REG - Marlowe PLC - Interim results for the six months to 30 Sept 2023
28/11/2023 07:00
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RNS Number : 8292U Marlowe PLC 28 November 2023
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28 November 2023
Marlowe plc
Interim results for the six months to 30 September 2023
Resilient first half performance
Marlowe plc ("Marlowe", the "Group" or the "Company"), the leader in
business-critical services and software which assure safety and regulatory
compliance, announces its unaudited results for the six-month period ended 30
September 2023 ("HY24").
Key Highlights
· Strong revenue growth of 13% with organic growth of 6%
demonstrating resilience of business
· Major progress on integration programmes across multiple
businesses in the context of having deployed £426m into 36 acquisitions since
April 2021
· Strategic review positioning the group to generate shareholder
value
· Executed a long-term strategic goal of expanding into ISO
certification market via IMSM acquisition
· Prioritise deleveraging in the second half of the year with
expected net debt/EBITDA at around 2x by year end
Financial performance
ADJUSTED RESULTS H1 FY24 H1 FY23 Change
Revenue £251.3m £222.9m 13%
EBITDA(1,2) £43.0m £39.2m 10%
EBITDA margin(2) 17.1% 17.6% (50)bps
Operating profit(2) £33.0m £30.4m 9%
Profit before tax(2) £24.1m £26.4m (9)%
Earnings per share - basic(2) 18.8p 22.3p (16)%
Net debt (excluding lease liabilities) £192.7m £156.2m
STATUTORY RESULTS H1 FY24 H1 FY23
Revenue £251.3m £222.9m
EBITDA £22.8m £26.3m
Operating profit £0.0m £5.7m
(Loss)/profit before tax £(8.9)m £1.7m
(Loss)/earnings per share - basic (9.6)p 1.1p
Net cash generated from operations £27.5m £22.6m
Net debt £219.4m £184.2m
( )
(1) Earnings before interest, taxes, depreciation and amortisation ("EBITDA")
(2) Explanation of non-IFRS measures are contained within the Chief Financial
Officer's review
Marlowe is holding a virtual H1 FY24 results presentation for investors and
analysts at 09:30 GMT today. A
link to this event is here
(https://www.investis-live.com/marloweplc/655dee0368b0a01300099865/cvsd) .
An on-demand version of the presentation will subsequently be made available
on the Marlowe plc website after the event.
( )
HY24 Highlights
· Revenue increased 13% reflecting above market organic growth of
6% and the contributions from acquisitions
Organic growth of 6% in Testing, Inspection and Certification ("TIC") and 5%
in Governance, Risk and Compliance ("GRC")
· Adjusted EBITDA increased 10% to £43.0 million
- Group EBITDA margins at 17.1% down 50bps from HY23
- GRC margins increased 40bps to 26.3% despite a slight
compression in Occupational Health which has been positively offset by
continued margin accretion across the rest of the division. Occupational
Health margins expected to expand in the medium term as integration programmes
conclude and associated synergies are realised with substantial synergies
expected to be delivered in the second half
- TIC margins of 12.9% slightly down in the first half
reflecting the dilutive impact of bolt-on M&A and a temporary increase in
the use of sub-contractor labour in support of strong organic growth
· Adjusted EPS down 16% to 18.8p as a result of a £4.9 million
increase in interest expense to £8.9 million in the period and an increase in
the UK corporation tax rate from 19% to 25%
· Operating cash flow increased +22% to £27.5 million, net debt
(excluding leases) increased to £192.7 million
- A significant improvement in operating cash delivery on the
prior year
- H1 cash is typically weaker due to timing impacts on working
capital which unwind in the second half
- Operating cash flows will continue to improve through the second
half and into FY25 as synergies are realised and the Group continues to scale
- We expect net debt/EBITDA to be around 2x as at 31 March 2024 as
we prioritise using the cash we generate in the second half of the year to pay
down debt
· The Group began a strategic review of Group structure during HY24
- Marlowe's Board regularly evaluates the optimal organisational
and capital structure for the business to continue both the successful
delivery of the Group's strategy and to maximise shareholder value
- Since 2016, when the Group was formed, the focus of the Group's
strategy and operations has continued to rapidly evolve and pivot towards high
margin regulated technology and services
- The outcome of this review may or may not lead to the Board
deciding to undertake a managed separation of certain Group businesses with a
view to optimising the Group's organisational and capital structure
- The Board remains committed to open and transparent engagement
with all of its stakeholders and will communicate further as appropriate
· Successful execution of M&A and integration programmes
- £37.2 million of capital invested(1) in HY24 including the
strategic acquisition of IMSM which broadens our compliance offering into ISO
certification and audit
- Extensive integration projects across the Group have progressed
well following significant M&A activity, having deployed £426 million
since April 2021 into acquisitions
- Integrations include TP Health and Healthwork Occupational
Health businesses into Optima, Cedrec into Barbour (our regulatory
intelligence business), the combination of five Compliance eLearning
businesses into VinciWorks, and recent bolt-on acquisitions into WorkNest,
Fire Safety & Security and Water & Air Hygiene, respectively
- We expect integration costs to reduce in the second half and
continue to diminish significantly into the first half FY25
1Based on enterprise value of £37.2 million which includes expected deferred
consideration of £3.8 million
· Current trading and outlook
- The Group remains mindful of the challenging macroeconomic
backdrop but notes that demand for compliance services and software remains
resilient. We continue to see good demand across Marlowe's client base,
supported by the non-discretionary nature of our services & software which
are driven by regulatory requirements.
- For the full year, the Group expects to deliver mid-single digit
organic growth in revenues, supported by additional growth from recent
acquisitions, continued double-digit growth in adjusted EBITDA and further
strategic and operational progress across our GRC and TIC divisions.
- Adjusted EPS will continue to be impacted by an increase in
borrowing costs associated with higher base rates and an increase in the UK
corporation tax rate from 19% to 25%.
Commenting on the results Alex Dacre, Chief Executive, said:
"The Group delivered a good performance against a challenging macroeconomic
backdrop in the first half of the year with organic growth of 6% demonstrating
the resilience of our business and the markets we serve.
We completed five acquisitions in the period including the strategic
acquisition of IMSM which broadens our offering into the attractive ISO
certification and audit space.
Integration programmes are making good progress. The three major programmes
within Occupational Health, Water & Air and Compliance eLearning,
alongside multiple smaller integration programmes, are either complete or
expected to conclude in the coming months. We expect these programmes to
continue to deliver operational and financial synergies as they progress.
We have made a good start to the second half of the year and expect to see mid
single digit organic growth supported by additional growth from acquisitions
and continued double-digit growth in adjusted EBITDA."
For further information:
Marlowe plc
Alex Dacre, Chief Executive www.marloweplc.com
Adam Councell, Chief Financial Officer 0203 813 8498
Benjamin Tucker, Investor Relations Manager IR@marloweplc.com (mailto:IR@marloweplc.com)
Cavendish Securities plc (Nominated Adviser & Joint Broker) 0207 220 0500
Ben Jeynes
George Lawson
Berenberg (Joint Broker) 0203 207 7800
Mark Whitmore
Dan Gee-Summons
Stifel (Joint Broker) 0207 710 7600
Matthew Blawat
Francis North
FTI Consulting 0203 727 1340
Nick Hasell
Alex Le May
CHIEF EXECUTIVE'S REVIEW
Group Results
The Group delivered another strong performance in the first half of the year
with further financial, operational and strategic progress. Revenue grew 13%
to £251.3 million, driven by organic growth of 6% and the contribution from
acquisitions. We have continued to invest significantly whilst integrating and
improving the quality and breadth of our operations and the services or
products that we provide.
Adjusted EBITDA of £43.0 million increased 10% on the prior year. Adjusted
EBITDA margin was 17.1%, a reduction of 50bps on HY23. We saw a slight
compression of TIC divisional margins which were impacted by bolt-on M&A
with dilutionary effects in the period and increased costs associated with a
temporary increase in the use of subcontract labour to support inhouse
fee-earners to resource the strong and continuing levels of organic growth
that has been delivered across TIC in recent periods. This was partially
offset by continued margin improvement in the GRC division, reflecting
operational and scale efficiencies achieved particularly in SaaS, alongside
the benefits that are accruing to the Group as we deliver on our ongoing
integration programmes. We expect margins to continue their long-term
improvement trend during the second half as we benefit from further
operational and integration efficiencies.
Our businesses have highly cash generative characteristics and free cash flow
remains a key management focus. The Group generated £27.5 million (HY23:
£22.6 million) of operating cash flows in the period, representing growth of
22% on HY23. We expect strong operating cash conversion in H2 FY24 with our
financial year significantly second half weighted from this perspective
(during HY23 net cash generated was £22.6 million vs £51.7 million in H2
FY23).
Statutory operating profit was £0.0 million (HY23: £5.7 million). Loss
before tax was £8.9 million (HY23 profit before tax: £1.7 million)
reflecting the non-cash increased amortisation of acquisition related
intangibles, movement in deferred consideration on historic acquisitions and a
significant non-recurring investment in integration activities. Basic loss per
share was 9.6p (HY23 earnings per share: 1.1p).
At 30 September 2023 adjusted net debt was £192.7 million (30 September 2022:
£156.2 million), excluding lease liabilities of £26.7 million (30 September
2022 £28.0 million), with a proforma net debt/adjusted EBITDA gearing ratio
of 2.3x. The increase in net debt is directly attributable to M&A activity
and settlement of deferred consideration during the period. Cash generation in
the second half will be used to reduce leverage to around 2x by the end of the
year, with a target of reducing leverage to below 2x in the medium term.
Strengthening and integrating
A key focus over the past 18 months has been integration. Since April 2021 we
have deployed £426 million into M&A. This scale of investment requires
the appropriate focus and resource to build businesses which can benefit from
margin enhancement and sustainable organic growth into the future.
There have been several significant integration programmes undertaken in the
past 18 months:
· The integration of Compliance eLearning (the Essential Skillz,
Deltanet, SkillBoosters, Cylix acquisitions) into VinciWorks is now complete
with major synergies delivered across the Group's proprietary Astute platform
and tech stack, back office and client support costs, office closures and
various other areas of staff duplication. Now integrated, VinciWorks is able
to focus on accelerating the organic growth of its unified SaaS platform with
a significantly expanded portfolio of compliance topics and modules to offer
its client base. This complex integration programme has been delivered within
approximately twelve months of commencement.
· Integration of Healthwork and TP Health into Optima has been
ongoing for fourteen months and is well-progressed with the majority of
integration activities expected to wind down during the next six months. The
business now trades as Optima with a single integrated operating and digital
platform (My OH Portal) and integrated service delivery, consolidated systems
and processes, and an optimised organisational structure. Significant further
synergies are planned during H2 FY24 now the business operates under this
single national operating platform.
· Integration of Cedrec into Barbour EHS, the Group's regulatory
intelligence SaaS platform, is nearing completion with the Barbour software
platform upgrade programme progressing well. The relaunch is planned for the
first quarter in FY25 and the Cedrec brand has now been retired. The breadth
of regulatory areas covered as a result of integration of the platforms is
significantly expanded, with a significantly enhanced client proposition.
· Integration of Business HR Solutions, Vista, Care4Quality, ESP
and CLM into Worknest is now well-progressed. Third party legacy SaaS cost
(EHS and eLearning SaaS) in Worknest have now been largely replaced with the
Group's EHS and eLearning SaaS (Meridian and VinciWorks) platforms delivering
enhanced client experience and major cost synergies. There has been further
investment in the redevelopment of the YouManage HR SaaS and implementation of
AI technology within our Employment Law & HR business. CaseNest
(Worknest's proprietary case management platform) and Salesforce are now in
place across the majority of the business.
· Integration of Clymac, Victory Fire, Merryweather, MRFS, MJ Fire
and JCR into Marlowe Fire & Security is proceeding as planned with
extensive further activity taking place during H2 FY24.
· Integration of Phase Technology and PCS into WCS Group and the
implementation of the target operating model is expected to substantively
complete during the remainder of the financial year.
Disciplined approach to M&A
Acquisition has been a key tool that we have used to build the scale that we
enjoy across our markets. We are either a market leader or have a top-3
position in each of the compliance markets we occupy yet they remain highly
fragmented and we estimate we currently serve only c.6% of our £8.6 billion
addressable market.
We completed five acquisitions in HY24 for a consideration of £37.2 million.
We have broadened into ISO Certification and Audit, a new highly attractive
compliance vertical, through the acquisition of IMSM for £20.6 million. The
ISO Certification and Audit market has been a corporate development area of
key strategic interest for some time and offers cross-sell opportunities with
our GRC customer base. IMSM provides a platform for growth in this core
compliance market, with attractive structural growth and a high degree of
recurring revenues.
IMSM is performing in line with pre-acquisition expectations and integration
activity has commenced with a focus on digitalising the businesses client
proposition via the use of the Group's CoreStream platform. This
digitalisation is expected to complete by early FY25.
We have deepened our presence across Fire Safety & Security through four
bolt-on acquisitions in the period.
We will prioritise reducing balance sheet leverage to around 2x by the end of
the year with a target of reducing leverage to below 2x in the medium term.
Strategic Review of Group Structure
During the first half, we commenced a major strategic review of the Group's
structure. Marlowe's Board regularly evaluates the optimal organisational and
capital structure for the business to continue both the successful delivery of
the Group's strategy and to maximise shareholder value. Marlowe consists of a
portfolio of compliance service and SaaS businesses, which each have benefited
from significant investment and have strong growth prospects in sizeable
markets with strong competitive positioning. During the first half the Group
has been working with advisers to evaluate the merits of a potential
separation of certain Group assets as a route to maximising shareholder value.
Since 2016, when the company was first formed, Marlowe has evolved from a pure
play compliance service business focused on the route-based Fire Safety, Water
& Air Testing & Inspection sectors to a much broader SaaS and service
provider addressing both software and service markets across Governance, Risk
& Compliance and Testing, Inspection & Certification. As the Group has
grown and evolved, its operational activities have diversified into sectors
with varying operational and financial characteristics. In some cases, these
businesses have varying operating models, financial profiles and capital
requirements. For instance, Software as a service (SaaS) currently accounts
for approximately 25% of Group profitability. It is in the context of this
growth strategy and the continuing pivot towards the high margin GRC regulated
technology and service sectors that the Board is undertaking this review.
The outcome of this review may or may not lead to the Board making a decision
in the future to undertake a managed separation of certain Group businesses at
an optimal point in the future. This may be via a divestment in the form of a
sale, a spin off or a public listing of certain Group assets. Such an action,
if pursued, could potentially provide an optimised organisational and capital
structure, growth capital for certain Group businesses whilst also enabling a
potential significant return of capital to shareholders in the future.
The Board remains committed to open and transparent engagement with all of its
stakeholders and will communicate further as appropriate.
Our Markets
Set against a challenging macroeconomic backdrop the market for compliance
services and software has demonstrated a good level of resilience. We continue
to see good demand across Marlowe's client base, supported by the
non-discretionary nature of our services & software which are driven by
regulatory requirements. Whilst we estimate that market growth has slightly
slowed over the past twelve months, we believe that we are operating in
markets that are demonstrating on average at least low-mid single digit
growth.
New and evolving regulatory change requires the ever-increasing use of
Marlowe's software and services. For instance, the Fire Safety (England)
Regulations 2022 Act which came into effect in January this year has placed
the legal onus of ensuring fire safety standards onto the property manager or
building owner, significantly increasing the regulatory burden. This new
legislation, coupled with the growing costs and fines associated with
non-compliance has resulted in an increase in outsourcing for even the most
basic of fire and safety inspections.
A significant proportion of our compliance markets remain un-vended which is
especially relevant in the SME markets within our GRC division and across our
SaaS markets. For example, there has been a considerable rise in employee
tribunals year on year following the removal of legal fees associated with
taking an employer to court with the average costs of being found liable of
£14,000. This is resulting in an increasing proportion of the SME market
obtaining retained legal and HR advice from services such as Marlowe's
WorkNest to make sure that it remains compliant.
An increasing focus on employee wellbeing continues to drive demand for our
software and services. This can be seen within our Occupational Health
division. Poor mental health amongst employees costs UK employers an estimated
c.£42 billion(2) each year which has resulted in both large organisation and
SMEs increasing their investment into Occupational Health services to reduce
absenteeism and improve employee efficiency.
Our organic initiatives build on these structural tailwinds. Through
investment we look to add additional capabilities which we can then upsell and
cross-sell to existing customers. We have invested and moved our entire
content library in eLearning into our VinciWork's proprietary Learning
Management System (LMS), which enables us to sell additional eLearning
software courses more easily to existing customers. Similarly, we have
invested in off-the-shelf modules in our Enterprise Risk Management software,
exploring new areas of enterprise risk to sell to new customers (for instance,
Anti Money Laundering SaaS). We look to drive organic growth and customer
retention through digitalising our offering, which we have already commenced
in the ISO Certification and Audit market following our recent acquisition of
IMSM.
Scale and investing in inorganic growth and integration has also opened new
opportunities across Marlowe's portfolio of businesses. In several compliance
areas we are one of only a few providers that can effectively compete for
large multisite and complex customers. We have benefited from this trend
significantly in our Fire Safety business where we have seen strong levels of
organic growth, particularly over the past 18 months.
With more than 40,000 customers across the Group, we have been able to
cross-sell and up-sell to accelerate organic growth. The individual
responsible for procuring fire and security services is often also responsible
for procuring water & air hygiene services and health and safety software.
Similarly, within GRC if an individual is responsible for procuring HR and
employment law services, they are also likely be responsible for procuring
occupational health, compliance eLearning or HR software. It is this same
channel to market which allows the Group to successfully cross-sell services
and software to existing customers, which each year contributes approximately
1%-2% to our organic growth.
(2)This is made up of absence costs of around £7 billion, presenteeism costs
ranging from about £27 billion to £29 billion and turnover costs of around
£9bn
Current trading and outlook
The Group remains mindful of the challenging macroeconomic backdrop but notes
that demand for compliance services and software remains resilient. We
continue to see good demand across Marlowe's client base, supported by the
non-discretionary nature of our services & software which are driven by
regulatory requirements. For the full year, the Group expects to deliver
mid-single digit organic growth in revenues, supported by additional growth
from acquisitions, continued double-digit growth in adjusted EBITDA and
further strategic and operational progress across our GRC and TIC divisions.
Adjusted EPS will continue to be impacted by an increase in borrowing costs
associated with higher base rates and an increase in the UK corporation tax
rate from 19% to 25%.
Our main operational focus for the remainder of the financial year remains
firmly on the completion of integration programmes and the associated wind
down of integration investments associated to the significant M&A activity
that we have conducted in recent periods. This integration activity is in the
context of the Group having invested £426 million in M&A since April 2021
and is a vital investment in order to deliver long-term shareholder value.
Whilst we anticipate a further relatively intensive period of integration
activity during the second half of the year, we currently expect the majority
of this to be completed by the end of FY24, with a significantly reduced level
of restructuring activity in FY25 and beyond.
Governance, Risk & Compliance
GRC encompasses our consulting and software solutions across Compliance
Software & eLearning, Health & Safety, Employment Law & HR,
Occupational Health and ISO. Our software compliance platforms are used to
implement governance frameworks and manage and monitor audit and control risk.
The majority of the compliance services we deliver revolve around employees
and organisational risks.
H1 FY24 H1 FY23 Change
£m £m
Revenue £102.0m £92.3m 11%
Adjusted EBITDA(1,2) £26.8m £23.9m 12%
Adjusted operating profit(2) £22.9m £20.6m 11%
Adjusted EBITDA margin(1,2) 26.3% 25.9% 40bps
(1 ) Earnings before interest, taxes, depreciation and amortisation
("EBITDA")
(2) Explanation of non-IFRS measures are contained within the Chief Financial
Officer's review
Financial Review
Our GRC division performed in line with expectation in HY24, with revenue
increasing 11% to £102.0 million (HY23: £92.3 million). This reflects good
organic growth supported by growth from acquisitions. Organic revenue growth
was 5%, reflecting high single digit growth within our software lines and low
to mid-single digit growth within our GRC retained advisory & subscription
businesses. The vast majority of our GRC revenue is recurring and is delivered
as multi-year contracted consultancy or SaaS-based subscriptions.
Adjusted EBITDA increased by 12% to £26.8 million (HY23: £23.9 million).
Adjusted EBITDA margin improved by 40bps reflecting operational efficiencies
realised within the division. Excluding Occupational Health, GRC margins have
increased by c.150bps as a result of the strong progress made with operational
improvements and the attractive operating leverage we are seeing as a result
of higher volumes across our SaaS and advisory subscription activities.
Margins in Occupational Health were slightly weaker and will continue to be
impacted in H2 as a result of lower volumes related to a significant customer
executing a planned insource of their corporate health requirements and the
timing lag of new client mobilisations related to new business already
secured.
We continue to expect that we can increase divisional EBITDA margin to at
least 30% over the medium term as we benefit from further operational
improvements, additional scale, operational gearing, and an increasing
proportion of revenue from higher-margin software subscriptions.
Operational review
Compliance Software, which encompasses eLearning, Enterprise Risk Management
solutions (EHS, GRC, HR & Contractor Risk) and regulatory data and
information, performed strongly in the period. SaaS now contributes
approximately £45 million on a run-rate basis and has very attractive
financial characteristics. In addition, we deliver compliance software
revenues related to implementation. Software is usually paid for in advance
and is delivered through multi-year subscriptions, with net customer revenue
retention rates remaining over 100% and EBITDA margins close to 50%.
Within our software offering, compliance eLearning is now operating under one
management team and under one brand, VinciWorks. We expect organic growth to
accelerate in the coming months as we leverage an integrated and well-invested
sales and marketing function and explore international opportunities. We are
in the midst of a planned re-platforming of our regulatory data and
information business, Barbour, and expect this to further enhance our offering
and user experience which will drive the next phase of growth.
Employment Law, HR and Health & Safety businesses deliver a range of
subscription-based consultancy services. We saw mid-single digit organic
growth in the first half of the year. New business conversions were slower in
the first quarter of the financial year with client decision-making cycles
extending but has since improved to back towards historic levels. Our
continued growth is supported by favourable market conditions, notably a
greater regulatory burden, increased regulatory interventions and rising
insurance premiums.
Our Occupational Health business assures regulatory compliance for our clients
by improving the physical and mental health of employees, minimising workplace
risk and maximising corporate productivity. In many cases occupational health
services are regulated by legislation including The Health & Safety at
Work Act.
Organic revenue growth was in the low single digits in the first half and
volumes are expected to continue to be impacted in H2 by a significant
customer insourcing a significant portion of their corporate health &
wellbeing requirements. This churn has exerted some temporary pressure on
margins which we expect to revert as secured new business comes on stream
during H2. The new business pipeline of secured and potential opportunities
remains strong and we are beginning to leverage our position, now that
integration of the division is well progressed, as by far the largest
digitally enabled corporate health and wellbeing provider in the UK with the
broadest range of health & wellbeing compliance capabilities, to look to
accelerate organic growth towards our mid-high single digit medium-term
target. Additionally, we expect Occupational Health margins to expand as a
result of the significant synergies we are realising through ongoing
integration programme.
We are in the final period of a significant integration and restructuring
programme within Occupational Health, during which we have consolidated all of
our historic occupational health acquisitions into our Optima platform.
We have added a new compliance vertical in the first half of the year, ISO
Certification, through the acquisition of IMSM for an enterprise value of
£20.6 million. This acquisition is a key step in Marlowe's strategy in
broadening its GRC capabilities into the highly complementary ISO
certification and audit market and presents an attractive opportunity to
cross-sell into the Group's existing SME customer base, particularly across
the Worknest business. IMSM has performed well in the brief period since
acquisition, and we expect it to deliver organic growth in the high to
mid-single digits.
Integration activities have begun and we have already made good progress with
digitalising IMSM's services through collaboration with our existing
compliance software offering and expect this to drive organic growth and
improve customer retention in future periods.
Testing, Inspection & Certification
The majority of our services in TIC revolve around our clients' business
premises and include services such as the testing and inspection of water and
air systems, water hygiene compliance and the inspection and certification of
fire safety and security systems. A large portion of the services we deliver
are recurring and are essential to our clients' operations. These are also
stipulated by regulatory obligations.
H1 FY24 H1 FY23 Change
£m £m
Revenue £149.2m £130.6m 14%
Adjusted EBITDA(1,)(2) £19.3m £18.1m 7%
Adjusted operating profit(2) £13.5m £12.8m 5%
Adjusted EBITDA margin(1,)(2) 12.9% 13.9% (100)bps
(1) Earnings before interest, taxes, depreciation and amortisation ("EBITDA")
(2) Explanation of non-IFRS measures are contained within the Chief Financial
Officer's review
Financial Review
Our TIC division performed well with revenue increasing 14% to £149.2 million
(HY23: £130.6 million), reflecting good organic growth and the benefit from
acquisitions. Organic revenue growth was 6% reflecting mid-single digit growth
within Water & Air Hygiene and continued strong organic growth within Fire
Safety & Security. We continue to benefit from our ability to service and
retain multisite and complex customers and to upsell additional capabilities.
Adjusted EBITDA increased by 7% to £19.3 million (HY23: £18.1 million).
Adjusted EBITDA margin was 12.9% (HY23: 13.9%), due to the dilutive impact of
bolt-on M&A and a temporary increase in costs associated to sub contract
labour as a result of increased volumes associated with strong organic growth
in the past 12 months. We expect margins to improve over the next 6 months as
we reduce sub contract labour costs and benefit form scale efficiencies such
as improved route density, improved pricing strategies and increased
operational efficiencies.
Operational Review
Our Fire Safety & Security division has continued to deliver strong
organic growth as we benefit from our large geographic reach and comprehensive
range of capabilities which allows us to successfully compete for large
multi-site and complex customers. We have been able to deliver consistently
high compliance service levels which has resulted in the successful upsell of
new capabilities to existing customers and the displacing of competitors who
struggle to achieve similar compliance service levels and lack our breadth of
offering.
We completed four bolt-on acquisitions within Fire Safety & Security in
HY24, the largest being the acquisition of Clymac for £8.5 million in April
2023 adding around £10 million of annual revenues. The acquisitions have been
slightly dilutive from a margin perspective but through effective integration
we expect to bring acquisition margins in line with the divisional TIC margin
over the next 12 months.
Our market-leading Water & Air Hygiene business generates run-rate
revenues of over £150 million and has the broadest service capabilities and
coverage in its markets. We serve over 14,000 customers across numerous
industries.
We have seen low to mid-single digit organic growth, driven by upselling
capabilities to existing customers and our ability to service large multi-site
customers. Cross-sell between Marlowe's divisions, particularly between our
TIC businesses, remains strong and continues to be a key focus of management
to drive further growth. Additionally, even though a relatively small aspect
of our business, the revenue generated from water treatment chemical sales has
dropped due to a significant reduction in chemical prices.
A large proportion of our businesses are now on our proprietary ERP system,
Wave, where pricing strategies can be more effectively implemented going
forward. We have seen good levels of net new customer wins, and with an
average customer longevity of around 11 years.
We continue to drive best-in-class compliance rates, well above market average
of around 90%, through strong governance implemented across all of our
businesses by our successful integration programmes. We expect to materially
reduce integration costs within Water & Air during the remainder of the
current financial year
We have seen a good start to the second half of FY24 and expect margins for
the full year to be in line with FY23.
CHIEF FINANCIAL OFFICER'S REVIEW
Revenue in the half grew to £251.3 million (HY23: £222.9 million). The
increase reflects good organic growth of 6%, combined with contribution from
acquisitions completed in the year and the full year benefit of those
completed in HY23.
Adjusted operating profit increased by 9% to £33.0 million (HY23: £30.4
million) demonstrating the strong operational performance of the Group despite
the challenging wider economic environment. Adjusted EBITDA increased by 10%
to £43.0 million (HY23: £39.2 million). Adjusted EBITDA means operating
profit before interest, tax, depreciation and amortisation and excludes
separately disclosed acquisition and other costs.
Group adjusted EBITDA margin was 17.1%, down from 17.6% in HY23 reflecting the
dilutive impact of bolt-on acquisitions and higher subcontract labour
requirements within the TIC divisions already noted.
We remain confident that we can continue our long-term trend of improving
margins as we leverage operational efficiencies as a result of the completion
of integration programmes, which will be complemented by the increasing scale
of the higher margin GRC division. On a statutory basis, operating profit was
£0.0 million (HY23: £5.7 million) reflecting the one-off costs associated
with the strategic review and fair value movement in contingent consideration
combined with higher amortisation of acquired intangible assets.
Adjusted profit before tax was £24.1 million (HY22: £26.4 million) and has
been adversely impacted by the increase in finance costs on the back of the
Bank of England base rate changes and higher utilisation of the Group's debt
facility. On a statutory basis, loss before tax for the half year was £8.9
million (HY23 profit before tax: £1.7 million), reflecting the lower
statutory operating profit and the increase in finance costs.
Non-IFRS measures
The interim financial results contain all the information and disclosures
required by all accounting standards and regulatory obligations that apply to
the Group. The results also include measures which are not defined by
generally accepted accounting principles such as IFRS. We believe this
information, along with comparable IFRS measures, is useful as it provides
investors with a basis for measuring the performance of the Group on an
underlying basis. The Board and our managers use these financial measures to
evaluate our operating performance. Non-IFRS financial measures should not be
considered in isolation from, or as a substitute for, financial information
presented in compliance with IFRS. Similarly, non-IFRS measures as reported by
us may not be comparable with similar measures reported by other companies.
Due to the nature of acquisitions, costs associated with those acquisitions,
subsequent integration costs and the non-cash element of certain charges, the
Directors believe that adjusted EBITDA and adjusted measures of operating
profit, profit before tax and earnings per share provide shareholders with a
useful representation of the underlying earnings derived from the Group's
business and a more comparable view of the year-on-year underlying financial
performance of the Group.
A reconciliation between statutory operating profit and EBITDA is shown below:
Continuing operations H1 FY24 H1 FY23
£m £m
Operating profit 0.0 5.7
Amortisation of acquisition intangibles 12.8 11.8
Depreciation and amortisation of non-acquisition intangibles 10.0 8.8
EBITDA 22.8 26.3
A reconciliation between statutory (loss)/profit and the adjusted performance
measures noted above is shown below:
Six months ended 30 September 2023 (Loss)/profit before tax £m Operating profit £m EBITDA
Continuing operations £m
Statutory reported (8.9) 0.0 22.8
Acquisition costs 1.4 1.4 1.4
Restructuring costs 9.4 9.4 9.4
Amortisation of acquisition intangibles 12.8 12.8 -
Share based payments (excluding SAYE schemes) 0.8 0.8 0.8
Fair value losses in contingent consideration and acquisition related 4.5 4.5 4.5
incentive schemes
Strategic review costs 4.1 4.1 4.1
Adjusted results 24.1 33.0 43.0
Six months ended 30 September 2022 Profit before tax £m Operating profit £m EBITDA
Continuing operations £m
Statutory reported 1.7 5.7 26.3
Acquisition costs 1.5 1.5 1.5
Restructuring costs 10.0 10.0 10.0
Amortisation of acquisition intangibles 11.8 11.8 -
Share based payments (excluding SAYE schemes) 0.9 0.9 0.9
Fair value losses in contingent consideration and acquisition related 0.5 0.5 0.5
incentive schemes
Adjusted results 26.4 30.4 39.2
Acquisition and other costs
Acquisition costs totalled £1.4 million in the half year (HY23: £1.5
million) and include legal fees, professional fees and staff costs incurred as
part of the acquisitions.
Restructuring costs, being the costs associated with the integration of
acquisitions, remain a key component of delivering shareholder value by
increasing returns made on acquired businesses. Restructuring costs for the
first half of the year were £9.4 million (HY22: £10.0 million) reflecting
acquisitions made in year and the three key integration programmes within
Occupational Health, Water and Compliance eLearning, which have now either
completed or are being finalised. Restructuring costs primarily consist of:
· The cost of duplicated staff roles during the integration and
restructuring period;
· The redundancy cost of implementing the post completion staff
structures; and
· IT costs associated with the integration and transfer to Group IT
systems, including costs of third party software used in the delivery of
customer contracts where there is a programme to transition such software to
one of the Group's existing platforms
Amortisation of intangible assets for the half year was £12.8 million (HY22:
£11.8 million). This is attributable to the carrying value of intangible
assets resulting from the execution of the Group's M&A strategy.
Non-cash share-based payment charges for the half year were £0.8 million
(HY23: £0.9 million) and largely represent the charge for the Executive
Incentive Plan.
Certain long term incentive schemes for platform businesses have been
established to incentivise key members of our platform acquisition's senior
management to create shareholder value through the successful acquisition,
restructuring and integration of businesses in their chosen service sectors.
These schemes have similar characteristics to earn out structures in place
within the Group and have a similar purpose. As such, we consider the charge
associated with these schemes to be similar in nature as "Acquisition and
other costs" as we continue to execute our stated strategy. The total charge
for these schemes and for movements in deferred consideration provisions
during the half year totalled £4.5 million (HY23: £0.5 million).
As noted already the Group began a strategic review of Group structure in the
half-year to assess the merits of a potential separation of certain businesses
across its TIC and GRC Divisions. Strategic Review costs include professional
fees, legal fees and staff costs. These costs are non-recurring and not
considered to be reflective of the underlying trading performance. Further
details behind our approach to the treatment of acquisition and other costs
can be found in note 3.
Earnings per share
Basic adjusted earnings per share are calculated as adjusted profit for the
year less a standard tax charge divided by the weighted average number of
shares in issue in the year.
Basic earnings per share reflect the actual tax charge.
Earnings per share* (EPS) HY24 HY23
Basic adjusted earnings per share 18.8p 22.3p
Basic (loss)/earnings per share (9.6)p 1.1p
*Refer to note 5
The primary driver in the reduction in adjusted earnings per share is the
£4.9m increase in finance costs during the period. This have been further
compounded by the increase in the rate of corporation tax to 25%.
Interest
Finance costs amounted to £8.9 million in the first six months (HY23: £4.0
million). This movement reflects the increased costs of borrowing driven by
increased base rates and higher levels of utilisation of the Group's debt
facility.
Taxation
UK Corporation Tax is calculated at 25% (HY23: 19%) of the estimated
assessable profit for the year.
Statement of financial position
The Group looks to maintain a strong balance sheet that is commensurate with
the high levels of recurring revenues associated with the business model. Net
assets at 30 September 2023 were £438.3 million (31 March 2023: £443.3
million). Property, plant and equipment totalled £13.1 million (31 March
2023: £11.7 million), comprising freehold and long leasehold property,
leasehold improvements, operational equipment, vehicles and computer systems.
Cash flow
The Group benefits from revenues which have beneficial underlying working
capital characteristics. As a result, working capital as a % of revenue at the
half year remained low. As expected, operating cash flow in the first half
included a working capital outflow of £10.1 million (HY23: £16.6 million).
This included the usual timing elements such as the settlement of
business-as-usual accruals present at the year end, such as annual bonus
payments and the increase in prepayments driven by factors such as annual
insurance premiums. We also experienced adverse timing on a significant
customer invoice of approximately £2 million which has now been resolved. As
usual we expect an inflow in working capital in the second half relating to
timing benefits in the second half of the year.
Capital expenditure totalled £7.3 million (HY23: £7.6 million) reflecting
the continued investment in our software systems and ongoing investment in our
businesses.
Net debt and financing
Net debt at 30 September 2023, including inter alia £26.7 million of lease
liabilities, was £219.4 million (FY23: £188.9 million). Net debt (excluding
lease liabilities) at the half was £192.7 million (FY23: £160.8 million).
The increase in net debt since the year end reflects the targeted execution of
the M&A strategy with the completion of the IMSM acquisition a key
strategic step taking the Group into the ISO accreditation market. The focus
in the second half will primarily be on reducing leverage down to around 2x
adjusted EBITDA (excluding leases) by the end of the financial year.
In July 2023 the Group completed a Capital Reduction and whilst the Board and
management remain focussed on the continued execution of the Company's stated
growth strategy, the Capital Reduction now removes a potential restriction on
the Company's ability to either make dividend payments and other distributions
or to purchase its own shares in the future. The Capital Reduction will not
change the number of Ordinary Shares in issue or the paid-up share capital of
the Company or change any rights attaching to the Ordinary Shares.
Key Performance Indicators ('KPIs')
The Group uses many different KPI's at an operational level which are specific
to the business and provide information to management. The Board uses KPIs
that focus on the financial performance of the Group such as revenue, adjusted
EBITDA, adjusted profit before tax, adjusted operating profit and cash-flow,
including debtor analysis.
Unaudited Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2023
Notes Unaudited Unaudited Audited
six months six months year
ended 30 September 2023 ended 30 September 2022 ended
£'m £'m 31 March
2023
£'m
Revenue 2 251.3 222.9 465.7
Cost of sales (143.6) (131.0) (276.7)
Gross profit 107.7 91.9 189.0
Administrative expenses excluding costs separately disclosed below (74.7) (61.5) (124.7)
Acquisition costs 3 (1.4) (1.5) (2.7)
Restructuring costs 3 (9.4) (10.0) (21.1)
Amortisation of acquisition intangibles 3 (12.8) (11.8) (24.0)
Share based payments (excluding SAYE schemes)(3) 3 (0.8) (0.9) (1.7)
Fair value losses in contingent consideration and acquisition(3) related 3 (4.5) (0.5) (8.4)
incentive schemes
Strategic review costs 3 (4.1) - -
Total administrative expenses (107.7) (86.2) (182.6)
Operating profit 0.0 5.7 6.4
Exceptional finance costs - - (2.6)
Finance costs (8.9) (4.0) (10.7)
Total finance costs (8.9) (4.0) (13.3)
(Loss)/profit before tax (8.9) 1.7 (6.9)
Income tax (charge)/credit 4 (0.3) (0.6) 3.1
(Loss)/profit for the year and total comprehensive income for the year from (9.2) 1.1 (3.8)
continuing operations
Attributable to owners of the parent (9.2) 1.1 (3.8)
Earnings/(loss) per share attributable to owners of the parent
(pence)
Total
Basic 5 (9.6) 1.1 (3.9)
Diluted 5 (9.6) 1.1 (3.9)
3 Acquisition related incentive schemes have been reclassified in the prior
year as documented in note 3
Unaudited Consolidated Statement of Changes in Equity
For the six months ended 30 September 2023
Share capital Share premium Merger Other reserves Retained earnings £'m Total
£'m £'m Reserve £'m equity
£'m £'m
Balance at 1 April 2022 47.9 384.8 9.9 3.5 (0.1) 446.0
Profit for the period - - - - 1.1 1.1
Total comprehensive income for the period - - - - 1.1 1.1
Transaction with owners
Share-based payments - - - 1.0 - 1.0
- - - 1.0 - 1.0
Balance at 30 September 2022 (unaudited) 47.9 384.8 9.9 4.5 1.0 448.1
Balance at 1 October 2022 47.9 384.8 9.9 4.5 1.0 448.1
Loss for the period - - - - (4.9) (4.9)
Total comprehensive income for the period - - - - (4.9) (4.9)
Transaction with owners
Share-based payments - - - 1.3 - 1.3
Deferred tax on share-based payments - - - (1.2) - (1.2)
- - - 0.1 - 0.1
Balance at 31 March 2023 47.9 384.8 9.9 4.6 (3.9) 443.3
Balance at 1 April 2023 47.9 384.8 9.9 4.6 (3.9) 443.3
Loss for the period - - - - (9.2) (9.2)
Total comprehensive income for the period - - - - (9.2) (9.2)
Transaction with owners
Share-based payments - - - 1.2 - 1.2
Issue of shares during the period 0.3 - 2.7 - - 3.0
0.3 - 2.7 1.2 - 4.2
Cancellation of share premium - (384.8) - - 384.8 -
Balance at 30 September 2023 (unaudited) 48.2 - 12.6 5.8 371.7 438.3
Unaudited Consolidated Statement of Financial Position
As at 30 September 2023
Notes Unaudited Unaudited Audited
six months six months year
ended 30 September 2023 ended 30 September 2022 ended
£'m £'m 31 March
2023
£'m
ASSETS
Non-current assets
Intangible assets 7 667.4 645.2 644.1
Property, plant and equipment 13.1 13.6 11.7
Right of use assets 25.7 26.4 27.4
Trade and other receivables 9 2.1 4.7 4.8
Deferred tax asset 4.4 3.9 4.4
712.7 693.8 692.4
Current assets
Inventories 9.9 9.0 9.3
Trade and other receivables 9 132.0 114.3 116.4
Held for sale property - - 1.3
Current tax asset 2.3 2.0 1.8
Cash and cash equivalents 10 36.3 19.8 30.2
180.5 145.1 159.0
Total assets 893.2 838.9 851.4
LIABILITIES
Current liabilities
Trade and other payables (129.4) (118.9) (123.2)
Financial liabilities - lease liabilities 10 (9.4) (9.5) (9.7)
Provisions (1.6) (1.1) (1.4)
(140.4) (129.5) (134.3)
Non-current liabilities
Trade and other payables (12.2) (13.8) (12.0)
Financial liabilities - borrowings 11 (229.0) (176.0) (191.0)
Financial liabilities - lease liabilities 10 (17.3) (18.5) (18.4)
Deferred tax liabilities (54.7) (51.8) (51.2)
Provisions (1.3) (1.2) (1.2)
(314.5) (261.3) (273.8)
Total liabilities (454.9) (390.8) (408.1)
Net assets 438.3 448.1 443.3
EQUITY
Share capital 12 48.2 47.9 47.9
Share premium account - 384.8 384.8
Merger relief reserve 12.6 9.9 9.9
Other reserves 5.8 4.5 4.6
Retained earnings 371.7 1.0 (3.9)
Equity attributable to owners of parent 438.3 448.1 443.3
Unaudited Consolidated Statement of Cash Flows
For the six months ended 30 September 2023
Notes Unaudited Unaudited Audited
six months six months year
ended 30 September 2023 ended 30 September 2022 ended
£'m £'m 31 March
2023
£'m
Net cash generated from operations 13 27.5 22.6 74.3
Net finance costs (8.3) (2.5) (8.6)
Income taxes paid (1.0) (5.9) (8.3)
Net cash generated from operating activities before acquisition and 18.2 14.2 57.4
restructuring costs
Acquisition and restructuring costs (10.8) (11.5) (23.8)
Net cash generated from operating activities 7.4 2.7 33.6
Cash flows used in investing activities
Purchases of property, plant and equipment and non-acquisition intangibles (7.3) (7.6) (16.4)
Disposal of property, plant and equipment 0.4 0.3 1.4
Purchase of subsidiary undertakings net of cash acquired (26.3) (37.1) (59.0)
Cash flows used in investing activities (33.2) (44.4) (74.0)
Cash flows from financing activities
Utilisation of debt facility 42.0 36.0 65.0
Repayment of debt facility (4.0) - (14.0)
Repayment of debt upon purchase of subsidiary undertaking (0.4) (0.4) (0.5)
Lease repayments (5.7) (5.3) (11.1)
Net cash generated from financing activities 31.9 30.3 39.4
Net increase/(decrease) in cash and cash equivalents 6.1 (11.4) (1.0)
Cash and cash equivalents at start of period 30.2 31.2 31.2
Cash and cash equivalents at the end of period 36.3 19.8 30.2
Cash and cash equivalents shown above comprise:
Cash at bank 10 36.3 19.8 30.2
Notes to the consolidated Interim Report
For the six months ended 30 September 2023
1. Basis of Preparation
Basis of preparation
The consolidated interim financial information of the Group for the six months
ended 30 September 2023 was approved by the Board of Directors and authorised
for issue on 28 November 2023. The disclosed figures are not statutory
accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts
for the year ended 31 March 2023, on which the auditors gave an audit report
which was unqualified and did not contain a statement under section 498(2) or
(3) of the Companies Act 2006, have been filed with the Registrar of
Companies. The annual financial statements of the Group are prepared in
accordance with applicable law and UK-adopted International Accounting
Standards (UK-IAS).
The comparative figures for the financial year ended 31 March 2023 and the six
months ended 30 September 2022 are consistent with the Group's annual
financial statements and interim financial statements respectively.
Going concern
Based on the Group's cash flow forecasts and projections, the Directors are
satisfied that the Group has adequate resources to continue in operational
existence for the foreseeable future. In the event of further disruption to
the business in the future as a result of the crises in Ukraine and Gaza, the
Directors are confident that additional cost reduction and cash preservation
measures could be utilised in conjunction with the Group's existing debt
facility to reduce costs and preserve cash. They continue to adopt the going
concern basis of accounting in preparing these interim financial statements.
Accounting policies
This interim report has been prepared in accordance with the recognition and
measurement requirements of UK adopted International Accounting Standards
(IAS) but does not include all the disclosures that would be required under
IAS. The accounting policies adopted in the interim financial statements are
consistent with those adopted in the last annual report for financial year
ended 31 March 2023 and those applicable for the year ending 31 March 2024.
There were no new relevant Standards or Interpretations to be adopted for the
six months ended 30 September 2023.
Critical accounting estimates and judgements continue to be applied to the
identification of separable intangibles on acquisition and rate of customer
attrition, acquisition and other costs, valuation of separable intangibles on
acquisition, impairment of non-financial assets, impairment of trade
receivables and recoverability of amounts due from contract assets.
2. Segmental analysis
The Group is organised into two main reporting segments, Governance, Risk
& Compliance ("GRC") and Testing, Inspection & Certification ("TIC").
The key profit measures are adjusted operating profit, adjusted EBITDA and
adjusted profit before tax and are shown before acquisition and restructuring
costs, amortisation of acquisition intangibles, fair value losses in
contingent consideration and acquisition related incentive schemes, share
based payments and strategic review costs. The vast majority of trading of the
Group is undertaken within the United Kingdom. Segment assets include
intangibles, property, plant and equipment, inventories, receivables and cash.
Central assets include acquisition intangibles, deferred tax and head office
assets. Segment liabilities comprise operating liabilities. Central
liabilities include deferred tax, corporate borrowings and head office
liabilities. Capital expenditure comprises additions to application software
and property, plant and equipment. Segment assets and liabilities are
allocated between segments on an actual basis.
Six months ended 30 September 2023 - Unaudited
GRC TIC Head Office Total
Continuing operations £'m £'m £'m £'m
Revenue 103.2 153.8 0.1 257.1
Inter-segment elimination (1.2) (4.6) - (5.8)
Revenue from external customers 102.0 149.2 0.1 251.3
Segment adjusted operating profit/(loss) 22.9 13.5 (3.4) 33.0
Acquisition costs (1.4)
Restructuring costs (9.4)
Amortisation of acquisition intangibles (12.8)
Share based payments (excluding SAYE schemes) (0.8)
Fair value losses in contingent consideration and acquisition related (4.5)
incentive schemes
Strategic review costs (4.1)
Operating profit -
Finance costs (8.9)
Loss before tax (8.9)
Tax charge (0.3)
Loss after tax (9.2)
Segment assets 132.6 280.6 480.0 893.2
Segment liabilities (64.4) (79.8) (310.7) (454.9)
Capital expenditure (4.9) (2.4) - (7.3)
Depreciation and amortisation (3.9) (5.8) (13.1) (22.8)
Six months ended 30 September 2022 - Unaudited
GRC TIC Head Office Total
Continuing operations £'m £'m £'m £'m
Revenue 92.8 135.1 - 227.9
Inter-segment elimination (0.5) (4.5) - (5.0)
Revenue from external customers 92.3 130.6 - 222.9
Segment adjusted operating profit/(loss) 20.6 12.8 (3.0) 30.4
Acquisition costs (1.5)
Restructuring costs (10.0)
Amortisation of acquisition intangibles (11.8)
Share based payments (excluding SAYE schemes) (0.9)
Fair value losses in contingent consideration and acquisition related (0.5)
incentive schemes
Operating profit 5.7
Finance costs (4.0)
Profit before tax 1.7
Tax charge (0.6)
Profit after tax 1.1
Segment assets 128.0 168.6 542.3 838.9
Segment liabilities (58.2) (71.1) (261.5) (390.8)
Capital expenditure (5.0) (2.4) (0.2) (7.6)
Depreciation and amortisation (3.3) (5.3) (12.0) (20.6)
Audited year ended 31 March 2023
GRC TIC Head Office Total
Continuing operations £'m £'m £'m £'m
Revenue 195.9 283.5 - 479.4
Inter-segment elimination (2.8) (10.9) - (13.7)
Revenue from external customers 193.1 272.6 - 465.7
Segment adjusted operating profit/(loss) 44.7 25.6 (6.0) 64.3
Acquisition costs (2.7)
Restructuring costs (21.1)
Amortisation of acquisition intangibles (24.0)
Share based payments (excluding SAYE schemes) (1.7)
Fair value losses in contingent consideration and acquisition related (8.4)
incentive schemes
Operating profit 6.4
Exceptional finance costs (2.6)
Finance costs (10.7)
Loss before tax (6.9)
Tax credit 3.1
Loss after tax (3.8)
Segment assets 119.1 157.2 575.1 851.4
Segment liabilities (60.6) (63.3) (284.2) (408.1)
Capital expenditure (9.7) (6.5) (0.2) (16.4)
Depreciation and amortisation (6.8) (11.2) (24.4) (42.4)
Six months ended 30 September 2023 - Unaudited
GRC TIC Head Office Total
£'m £'m £'m £'m
Segment adjusted operating profit/(loss) 22.9 13.5 (3.4) 33.0
Depreciation and amortisation of non-acquisition intangibles 3.9 5.8 0.3 10.0
Adjusted EBITDA 26.8 19.3 (3.1) 43.0
Six months ended 30 September 2022 - Unaudited
GRC TIC Head Office
Total
£'m £'m £'m £'m
Segment adjusted operating profit/(loss) 20.6 12.8 (3.0) 30.4
Depreciation and amortisation of non-acquisition intangibles 3.3 5.3 0.2 8.8
Adjusted EBITDA 23.9 18.1 (2.8) 39.2
Audited year ended 31 March 2023
GRC TIC Head Office Total
£'m £'m £'m £'m
Segment adjusted operating profit/(loss) 44.7 25.6 (6.0) 64.3
Depreciation and amortisation of non-acquisition intangibles 6.8 11.2 0.4 18.4
Adjusted EBITDA 51.5 36.8 (5.6) 82.7
The above tables reconcile segment adjusted operating profit/(loss) to
adjusted EBITDA, which excludes separately disclosed acquisition and other
costs, to the standard profit measure under IFRS (Operating profit). This is
the Group's Alternative Profit Measure used when discussing the performance of
the Group. The Directors believe that adjusted EBITDA and operating profit is
the most appropriate approach for ascertaining the underlying trading
performance and trends as it reflects the measures used internally by senior
management for all discussions of performance and also reflects the starting
profit measure when calculating the Group's banking covenants.
Adjusted EBITDA is not defined by IFRS and therefore may not be directly
comparable with other companies' adjusted profit measures. It is not intended
to be a substitute, or superior to, IFRS measurements of profit.
Major customers
For the six-month period ended 30 September 2023, no customers (30 September
2022: nil) individually accounted for more than 10% of the Group's total
revenue.
3. Adjusting items
Due to the nature of acquisitions and other costs in relation to each
acquisition and the non-cash element of certain charges, the Directors believe
that adjusted operating profit, adjusted EBITDA and adjusted measures of
profit before tax and earnings per share provide shareholders with a more
appropriate representation of the underlying earnings derived from the Group's
business and a more comparable view of the year-on-year underlying financial
performance of the Group. The adjusting items shown on the Consolidated
Statement of Comprehensive Income and the rationale behind the Directors' view
that these should be included as adjusting items are detailed below:
Adjusting item Rationale
Acquisition costs Acquisition costs include professional fees, transaction costs and staff costs
associated with completing acquisitions. These costs are non-recurring to the
extent that if the Group were to cease further M&A activity these costs
would not continue.
Restructuring costs Restructuring costs include the costs associated with the integration of
acquisitions, include:
• The cost of duplicated staff roles and other duplicated operational costs
during the integration and restructuring period;
• The redundancy cost of implementing the post completion staff structures;
and
• IT costs associated with the integration and transfer to Group IT systems,
including costs of third-party software used in the delivery of customer
contracts where there is a programme to transition such software to one of the
Group's existing platforms.
Each integration programme is distinct and one-off in nature such that when
complete the costs associated with that programme would cease.
Amortisation of The amortisation charge for those intangible assets recognised on business
combinations is excluded from the adjusted results of the Group since they are
acquired intangibles non-cash charges arising from investment activities. As such, they are not
considered to be reflective of the underlying trading performance of the
Group.
Share-based payments (excluding SAYE schemes) Charges associated with share-based payment schemes (excluding SAYE schemes
which remain are classed as administrative expenses) have been included as
adjusting items. Although share-based compensation is an important aspect of
the compensation of our employees and executives, management believes it is
useful to exclude share-based compensation expenses from adjusted profit
measures to better understand the long-term performance of our underlying
business. Share-based compensation expenses are non-cash charges and are
determined using several factors, including expectations surrounding future
performance, employee forfeiture rates and, for employee payroll-related tax
items, the share price. As a result, these charges are not reflective of the
value ultimately received from the awards.
Fair value gains/ Movements in contingent consideration are considered to be part of the
investing activities of the Group and are therefore not considered to be
(losses) in contingent reflective of the underlying trading performance. Further, share based
compensation expenses are not reflective of the value ultimately received by
consideration and acquisition related incentive schemes the recipients of the awards. In addition, certain legacy long terms
incentives are considered to be part of the investing activities of the Group
and non-recurring in nature.
Exceptional finance Exceptional finance costs in FY23 relate to the write down of deferred finance
costs associated with the debt facilities which were replaced in FY23. The
costs requirement to restructure and replace the debt facilities was a direct result
of the acquisitions completed during the year and is therefore not considered
part of the underlying trading of the Group.
Strategic review costs Strategic Review costs include professional fees, legal fees and staff costs
associated with performing a strategic review of the merits of a potential
separation of the TIC and GRC divisions. These costs are non-recurring and not
considered to be reflective of the underlying trading performance.
In the September 2022 comparative figures, the charges arising on certain
long-term incentive schemes related to prior acquisitions were included within
'Share-based payments and legacy long-term incentives'. These have been
reclassified and are now included within 'Fair value losses in contingent
consideration and acquisition related incentive schemes' to better reflect the
nature of these schemes. As a result, the September 2022 charge for
'Share-based payments and legacy long-term incentives' has reduced from £1.4m
to £0.9m and the September 2022 charge for 'Fair value gains/(losses) in
contingent consideration and acquisitions related incentive schemes' has
increased from £0.0m to £0.5m. The March 2023 comparative figures already
include this reclassification.
4. Taxation
The underlying tax charge is based on the expected tax rate (25%) for the year
ending 31 March 2024 applied to taxable trading profits for the period. The
tax rate applied to the comparative periods ending 30 September 2022 and 31
March 2023 was 19%.
5. Earnings per ordinary share
Basic earnings per share have been calculated on the (loss)/profit after tax
for the period and the weighted average number of ordinary shares in issue
during the period.
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
Weighted average number of shares in issue 96,072,077 95,856,682 95,868,871
Total (loss)/profit after tax for the period £(9.2)m £1.1m £(3.8)m
Total basic (loss)/earnings per ordinary share (pence) (9.6)p 1.1p (3.9)p
Weighted average number of shares in issue 96,072,077 95,856,682 95,868,871
Potential dilution of share options 1,111,486 1,531,699 1,291,637
Weighted average fully diluted number of shares in issue 96,072,077 97,388,381 95,868,871
Total fully diluted (loss)/earnings per share (pence) (9.6)p 1.1p (3.9)p
Potentially dilutive shares have not been included in the diluted EPS for the
period ending 30 September 2023 on the basis that they are anti-dilutive,
however they may become dilutive in future periods.
Adjusted earnings per share
The Directors believe that the adjusted earnings per share provide a more
appropriate representation of the underlying earnings derived from the Group's
business. The adjusting items are shown in the table below:
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
£'m £'m £'m
(Loss)/profit before tax for the period (8.9) 1.7 (6.9)
Adjustments:
Acquisition costs 1.4 1.5 2.7
Restructuring costs 9.4 10.0 21.1
Amortisation of acquisition intangibles 12.8 11.8 24.0
Share based payments (excluding SAYE schemes) 0.8 0.9 1.7
Fair value losses in contingent consideration and acquisition related 4.5 0.5 8.4
incentive schemes
Exceptional finance costs - - 2.6
Strategic review costs 4.1 - -
Adjusted profit before tax for the period 24.1 26.4 53.6
The adjusted earnings per share, based on weighted average number of shares in
issue during the period, is calculated below:
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
Adjusted profit before tax (£'m) 24.1 26.4 53.6
Tax at 25%,19%,19% (6.0) (5.0) (10.2)
Adjusted profit after taxation (£'m) 18.1 21.4 43.4
Adjusted basic earnings per share (pence) 18.8 22.3 45.3
Adjusted fully diluted earnings per share (pence) 18.8 22.0 45.3
6. Dividends
The Company has not declared any dividends in respect of the current year or
prior year.
7. Intangible assets
Goodwill Customer relationships Applications software Content database Trade Total
name
£'m £'m £'m £'m £'m £'m
Cost
1 April 2022 395.5 185.0 45.4 7.5 6.1 639.5
Acquired with subsidiary 24.8 17.7 1.7 0.5 - 44.7
Additions - - 4.7 - - 4.7
30 September 2022 420.3 202.7 51.8 8.0 6.1 688.9
1 October 2022 420.3 202.7 51.8 8.0 6.1 688.9
Acquired with subsidiary 4.7 2.0 1.3 - - 8.0
Additions - - 4.8 - - 4.8
Disposals (0.3) - - - - (0.3)
31 March 2023 424.7 204.7 57.9 8.0 6.1 701.4
1 April 2023 424.7 204.7 57.9 8.0 6.1 701.4
Acquired with subsidiary 18.5 14.5 - 0.3 - 33.3
Additions - - 5.0 - - 5.0
Disposals - - (0.3) - - (0.3)
30 September 2023 443.2 219.2 62.6 8.3 6.1 739.4
Accumulated amortisation and impairment
1 April 2022 - 24.3 4.9 0.6 0.2 30.0
Charge for the period - 9.0 3.7 0.6 0.3 13.6
30 September 2022 - 33.3 8.6 1.2 0.5 43.6
1 October 2022 - 33.3 8.6 1.2 0.5 43.6
Charge for the period - 9.1 3.6 0.7 0.3 13.7
31 March 2023 - 42.4 12.2 1.9 0.8 57.3
1 April 2023 - 42.4 12.2 1.9 0.8 57.3
Charge for the period - 9.7 4.2 0.7 0.3 14.9
Disposals - - (0.2) - - (0.2)
30 September 2023 - 52.1 16.2 2.6 1.1 72.0
Carrying amount
30 September 2022 420.3 169.4 43.2 6.8 5.6 645.2
31 March 2023 424.7 162.3 45.7 6.1 5.3 644.1
30 September 2023 443.2 167.1 46.4 5.7 5.0 667.4
8. Business Combinations
During the period ending 30 September 2023 the Group made 5 acquisitions. The
provisional fair values are as follows:
Acquisition Division Cash consideration Share based consideration Contingent consideration Total Net assets acquired Intangible assets-customer relationships Intangible assets-content database Intangible assets-deferred Goodwill
tax
£'m £'m £'m £'m £'m £'m £'m £'m £'m
Victory Fire TIC 5.5 - 1.0 6.5 2.4 1.2 - (0.3) 3.2
Clymac TIC 8.2 - 0.3 8.5 0.4 4.5 - (1.1) 4.7
JCR Security TIC 0.4 - 0.3 0.7 0.1 0.2 - - 0.4
Trans-Fire Holdings TIC 0.7 - 0.2 0.9 0.2 0.4 - (0.1) 0.4
IMSM GRC 15.6 3.0 2.0 20.6 4.5 8.2 0.3 (2.2) 9.8
Total 30.4 3.0 3.8 37.2 7.6 14.5 0.3 (3.7) 18.5
9. Trade and other receivables
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
£'m £'m £'m
Current
Trade receivables 81.4 78.6 81.9
Less: provision for impairment of trade receivables (1.8) (2.6) (1.9)
Trade receivables - net 79.6 76.0 80.0
Other receivables 4.6 2.4 2.8
Contract assets 5.3 2.6 2.1
Accrued income 29.5 21.9 22.8
Prepayments 12.3 10.7 8.1
Deferred consideration receivable in less than one year 0.7 0.7 0.6
132.0 114.3 116.4
Non-current
Deferred consideration receivable in more than one year 2.1 4.7 4.8
2.1 4.7 4.8
Deferred consideration receivable represents the divestment of non-core
activities within the Group's Air Quality business following the sale of
Ductclean (UK) Limited in March 2020 for a consideration of up to £7.0m and
additional amounts receivable on projects concluded before the transaction.
The fair value of this consideration is determined using an estimate of
discounted cash flows that are expected to be received within the next five
years. The consideration is subject to a number of variables which may result
in the amount received being materially greater or lower than currently
recognised.
10. Net debt
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
£'m £'m £'m
Cash at bank and in hand 36.3 19.8 30.2
Bank loans due after one year (229.0) (176.0) (191.0)
Leases due within one year (9.4) (9.5) (9.7)
Leases due after one year (17.3) (18.5) (18.4)
Net (debt) (219.4) (184.2) (188.9)
11. Financial liabilities - Borrowings
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
£'m £'m £'m
Current
Bank loans - - -
- - -
Non - current
Bank loans 229.0 176.0 191.0
229.0 176.0 191.0
12. Called up share capital
Allotted, issued and fully paid No. of ordinary shares Issue
£'m
price
(p)
Balance at 1 April 2022 47.9 95,833,853
Share Options ("SAYE 2020") 6,204 460p
Marlowe plc Long Term Incentive Plan 2019 37,879 50p
Balance at 30 September 2022 (unaudited) 47.9 95,877,936
Share Options ("SAYE 2020") 4,129 460p
Balance at 31 March 2023 (audited) 47.9 95,882,065
Share-based consideration for IMSM Acquisition 597,609 502p
Share Options ("SAYE 2020") 2,217 460p
Balance at 30 September 2023 (unaudited) 48.2 96,481,891
13. Net cash generated from operations
Unaudited Unaudited Audited
six months ended 30 September six months ended 30 September 2022 year
2023 ended 31 March
2023
£'m £'m £'m
Continuing operations
(Loss)/profit before tax (8.9) 1.7 (6.9)
Depreciation of property, plant and equipment and amortisation of 10.0 8.8 18.4
non-acquisition intangibles
Acquisition costs 1.4 1.5 2.7
Restructuring costs 9.4 10.0 21.1
Amortisation of acquisition related intangible assets 12.8 11.8 24.0
Share based payments (excluding SAYE schemes) 0.8 0.9 1.7
Fair value losses in contingent consideration and acquisition related 3.2 0.5 8.4
incentive schemes
Net finance costs 8.9 4.0 13.3
Increase in inventories (0.2) (1.3) (1.7)
Increase in trade and other receivables (10.2) (11.2) (12.0)
Increase/(decrease) in trade and other payables 0.3 (4.1) 5.3
Net cash generated from operations 27.5 22.6 74.3
14. Related party transactions and key management compensation
Related party transactions
There were no related party transactions during the period.
Key management compensation
Transactions between the Group and key management personnel in the period
relate to remuneration consistent with the policy set out in the Directors'
Remuneration Report within the Group's 2023 Annual Report.
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