REG - Kinovo PLC - Interim Results
28/11/2022 07:00
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RNS Number : 6960H Kinovo PLC 28 November 2022
28 November 2022
Kinovo Plc
("Kinovo" or the "Group")
Interim Results
Strong momentum in underlying business
Kinovo plc (AIM:KINO), the specialist property services Group that delivers
compliance and sustainability solutions, announces its unaudited Interim
Results for the six months ended 30 September 2022.
Financial highlights (Continuing operations):
· Revenue increased by 25% to £29.8 million (H1 2021: £23.8
million)
· Gross margin percentage increased by 1.2% to 25.9% (H1 2021:
24.7%)
· Adjusted EBITDA increased 31% to £2.4 million (H1 2021: £1.8
million)
· Operating profit increased by 56% to £1.9 million (H1 2021:
£1.2 million)
· Cash conversion of 130% during the period
· Net debt of £0.1 million (H1 2021: £1.7 million)
· Basic earnings per share increased 59% to 2.16p from 1.36p in H1
20212
Operating highlights:
· The underlying business continues to perform strongly despite a
challenging macro-economic trading environment
· Revenue and profit attributable to our three key pillars; Regulation,
Regeneration and Renewables, demonstrate robust growth during the period
· The Electrical Services Division, driven by new legislation changes,
delivers growth of 37% in revenues
· The Building Services Division capitalised on decarbonisation
opportunities as well as new contracts, increasing revenues by 30%
· The Group's ESGM Strategic Report has been published and our Carbon Net
Zero Strategic Report is expected to be released in the new year
· Continued commitment to social value, with the number of
apprentices compared to employees growing to 13% (H1 2021: 10%)
· Three-year visible revenues increased to £146 million with a robust
pipeline in play and key contract wins and renewals including:
o A four-year electrical works contract with Estuary Housing at £1.5 million
per annum
o A four-year repairs and maintenance contract with the London Borough of
Bexley at £1.2 million per annum
o A one-year contract worth £1 million with Orbit Voids
DCB (Kent) Limited ("DCB"):
· Cost to complete of construction projects, as previously announced,
estimated to be a total of £4.3 million with the liability included in the
financial statements at 30 September 2022
· As a result, discontinued operations loss after tax of £3.5
million (H1 2021: £0.3 million)
· Work has recommenced on two of the nine sites with a further three
expected to commence in Q1 2023 and constructive dialogue continuing regarding
the remainder of outstanding projects
Outlook:
· The implementation of regulatory-driven legislation changes during
the period, alongside the Government's commitment to decarbonisation, align
favourably with the Group's strategic pillars, positioning the Group well to
support clients in delivering these mandates
· The Board is confident of achieving full year results in line with
expectations
Unaudited 6 months to Unaudited 6 months to Audited 12 months to
30 September 2022 30 September 2021 31 March
£ˊ000 £ˊ000 2022
£ˊ000
Continuing operations
Income statement
Revenue 29,761 23,760 53,325
Gross profit 7,711 5,861 12,767
EBITDA(1) (excluding effect of lease payments) 2,630 2,116 4,600
Adjusted EBITDA(2) (including effect of lease payments) 2,396 1,831 4,237
Underlying operating profit(3) 2,311 1,758 4,091
Underlying profit before taxation(4) 2,099 1,606 3,822
Profit after taxation 1,344 834 2,262
Basic earnings per share(5) 2.16 1.36 3.66
Adjusted earnings per share(6) 2.87 2.27 5.33
Cash flow
Net cash generated from operating activities(7) 2,466 2,540 9,777
Adjusted net cash generated from operating activities(7) 3,119 2,826 9,442
Adjusted operating cash conversion(8) (%) 130% 154% 223%
Financial position and net assets
Net cash (1,721) (2,237) (2,504)
Term and other loans 1,777 3,905 2,843
Net debt(9) 56 1,668 339
Net assets/(liabilities) (2,294) 11,250 (143)
Discontinued operations (see note 11)
Loss after taxation (3,486) (279) (13,144)
1. Earnings before interest, taxation, depreciation and amortisation
("EBITDA") and excluding non-underlying items, as set out in the financial
review.
2. To align with internal reporting, Adjusted EBITDA is stated after a charge
for lease payments, as set out in the financial review.
3. Underlying operating profit is stated before charging non-underlying items
as set out in note 4.
4. Underlying profit before taxation is stated after finance costs and before
charging non-underlying items as set out in the financial review.
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 operating activities before tax for continuing
operations. Adjusted net cash generation reflects lease payments and the
payment of deferred HMRC payments to normal terms. Further analysis is set out
in the financial review.
8. Adjusted net cash generated from operating activities divided by Adjusted
EBITDA, as set out in the financial review.
9. Net debt comprises term loans and other loans, and cash net of overdraft,
and excludes lease obligations.
David Bullen, Chief Executive Officer of Kinovo, commented:
"Our strategy, business model and investment case remain stronger than ever
with sustainability at the heart of what we do, underpinned by the
predominantly non-discretionary nature of our three key pillars: Regulation,
Regeneration and Renewables.
While the DCB disposal has been challenging, we are pleased to be making
progress on the outstanding projects. We have commenced work on two of the
sites, a further three will begin in Q1 2023, and we are in a constructive
dialogue with the clients of all the other projects. We continue to believe
that the £4.3m total costs to complete is an appropriate estimate.
The underlying business continues to excel, with all three pillars delivering
substantial growth and Kinovo is well-positioned to grow further. We believe a
number of significant legislative changes that were implemented during the
period alongside the Government's decarbonisation commitments will only
increase the frequency and scope of our works."
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
Adam James
Andrew Potts
Harry Rees
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
Overview
Despite the challenging macroeconomic conditions, Kinovo has continued its
momentum in its continuing operations. This directly reflects our strategic
repositioning and our ability to service our clients. Whilst we are not immune
to the impacts of inflation, supply chain pressures and particularly labour
shortages, Kinovo continues to mitigate these challenges through effective
cost management, agile work practices and a focus on the implementation of the
Group's strategy.
For the first half of this fiscal year, we were delighted to have achieved
growth in all three of our divisions: mechanical, electrical and building
services. This growth was also achieved across all three of our strategic
pillars: Regulation, Regeneration and Renewables. Year on year revenues
increased by 25% and, during the period, we are particularly pleased to have
also won a number of significant contracts. We finish the first half of the
year with EBITDA from continuing operations of £2.4 million, leaving Kinovo
well-positioned to capitalise on further organic opportunities in a growing
market requiring the services where we have considerable expertise and
reputation.
DCB (Kent Limited) ("DCB")
Following the disposal of DCB, our former construction division, we provided
working capital support to facilitate the completion of active projects which
had not been completed to schedule, as previously announced.
We are actively managing the cost to complete on all projects, which are no
longer under the sole control of third-party operators. Our team has begun
working on-site on two of the projects, with a further three scheduled to
commence in January 2023. We remain in constructive dialogue with clients for
all of the other sites, and continue to expect the cost to complete to be
approximately £4.3 million, over a period for completion, ranging from a
number of months through to 2024. During the period, contracts have been
signed on two projects and discussions are at an advanced stage on the others
and the Board is confident they will be executed,
Chair Succession
As was announced at this year's Annual General Meeting, I will be stepping
down from the Board of Kinovo once a suitable successor has been appointed. In
spite of the myriad of challenges, it has been a privilege to serve as Chair
of Kinovo. Having successfully navigated these challenges, I am pleased that
the Company is firmly set on a very promising trajectory of growth and
success.
The search for my successor is actively underway, and an announcement will be
made on this in due course.
Sangita Shah
Non-Executive Chair
28 November 2022
Chief Executive Officer's review
Overview
I am pleased to report another period of strong growth for Kinovo's continuing
operations. We announced, 18 months ago, our rebranding and repositioning to
focus on the three strategic pillars: Regulation, Regeneration and Regulation.
Since then, the Group has made significant progress. The strategic pillars
play to our core strengths and serve to benefit from the ever-increasing
regulatory drivers within our sector as well as the Government's commitment to
decarbonisation.
During the period, revenue increased by 25% to £29.8 million (H1 2021: £23.8
million), representing year-on-year increases across each of our three
strategic pillars: Regulation by 14%, Regeneration by 67% and Renewables by
20%. All three of our service divisions also delivered period-on-period
increases in revenues: Mechanical by 6%, Electrical by 37% and Building
Services by 30%. This resulted in adjusted EBITDA from continuing operations
of £2.4 million, a 31% rise on the previous year (H1 2021: £1.8 million).
The Group's performance is all the more impressive being set against a
challenging trading environment, affected by the Russian invasion of Ukraine,
the cost-of-living crisis and the lasting effects of the Covid-19 pandemic and
Brexit. While material costs and supply chain disruptions have started to
normalise, skilled labour shortages continue to remain a major issue.
We are mitigating this in line with our commitment to social value, through
our apprenticeship and employee development programmes, with a number of
internal promotions, "graduation" of apprentices to improved status and an
overall increase in the number of apprentices we employ, which now accounts
for 13% of our employees. Furthermore, we have continued to invest in the
personal and professional development of our people, including further
leadership training across the business, with the second round of management
training, empowering our employees and providing them with the necessary
skills to excel within and beyond their roles.
We have also benefitted from being able to draw on the utilisation of our
broad sub-contractor base as the scaling up of our workforce alone to meet the
opportunities of increased scope and quantities of contracts will continue to
prove challenging.
The disposal of DCB, which was a key component in streamlining operations, has
been a challenge post disposal as previously disclosed in our final results
for the year ended 31 March 2022. However, we have now commenced on-site on
two of the outstanding projects and an additional three will start in Q1 2023.
We remain in constructive dialogue with clients on all other sites.
Operational Developments & Growth Drivers
During the period, we were pleased to secure a number of critical new
contracts and renewals, including a £1.5 million per annum four-year contract
for electrical works with Estuary Housing, a four-year agreement at £1.2
million per annum with London Borough of Bexley for repairs and maintenance,
and with Orbit Voids on a one-year term for £1 million. With a robust
pipeline of opportunities still in play, our three-year visible revenues have
increased to £146 million, demonstrating our resilience and providing a solid
foundation on which to build.
Other than Kinovo's repositioning, there are a number of key drivers which
have contributed to our recent growth.
Kinovo is a clear beneficiary of a number of recent significant
regulatory-focused legislative changes, as councils are beginning to
prioritise initiatives that will become mandatory in the near future. The
Building Safety Act received Royal Assent on 28 April 2022 and provides
ground-breaking reforms to give residents and homeowners more rights, powers
and protection, increasing the accountability of owners and leaseholders to
ensure their safety. It compels safety and performance audits and requires the
effective management and resolution of the risks identified with the Act,
creating new independent bodies to provide effective oversight of the new
regime - building inspector and building control approver registers will be
open by April 2024.
Alongside this, the Fire Safety Act came into force in May 2022, requiring the
responsible person to ensure that a Fire Risk Assessment is carried out, and
action taken to remove or negate the risks that are identified, in conjunction
with increased electrical wiring legislation that, from September 2022, makes
arc fault detection devices mandatory for higher risk residential buildings.
Each of these key compliance drivers provides critical opportunities under our
Regulation and Regeneration pillars.
ESG
We are pleased with the progress that continues to be made regarding ESG, with
this being a critical part of our corporate purpose, underpinning each of our
three key pillars. The Government's net zero strategy is gaining momentum,
including its Public Sector Decarbonisation Scheme which supports the aim of
reducing emissions from public sector buildings by 75% by 2037 and we are
fully committed as an organisation to supporting its implementation. Our
Renewables pillar aligns directly with this. During the period, we published a
Sustainability/ESGM Strategic Report and are currently preparing a Carbon Net
Zero Strategic Report. We also invested in the recruitment of a Greener
Solutions Manager, further strengthening our commitment to decarbonisation,
and a detailed survey is currently underway to assess and facilitate our
fleet's transition to consisting entirely of electric vehicles.
With social value a key priority internally and externally, the Group has
continued to support our local communities with volunteering work including
Purdy regenerating a local piece of derelict land into an allotment for a
local estate with raised beds, a wildflower garden, fresh running water, the
provision of a shelter and a pond. Another example involves Spokemead engaging
on a weekly basis in a programme to help cook and serve food for vulnerable
members of the local community.
Our people remain our greatest asset, so engaging with them and listening to
their feedback is vital. We recently completed our second Employee Survey,
which received a 69% engagement rate and, whilst the finer details are still
being reviewed, clearly demonstrates recognition from our staff of the
positive and progressive development of our culture, our work environment and
the benefits that we provide to our people.
Outlook
We are pleased with the progress that continues to be made across the
continuing business; we have great people, a sustainable and growing pipeline
of contracts and a number of industry tailwinds to support our growth.
The DCB situation has been challenging for Kinovo, particularly since DCB went
into administration, but since we took active control of the outstanding sites
we are managing them well and are engaged with DCB's clients to seek to reach
agreement on completion of the outstanding nine projects. Although market
challenges remain, notably inflationary pressures and labour shortages, the
cost-of-living crisis, the energy crisis, the significance of the recent
regulatory led legislation changes and the Government's increasing commitment
to decarbonisation has led many councils to prioritise increasing the safety
and efficiency of their homes.
Whilst there is still much to be done, our strategy, business model and
investment case remain stronger than ever with sustainability at the heart of
what we do, underpinned by the predominantly non-discretionary nature of our
three key pillars; Regulation, Regeneration and Renewables.
The resilience of Kinovo and the potential of opportunities for us are robust.
We remain confident of continuing our recent trajectory of strong revenue and
Adjusted EBITDA growth, in line with the Board's expectations.
David Bullen
Chief Executive Officer
28 November 2022
Financial review
Trading review
In the six-month period to 30 September 2022, Kinovo has continued to deliver
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 for continuing operations during the period grew 25% to
£29.76 million (H1 2021: £23.76 million), Adjusted EBITDA (after the effect
of a charge for lease payments) increased by 31% to £2.40 million (H1 2021:
£1.83 million) with operating profit from continuing operations delivering
£1.87 million (H1 2021: £1.20 million).
Profit before taxation for continuing operations was £1.66 million (H1 2021:
£1.05 million), an increase of 59%.
Kinovo continues to progress the fulfilment of its parent company guarantees
on the DCB construction projects with two projects resuming on site.
Discontinued operations include a full provision for the estimated costs to
complete the projects which continues to be in line with previously disclosed
expectations.
As a result of the discontinued operations provision, the Group has reported a
total loss for the period of £2.14 million (H1 2021: profit £0.56 million).
The Adjusted EBITDA on continuing operations of £2.40 million in the period
is considered by the Board 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.
Adjusted EBITDA is calculated as earnings before interest, taxation,
depreciation and amortisation, excluding non-underlying items and is stated
after the effect of a charge for lease payments.
A reconciliation of EBITDA (excluding lease payments) and Adjusted EBITDA
(including a charge for lease payments) for continuing operations is set out
below:
Unaudited Unaudited Audited
6 months ended
6 months ended
year
30 September 2022
30 September 2021
ended
31 March
2022
Continuing operations £'000 £'000 £'000
Profit before tax 1,661 1,046 2,792
Add back: non-underlying items 438 560 1,030
Underlying profit before tax 2,099 1,606 3,822
Adjustments for items not included in EBITDA:
Finance costs 212 152 269
Depreciation of property, plant and equipment 64 65 130
Depreciation of right-of-use assets 222 280 336
Amortisation of software costs 33 13 44
Profit on disposal of property, plant and equipment - - (1)
EBITDA (excluding a charge for lease payments) 2,630 2,116 4,600
Adjustment for lease payments (234) (285) (363)
Adjusted EBITDA 2,396 1,831 4,237
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, and as set out in note 4.
Unaudited Unaudited Audited
6 months ended
6 months ended
year
30 September 2022
30 September 2021
ended
31 March
2022
£'000 £'000 £'000
Continuing activities
Amortisation of customer relationships 383 517 940
Share based payment charge 55 43 90
Total 438 560 1,030
Customer relationship intangible fixed asset is fully amortised at 30
September 2022.
Cash flow performance
Adjusted net cash generated from continuing operating activities in the period
was £3.12 million (H1 2021: £2.83 million) delivering an Adjusted operating
cash conversion of 130% (H1 2021: 154%).
Adjusted operating cash conversion is calculated as cash generated from
continuing operations (after lease payments) of £2.23 million (H1 2021:
£2.26 million), adjusted for the effects of deferred HMRC repayments of
£0.89 million (H1 2021: £0.57 million), in the period; divided by Adjusted
EBITDA of £2.40 million (H1 2021: £1.83 million), as set out below;
Continuing operations Unaudited Unaudited Audited
6 months ended
6 months ended
year
30 September 2022
30 September 2021
ended
31 March
2022
£'000 £'000 £'000
Net cash generated from operating activities per condensed consolidated 814 1,926 3,660
statement of cash flows
Adjustment for cash absorbed by discontinued operations 1,652 614 6,117
Net cash generated from continuing operating activities 2,466 2,540 9,777
Less lease payments (234) (284) (471)
2,232 2,256 9,306
Adjustment for deferred HMRC payments 887 570 136
Adjusted net cash generated from continuing operating activities 3,119 2,826 9,442
Adjusted EBITDA (as above) 2,396 1,831 4,237
Adjusted operating cash conversion 130% 154% 223%
VAT liabilities of £0.89 million were deferred at 31 March 2022 and during
the period, in line with agreed arrangements with HMRC was fully repaid. Cash
conversion in the period has benefitted from extension of credit on the HSBC
purchasing card facility.
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 which was completed in January 2022.
The terms of the disposal included certain working capital commitments. The
business entered administration in May 2022 and Kinovo retained commitments
under parent company guarantees, signed prior to the disposal of DCB, to
complete its' construction projects.
The total cost of the commitment to complete the DCB construction projects
continue to be estimated at £4.30 million, which has been provided for in the
financial statements at 30 September 2022. The outstanding provision for the
completion of the projects amounts to £4.00 million at 30 September 2022. The
provision for the costs to complete the DCB projects together with the prior
period operational results and loss on disposal have been presented as
discontinued operations.
Loss after tax for the discontinued activities for the 6-month period ended 30
September 2021 was £0.28 million.
Cash outflow in the 6-month period to 30 September 2022 relating to the
discontinued operations amounted to £1.65 million including £1.23 million in
respect of working capital contributions made to DCB prior to it entering
administration and accrued at 31 March 2022.
Net debt
There has been a continuing priority on cash management and reduction in net
debt. In the six-month period to 30 September 2022, net debt reduced by £0.28
million to £56,000 compared to net debt of £0.34 million at 31 March 2022.
Net debt has reduced £1.61 million from £1.67 million at 30 September 2021
to £56,000 at 30 September 2022.
Set out below is an analysis of net debt:
Unaudited Unaudited Audited
at 30 September 2022 at 30 at 31
September March
2021 2022
£'000 £'000 £'000
Net cash (1,721) (2,237) (2,504)
HSBC term loan 1,534 3,533 2,534
HSBC mortgage 171 224 200
Other term loan 72 148 109
Net debt 56 1,668 339
During the period the Group repaid £1.07 million of borrowings being £1.00
million on the HSBC term loan, £57,000 on the HSBC mortgage and £37,000 on
the legacy Funding Circle Term loan. Total borrowings at 30 September 2022
were £1.78 million (H1 2022: £3.91 million).
The Group also has on demand overdraft facility of £2.50 million which was
undrawn at 30 September 2022. The facility was renewed in September 2022 and
interest is charged at 3% above Bank of England Base rate.
On 30 September 2022 the HSBC term loan was refinanced, extending the term by
1 year. The term loan now expires in September 2023 with £0.38 million
quarterly repayments which commence in November 2022. Interest is charged at
4.0% above SONIA.
All financial covenants were achieved in the period and the covenants for the
refinanced HSBC Term loan will be tested monthly and quarterly and comprise:
(i) achievement of minimum levels of EBITDA;
(ii) interest cover; and
(iii) minimum liquidity
Dividends
No final dividend was paid for the year ended 31 March 2022 and no interim
dividend is currently recommended for the year ending 31 March 2023 as the
Group continues to fulfil the liabilities relating to the DCB construction
projects and to proactively prioritise the reduction of net debt.
Clive Lovett
Group Finance Director
28 November 2022
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six-month period ended 30 September 2022 (unaudited)
Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Continuing operations
Revenue 29,761 23,760 53,325
Cost of sales (22,050) (17,899) (40,558)
Gross Profit 7,711 5,861 12,767
Underlying administrative expenses (5,400) (4,103) (8,676)
Operating profit before non-underlying items 2,311 1,758 4,091
Non-underlying administrative expenses
Amortisation of customer relationships (383) (517) (940)
Share based payment charge (55) (43) (90)
Total non-underlying administrative expenses (note 4) (438) (560) (1,030)
Operating profit 1,873 1,198 3,061
Finance costs (212) (152) (269)
Profit before taxation 1,661 1,046 2,792
Income tax expense (note 10) (317) (212) (530)
Total profit from continuing operations for the period 1,344 834 2,262
Discontinued operations
Loss for the period (note 11) (3,486) (279) (13,144)
Total comprehensive income/(loss) for the period attributable to the equity (2,142) 555 (10,882)
holders of the parent company
Earnings per share from continuing operations (note 6)
Basic (pence) 2.16 1.36 3.66
Diluted (pence) 2.16 1.30 3.61
Earnings/(loss) per share (note 6)
Basic (pence) (3.45) 0.90 (17.62)
Diluted (pence) (3.43) 0.87 (17.62)
There are no items of other comprehensive income for the period.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2022 (unaudited)
Unaudited Unaudited Audited
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Assets
Non-current assets
Intangible fixed assets 4,393 5,212 4,780
Property plant and equipment 1,069 1,005 1,103
Right-of-use-assets 696 1,420 786
Total non-current assets 6,158 7,637 6,669
Current assets
Inventories 3,528 2,547 2,454
Deferred tax asset 783 - 306
Trade and other receivables 11,988 11,775 10,625
Cash and cash equivalents 1,721 2,031 2,504
Total current assets 18,020 16,353 15,889
Assets classified as held for sale (note 11) - 9,920 -
Total assets 24,178 33,910 22,558
Issued share capital and reserves
Share capital (note 8) 6,213 6,213 6,213
Own shares (850) (850) (850)
Share premium 9,245 9,245 9,245
Share based payment reserve 65 30 74
Merger reserve (248) (248) (248)
Retained earnings (16,719) (3,140) (14,577)
Total equity attributable to the equity of the group (2,294) 11,250 (143)
Non-current liabilities
Borrowings (note 7) 114 1,781 177
Lease liabilities 384 995 434
Deferred tax liabilities - 753 -
498 3,529 611
Current liabilities
Borrowings (note 7) 1,663 2,125 2,666
Lease liabilities 324 440 362
Current income tax liabilities - 29 -
Trade and other payables 19,987 10,259 19,062
Provisions (note 11) 4,000 - -
25,974 12,853 22,090
Liabilities classified as held for sale (note 11) - 6,278 -
Total equity and liabilities 24,178 33,910 22,558
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six-month period ended 30 September 2022 (unaudited)
Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Net cash generated from operating activities (note 5) 814 1,926 3,660
Cash flow from investing activities
Purchases of property, plant and equipment (27) (82) (253)
Purchase of intangible assets (8) (117) (142)
Net cash used in investing activities (35) (199) (395)
Cash flow from financing activities
Issue of new share capital (net of share issue costs) - - 81
Share incentive plan (SIP) (64) - -
Repayment of borrowings (1,065) (61) (1,123)
Interest paid (212) (158) (275)
Principal payments of leases (221) (270) (443)
Dividends paid - (294) (294)
Net cash used in financing activities (1,562) (783) (2,054)
Net increase/(decrease) in cash and cash equivalents (783) 944 1,211
Cash and cash equivalents at beginning of period/year 2,504 1,293 1,293
Cash and cash equivalents at end of period/year 1,721 2,237 2,504
The condensed consolidated statement of cash flows includes all activities of
the Group. Cash flows from discontinued operations are set out in note 11.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six-month period ended 30 September 2022 (unaudited)
Issued share capital Share Own shares Share based payment Merger Retained earnings Total
premium reserve reserve equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 April 2022 6,213 9,245 (850) 74 (248) (14,577) (143)
Loss and total comprehensive income for the period - - - - - (2,142) (2,142)
Issue of share capital - - - - - - -
Share-based payment charge - - - 55 - - 55
Share incentive plan (SIP) - - - (64) - - (64)
Dividends paid - - - - - - -
Balance at 30 September 2022 6,213 9,245 (850) 65 (248) (16,719) (2,294)
For the six-month period ended 30 September 2021 (unaudited)
Balance at 1 April 2021 6,121 9,210 (850) 30 (248) (3,401) 10,862
Profit and total comprehensive income for the period - - - - - 555 555
Issue of share capital 93 34 - (46) - - 81
Share-based payment charge - - - 46 - - 46
Dividends paid - - - - - (294) (294)
Balance at 30 September 2021 6,214 9,244 (850) 30 (248) (3,140) 11,250
For the year ended 31 March 2022
Balance at 1 April 2021 6,121 9,210 (850) 30 (248) (3,401) 10,862
Loss and total comprehensive income for the period - - - - (10,882) (10,882)
Issue of share capital 92 35 - (46) - - 81
Share-based payment charge - - - 90 - - 90
Dividends paid - - - - - (294) (294)
Balance at 31 March 2022 6,213 9,245 (850) 74 (248) (14,577) (143)
NOTES TO THE INTERIM STATEMENT
1. Basis of preparation
Kinovo Plc and its subsidiaries (together "the Group") operate in the gas
heating, electrical and general building services industries. The Group 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.
These interim financial statements of the Group have been prepared on a going
concern basis under the historical cost convention, and in accordance with UK
adopted 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 interim financial information does not include all the information and
disclosures required in the annual financial statements and should be read in
conjunction with the Group's annual financial statements, being the statutory
financial statements for Kinovo Plc as at 31 March 2022, which have been
prepared in accordance with IFRIC of the IASB as adopted by the United
Kingdom.
The interim financial information for the six months ended 30 September 2022
do not comprise statutory accounts within the meaning of Section 434 of the
Companies Act 2006. The interim financial information has not been audited.
Significant accounting policies
The accounting policies adopted in the preparation of the interim financial
information is consistent with those expected to be adopted in the preparation
of the Group's annual financial statements for the year ending 31 March 2023.
Going concern
The Directors have adopted the going concern basis in preparing these interim
financial statements.
During the prior year Kinovo plc disposed of its non-core construction
business, DCB (Kent) Limited. The terms of the disposal included provision for
working capital commitments.
On 16th May 2022 DCB entered into administration and Kinovo retained
commitments under parent company guarantees, signed prior to the disposal of
DCB to complete its' construction projects.
Discussions have significantly progressed and Heads of Terms and new contracts
are being agreed for each of the projects to recommence the construction works
and complete the projects for the clients. Two projects have resumed on site.
The Directors estimate that the net costs to complete the projects will be
approximately £4.3 million, over a period for completion, ranging from a
number of months through to 2024.
Three of the projects also had performance bonds, which are indemnified by
Kinovo plc, totalling £2.10 million. One of the bonds has now been cancelled
worth £0.95 million, and discussion on the others continue to either cancel
or novate.
During H1 a new term loan agreement has been signed with HSBC, refinancing and
extending the repayment of the loan for 12 months. At the 30 September 2022
£1.53 million remained of the term loan, a reduction of £1.0 million since
the year end. No further additional funding is expected to be required over
the next 12 months.
During September 2022 the £2.50 million overdraft facility was also renewed
for 12 months.
The continuing business traded strongly in the first 6 months with EBITDA 31%
ahead of prior year.
In assessing the Group's ability to continue as a going concern, the Board
reviews and approves the 12-month budget and longer-term strategic plan,
including forecasts of cash flows.
In building these budgets and forecasts, the Board has considered the
estimated costs to complete the DCB construction projects, the lasting effects
of Covid-19 and the market challenges of supply chain inflation and material
and labour availability on the trading of the Group.
The Directors expect that a combination of the cash generated by the
continuing business together with the extension of bank facilities will enable
Kinovo to fund the costs to complete the DCB construction projects and
continue to drive the growth of the core operations.
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.
As final agreements with some clients of the DCB projects were outstanding at
30 September 2022, technically, a material uncertainty remains, which may cast
significant doubt on the Group's ability to continue as a going concern.
During the period, contracts have been signed on two projects and discussions
are at an advanced stage on the others and the Board is confident they will be
executed. For this reason, the Board continues to adopt the going concern
basis in preparing the consolidated financial statements.
Publication of non-statutory financial statements
The results for the six months ended 30 September 2022 and 30 September 2021
are unaudited and have not been reviewed by the auditor. Statutory accounts
for the year ended 31 March 2022 were filed with the Registrar of Companies in
September 2022.
The interim financial information has been prepared on the basis of the same
accounting policies as published in the audited financial statements for the
year ended 31 March 2022. The annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards and
International Financial Reporting Interpretations Committee ("IFRIC")
pronouncements as adopted by the United Kingdom. Comparative figures for the
year ended 31 March 2022 have been extracted from the statutory financial
statements for that period.
2. Corporate governance, principal risks and uncertainties
The Corporate Governance Report included with our Annual Report and Financial
Statements for 2022 detailed how we embrace governance. The Kinovo Board
recognise the importance of sound corporate governance commensurate with the
size and nature of the Company and the interests of its shareholders.
The Quoted Companies Alliance has published a corporate governance code for
small and mid-sized quoted companies, which includes a standard of minimum
best practice for AIM companies, and recommendations for reporting corporate
governance matters (the "QCA Code"). Kinovo has adopted the QCA Code.
The nature of the principal risks and uncertainties faced by the Group have
not changed significantly from those set out within the Kinovo Plc annual
report and accounts for the year ended 31 March 2022.
3. Segmental analysis
The Board of Directors has determined an operating management structure
aligned around the three core activities of the Group, being Mechanical
services, Building services and Electrical services. Operating profit before
non-underlying items has been identified as the key performance measure. The
following is an analysis of the performance by segment:
Unaudited Unaudited Audited
6 months ended
6 months ended
year
30 September 2022
30 September 2021
ended
31 March
2022
Continuing operations £'000 £'000 £'000
Mechanical services 7,524 7,100 15,418
Building services 10,389 7,999 18,057
Electrical services 11,848 8,661 19,850
Total revenue 29,761 23,760 53,325
Reconciliation of operating profit before non-underlying items to profit
before taxation.
Unaudited Unaudited Audited
6 months ended
6 months ended
year
30 September 2022
30 September 2021
ended
31 March
2022
£'000 £'000 £'000
Continuing operations
Mechanical services 740 884 1,981
Building services 816 713 1,576
Electrical services 1,585 793 1,903
Unallocated central costs (830) (632) (1,369)
Operating profit before non-underlying items 2,311 1,758 4,091
Amortisation of acquisition intangibles (383) (517) (940)
Share-based payment charge (55) (43) (90)
Restructuring costs - - -
Operating profit 1,873 1,198 3,061
Finance costs (212) (152) (269)
Profit before tax 1,661 1,046 2,792
Income tax expense (317) (212) (530)
Total profit for the period from continuing operations 1,344 834 2,262
Loss from discontinued operations (3,486) (279) (13,144)
Total comprehensive income/(loss) for the period attributable to the equity (2,142) 555 (10,882)
holders of the parent company
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.
4. Non-underlying items
Operating profit includes the following items which are considered by the
Board to be exceptional in size, one off in nature or non-trading related.
Note Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Amortisation of customer relationships (a) 383 517 940
Share based payment charge (b) 55 43 90
438 560 1,030
All non-underlying items have been charged to other operating expenses.
(a) Amortisation of customer relationships
Amortisation of acquisition intangibles was £0.38 million for the period (H1
2022: £0.52 million) and relates to amortisation of the customer
relationships identified by the Directors on the acquisition of Purdy,
Spokemead and R. Dunham. Amortisation relating to DCB is presented in
discontinued operations as set out in note 11.
(b) Share based payment charge
A number of share option schemes are in place and new options have been
granted during the period relating to the Share Incentive Plan amounting to
289,954 (H1 2022: 582,494) Ordinary shares and CSOP 50,000 (H1 2022: None).
The share-based payment charge has been separately identified as it is a
non-cash expense. The share-based payment charge relating to DCB is presented
in discontinued operations as set out in note 11.
5. Cash flows from operating activities
Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Profit/(loss) before income tax (2,643) 696 (11,558)
Adjusted for:
Finance costs 212 157 275
Loss/(profit) on disposal of property, plant and equipment - 1 (1)
Depreciation 287 384 636
Amortisation of intangible assets 416 652 1,139
Loss on disposal of intangible assets - - 2,296
Share based payments 55 46 90
Movement in receivables (1,364) (1,640) 6,101
Movement in payables 925 1,969 4,670
Movement in provisions 4,000 - -
Movement in inventories (1,074) (384) 12
Tax reclaimed - 45 -
Net cash from operating activities* 814 1,926 3,660
* Includes all activities of the Group. Cash flows from discontinued
operations are set out in note 11
6. Earnings/(loss) per share
The calculation of basic 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. Diluted earnings per share is
calculated under the same method adjusted for the weighted average share
options outstanding during the period as well as ordinary shares in issue.
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.
Basic and diluted earnings per share is calculated as follows:
Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Profit/(loss) used in calculating basic and diluted earnings
per share
Continuing operations 1,344 834 2,262
Discontinued activities (3,486) (279) (13,144)
Total operations (2,142) 555 (10,882)
Weighted average number of shares for the purpose of basic earnings per share 62,137,757 61,376,111 61,755,891
Weighted average number of shares for the purpose of diluted earnings per 62,264,963 64,116,798 62,637,298
share
Continuing operations
Basic earnings per share (pence) 2.16 1.36 3.66
Diluted earnings per share (pence) 2.16 1.30 3.61
Discontinued activities
Basic loss per share (pence) (5.61) (0.45) (21.28)
Diluted loss per share (pence) (5.59) (0.43) (21.23)
Total operations
Basic earnings/(loss) per share (pence) (3.45) 0.90 (17.62)
Diluted earnings/(loss) per share (pence) (3.43) 0.87 (17.62)
Adjusted earnings per share
Profit after tax is stated after deducting non-underlying items totalling
£0.44 million (H1 2022: £0.56 million). Non-underlying items are either
exceptional in size, one off in nature or non-trading related. 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.
Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Continuing activities
Profit after tax 1,344 834 2,262
Add back:
Amortisation of acquisition intangible assets 383 517 940
Share based payment charge 55 43 90
1,782 1,394 3,292
Discontinued operations
Loss after tax (3,486) (279) (13,144)
Add back:
Amortisation of acquisition intangible assets - 115 155
Share based payment charge - 3 -
(3,486) (161) (12,989)
Total activities
Profit/(loss) after tax (2,142) 555 (10,882)
Add back:
Amortisation of acquisition intangible assets 383 632 1,095
Share based payment charge 55 46 90
(1,704) 1,233 (9,697)
Weighted average number of shares for the purpose of basic adjusted earnings 62,137,757 61,376,111 61,755,891
per share
Weighted average number of shares for the purpose of diluted adjusted earnings 62,264,963 64,116,798 62,637,298
per share
Continuing operations
Basic adjusted earnings per share (pence) 2.87 2.27 5.33
Diluted adjusted earnings per share (pence) 2.86 2.17 5.25
Discontinued activities
Basic adjusted loss per share (pence) (5.61) (0.26) (21.03)
Diluted adjusted loss per share (pence) (5.59) (0.25) (20.73)
Total activities
Basic adjusted earnings/(loss) per share (pence) (2.74) 2.01 (15.70)
Diluted adjusted earnings/(loss) per share (pence) (2.73) 1.92 (15.48)
7. Borrowings
Unaudited Unaudited Audited
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Non-current borrowings
Bank and other borrowings;
Term loans - 1,534 -
Mortgage loan 114 167 143
Other loans - 80 34
Total non-current borrowings 114 1,781 177
Current borrowings;
Bank and other borrowings;
Term loans 1,534 2,000 2,534
Mortgage loans 57 57 57
Other loans 72 68 75
Total current borrowings 1,663 2,125 2,666
Bank and other borrowings;
Term loans 1,534 3,533 2,534
Mortgage loans 171 224 200
Other loans 72 148 109
Total borrowings 1,777 3,905 2,843
The fair value of the borrowings outstanding as at 30 September 2022 is not
materially different to its carrying value since interest rates applicable on
the loans are close to market rates.
At 30 September 2022, £1.53 million remained outstanding on the HSBC term
loan, a reduction of £1.0 million since the year end. On 30 September 2022,
the Term loan was refinanced, extending the repayment of the loan for 12
months. Interest is charged at 4.0% above SONIA.
During September 2022 the £2.50 million HSBC overdraft facility, which was
unutilised at 30 September 2022, was renewed for 12 months. Interest is
charged at 3.0% above Bank of England base rate.
8. Share capital
Ordinary shares of £0.10 each Unaudited Unaudited Audited
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
At the beginning of the period 6,213 6121 6,121
Issued in the period - 92* 92
At the end of the period 6,213 6,213 6,213
* Funds received into SIP trust in September 2021 and remitted to Company in
October 2021.
Number of shares Unaudited Unaudited Audited
30 September 2022
30 September 2021
31 March
2022
At the beginning of the period 62,137,757 61,214,703 61,214,703
Issued in the period - 923,054 923,054
At the end of the period 62,137,757 62,137,757 62,137,757
9. Dividends
The Company did not pay a final dividend for the year ended 31 March 2022
(2021: 0.50 pence per ordinary share totalling £0.29 million). The Board do
not recommend an interim dividend for the year ending 31 March 2023.
10. Taxation
The income tax charge for the six months ended 30 September 2022 is calculated
based upon the effective tax rates expected to apply to the Group for the full
year of 19% (2022: 19%). Differences between the estimated effective rate
and the statutory rate of 19% are due to non-deductible expenses.
11. Discontinued operations
(a) Description
Following the disposal of the non-core DCB Kent Ltd (DCB) in January 2022, the
business subsequently entered administration in May 2022, as detailed in the
Kinovo plc 2022 annual report. Under parent company guarantees, signed prior
to the disposal of DCB, Kinovo has a commitment to complete the DCB
construction projects. The Kinovo plc 2022 annual report set out the expected
costs to complete the projects amounting to £4.30 million. It is still
considered that this represents the best estimate of the future obligation
under the guarantees. £0.30 million of costs have been incurred since the
year end and £4.00 million has been provided for the future loss on these
contracts.
(b) Financial performance and cash flow information from discontinued
operations
Unaudited Unaudited Audited
6 months to
6 months to
Year ended
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Revenue - 11,420 13,432
Cost of sales - (10,011) (11,780)
Gross Profit - 1,409 1,652
Underlying administrative expenses - (1,635) (2,168)
Operating loss before non-underlying items - (226) (516)
Non-underlying administrative expenses
Amortisation of customer relationships - (115) (155)
Share based payment charge - (3) -
Loss on disposal (4,304) - (12,595)
Total non-underlying administrative expenses (4,304) (118) (12,750)
Operating loss (4,304) (344) (13,266)
Finance costs - (5) (6)
Loss before taxation (4,304) (349) (13,272)
Income tax credit 818 70 128
Loss for the period/year (3,486) (279) (13,144)
Operating profit excludes allocation of Corporate costs in accordance with
IFRS 5, which states that only costs clearly identifiable as directly relating
to the discontinued operations can be included.
Loss per share from discontinued operations
Basic (pence) (5.61) (0.45) (21.28)
Diluted (pence) (5.59) (0.43) (21.28)
Cash flows from discontinued operations
Net cash outflow from operating activities - (614) (1,453)
Net cash outflow from investing activities - (10) (10)
Net cash outflow from financing activities - (18) (16)
Net reduction in cash generated by the subsidiary - (642) (1,479)
In the period to 30 September 2022, £1.65 million cash payments were made
relating to the disposal of DCB, consisting of working capital payments
required under the disposal agreement (prior to DCB entering administration)
and construction project costs. These have not been included in the table
above as not considered to be operating cashflow of the operations.
(c) Assets and liabilities of subsidiary classified as held for sale
Unaudited Unaudited Audited
30 September 2022
30 September 2021
31 March
2022
£'000 £'000 £'000
Assets classified as held for sale
Intangible - Goodwill - 1,351 -
Intangible - Customer relationship - 1,048 -
Intangible - Computer software - 73
Property, plant and equipment - 268 -
Inventory - 303 -
Trade and other receivables - 6,671 -
Cash - 206 -
Total assets held for sale - 9,920 -
Liabilities directly associated with assets classified as held for sale
Trade and other payables - 6,105 -
Finance leases - 41 -
Income tax liabilities - 44 -
Deferred tax - 88 -
Total liabilities classified as held for sale - 6,278 -
At 30 September 2021 the assets and liabilities of DCB (Kent) Limited were
included as held for sale at their carrying value, as the full assessment of
the fair value had not been completed.
12. Forward-Looking statements
This report contains certain forward-looking statements with respect to the
financial condition of Kinovo Plc. These statements involve risk and
uncertainty because they relate to events and depend on circumstances that
will occur in the future. There could be a number of factors which influence
the actual results and developments. These could impact on the forward-looking
statements included in this report.
13. Interim Report
Copies of this Interim Report will be available to download from the investor
relations section on the Group's website www.kinovoplc.com
(http://www.kinovoplc.com) .
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