced stage on each
of these matters and the Board is confident that new agreements will be
executed. For this reason, the Board continues to adopt the going concern
basis in preparing the consolidated financial statements. Accordingly, these
accounts do not include any adjustments to the carrying amount or
classification of assets and liabilities that would result if the Group were
unable to continue as a going concern.
2.2. Basis of consolidation
The consolidated financial statements consolidate those of the Company and its
subsidiary undertakings drawn up to 31 March each year. Subsidiaries are
entities that are controlled by the Company. The definition of control
involves three elements: power over the investee; exposure or rights to
variable returns; and the ability to use power over the investee to affect the
amount of the investors' returns. This should be read in conjunction with note
4.1(e). The Group generally obtains power through voting rights.
The consolidated financial statements incorporate the financial information of
Kinovo plc and its subsidiaries. Subsidiary companies are consolidated from
the date that control is gained. The subsidiaries of the Group are detailed in
note 6 of the Company financial statements on page 95. All intra-group
transactions, balances, income and expense are eliminated on consolidation.
2.3. Business combinations and goodwill
Business combinations are accounted for using the acquisition method, with the
exception of the acquisition of P&R Installation Company Limited. The
acquisition method involves the recognition at fair value of all identifiable
assets, liabilities and contingent liabilities of the subsidiary at the
acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
Consolidated Statement of Financial Position at their fair values, which are
also used as the bases of subsequent measurement in accordance with the Group
accounting policies.
The acquisition of P&R Installation Company Limited did not meet the
definition of a business combination as the company was not a business and
therefore falls outside the scope of IFRS 3 (Revised) "Business Combinations".
As IFRS does not provide specific guidance in relation to Group
reorganisations it defers to the next appropriate GAAP, being UK GAAP. The
acquisition of P&R Installation Company Limited by the Company has
therefore been accounted for in accordance with the principles of merger
accounting as set out in Section 19 of FRS 102. Costs relating to acquisitions
in the year are expensed and are included in administrative expenses.
Goodwill arising on acquisitions is recognised for an acquisition as an asset
and initially measured at cost, being the excess of the cost of the business
combination over the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities recognised.
Where applicable, the consideration for an acquisition includes any assets or
liabilities resulting from a contingent consideration arrangement, measured at
fair value at the acquisition date. Subsequent changes in such fair values are
adjusted against the cost of acquisition where they result in additional
information, obtained within one year from the acquisition date, about facts
and circumstances that existed at the acquisition date. All other subsequent
changes in fair value of contingent consideration classified as an asset or
liability are recognised in accordance with IAS 39, either in profit or loss
or as a change to other comprehensive income. Changes in fair value of
contingent consideration classified as equity are not recognised.
2.4. Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable for the provision of the Group's services. Revenue is recognised by
the Group, net of value added tax, based upon the following:
• Mechanical services - Mechanical services are supplied under a term
contract or framework agreement with both local authority and corporate
customers that usually span three or more years. These contracts will outline
a number of services that the Group is retained to provide to the customer
ranging from boiler servicing and meter connections to installing central
heating solutions. These services will be provided on request from the
customer, and work will be charged based on the customer rate card. Each
service is considered to have a single performance obligation, and generally
takes less than a day to complete. Revenue is only recognised at the point
that the service is complete. Invoicing only occurs once the customer has
agreed that the relevant service has been received and completed. The invoice
is subsequently settled on average within 34 days of issue. Any costs incurred
in advance of the performance obligation being completed are recognised as
work in progress. Any work completed but not yet agreed with the
customer/invoiced is recognised as accrued income.
• Building services - Building services contracts typically range
between one and six years, and can range from ad-hoc maintenance work to
long-term construction contracts. Long-term construction contracts are only
held within the DCB (Kent) Limited business, and with the disposal of this
subsidiary during the year, it is not anticipated to have any such contracts
in the future:
• Long-term construction contracts: During the course of a project an
independent surveyor will conduct a monthly valuation of the work done and
issue a certification of the stage of completion, which is the trigger for an
invoice to be generated and a stage payment to be made as per the terms of the
contract. Payment occurs on average within 34 days of the invoice being
issued. These monthly valuations are seen to represent the performance
obligations that have been satisfied under the terms of the contract, as they
reflect the benefit that has been transferred to the customer. The Group thus
recognises the revenue in line with the certified stage of completion. If
there is a delay in receiving the certification of work, revenue will be
recognised based on management's estimate of the value of the performance
obligation fulfilled. Any costs incurred in advance of the performance
obligation being completed are recognised as work in progress. Revenue
recognisable in relation to work completed is recognised as accrued income
until invoiced.
A twelve-year warranty is issued on any new build developments completed. Any
claims made within the first two years of the warranty are the responsibility
of the Group to rectify. The subsequent ten years are then covered by a
third-party warranty provider. No warranty claims have previously been made
against the Group, and therefore no provision for potential warranty claims is
made within these financial statements.
• Maintenance work: Maintenance work is supplied under a term contract
or framework agreement which sets out the range of services the Group is
retained to provide to the customer including refurbishments, replacements of
kitchens and bathrooms, window installations and painting and decorating.
These services will be provided on request from the customer, and work will be
charged based on the customer rate card. Each service is considered to have a
single performance obligation, and generally take less than a day to complete.
Revenue is only recognised at the point that the service is complete.
Invoicing only occurs once the customer has agreed that the relevant service
has been received and completed. The invoice is subsequently settled on
average within 34 days of issue. Any costs incurred in advance of the
performance obligation being completed are recognised as work in progress. Any
work completed but not yet agreed with the customer/invoiced is recognised as
accrued income.
• Electrical services - Electrical services are supplied under a term
contract or framework agreement with both local authority and corporate
customers that usually spans three or more years. These contracts will outline
a number of services that the Group is retained to provide to the customer
including servicing, maintenance, emergency call-outs and rewires. These
services will be provided on request from the customer, and work will be
charged based on the customer rate card. Each service is considered to have a
single performance obligation, and generally takes less than a day to
complete. Revenue is only recognised at the point that the service is
complete. Invoicing only occurs once the customer has agreed that the relevant
service has been received and completed. The invoice is subsequently settled
on average within 34 days of issue. Any costs incurred in advance of the
performance obligation being completed are recognised as work in progress. Any
work completed but not yet agreed with the customer/invoiced is recognised as
accrued income.
It is considered by management that the above revenue recognition policies are
suitable for recognising revenue arising from the Group's key market
verticals. All revenue streams are wholly attributable to the principal
activity of the Group and arise solely within the United Kingdom. Note 5 gives
further detail of any work in progress and accrued income balances recognised
in relation to contracts with customers.
2.5. Operating profit and non-underlying items
Operating profit comprises the Group's revenue for the provision of services,
less the costs of providing those services and administrative overheads,
including depreciation of the Group's non-current assets.
Underlying operating profit before the deduction of exceptional costs and
other adjusting items is one of the key measures used by the Board to monitor
the Group's performance. Exceptional costs are disclosed on the face of the
Consolidated Statement of Comprehensive Income as "non-underlying items".
These non-underlying items comprise costs that are considered by the Board to
not relate to the underlying financial performance of the Group and are
separately analysed so that the users of the accounts can compare trading
performance on a like-for-like basis. Costs falling within this category will
have one or more of the following attributes:
• one-off transactions not relating to current or future trading;
• non-cash items such as amortisation and impairment of financial
assets and share based payment charges; and
• exceptional in size such that they distort the understanding of
underlying trading activities.
2.6. Dividends
The Group has a policy of paying dividends to shareholders in accordance with
the amount recommended by the Directors. If the Directors believe the
dividends are justified by the profits of the Group available for
distribution, they also pay interim dividends. Dividends are recognised when
they become legally payable. In the case of interim dividends, this is when
dividends are paid. In the case of final dividends, this is when the dividends
are approved by the shareholders at the Annual General Meeting.
2.7. Segmental reporting
The Board of Directors of Kinovo plc (which is considered to be the Chief
Operating Decision Maker) has identified the reportable segments to be
mechanical services, building services and electrical service. Direct costs
are allocated to the appropriate segment as they arise and central overheads
are apportioned on a reasonable basis. Operating segments are presented in a
manner consistent with internal reporting, with inter-segment revenue and
expenditure eliminated on consolidation. The segmental reporting is outlined
in note 6.
2.8. Intangible assets
In accordance with IFRS 3, an intangible asset acquired in a business
combination is deemed to have a cost to the Group of its fair value at the
acquisition date. The fair value of the intangible asset reflects market
expectations about the probability that future economic benefits embodied in
the asset will flow to the Group.
Software expenditure is capitalised as an intangible asset if the asset
created can be identified, if it is probable that the asset created will
generate future economic benefits and if the development cost of the asset can
be measured reliably.
Following initial recognition, the carrying amount of an intangible asset is
its cost less any accumulated amortisation and any accumulated impairment
losses. Amortisation expense is charged to administrative expenses in the
income statement on a straight line basis over its useful life.
The identifiable intangible assets and associated periods of amortisation are
as follows:
• Customer relationships - over the
period expected to benefit, typically seven years.
• Software and development costs - over four years.
2.9. Impairment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows: cash-generating
units ("CGUs"). As a result, some assets are tested individually for
impairment, and some are tested at CGU level. Goodwill is allocated to CGUs
that are expected to benefit from synergies of the related business
combination and represent the lowest level within the Group at which
management monitors the related cash flows.
Goodwill or CGUs that include goodwill and those intangible assets not yet
available for use are tested for impairment at least annually. All other
individual assets or CGUs are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised in the Statement of Comprehensive Income for
the amount by which the asset or CGU's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of fair value, reflecting market
conditions less costs to sell, and value in use based on an internal
discounted cash flow evaluation. Impairment losses recognised for CGUs to
which goodwill has been allocated are credited initially to the carrying
amount of goodwill. Any remaining impairment loss is charged pro rata to the
other assets in the CGU. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
2.10. Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation. Depreciation is calculated to write off the cost of the assets,
net of anticipated disposal proceeds, over the expected useful lives of the
assets concerned as follows:
· Freehold property - 2% on freehold building cost.
· Long leasehold improvements - 5% on long leasehold improvements cost.
· Office and computer equipment - 25% reducing balance.
· Fixtures and fittings - 25% reducing balance.
· Motor vehicles - 25% reducing balance.
Freehold land is not depreciated.
Subsequent expenditure is included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits will flow to the Group and the cost of the item can
be measured reliably. All other repairs and maintenance are charged to the
Statement of Comprehensive Income during the financial period in which they
are incurred.
Gains and losses on disposals are determined by comparing proceeds with
carrying amount and are included in the Statement of Comprehensive Income.
The residual values and economic lives of assets are reviewed by the Directors
on at least an annual basis and are amended as appropriate.
2.11. Impairment of property, plant and equipment
At each Statement of Financial Position date, the Group reviews the carrying
amounts of its tangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment
loss is recognised as an expense immediately, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease. For assets other than goodwill, where conditions
giving rise to impairment subsequently reverse, the effect of the impairment
charge is also reversed as a credit to the Statement of Comprehensive Income,
net of any depreciation or amortisation that would have been charged since the
impairment.
2.12. Inventories
Raw materials and consumables are measured at the lower of cost and net
realisable value. Net realisable value is based on estimated selling price
less additional costs to completion and disposal.
Work in progress is measured at the lower of cost and net realisable value.
Cost comprises direct materials and direct labour costs that have been
incurred in advance of the performance obligations on contracts being
completed.
2.13. Financial instruments
Financial assets and financial liabilities are recognised in the Consolidated
Statement of Financial Position when the Group becomes party to the
contractual provisions of the instrument. Financial assets are de-recognised
when the contractual rights to the cash flows from the financial asset expire
or when the contractual rights to those assets are transferred. Financial
liabilities are de-recognised when the obligation specified in the contract is
discharged, cancelled or expired.
(a) Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method
less provision for impairment. Appropriate provisions for expected credit
losses are recognised in the Statement of Comprehensive Income when there is
objective evidence that the assets are impaired. Interest income is recognised
by applying the effective interest rate, except for short-term trade and other
receivables when the recognition of interest would be immaterial.
The Group incurs costs in advance of new contracts commencing in association
with preparatory work to ensure the contract can be delivered from day one.
These costs are included within work in progress and released over the life of
the contract.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and other
short-term highly liquid investments that have maturities of three months or
less from inception, are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
(c) Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Group are recorded at the proceeds received, net of direct issue
costs.
(d) Trade and other payables
Trade payables are initially measured at their fair value and are subsequently
measured at their amortised cost using the effective interest rate method;
this method allocates interest expense over the relevant period by applying
the "effective interest rate" to the carrying amount of the liability.
(e) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the Statement of Comprehensive Income over the period of the
borrowings using the effective interest method.
2.14. Current and deferred tax
The tax expense for the period comprises current and deferred tax. Tax is
recognised in the Statement of Comprehensive Income, except to the extent that
it relates to items recognised in other comprehensive income or directly in
equity. In this case, the tax is also recognised in other comprehensive income
or directly in equity, respectively.
(a) Current tax
Tax payable is based on taxable profit for the year. Taxable profit differs
from net profit reported in the Statement of Comprehensive Income because it
excludes items of income and expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the Statement of Financial Position date.
As the Group has made losses during the period there is no tax payable for the
year to 31 March 2022. Details of the tax charge on ordinary operations and
tax credit on discontinued operations during the year and tax losses available
in future periods are outlined in note 13.
(b) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on temporary
differences between the carrying value of assets and liabilities in the
financial information and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the balance sheet liability
method. Deferred tax assets/liabilities are recognised to the extent that it
is probable that taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is charged or credited to the Statement of Comprehensive Income
except when it relates to items credited or charged directly in equity, in
which case the deferred tax is also dealt with in equity.
Deferred tax is calculated at the tax rates and laws that are expected to
apply to the period when the asset is realised or the liability is settled
based upon tax rates that have been enacted or substantively enacted by the
reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
2.15. Leases
The Group leases various premises, vehicles and equipment. Rental contracts
are typically made for fixed periods of six months to 20 years, but may have
extension options. Contracts may contain both lease and non-lease components.
The Group allocates the consideration in the contract to the lease and
non-lease components based on their relative stand-alone prices. However, for
leases of real estate for which the Group is a lessee, it has elected not to
separate the lease and non-lease components and instead accounts for these as
a single lease component.
Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any
covenants other than the security interests in the leased assets that are held
by the lessor. Leased assets may not be used as security for borrowing
purposes.
Leases are recognised as a right-of-use asset and a corresponding liability at
the date which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments:
• fixed payments (including in-substance fixed payments), less any
lease incentives receivable;
• variable lease payments that are based on an index or a rate,
initially measured using the index or rate as at the commencement date;
• amounts expected to be payable by the Group under residual value
guarantees;
• the exercise price or a purchase option if the Group is reasonably
certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term
reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also
included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be determined, which is generally the case for
leases in the Group, the lessee's incremental borrowing rate is used, being
the rate that the individual lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group uses recent third-party
financing received by the individual lessee as a starting point, adjusted to
reflect changes in the financing conditions since the third-party financing
was received.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to the profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any
lease incentives received;
• any initial direct costs; and
• restoration costs.
Right-of-use assets are depreciated over the shorter of the asset's useful
life and the lease term on a straight line basis. If the Group is reasonably
certain to exercise a purchase option, the right-of-use asset is depreciated
over the underlying asset's useful life.
Payments associated with short-term leases of equipment and vehicles and all
leases of low-value assets are recognised on a straight line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of
twelve months or less. Low-value assets comprise small items of office
equipment and IT.
2.16. Employee benefits
The Group operates defined contribution pension schemes for certain employees
of the Group. The assets of the schemes are held separately from those of the
Group in an independently administered fund. The pension costs charged to
profit or loss are the contributions payable to the scheme in respect of the
accounting period.
All Group companies are in compliance with their pension obligations and have
auto-enrolled, offering all employees the opportunity to participate.
2.17. Share based payments
The Group issues equity-settled share based payment transactions to certain
employees. Equity-settled share-based payment transactions are measured at
fair value at the date of grant. The calculation of fair value at the date of
grant requires the use of management's best estimate of volatility, risk free
rate and expected time to exercise the options. Details regarding the
determination of the fair value of equity-settled transactions are set out in
note 28.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight line basis over the vesting period, based
on the Group's estimate of the number of equity instruments that will
eventually vest. At each reporting date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding
adjustment to reserves.
Equity-settled share based payment transactions with parties other than
employees are measured at the fair value of the goods or services received,
except where that fair value cannot be estimated reliably, in which case they
are measured at the fair value of the equity instruments granted, measured at
the date the entity obtains the goods or the counterparty renders the service.
For cash-settled share based payments, a liability is recognised for the goods
or services acquired, measured initially at the fair value of the liability.
At each reporting date until the liability is settled, and at the date of
settlement, the fair value of the liability is re-measured, with any changes
in fair value recognised in profit or loss for the year.
2.18. New standards and interpretations
The Group has applied the following standards and amendments for the first
time for the annual reporting period commencing on 1 April 2021:
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and
IFRS 7)
• Covid-19 Related Rent Concessions (Amendment to IFRS 16)
• Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to
IFRS 16)
The amendments listed above did not have any impact on the amounts recognised
in prior periods and are not expected to significantly affect the current or
future periods.
2.19. New standards and interpretations not yet adopted
The following new accounting standards and interpretations are currently in
issue but not effective for accounting periods commencing on 1 April 2021 and
therefore have not been early adopted by the Group:
• Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS
37)
• Annual Improvements to IFRS Standards 2018-2020
• Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16)
• Reference to the Conceptual Framework (Amendments to IFRS 3)
• IFRS 17 "Insurance Contracts"
• Classification of Liabilities as Current or Non-Current (Amendments
to IAS 1)
• Amendments to IFRS 17
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
• Definition of Accounting Estimate (Amendments to IAS 8)
• Deferred Tax Related to Assets and Liabilities Arising from a Single
Transaction - Amendments to IAS 12 Income Taxes
• Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture (Amendments to IFRS 10 and IAS 28)
These standards are not expected to have a material impact on the entity in
the current or future reporting periods or on foreseeable future transactions.
3. Financial risk management
3.1. Financial risk factors
The Group's activities expose it to a variety of financial risks: market risk,
credit risk and liquidity risk. The Group's overall risk management programme
focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance.
Risk management is carried out by management under policies approved by the
Board of Directors. Management identifies and evaluates financial risks and
provides principles for overall risk management, as well as policies covering
specific areas, such as interest rate risk, credit risk and investment of
excess liquidity.
3.2. Market risk
Market risk is the risk of loss that may arise from changes in market factors
such as interest rates, foreign exchange and security prices.
(a) Interest rate risk
The Group has exposure to interest rate risk by virtue of its borrowings with
HSBC UK Bank Plc, which attract a variable rate of interest at a mark-up to
the base rate. Details of actual interest rates can be found in note 21 to
these consolidated financial statements. No hedging arrangements are currently
in place but the Board keeps this under constant review.
3.3. Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. Credit risk
arises principally from the Group's cash balances and trade receivables
balances. The Group's customers are primarily local authorities and housing
associations with high credit ratings.
The Group has a number of policies for managing the credit risk of its new and
existing customers, and has dedicated functions focused on cash conversion,
collection and management.
The Group gives careful consideration to which organisations it uses for its
banking services in order to minimise credit risk and therefore only financial
institutions with a minimum rating of B are used. Currently the Group bank
accounts are held primarily with HSBC UK Bank Plc which has a Fitch rating of
AA-.
3.4. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. This risk relates to the Group's
prudent liquidity risk management and implies maintaining sufficient cash
reserves to meet the Group's working capital requirements. Management monitors
rolling forecasts of the Group's liquidity and cash and cash equivalents on
the basis of expected cash flow.
As at 31 March 2022, the Group had cash and cash equivalents of £2,504,000
(2021: £1,293,000).
The Group has a centralised treasury function and actively manages cash flows
on both a daily and longer-term basis.
3.5. Capital risk management
The Group manages its capital to ensure that it will be able to continue as a
going concern whilst maximising the return to shareholders. The Group funds
its expenditure on commitments from existing cash and cash equivalent
balances.
There are no externally imposed capital requirements.
Financing decisions are made by the Board of Directors based on forecasts of
the expected timing and level of capital and operating expenditure required to
meet the Group's commitments and development plans.
The capital structure of the Group consists of cash and cash equivalents and
equity, comprising issued share capital and retained profits.
4. Critical accounting estimates and judgements
The preparation of financial statements requires management to make estimates
and judgements that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenditure during year. The estimates and associated judgements are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about carrying values of assets and liabilities that are not
readily apparent from other sources.
The estimates and underlying judgements are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
In the process of applying the Group's accounting policies, management has
decided the following estimates and assumptions have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities recognised in the consolidated financial statements.
4.1. Critical judgements in applying the Group's accounting policies
(a) Valuation of accrued income
Work completed under either a framework agreement or term contract for gas
services, building services and electrical services is recognised as accrued
income until it has been billed to the client. A level of judgement is
involved in determining whether the Group has met all of the required
performance obligations necessary in order to recognise the revenue. Accrued
income of £5.2 million was recognised within the Statement of Financial
Position at 31 March 2022 (2021: £8.6 million).
(b) Valuation of amounts due from long-term contracts
Work completed under long-term construction contracts is recognised as amounts
due from long-term contracts until billed to the client, and similar to
accrued income requires judgement on whether the Group has met all its
performance obligations to recognise the revenue. The only long-term contracts
held by the Group were within DCB (Kent) Limited ("DCB"). Following the
disposal of DCB (Kent) Limited as set out in note 4.1 (e), no such contracts
are present any longer within the Group. Therefore amounts due from long-term
contracts of £nil were recognised within the Statement of Financial Position
at 31 March 2022 (2021: £1.5 million).
(c) Share based payment charge
The Black Scholes model and the Monte Carlo simulation have been used to
calculate the appropriate charge for the share options issued across the
Group's share option plans in the current and previous years. The use of these
models to calculate a charge involves using a number of judgements to
establish the appropriate inputs to be entered into the models, covering areas
such as exercise restrictions and behavioural considerations of scheme
members. Full details of judgements used within the calculation to derive the
charge are given within note 28. Underlying estimates and a full sensitivity
analysis have not been disclosed as management does not feel that any
reasonable change would materially influence the interpretation of the charge.
(d) Recoverability of trade receivable balances
Provisions for trade debtors were previously considered to be an area of key
judgement for the Group, given the underlying materiality of the associated
trade receivable balances. However, given that a large proportion of the
customer base are local councils with little risk of default and minimal
historical levels of write-off, bad debt provisions are no longer considered
an area of key judgement.
(e) Timing of the disposal of DCB (Kent) Limited
During the year the Group disposed of DCB (Kent) Limited ("DCB"), the full
details of which are set out further in note 30. The disposal was by sale of
100% of the share capital to a third party; however, no completion accounts
were required as part of the transaction. Therefore, the sale and purchase
agreement had no explicit date of transfer for the business. As such,
management has reviewed a number of factors when identifying the effective
disposal date, and has determined that control was transferred as at the 30
November 2021. The subsidiary was therefore no longer consolidated within the
results from that point onwards.
(f) Non-adjusting post balance sheet event
As part of the obligations under the terms of the sale of DCB (Kent) Limited
("DCB") (see note 30 for details on the disposal), the Group continued to
provide parent company guarantees ("PCGs") on certain construction projects of
DCB (Kent) Limited which run through to their practical completion. On
administration of DCB (Kent) Limited the outstanding obligations under the
PCGs were assumed by Kinovo plc. The total expected cost to complete the
projects has been determined as £4.0 million (plus professional fees and
expenses). Please see note 32 for further detail.
As at 31 March 2022 it was anticipated that existing contracts could be
completed at reasonable cost, and new business could be secured to support the
cash flow of the business. Kinovo continued to provide working capital funding
to support the business after the year end. However, DCB was placed into
administration on 16 May 2022.
The liability under the PCGs is considered to be a non-adjusting post balance
sheet event, and the costs to complete the construction projects will be
recognised in the Statement of Comprehensive Income as and when they arise.
(g) Timing of DCB (Kent) Limited impairments
The Group has recognised £12.6 million of exceptional items in the year in
relation to losses arising on the disposal of DCB. As management is no longer
able to access the accounting records for DCB due to the disposal of the
company and its subsequent administration, it is not possible to ascertain
whether there is any element of this exceptional cost that should be deemed a
change in accounting estimate or relate to other factors. Management considers
that the most appropriate treatment is to take the full impact of the
write-offs as an exceptional item within the current year Statement of
Comprehensive Income.
(h) Tax treatment of disposal
There is a tax credit of £1.1m included in the loss on disposal of £12.6m on
DCB as disclosed in note 30. Management have engaged with third party tax
specialists to identify the appropriate tax treatment of the different aspects
of the loss on disposal and based on relevant judgements and interpretation of
tax legislation, it is managements expectation that £1.1 million of tax
credits will be recoverable from the losses. If a different viewpoint and
interpretation of tax legislation were applied, it might be concluded that the
credit would not be recoverable.
4.2. Key sources of estimation uncertainty
(a) Customer relationships
Customer relationship assets recognised on acquisition are considered to have
the following key areas of estimate:
• Determining the useful economic life of customer relationships and
the corresponding rate of amortisation is considered a critical estimate.
Management is required to predict the future time frame over which customer
relationships will continue to generate a positive contribution to Group cash
flow. This estimate is made on a case-by-case basis and will reflect
management's latest plans and long-term forecasts for the related contracts.
Amortisation of customer relationships has resulted in a charge to the
Statement of Comprehensive Income of £1.1 million during the year (2021:
£1.8 million), including the charge allocated to discontinued operations.
• The valuation of customer relationships requires the use of
estimates, as the valuation model utilises assessments of both future cash
flows and appropriate discount factors. The valuation of customer relationship
assets held within the Statement of Financial Position was £0.4 million
(2021: £2.5 million).
No acquisitions have been made in the current year. See note 15.1 for full
details on the estimates applied by management in valuing customer
relationships arising on past acquisitions.
(b) Impairment of goodwill
Determining whether goodwill is impaired requires an estimate of the value in
use of the cash-generating units ("CGUs") to which goodwill has been
allocated. The value in use calculation involves an estimate of the future
cash flows of the CGUs and also the selection of appropriate discount rates to
calculate present values. Future cash flows are estimated based on contract
value and duration, together with margin based on past performance. Change in
contract values and duration, together with margins achieved, could result in
variations to the carrying value of goodwill. In addition, an adverse movement
in the discount factor due to an increased risk profile or a change in the
cost of debt (increase in interest rates) would also result in a variation to
the carrying value of goodwill. The primary sensitivity is the discount rate;
however, the Directors consider that there is no reason to believe it is not
appropriate. See note 15.2 for details on the key estimates used within the
impairment test for goodwill, along with the Group's sensitivity analysis.
(c) Right-of-use assets
Management is required to make a number of estimates in recognising
right-of-use assets. These key estimates are considered to be:
• estimation of the lease term, which is done on a lease-by-lease
basis;
• determination of the appropriate rate to discount the lease
payments. This is set with reference to the Group's incremental cost of
borrowing. The incremental rate was 3.4% in the current year (2021: 3.4%); and
• assessment of whether a right-of-use asset is impaired. An
impairment is considered to be present where the net present value of future
cash benefit of utilising the asset within the business, or if applicable
potential sub-lease income if the asset is no longer required, is less than
the net present value of future lease payments.
Management considers all facts and circumstances including its past practice
and business plans in making this estimate on a lease-by-lease basis.
At 31 March 2022 the Group holds £0.8 million of right-of-use assets (2021:
£1.7 million). Management has reviewed the future benefit and costs of the
underlying assets and has not identified the need to recognise any impairment.
5. Revenue
All results in the current and prior period derive from continuing operations
and all revenues arose in the UK.
There are five customers who individually contributed 21%, 12%, 10%, 8% and 7%
respectively towards the revenue (2021: six contributing 13%, 9%, 8%, 6%, 6%
and 5%).
The Group has recognised the following assets within the Statement of
Financial Position related to contracts with customers:
2022 2021
£'000 £'000
Current assets relating to contracts with customers:
Trade receivables 4,977 5,564
Work in progress 2,029 1,561
Accrued income 5,247 8,634
Amounts due from long-term contracts - 1,461
12,253 17,220
As set out in note 2.12, work in progress balances arise where costs are
incurred in advance of the performance obligations required to recognise
revenue having been met, and therefore the costs are recognised as an asset.
Accrued income relates to performance obligations that have been satisfied,
but the invoice has not yet been raised to the customer.
Amounts due from long-term contracts relate to performance obligations met in
regard to construction contracts, but the invoice has yet to be raised to the
customer.
There were no contracts liabilities required to be recognised as at 31 March
2022 (31 March 2021: £nil).
As set out in note 2.4, the Group is party to long-term construction contracts
which may have performance obligations spanning a number of years. The
following shows unsatisfied performance obligations resulting from these
long-term construction contracts:
2022 2021
£'000 £'000
Aggregate amounts of the transaction price allocated to long-term construction - 44,600
contracts that are partially or fully unsatisfied as at 31 March 2022
At 31 March 2021 it was expected that 46.0% of the transaction price allocated
to unsatisfied performance obligations would be recognised as revenue during
the 2022 financial year. The remaining 54.0% (£24.1 million) would have been
recognised over the 2023/24 financial years. These balances all related to
contracts held in the DCB (Kent) Limited ("DCB") company which has now been
disposed.
Other services are provided under framework agreements and therefore not
considered to have any unsatisfied performance obligations as at 31 March
2022.
The value of unsatisfied long-term construction contracts in 2021 of £44.6
million formed part of the overall balance of visible revenues of £170.4
million. Page 1 details the full definition of visible revenues.
6. Segmental reporting
The Board of Directors has determined an operating management structure
aligned around the three core activities of the Group, with the following
operating segments applicable:
• Mechanical services: the Group offers a range of services within the
mechanical services segment which is inclusive but not limited to: boiler
servicing, meter connections and installing central heating solutions.
• Building services: the Group offers a range of services which is
inclusive but not limited to: refurbishment, replacements of kitchens and
bathrooms, window installations and painting and decorating.
• Electrical services: the Group offers a range of services within the
electrical services segment which is inclusive but not limited to: servicing,
maintenance, emergency call-outs and rewires.
The Board adopts the operating profit before exceptional items and
amortisation of acquisition intangibles as the profit measure. The following
is an analysis of the Group's revenue and operating profit before
non-underlying items, for continuing operations, by reportable segment:
12 months ended 12 months ended
31 March 2022 31 March 2021
£'000 £'000
Mechanical services 15,418 12,262
Building services 18,057 13,185
Electrical services 19,850 13,922
Total revenue 53,325 39,369
Reconciliation of operating profit before non-underlying items to profit
before taxation from continuing operations:
12 months ended 12 months ended
31 March 2022 31 March 2021
£'000 £'000
Operating profit before exceptional items and amortisation of acquisition
intangibles by segment
Mechanical services 1,981 1,406
Building services 1,576 270
Electrical services 1,903 1,723
Unallocated central costs (1,369) (1,389)
Total operating profit before non-underlying items 4,091 2,010
Amortisation of acquisition intangibles (940) (1,582)
Share based payment charge (90) (27)
Exceptional costs - (334)
Operating profit 3,061 67
Finance costs (269) (438)
Profit/(loss) before tax 2,792 (371)
Only the Group Consolidated Statement of Comprehensive Income is regularly
reviewed by the Chief Operating Decision Maker and consequently no segment
assets or liabilities are disclosed under IFRS 8.
7. Operating profit
Operating profit for the continuing business is stated after charging all
costs including non-underlying items which are detailed in note 9.
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Inventory recognised as an expense in cost of sales 9,670 6,189
Staff costs(1) (note 10) 9,649 7,389
Depreciation 130 82
Depreciation of right of use assets 336 654
Amortisation of software costs 44 17
(Profit)/loss on disposal of property, plant and equipment (1) -
Auditor's remuneration 117 100
Tax compliance 2021 and 2022 9 9
Non-audit remuneration 2 2
1. The Group offset Government grants of £0.8 million in 2021
received through the Coronavirus Job Retention Scheme against staff costs. No
grants were received during the current year.
The depreciation and amortisation charges as stated in the table above are
included within administrative expenses in the Consolidated Statement of
Comprehensive Income.
8. EBITDA for continuing operations
Earnings before interest, taxation, depreciation and amortisation ("EBITDA")
EBITDA is calculated as follows:
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Underlying profit before tax from continuing operations 3,822 1,572
Finance costs 269 438
Depreciation of property, plant and equipment 130 82
Depreciation of right-of-use assets 336 654
Amortisation of software costs 44 17
(Profit)/loss on disposal of property, plant and equipment (1) -
EBITDA from continuing operations (before lease payment charges) 4,600 2,763
Lease payment charge (363) (667)
Adjusted EBITDA from continuing operations (after lease payment charges) 4,237 2,096
9. Non-underlying items
Operating profit includes the following items which are considered by the
Board to be either exceptional in size, one-off in nature or non-trading
related items as defined in note 2.5.
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Amortisation of customer relationships (a) 940 1,582
Share-based payment charge (b) 90 27
Exceptional items (c) - 334
1,030 1,943
(a) Amortisation and impairment of customer relationships
Amortisation of acquisition intangibles was £940,000 for the year (2021:
£1,582,000) and relates to amortisation of the customer relationships
identified by the Directors on the acquisition of Purdy and Spokemead. In 2021
the charge related to Purdy, Spokemead and R. Dunham.
(b) Share-based payment charge
A number of Group share option schemes are in place and new options have been
granted during the year as detailed in note 28. The share-based payment charge
has been separately identified as it is a non-cash expense for the Group.
(c) Exceptional items
For the financial year ended 31 March 2021 the costs comprised restructuring
costs (mainly redundancy, notice period and other related costs) to align
operational skillsets with the strategic repositioning of the business.
10. Employee expenses
The average number of employees (including Directors) employed during the year
was:
12 months 12 months
ended ended
31 March 31 March
2022 2021
No. No.
Management 36 34
Administration 56 53
Engineers 127 116
219 203
The aggregate remuneration of the above employees (including Directors)
comprised:
12 months 12 months
ended ended
31 March 31 March
2022 2021
No. No.
Wages and salaries 8,623 6,524
Social security costs 815 758
Pension costs 211 107
9,649 7,389
Offset against the staff costs for the year ended 31 March 2021 were grants of
£0.8 million received under the Coronavirus Job Retention Scheme. No grants
have been received in the current year.
The remuneration of the Directors and other key management personnel of the
Group is shown in note 27 and the Remuneration Committee Report.
11. Finance costs and finance income
The Group received no finance income in either the current or prior period.
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Interest payable on bank borrowings and loans 161 310
Interest payable on lease liabilities 33 62
Other interest costs - 24
Other finance costs 75 42
269 438
12. Dividends
The Directors do not recommend a final dividend for the year ended 31 March
2022. A final dividend of 0.5 pence per share for the year ended 31 March 2021
was paid in September 2022.
No interim dividend was paid in the year or for the previous year.
12 months ended 12 months ended
31 March 2022 31 March 2021
Per share Total paid Per share Total paid
p £'000 p £'000
Dividend paid during the year relating to final dividend declared for previous 0.5 294 - -
period
Interim dividend paid during the year - - - -
0.5 294 - -
13. Income tax
13.1. Components of income tax (credit)/expense
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Current income tax expense
Current income tax charge in relation to continuing operations 901 12
Current income tax credit in relation to discontinued operations (129) -
Utilisation of tax losses from disposal (772) -
Total current tax - 12
Deferred tax
Credit in connection with intangible assets acquired (243) (327)
Charge in relation to use of brought forward tax losses - 309
Credit for tax losses from disposal not utilised in the year (306) -
Short-term timing differences (110) -
Charge for lease liabilities recognised on adoption of IFRS 16 28 55
Credit for right-of-use asset recognised on adoption of IFRS 16 (28) (60)
Credit for share-based payment charge (17) (6)
Total deferred tax (676) (29)
Total income tax charge/(credit) for continuing operations 530 (119)
Total tax (credit)/charge for discontinued operations (128) 102
Tax credit recognised on disposal of DCB (Kent) Limited (1,078) -
Income tax credit reported in the statement of comprehensive income (676) (17)
13.2. Tax reconciliation
The tax assessed in each period differs from the standard rate of corporation
tax in the UK. The differences are explained below.
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
(Loss)/profit on ordinary activities before taxation (11,558) 140
(Loss)/profit on ordinary activities before taxation multiplied by standard (2,196) 27
rate of UK corporation tax of 19% (2021: 19%)
Effects of:
Exceptional items not allowable for corporation tax 1,530 -
Non-deductible expenses 296 345
Utilisation of brought forward tax losses - (309)
Carry forward of tax losses not utilised in the year (306) (17)
Research and development claim - (63)
Other tax adjustments - -
(676) (17)
14. Earnings per share
14.1. Basic and diluted earnings per share
The calculation of basic and diluted earnings per share is based on the result
attributable to shareholders divided by the weighted average number of
ordinary shares in issue during the year.
Basic earnings per share amounts are calculated by dividing net profit for the
year or period attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year. The
Group has potentially issuable shares all of which relate to the Group's share
options issued to Directors and employees.
Basic and diluted profit per share from continuing operations is calculated as
follows:
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Profit/(loss) used in calculating basic and diluted earnings per share for 2,262 (252)
continuing operations
(Loss)/profit used in calculating basic and diluted earnings per share for (10,882) 157
total operations
Number of shares
Weighted average number of shares for the purpose of basic earnings per share 61,755,891 58,956,248
Weighted average number of shares for the purpose of diluted earnings per 62,637,298 58,956,248
share
Basic earnings/(loss) per share (pence) for continuing operations 3.66 (0.42)
Diluted earnings/(loss) per share (pence) for continuing operations 3.61 (0.42)
Basic (loss)/earnings per share (pence) for total operations (17.62) 0.26
Diluted (loss)/earnings per share (pence) for total operations (17.62) 0.26
Options over 5,059,190 ordinary shares remained outstanding as at 31 March
2022 (2021: 5,409,754) as detailed in note 28.
There was no earnings per share dilution in 2021 as the outstanding options
granted were priced above the average share price for the year.
Details of (loss)/profit per share for discontinued operations are set out in
note 30.
14.2. Adjusted earnings per share
Profit after tax is stated after deducting non-underlying items totalling
£1,030,000 (2021: £1,880,000) as set out in note 9 and the impact of these
items on corporation tax. Non-underlying items are either exceptional in size,
one-off in nature or non-trading related items. These are shown separately on
the face of the Consolidated Statement of Comprehensive Income.
The calculation of adjusted basic and adjusted diluted earnings per share is
based on the result attributable to shareholders, adjusted for non-underlying
items, divided by the weighted average number of ordinary shares in issue
during the year.
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Profit /(loss) after tax 2,262 (252)
Add back:
Amortisation of customer relationships 940 1,582
Share-based payment charge 90 27
Exceptional costs - 334
Impact of above adjustments on corporation tax - (63)
Adjusted profit after tax 3,292 1,628
Number of shares
Weighted average number of shares for the purpose of adjusted earnings per 61,755,891 58,956,248
share
Weighted average number of shares for the purpose of diluted adjusted earnings 62,637,298 58,956,248
per share
Adjusted earnings per share (pence) for continuing operations 5.33 2.76
Diluted adjusted earnings per share (pence) for continuing operations 5.25 2.76
15. Intangible assets
Software Customer
costs relationships Goodwill Total
£'000 £'000 £'000 £'000
Cost
At 1 April 2021 332 14,032 5,543 19,907
Additions in the year 142 - - 142
Disposals in the year (131) (2,324) (1,351) (3,806)
At 31 March 2022 343 11,708 4,192 16,243
Amortisation
At 1 April 2021 155 11,543 - 11,698
Charge for the year 44 1,095 - 1,139
Disposals in the year (59) (1,315) - (1,374)
At 31 March 2022 140 11,323 - 11,463
Net book value
At 31 March 2021 177 2,489 5,543 8,209
At 31 March 2022 203 385 4,192 4,780
15.1. Customer relationships
The customer relationships intangible assets arise on acquisition of
subsidiaries when accounted for as a business combination and relate to the
expected value to be derived from contractual and non-contractual customer
relationships. The value placed on the contractual customer relationship is
based on the expected cash revenue inflows over the estimated remaining life
of each existing contract. The value placed on the non-contractual customer
relationships is based on the expected cash inflows based on past revenue
performance by virtue of the customer relationship, but using an attrition
rate depending on the length of the relationship. Associated cash outflows
have been based on historically achieved margins and overhead run rates per
£1 of revenue. The net cash flows are discounted at a rate which the
Directors consider is commensurate with the risks associated with capturing
returns from the customer relationships.
The estimated life for customer relationships is based on the average of the
contracted remaining life of contracted relationships and estimated life of
the non-contractual relationships.
Purdy Spokemead DCB R. Dunham Total
Attrition rate where relationship <5 years 80% n/a 100% n/a
Attrition rate where relationship >5 years 50% n/a 100% n/a
Discount rate 13.30% 12.84% 12.84% 15.79%
Estimated life of relationship at date of acquisition 7 years 7.5 years 1 to 8 years 1.5 years
Remaining life of intangible 1.5 years 0.2 years 5 years -
Fair value of customer relationships at date of acquisition £5,586,000 £5,922,000 £2,324,000 £200,000 £14,032,000
Current carrying value of customer relationships £385,000 - - - £385,000
15.2. Goodwill
Goodwill on consolidation arises on the excess of cost of acquisition over the
fair value of the net assets acquired on purchase of the company. Each
subsidiary is its own CGU for the purposes of the goodwill calculation and
impairment reviews and is monitored on an ongoing basis by the Board.
The goodwill allocated to each subsidiary entity is presented below:
Purdy Spokemead R. Dunham Total
£'000 £'000 £'000 £'000
Allocation of goodwill 1,719 1,186 1,287 4,192
The Group tests whether goodwill has suffered any impairment on an annual
basis. For the 2022 and 2021 reporting periods, the recoverable amount of the
cash-generating units ("CGUs") was determined based on the value in use
calculations which require the use of key assumptions. The calculations use
cash flow projections based on the level of recurring revenue from secured
contracts, which have already been won and are expected to be won in the
future. Cash flows beyond five years are extrapolated using the estimated
growth rates stated below. These growth rates are consistent with forecasts
included in industry reports specific to the industry in which the CGU
operates.
The following table sets out the key assumptions for those CGUs that have
significant goodwill allocated to them. The same assumptions have been used
across the CGUs as they are all considered to operate in markets with similar
characteristics.
Key assumptions 2022 2021
Long-term growth rate (used after 5 years) 1.5% 1.5%
3 to 5-year growth rate 6.0% 3.0%
Pre-tax discount rate 15.6% 14.7%
15.3. Sensitivity review
Management has performed a range of sensitivity analysis around movements in
both the discount rates and future growth rates used within the model and does
not anticipate that any realistic changes in the assumptions would cause the
assets to be impaired.
16. Property, plant and equipment
At 31 March 2022
Freehold Freehold Long Motor Fixtures Office and Total
land property leasehold vehicles and computer £'000
£'000 £'000 improvements £'000 fittings equipment
£'000 £'000 £'000
Cost
At 1 April 2021 300 555 198 237 93 1,203 2,586
Additions - 62 - 15 58 118 253
Disposals - - (198) (252) (96) (725) (1,271)
At 31 March 2022 300 617 - - 55 596 1,568
Depreciation
At 1 April 2021 - 123 118 132 86 820 1,279
Charge for the year - 25 15 22 10 119 191
Disposals - - (133) (154) (67) (651) (1,005)
At 31 March 2022 - 148 - - 29 288 465
Net book value
At 1 April 2021 300 432 80 105 7 383 1,307
At 31 March 2022 300 469 - - 26 308 1,103
At 31 March 2021
Freehold Freehold Long Motor Fixtures Office and Total
land property leasehold vehicles and computer £'000
£'000 £'000 improvements £'000 fittings equipment
£'000 £'000 £'000
Cost
At 1 April 2020 300 523 198 291 91 1,163 2,566
Additions - 32 - - 2 53 87
Disposals - - - (54) - (13) (67)
At 31 March 2021 300 555 198 237 93 1,203 2,586
Depreciation
At 1 April 2020 - 100 95 172 53 728 1,148
Charge for the year - 23 23 8 33 92 179
Disposals - - - (48) - - (48)
At 31 March 2021 - 123 118 132 86 820 1,279
Net book value
At 1 April 2020 300 423 103 119 38 435 1,418
At 31 March 2021 300 432 80 105 7 383 1,307
Freehold land and building property was included at its net book value of
£784,000 at the date of acquisition, being the fair value of the land and
buildings at £815,000, less accumulated depreciation of £31,000. The
property was valued by an independent valuer with a recognised and relevant
professional qualification and with recent experience in the location and
category of investment property being valued, Savills (UK) Limited, as at 22
May 2015 on the existing use value basis in accordance with the Appraisal and
Valuation Manual of The Royal Institution of Chartered Surveyors. The critical
assumptions made relating to its valuation are the market rent at £65,000 per
annum and the yield at 8.00%.
The bank loans detailed in note 21 are secured on the property, plant and
equipment of the Group. The bank facility does not impose any restrictions of
use on the assets.
17. Right-of-use assets
Leasehold Motor Office and Total
property vehicles computer £'000
£'000 £'000 equipment
£'000
Cost
At 1 April 2021 1,251 1,119 164 2,534
Additions 261 300 3 564
Disposals (1,249) (427) (111) (1,787)
At 31 March 2022 263 992 56 1,311
Depreciation
At 1 April 2021 285 475 86 846
Charge for the year 77 333 35 445
Disposals (355) (340) (71) (766)
At 31 March 2022 7 468 50 525
Net book value
At 1 April 2021 966 644 78 1,688
At 31 March 2022 256 524 6 786
Leasehold Motor Office and Total
property vehicles computer £'000
£'000 £'000 equipment
£'000
Cost
At 1 April 2020 1,320 1,275 201 2,796
Additions - 277 - 277
Disposals (69) (433) (37) (539)
At 31 March 2021 1,251 1,119 164 2,534
Depreciation
At 1 April 2020 202 449 66 717
Charge for the year 152 459 57 668
Disposals (69) (433) (37) (539)
At 31 March 2021 285 475 86 846
Net book value
At 1 April 2020 1,118 826 135 2,079
At 31 March 2021 966 644 78 1,688
18. Inventories
2022 2021
£'000 £'000
Raw materials 425 906
Work in progress 2,029 1,561
2,454 2,467
19. Trade and other receivables
2022 2021
£'000 £'000
Current
Trade receivables 4,977 5,564
Other receivables 122 473
Prepayments 279 594
Accrued income 5,247 8,634
Amounts due from long-term contracts - 1,461
10,625 16,726
The ageing of trade receivables that are past due but not impaired is shown
below:
2022 2021
£'000 £'000
Between 1 and 2 months 813 262
Between 2 and 3 months 74 65
More than 3 months 1 252
888 579
An allowance for expected credit loss of £nil (2021: £nil) has been
recognised in the above balance for trade receivables. Management does not
consider that there are any issues over recoverability, due to the
creditworthiness of the customer profile and little historical issue of
default.
The Group's exposure to credit risk is discussed in note 26 to the
consolidated financial statements, including how the Group assesses the credit
quality of potential new customers and its policy for providing against
overdue invoices.
The average credit period taken on invoiced sales of services as at 31 March
2022 is 34 days (31 March 2021: 26 days). No interest was charged on overdue
receivables during the year.
The Directors believe that the carrying value of the trade and other
receivables is considered to represent its fair value. The maximum exposure to
credit risk at the reporting date is the carrying value of each class of
receivable shown above. The Group does not hold any collateral as security.
The bank loans detailed in note 21 are secured on trade receivables of
£4,977,000 (2021: £5,564,000).
The Group's trade and other receivables are all denominated in Pounds
Sterling.
20. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. The Group's cash and cash
equivalents are held at floating interest rates and are primarily held at HSBC
UK Bank Plc which has an AA- credit rating as assessed by Fitch Ratings. The
Directors consider that the carrying amount of cash and cash equivalents
approximates to their fair value.
2022 2021
£'000 £'000
Cash at HSBC UK Bank Plc 2,495 1,285
Other cash and bank balances 9 8
2,504 1,293
21. Borrowings
The maturity analysis of borrowings, inclusive of finance charges, is included
below. All of the loans are denominated in Pounds Sterling.
2022 2021
£'000 £'000
Non-current borrowings
Bank and other borrowings:
Term loans - 2,533
Other loans 34 109
Mortgage loans 143 200
Total non-current borrowings 177 2,842
Current borrowings:
Bank and other borrowings:
Term loans 2,534 1,000
Other loans 75 67
Mortgage loan 57 57
Total current borrowings 2,666 1,124
Bank and other borrowings:
Term loans 2,534 3,533
Other loans 109 176
Mortgage loans 200 257
Total borrowings 2,843 3,966
The fair value of the borrowings outstanding as at 31 March 2022 is not
materially different to its carrying value since interest rates applicable on
the loans are close to the current market rates.
On 26 March 2021 the Group amended and restated the facility agreement. This
was required to facilitate early repayment of part of the term loan aligned to
changes to covenant tests. On 31 March 2021, the Group repaid £2.3 million of
the term loan. £1.3 million related to the contractual repayment based on the
adjusted cash balances in the Group as at 31 March 2021 and £1.0 million
related to the accelerated repayment of the scheduled quarterly repayments in
May 2021 and August 2021 of £0.5 million each. The first covenant test was
amended to be as at 31 December 2021. As part of the restated agreement, the
Group agreed the transition from LIBOR to an interest measure based on
Sterling Overnight Interbank Average Rate ("SONIA"), effective from 30
September 2021.
(a) Working capital facilities
At 31 March 2022 the Group had an unused £2.5 million working capital
facility with HSBC UK Bank Plc. The facility has an interest rate of 2.5%
above base rate and is repayable on demand. All cash at bank balances are
denominated in Pounds Sterling.
(b) Bank and other loans
Term loans
At 31 March 2022 the Group had a term loan in place with HSBC UK Bank Plc with
an original principal value of £7.3 million repayable by quarterly
instalments. As at 31 March 2022 £2.53 million of the loan remained
outstanding. Interest is payable at 3.75% plus compounded reference rate based
on SONIA.
Mortgage loan
A ten-year mortgage loan of £570,000 with HSBC UK Bank Plc was drawn down in
July 2015, with interest payable at 1.9% above base rate. The mortgage is held
over the freehold property of Purdy known as Brooklyn Lodge, Mott Street,
Chingford, London E4 7RW. £200,000 remained unpaid at the end of the period.
Other loan
A five-year term loan, originally drawn down in September 2018 of £317,000
with Funding Circle, was assumed by the Group on the acquisition of R. Dunham
in November 2018 and is unsecured. The loan is repayable by fixed monthly
instalments of £7,024 and interest is at a fixed rate of 11.9%. £109,000
remained unpaid at the end of the period.
(c) Security
Bank loans are secured on related property, plant and equipment and debtor
books of the Group.
In respect of bank debt there is an Unlimited Composite Company Guarantee
given by Kinovo plc, Purdy, P&R, Spokemead and R. Dunham to secure all
liabilities of each borrower.
22. Lease liabilities
As at 31 March 2022 the following amounts are included in the Statement of
Financial Position in relation to non-cancellable leases:
2022 2021
£'000 £'000
Lease liabilities
Current 362 552
Non-current 434 1,183
796 1,735
The maturity analysis of obligations under non-cancellable leases is shown in
the following table:
2022 2021
£'000 £'000
No later than 1 year 362 552
Later than 1 year and no later than 5 years 434 837
After 5 years - 346
796 1,735
The interest expense recognised through the Consolidated Statement of
Comprehensive Income during the year in relation to lease liabilities was
£33,000 (2021: £62,000).
23. Trade and other payables
2022 2021
£'000 £'000
Trade payables 12,552 11,082
Other payables 388 21
Other taxation and social security 3,167 2,450
Accruals 2,955 875
19,062 14,428
Trade and other payables principally comprise amounts outstanding for trade
purchases and ongoing costs. They are non-interest bearing.
The Directors consider that the carrying value of trade and other payables
approximates their fair value as the impact of discounting is insignificant.
The Group has financial risk management policies in place to ensure that all
payables are paid within the credit time frame and no interest has been
charged by any suppliers as a result of late payment of invoices.
Included within trade payables is a balance of £3,077,000 (2021: £2,555,000)
on a purchasing card facility provided by HSBC UK Bank Plc. The purchasing
card is typically used to facilitate administration and reporting of costs on
maintenance contracts at a granular level. Payment terms for Kinovo plc on the
purchasing cards are typically 60-90 days, which aligns with existing credit
terms with suppliers. Approved suppliers benefit from increased volumes and
receive funds upfront from HSBC UK Bank Plc. Based on the nature of the
transactions the Board considers it appropriate to disclose the balance within
trade creditors.
The average credit period taken on trade purchases (excluding those settled on
purchasing card) is 85 days (2021: 65 days). Trade purchases include the
purchase of materials and subcontractor costs.
At 31 March 2022 deferred Covid-19 related HMRC liabilities amounted to £nil
(2021: £1,023,000).
24. Share capital and reserves
24.1. Ordinary shares
Ordinary shares of £0.10 each 2022 2021
£'000 £'000
At the beginning of the year 6,121 5,872
Issued in the year 92 249
At the end of the year 6,213 6,121
Number of shares
At the beginning of the year 61,214,703 58,721,845
Issued in the year 923,054 2,492,858
At the end of the year 62,137,757 61,214,703
Issued in the year
During the year the Company issued 923,025 shares to allocate to members of
the SIP scheme (please see note 28 for further details on the SIP). 17.5 pence
was paid for 461,527 of these shares, a total consideration of £81,000. This
was allocated as £46,000 of share capital, and £35,000 of share premium. The
remaining 461,527 shares were a share-based payment for the members of the
scheme, and therefore 10 pence per share (a total consideration of £46,000)
was transferred to share capital from the share-based payment reserve as
payment for these.
During the year ended 31 March 2021, the Company issued a total of 2,492,858
ordinary shares to RBC Cees Trustee (Nominees) Limited for £850,000. These
shares are to be held for future redemption by members of the JSOP scheme
subject to successful achievement of vesting conditions. Within the Group
accounts the share trust is consolidated and the £850,000 value of shares is
shown in equity as the Group ownership of own share capital.
24.2. Share premium
2022 2021
£'000 £'000
At the beginning of the year 9,210 8,609
Issued in the year (net of share issue costs) 35 601
At the end of the year 9,245 9,210
24.3. Merger reserve
2022 2021
£'000 £'000
At the end of the year (248) (248)
25. Note to the Consolidated Statement of Cash Flows
12 months 12 months
ended ended
31 March 31 March
2022 2021
£'000 £'000
Cash flow from operating activities
(Loss)/profit before income tax (11,558) 140
Adjustments for:
Net finance cost 275 461
Profit on disposal of property, plant and equipment (1) (2)
Depreciation 636 847
Amortisation of intangible assets 1,139 1,843
Loss on disposal of intangible assets 2,296 -
Share based payments 90 30
Movement in receivables 6,101 2,580
Movement in payables 4,670 (1,561)
Movement in inventories 12 1,313
Tax reclaimed - 163
3,660 5,814
26. Financial instruments
The Group's principal financial assets are cash and cash equivalents and trade
and other receivables. All financial assets are classified as loans and
receivables.
The Group's principal financial liabilities are financing liabilities and
trade and other payables. All financial liabilities are held at amortised
cost.
The Group is exposed to the risks that arise from its use of financial
instruments. This note describes the objectives, policies and processes of the
Group for managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented throughout
these consolidated financial statements.
26.1. Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are as follows:
• cash and cash equivalents;
• trade and other receivables;
• trade and other payables;
• borrowings; and
• leases.
The Group held the following financial assets at each reporting date:
2022 2021
£'000 £'000
Loans and receivables:
Trade receivables 4,977 5,564
Accrued income 5,247 8,634
Amounts due from long-term contracts - 1,461
Other receivables 401 1,067
Cash and cash equivalents 2,504 1,293
13,129 18,019
The Group held the following financial liabilities at each reporting date:
2022 2021
£'000 £'000
Held at amortised cost:
Bank and other loans 2,843 3,966
Lease liabilities 796 1,735
Accruals 2,955 875
Trade payables 12,552 11,082
Other payables including tax and social security 3,555 2,471
22,701 20,129
26.2. Financial risk management
The Group's treasury function monitors and manages the financial risks in
relation to its operations. These risks include those arising from interest
rate risk, credit risk, liquidity risk and capital risk. The Group seeks to
minimise the effects of these risks by using effective control measures. The
Group's policies for financial risk management are outlined below.
(a) Interest rate risk management
The Group finances its operations through a combination of retained earnings
and bank borrowings from major financial institutions, with a minimum Fitch
rating of B, at floating rates of interest above the Bank of England base
rate. Borrowings issued at variable rates expose the Group to cash flow
interest rate risk. Borrowings issued at fixed rates expose the Group to fair
value interest rate risk.
The Group's treasury function reviews its risk management strategy on a
regular basis and gives careful consideration to interest rates when
considering its borrowing requirements and where to hold its excess cash.
The Group currently has loans totalling £2.8 million (2021: £4.0 million) at
variable interest rates. The Group is exposed to interest rate risk on some of
its financial assets, being its cash and cash equivalents. The interest rate
receivable on these balances at 31 March 2022 was at an average rate of less
than 1% (2021: less than 1%).
The Group's policy is to minimise interest charges through active cash
management. Interest charged on the Group's borrowings is kept under constant
review.
(b) Credit risk management
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. Credit risk
arises principally from the Group's trade and other receivables and its cash
balances. The Group has an established credit policy under which each new
customer is analysed for creditworthiness before the Group's standard payment
and delivery terms and conditions are offered.
The maximum exposure the Group will bear with a single customer is dependent
upon that customer's credit rating, the level of anticipated trading and the
time period over which the relationship is likely to run.
Social housing customers are typically local authorities or housing
associations and the nature of which means the credit risk is minimal. Other
trade receivables contain no specific concentration of credit risk with
amounts recognised representing a large number of receivables from various
customers.
(c) Trade and other receivables
The Group is exposed to the risk of default by its customers. At 31 March
2022, the Group had three customers with an outstanding balance over £250,000
(31 March 2021: three). An allowance for impairment is made where there is an
identified loss event which, based on previous experience, is evidence of a
reduction in the recoverability of the cash flows. No specific provision
against receivables has been recognised (2021: £nil) in the Statement of
Financial Position as outlined in note 19.
There are no other significant concentrations of credit risk at the balance
sheet date.
At 31 March 2022, the Group held no collateral as security against any
financial asset. The carrying amount of financial assets recorded in the
consolidated financial statements, net of any allowances for losses,
represents the Group's maximum exposure to credit risk without taking account
of the value of any collateral obtained.
(d) Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group's approach to managing
liquidity risk management is to ensure it will always have sufficient
liquidity to meet the Group's working capital requirements. Management
monitors rolling forecasts of the Group's liquidity and cash and cash
equivalents on the basis of expected cash flow.
The Directors manage liquidity risk by regularly reviewing cash requirements
by reference to short-term cash flow forecasts and medium-term working capital
projections prepared by management and operate a centralised treasury function
and actively manage cash flows on both a daily and longer-term basis.
The Group had total available working capital facilities at an interest rate
of 2.5% over base rate amounting to £2,500,000 with HSBC UK Bank Plc as at 31
March 2022. The Group maintains a good relationship with its bank, which has a
high credit rating. As at 31 March 2022, the Group had cash and cash
equivalents of £2,504,000 (2021: £1,293,000).
The table below shows the maturity profile of the Group's non-derivative
financial liabilities:
2022 Within 1-2 years 2-5 years Over Total
1 year £'000 £'000 5 years £'000
£'000 £'000
Non-derivative financial liabilities
HSBC mortgage 57 57 86 - 200
HSBC term loan 2,534 - - - 2,534
Funding Circle unsecured loan 75 34 - - 109
Trade payables 12,552 - - - 12,552
15,218 91 86 - 15,395
2021 Within 1-2 years 2-5 years Over Total
1 year £'000 £'000 5 years £'000
£'000 £'000
Non-derivative financial liabilities
HSBC mortgage 57 57 143 - 257
HSBC term loan 1,000 2,533 - - 3,533
Funding Circle unsecured loan 67 109 - - 176
Trade payables 11,082 - - - 11,082
12,206 2,699 143 - 15,048
(e) Capital management risk
The Group manages its capital to ensure that entities in the Group will be
able to continue as a going concern so that it can continue to provide returns
for shareholders and benefits for other stakeholders through the optimisation
of debt and equity.
The capital structure of the Group consists of net debt as disclosed below and
equity as disclosed in the Consolidated Statement of Changes in Equity.
2022 2021
£'000 £'000
Net debt is comprised as follows:
Cash and cash equivalents 2,504 1,293
Bank borrowings and overdrafts (2,843) (3,966)
Lease liabilities (796) (1,735)
(1,135) (4,408)
The movement in the net debt position for the year can be reconciled as
follows:
2021 Cash movements Interest charges New lease Disposals 2022
£'000 £'000 £'000 agreements £'000 £'000
£'000
Cash and cash equivalents 1,293 1,211 - - - 2,504
Bank borrowings and overdrafts (3,966) 1,123 - - - (2,843)
Lease liabilities (1,735) 471 33 (564) 999 (796)
(4,408) 2,805 33 (564) 999 (1,135)
27. Related party transactions
There were no related party transactions in the period.
27.1. Key management compensation
The Group's key management is considered to comprise the Directors of Kinovo
plc and the Chief Operating Officer. The aggregate remuneration of the key
management is as follows:
2022 2021
£'000 £'000
The aggregate remuneration comprised:
Aggregate emoluments 764 771
Share-based payments 36 6
Total remuneration 800 777
The remuneration of the highest paid Director during the year was £262,000
(2021: £218,000). The remuneration of individual Directors is disclosed in
the Remuneration Committee Report.
There were no other transactions with Directors or key personnel to disclose.
28. Share-based payments
As at 31 March 2022 the Group maintained four share-based payment schemes for
employee remuneration, a Share Incentive Plan ("SIP"), Company Share Option
Plan ("CSOP"), Joint Share Ownership Plan ("JSOP") and Enterprise Management
Incentive ("EMI").
Share Incentive Plan ("SIP")
The SIP is an HMRC-approved plan open to all employees. The plan was
established on 1 August 2020. Employees were invited to buy shares in the
Company at a price of 17.5 pence, being the market price immediately prior to
the date of establishment of the plan. The acquisition of the shares is funded
through a salary sacrifice scheme with monthly deductions taken through
payroll over a twelve-month accumulation period. At the end of the
accumulation period the SIP Trust used the contributions to acquire the shares
on behalf of the employees ("partnership shares"). A further tranche was
rolled out on 1 August 2021, operating on the same basis as the original, but
with a share purchase price of 34.0 pence. At 31 March 2022 employees had
accumulated contributions of £49,585.
Employees are also awarded a matching share for each partnership share
acquired. Once awarded these shares are held in trust, and are subject to
forfeiture, in accordance with the scheme rules, for three years. The
retention rate has been estimated as 82%.
The SIP is considered a hybrid financial instrument with characteristics of
both share and option awards and linked to a twelve-month accumulation
contract. The obligation of the Company arose when the plan was established,
at the beginning of the accumulation period. The employee pays the market
value for the partnership shares and therefore no share-based payment charge
is recognised. The matching shares give rise to a share-based payment charge
based on the market value of the shares at the date the plan was established
adjusted for the risk of forfeiture.
Company Share Option Plan ("CSOP")
The CSOP is open to all employees at the discretion of the Remuneration
Committee. In the year ended 31 March 2021, the Company issued four CSOP
awards totalling 1,772,142 ordinary shares at market prices ranging from 20.50
pence to 35.00 pence.
There were no CSOP awards in the year ended 31 March 2022.
The vesting period is for three years, during which the holder must remain in
the employment of the Group. There are no performance conditions attached to
the awards. No shares have vested yet.
The CSOP and EMI schemes were valued using the Black Scholes model. The use of
this model to calculate a charge involves using a number of estimates and
judgements to establish the appropriate inputs to be entered into the model,
covering areas such as the use of an appropriate interest rate and dividend
rate, exercise restrictions and behavioural considerations. A significant
element of judgement is therefore involved in the calculation of the charge.
Joint Share Ownership Plan ("JSOP")
The JSOP is open to certain senior Executives at the discretion of the
Remuneration Committee. In the year ended 31 March 2021, the Company issued
two JSOP awards, 250,000 ordinary shares of 10 pence each on 21 December 2020
at the market price of 26.0 pence and 2,242,858 ordinary shares of 10 pence
each on 5 March 2021 at the market price of 35.0 pence, to three senior
Executives. There were no JSOP awards in the year ended 31 March 2022.
Under the JSOP, shares in the Company are jointly purchased at fair market
value by the participating Executives and the trustees of the JSOP trust, with
such shares held in the JSOP trust.
Under IFRS, the awards are treated as a share-based payment arrangement. The
JSOP trust holds the shares of the JSOP until such time as the JSOP shares are
vested and the participating Executives exercise their rights under the JSOP.
The JSOP trust is granted a non-interest-bearing loan by the Company in order
to fund the purchase of its interest in the JSOP shares. The loan held by the
trust is eliminated on consolidation in the financial statements of the Group.
The Company funded portion of the share purchase price is deemed to be held as
own shares until such time as they are transferred to the employee and is
recorded as a reduction in equity.
The award on 21 December 2020 had no performance conditions. The awards on 5
March 2021 vest based on certain non-market conditions and specific fair
market share price hurdles, as defined by the plan.
Under the JSOP and subject to the vesting of the participants' interest,
participating Executives will, when the JSOP shares are sold, be entitled to a
share of the proceeds of sale equal to the growth in market value of the JSOP
shares versus the exercise price, net of Executives' cash contribution at
inception, as agreed for each grant (the "Carry Charge").
The balance of the proceeds will remain to the benefit of the JSOP trust and
will be applied to the repayment of the loan originally made by the Company to
the JSOP trust. Any funds remaining in the JSOP trust after settlement of the
loan and any expenses of the JSOP trust are for the benefit of the Company. No
shares have vested at 31 March 2022.
The JSOP awards are valued based on the component conditions comprising each
of the awards. Components of awards containing non-market-based conditions and
awards with no performance conditions are valued using the Black Scholes
model. Components of awards with market-based performance conditions are
determined by the Monte Carlo simulation.
A number of estimates and judgements are required to establish the appropriate
inputs to be entered into the model, covering areas such as the use of an
appropriate interest rate and dividend rate, exercise restrictions and
behavioural considerations. A significant element of judgement is therefore
involved in the calculation of the charge.
Having established the full value of the JSOP awards using the Black Scholes
model and Monte Carlo simulation outlined above, a deduction is made in
respect of the anticipated Carry Charge in order that the expense recorded in
the financial statements only represents the participating Executives' net
interest in the awards.
Enterprise Management Incentive Scheme ("EMI")
The EMI options scheme was open to all employees at the discretion of the
Remuneration Committee. In the year ended 31 March 2022, no grants were
awarded and the majority of the grants have now been cancelled.
The vesting period is for three years, during which the holder must remain in
the employment of the Group subject to the discretion of the Remuneration
Committee. They can be exercised at any time from the date of vesting to the
day before the tenth anniversary of their grant and are not subject to
performance conditions.
The net charge recognised for share-based payments in the year was £90,000
(2021: £30,000) including discontinued operations analysed as follows:
2022 2021
£'000 £'000
SIP 19 16
CSOP 24 10
JSOP 47 4
EMI/unapproved - -
90 30
In the year ended 31 March 2022, options were granted in respect of the SIP
only. During the prior year, options were granted for the CSOP and JSOP
schemes in addition to the SIP. All share-based employee remuneration will be
settled in equity. Options are generally exercisable at a price equal to the
market price of the Kinovo plc shares on the day immediately prior to the date
of the grant. Options are forfeited if the employee leaves the Group before
the options vest except in specific circumstances allowed by the terms of the
schemes.
SIP CSOP JSOP EMI/ Total
unapproved
Number
At 1 April 2020 - - - 750,000 750,000
Granted 644,754 1,772,142 2,492,858 - 4,909,754
Lapsed - - - (250,000) (250,000)
At 31 March 2021 644,754 1,772,142 2,492,858 500,000 5,409,754
Granted 610,185 - - - 610,185
Exercised (531,944) - - - (531,944)
Lapsed (83,805) (345,000) - - (428,805)
At 31 March 2022 639,190 1,427,142 2,492,858 500,000 5,059,190
Weighted average exercise price (pence)
At 1 April 2021 - 24.3 34.1 95.0
Granted - - - -
Lapsed - 22.5 - -
At 31 March 2022 - 24.8 34.1 95.0
Assumptions used in estimating the fair value
Exercise price (pence) 17.5-34.0 20.5-35.0 26.0-35.0 95.0
Expected dividend yield n/a 1.00% 1.00% 2.15%
Risk free rate n/a 0.50% 0.50% 4.00%
Expected volatility n/a 35.00% 35.00% 45.70%
Expected life 4 years 3 years 3 years 6.5 years
Expected volatility for the CSOP and JSOP awards is based upon the historical
volatility as adjusted for management expectations over the life of the
schemes. The expected life is based upon scheme rules and reflects
management's best estimates for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The risk free interest rate for the CSOP and JSOP awards is based upon the
expected yield of UK gilts over the expected life of the awards.
The Company has applied an expected dividend yield of 1% for the CSOP and JSOP
awards as the Company anticipates making dividend payments during the expected
life of the awards.
During 2021 £612,000 was transferred from the share-based payment reserve to
retained earnings in relation to tranches where all options have now been
cancelled.
29. Deferred tax
The following are the significant deferred tax liabilities and assets
recognised by the Group and the movements thereon during the current and prior
reporting period.
Intangible Unused Short-term Right-of-use Lease Share-based Total
assets tax losses timing assets liabilities payments £'000
acquired £'000 differences £'000 £'000 £'000
£'000 £'000
At 1 April 2020 (947) 309 (145) (381) 385 - (779)
Credit/(charge) to Statement of Comprehensive Income or recognised directly 327 (309) - 60 (55) 57 80
through shareholders, equity
At 31 March 2021 (620) - (145) (321) 330 57 (699)
Credit/(charge) to Statement of Comprehensive Income or recognised directly 243 306 112 28 (28) 17 678
through shareholders, equity
Disposal of DCB (Kent) Limited 305 - 30 143 (151) - 327
At 31 March 2022 (72) 306 (3) (150) 151 74 306
2022 2021
£'000 £'000
Deferred tax asset 531 387
Deferred tax liability (225) (1,086)
Net deferred tax asset/(liability) 306 (699)
30. Sale of business
On 12 January 2022, the Group disposed of 100% of the share capital of DCB
(Kent) Limited ("DCB"). As set out in note 4.1, the effective date of transfer
of control was as at 1 December 2021 and is accounted for as disposed as at
that date.
A total deferred consideration of up to £5 million was due on the sale
consisting of:
• £1.9 million payable on successful completion of current projects;
• £2.1 million payable on trade settlements of these current
projects; and
• £0.5 million payable on the results of the next two years dependent
on achievement of performance targets.
However, DCB went into administration on 16 May 2022. Management therefore
does not expect that any of this consideration will be receivable, and as such
has not recognised any anticipated proceeds from the sale of the business.
Loss on disposal of DCB (Kent) Limited
2022
£'000
Consideration received or receivable:
Cash -
Cash fair value of contingent consideration -
Total disposal consideration -
Carrying amount of net assets disposed (9,930)
Other write-offs and provisions required as a result of disposal (3,743)
Tax credit from disposal 1,078
Total loss on disposal of DCB (Kent) Limited (12,595)
As part of the sale agreement, Kinovo plc and the purchaser agreed a working
capital mechanism with DCB (Kent) Limited to facilitate completion of ongoing
projects. From the date of sale up to 31 March 2022, £2.5 million of working
capital had been provided by Kinovo plc to DCB (Kent) Limited. A further £1.2
million of funding was provided post year end prior to the company entering
administration. The full value of these facilities has been written off in the
loss on disposal for the year.
As part of the obligations under the terms of the sale, the Group continued to
provide parent company guarantees ("PCGs") on DCB (Kent) Limited which run
through to practical completion on each of the construction projects that were
in existence at the time of the disposal. On administration of DCB (Kent)
Limited the obligations under the PCGs were assumed by Kinovo plc. Note 32
provides further details on how these have been treated within the financial
statements.
Financial performance and cash flow information from discontinued operations
8 months to 12 months to
30 November 2021 31 March 2021
£'000 £'000
Revenue 13,432 20,817
Cost of sales (11,780) (17,210)
Gross profit 1,652 3,607
Underlying administrative expenses (2,168) (2,793)
Operating (loss)/profit before non-underlying items (516) 814
Non-underlying administrative expenses:
Amortisation of customer relationships (155) (232)
Share-based payment charge - (3)
Loss on disposal (12,595) -
Restructuring costs - (45)
Total non-underlying administrative expenses (12,750) (280)
Operating (loss)/profit (13,266) 534
Finance costs (6) (23)
(Loss)/profit before taxation (13,272) 511
Income tax credit/(expense) 128 (102)
(Loss)/profit for the period (13,144) 409
(Loss)/earnings per share from discontinued operations
Basic (pence) (21.28) 0.69
Diluted (pence) (21.28) 0.69
Cash flows from discontinued operations
Net cash (outflow)/inflow from operating activities (1,453) 272
Net cash outflow from investing activities (10) (40)
Net cash outflow from financing activities (16) (44)
Net (reduction)/increase in cash generated by the subsidiary (1,479) 188
31. Ultimate controlling party
The Directors consider that there is no ultimate controlling party of Kinovo
plc.
32. Events after the balance sheet date
As part of the obligations under the terms of the sale of DCB (Kent) Limited
("DCB") see note 30 for details on the disposal), the Group continued to
provide parent company guarantees ("PCGs") on certain construction projects of
DCB (Kent) Limited which run through to their practical completion. On
administration of DCB (Kent) Limited the outstanding obligations under the
PCGs were assumed by Kinovo plc.
As at 31 March 2022 it was anticipated that existing contracts could be
completed at reasonable cost, and new business could be secured to support the
cash flow of the business. Kinovo continued to provide working capital funding
to support the business after the year end. However, DCB was placed into
administration on 16 May 2022.
The liability under the PCGs is considered to be a non-adjusting post balance
sheet event, and the costs to complete will be recognised in the Statement of
Comprehensive Income as and when they arise.
The total expected cost to complete the projects has been determined as £4.0
million (plus professional fees and expenses). The cost to complete is based
on nine ongoing projects which are guaranteed by the Group. External quantity
surveyors have been appointed who have engaged with the existing supply chain
and agreed subcontractor packages, attended sites and completed full surveys,
established any known defects, and prepared a full plan to complete for each
project. The combined value of this planned work across all contracts has
identified the gross cost to complete of £18.8 million, which is offset by
amounts recoverable on the contracts of £14.8 million. A further £0.3
million of legal fees are expected to be incurred in relation to the disposal.
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. END FR SFEESAEESELARecent news on Kinovo
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