REG - Restore PLC - Half Year Results 2023
16/08/2023 07:00
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RNS Number : 4160J Restore PLC 16 August 2023
16 August 2023
Restore plc
("Restore" or the "Group" or "Company")
Half Year Results 2023
Restore plc (AIM: RST), the UK's leading provider of digital and information
management and secure lifecycle services, today announces its unaudited
results for the six months ended 30 June 2023 ("H1", or "the period").
OVERVIEW
During the half, the Group delivered solid revenues with good performances in
Records Management, Digital's recurring income streams and Harrow Green. As
previously announced, this has been offset by a weaker performance in
Technology due to reduced volumes of quality IT assets for resale, and a lower
level of non-recurring contracts in Digital (particularly in bulk scanning).
Overall, revenue was broadly unchanged at £139.6m (H1 2022: £140.3m) for the
period, with adjusted EBITDA(1) down 5% against H1 2022 at £38.3m as a result
of the net effect of trading factors noted above. Adjusted profit before
tax(1) reduced to £15.1m after the additional impact of higher interest rates
on borrowing costs.
As a result of increases to the Group's cost of capital, reduced expectations
on service activity, paper volumes and recycled paper pricing, a non-cash
write-down of £32.5m against the legacy investment in Datashred has been
applied. This write-down results in a statutory loss before tax for the Group
of £25.9m.
The Group remained highly cash generative, with net debt(2) reducing to
£97.9m and a leverage(3) ratio of 1.8x which remains well within the Group's
target range and covenant levels.
The Group has also announced today the appointment of Mike Killick as interim
CFO who will take over day-to-day finance responsibility with effect from 21
August 2023 from Neil Ritchie who previously announced his decision to step
down as CFO on 14 June 2023. Neil Ritchie will oversee an orderly transition
and be available until the end of his contractual notice period on 13 December
2023. Good progress is being made with the Group's management succession
planning and further updates on the ongoing search processes for a new CEO and
the permanent CFO roles will be made in due course.
Current trading remains in line with the Board's revised expectations to
achieve an adjusted profit before tax of £31m for the full year.
FINANCIAL SUMMARY H1 2023 H1 2022(4) Change
Revenue £139.6m £140.3m -0%
Adjusted EBITDA £38.3m £40.3m -5%
Adjusted profit before tax £15.1m £20.9m -28%
Statutory (loss)/profit before tax -£25.9m £14.1m -284%
Net debt(4) £97.9m £103.5m -5%
Adjusted basic earnings per share(1) 8.4p 12.4p -32%
Statutory basic (loss)/earnings per share -20.5p 7.5p -373%
Dividend per share 1.85p 2.6p -29%
OPERATING PERFORMANCE
· Records Management, which represents over 70% of Group profits,
delivered revenue growth of 6% and net box growth of 0.4% in the period. Price
increases have been successfully implemented and costs have been well
controlled. The new BBC and Department for Work and Pensions contracts
continue to progress well
· In the Digital business, income from recurring outsourcing, storage
and data support services was in line with expectations, although a reduction
in bulk scanning has impacted performance, with the comparative period also
benefiting from a large non-recurring public sector contract of £5.3m
delivered in H1 2022
· Revenue in Technology declined, as recycled asset sales continued
to show weak volume and quality, although secure destruction and end user
device services remained on track. The latest hardware market data indicates
that subdued volumes will continue into H2 2023
· Datashred delivered increased service activity levels and a
continued focus on operational efficiency, however a significant reduction in
recycled paper prices since the period end is expected to impact H2
profitability
· Harrow Green continues to perform well and in line with
management's expectations
· Cost reduction plan on track to save c.£5m in 2023, primarily
through organisation and property changes, whilst preserving capability and
capacity. Other cost mitigation actions include a fixing of a proportion of
energy costs to replace the Group's previous fixed energy deal and an
extension of fixed rate interest instruments.
FINANCIAL PERFORMANCE
· Revenue was broadly unchanged at £139.6m (H1 2022: £140.3m), with
adjusted EBITDA down 5% at £38.3m reflecting a robust performance in Records
Management but weakness in Technology trading and non-recurring contracts in
Digital
· Across the Group, total storage revenue was up 11%, long term
contracts and recurring income was up 3%, relocations revenue was up 7% but
other service income, IT asset and paper trading was down 13%
· In the Digital and Information Management division revenue was
£85.1m (H1 2022: £87.1m) and adjusted operating profit was £20.9m (H1 2022:
£24.6m)
· In the Secure Lifecycle Services division revenue was £54.5m (H1
2022: £53.2m) and adjusted operating profit was £3.3m (H1 2022: £5.6m)
· Adjusted profit before tax was lower at £15.1m (H1 2022: £20.9m)
due to the net impact of different trading conditions across the Group and the
impact of higher interest rates on financing costs with the resulting adjusted
basic earnings per share down 32% to 8.4p (H1 2022: 12.4p)
· A non-cash impairment of £32.5m has been made to the carrying
value of the Datashred acquisition investment and results from an increase in
the weighted average cost of capital used in the valuation of future cashflows
and reduced expectations on service activity, paper volumes and recycled paper
pricing. Although a large write down, this does not impact the Group's ability
to pay dividends
· Statutory loss before tax for the period was £25.9m (H1 2022:
£14.1m profit before tax) and is reflective of the significant non-cash
impairment of the Datashred investment, with a resulting statutory basic loss
per share of 20.5p (H1 2022: 7.5p earnings per share). Excluding this
impairment, the statutory profit before tax for the period would be £6.6m
· Good cash generation, resulted in net debt reducing to £97.9m and
a leverage ratio of 1.8x, well within the Group's target range and covenant
levels (H1 2022: 1.7x)
· Interim dividend of 1.85p (H1 2022: 2.6p) declared, but reduced
proportionately to reflect the lower earnings in the period.
OUTLOOK
The Board anticipates that the Group will achieve a solid revenue performance
for the year underpinned by the core storage and highly contracted income
streams that are a central feature of the Group's strength. As previously
announced, the specific challenges in Technology, Digital and Datashred will
impact the full year performance. However, actions are being taken to mitigate
these headwinds, including plans to reduce costs by approximately £5m in 2023
whilst preserving the Group's capabilities and capacity. Current trading
remains in line with the Board's revised expectations for an adjusted profit
before tax of £31m for the full year.
Cash generation is expected to remain good and net debt is expected to
continue to reduce in the second half.
Whilst the near-term economic outlook remains uncertain, the fundamentals of
the business remain strong, with the core long-term contracted and storage
revenue underpinning the profitability and cash generation of the Group.
Jamie Hopkins, Interim CEO, commented:
"Whilst the first half has been a difficult period, the Group remains
profitable and cash generative on an adjusted basis and continues to deliver
excellent service for our customers. The fundamentals of the business remain
highly attractive and our core storage business and recurring service income
across the Group provide a strong base from which to navigate the current
economic challenges and rebuild profitability and shareholder value. Good
progress is being made with the Group's management succession planning and we
are delighted to welcome Mike Killick, who will be joining as interim CFO on
21 August 2023."
For further information please contact:
Restore plc www.restoreplc.com (http://www.restoreplc.com)
Jamie Hopkins, Interim CEO +44 (0) 207 409 2420
Chris Fussell, Company Secretary
Investec (Nominated Adviser and Joint Broker) www.investec.com
(file:///C%3A/Users/M_Hartley/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/CPRLD4QW/www.investec.com)
Carlton Nelson +44 (0) 207 597 5970
James Rudd
Canaccord Genuity (Joint Broker, Corporate Advisor) www.canaccordgenuity.com
(file:///C%3A/Users/M_Hartley/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/CPRLD4QW/www.canaccordgenuity.com)
Max Hartley +44 (0) 207 523 8000
Chris Robinson
Citi (Joint Broker) www.citigroup.com
(file:///C%3A/Users/M_Hartley/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/CPRLD4QW/www.citigroup.com)
Stuart Field +44 (0) 207 986 4074
Luke Spells
Buchanan Communications (PR enquiries) www.buchanan.uk.com (http://www.buchanan.uk.com)
Charles Ryland +44 (0) 207 466 5000
Simon Compton
Notes
1. Adjusted profit and earnings are stated before adjusting items,
amortisation and impairment, with adjusted EPS calculated using a standard tax
charge
2. Net debt defined as external borrowings less cash, excluding the
effects of lease obligations under IFRS16
3. Leverage calculated using pre-IFRS16 EBITDA adjusted for share-based
payments, including a pro-forma adjustment for acquisitions in line with
financial debt covenants
4. £0.3m of bank refinancing charges were treated as adjusting items in
deriving adjusted PBT and adjusted EPS at H1 2022 but have been restated to
not exclude these charges consistent with treatment at FY22
BUSINESS PERFORMANCE
The core business of the Group in storage and recurring services continued to
grow during the period. However, the Group experienced reduced levels of
activity across some business lines in Q2 with customers deferring or reducing
activity to reduce their costs as a result of broader macro-economic
uncertainty.
These effects, together with continued soft trading in recycled IT assets and
a large non-recurring public sector contract in Digital benefitting H1 2022
resulted in a flat revenue performance of £139.6m (H1 2022: £140.3m). The
Group remains profitable on an adjusted basis, albeit at a lower level than
that achieved in H1 2022, with price increases offsetting inflationary
pressures. The lower adjusted profit before tax for the period of £15.1m (H1
2022: £20.9m) reflects these different trading effects and also the impact of
interest costs on financing expenses.
The statutory loss before tax for the period of £25.9m (H1 2022: £14.1m
profit before tax) reflects a non-cash impairment of £32.5m on the carrying
value of the historic acquisition investment in Restore Datashred.
The Group remains highly cash generative, with net debt reducing during the
period to £97.9m and leverage operating well within the Group's target at
1.8x (H1 2022: 1.7x).
Digital and Information Management
Our Digital and Information Management division comprises Restore Records
Management and Restore Digital.
For the period, the division achieved revenue of £85.1m (H1 2022: £87.1m)
and an adjusted operating profit of £20.9m (H1 2022: £24.6m). Within this,
the business successfully implemented a programme of price increases that
offset inflationary pressures during the period. The prior half year also
included the benefit of large non-recurring contracts within Digital with
associated revenues of £5.3m.
Restore Records Management - Revenue £59.3m up 6% (H1 2022: £55.9m)
Records Management is the largest business unit in the Group and represents
over 40% of Group revenue and 70% of operating profits.
Storage income, representing 71% of revenue, saw boxes under management
increase by 0.4% during the period, primarily as a result of intake on the
previously announced BBC archive contract that commenced in April following
completion of a bespoke, environment-controlled vault.
Price increases were successfully implemented through Q1 and into Q2 and have
offset inflationary pressures from people costs, leases, rates and energy.
Cost management is a continued focus and targeted changes to organisation
structures and the property estate are returning savings and a more efficient
operating model. As a result, capacity utilisation eased as planned from 97%
to 95% and is more in line with our long-term utilisation target.
With the BBC contract underway, the focus for sales has now returned to new
business wins and there is a strong pipeline of opportunities for H2. However,
offsetting net box growth has been an increased level of customer
destructions.
Restore Digital - Revenue £25.8m down 17% (H1 2022: £31.2m)
Digital has successfully developed a broader portfolio of income streams since
the acquisition of EDM in 2021, with revenue from outsourced digital
mailrooms, cloud hosted storage and management services, records preservation
and software provision performing predictably and in line with management
expectations.
However, a high proportion of the business remains in bulk document scanning
and data capture services which, whilst providing future potential to develop
into more complex, recurring revenue, can be more cyclical in the current
macro environment.
In 2022, the Digital business benefitted from substantial non-recurring
contracts of £5.3m and during the later stages of H1 2023 the level of
non-recurring customer project activity reduced and led us to reduce our
expectations for the year.
In line with this change, a number of strategic operational initiatives have
been accelerated, including the consolidation of one of the eleven sites into
the rest of the estate, which will improve flexibility and reduce costs.
In sales, the team continues to lead the market with 233 new deals won in the
period, extension of long-term contracts with ten key customers and a stable
pipeline of further opportunities although customer decision making has slowed
in 2023.
Secure Lifecycle Services
Our Secure Lifecycle Services division comprises Restore Technology, the
market leader in IT Lifecycle Services, Restore Datashred, a national
shredding business, and Restore Harrow Green, the UK's market leader in office
and commercial relocations.
For the period the division achieved revenue of £54.5m (H1 2022: £53.2m) and
an adjusted operating profit of £3.3m (H1 2022: £5.6m).
Whilst the recycling arm of Technology faced laptop and desktop availability
headwinds resulting in reduced recycling income, Datashred and Harrow Green
performed well through H1, although caution should be applied to the outlook
for Datashred where recycled paper bale prices fell significantly at the end
of Q2 and are anticipated to continue to be weak in H2.
Restore Technology - Revenue £16.3m down 5% (H1 2022: £17.2m)
Revenue associated with 'in life' end user device services and secure, on
site, destruction improved compared to H1 2022.
However, income from IT asset recycling and resale fell by 16% with asset
quality also reduced. With a much lower grade of laptop and desktop assets
received by the business for processing, this has resulted in an impact on
profitability. This trend is consistent with the most recent IDC Global PC
shipments data reporting that sales are down 13.4% in Q2 2023 against the
equivalent period in the prior year.
The sector continues to be highly fragmented and we experienced increasing
customer and sales channel demand for highly trusted partners to support new
asset installation and services for mid and end of life asset and data
management and recycling services. The current slowdown in hardware sales is
anticipated to reverse, although the timeframe is uncertain, and we believe
reflects customers slowing investment due to economic uncertainty and the life
of assets procured to support ways of working during the pandemic.
In response, we are preserving our core capabilities but reducing capacity
through consolidation of the Dunsfold site into the remaining six sites and
reducing shift patterns elsewhere in the business.
Restore Datashred - Revenue £18.6m up 2% (H1 2022: £18.3m)
Datashred performed well in H1, with increased service activity levels despite
high customer churn as customers looked to consolidate and reduce site count.
The business implemented price increases in H1 and these are offsetting
inflation pressures in people and fleet costs.
The team continued to improve the operational effectiveness of the business
with visits per day at record highs of more than 11 per day and its net
promoter score improving further to 76 in the period illustrating continued
strong customer satisfaction.
With c.70% of revenue attributable to service revenues, the business has a
solid base of contracted income although, as noted, customer churn through
customer action and sector competition was higher in H1.
The balance of revenue from recycled paper bales has a history of volatility
with pricing since the end of the pandemic (assuming H2 2021) at over
£200/tonne compared with an average price of c.£160/tonne for the three
years leading up to the pandemic, and a range of £130 to £180. As such, the
predictability of profits can be difficult to determine and in H1 paper
pricing of c.£210/tonne supported a good profit result. However, pricing
since June has fallen to below £180/tonne and, as such, the business is
cautious on its H2 outlook.
Restore Harrow Green - Revenue £19.6m up 11% (H1 2022: £17.7m)
Revenue in H1 was good at +11% against H1 2022, particularly when considering
the equivalent period in the prior year benefitted from a large MoD contract
that ended in Q2 2022.
The business has seen good expansion of relocation activity in London with
total relocations up 7%. The decision to expand storage capacity is proving to
be sound with storage revenue growing 36%, and now represents 15% of total
income in H1.
We are also pleased with the development of the Life Sciences business
following the opening of the Cambridge site in 2021 with 73% revenue growth
achieved in H1 and major contracts planned for H2.
Further strategic development of the business is continuing with potential for
regional expansion and commercial storage capabilities.
FINANCIAL PERFORMANCE
Financial overview
The Group has delivered a profitable and cash generative result for H1 on an
adjusted basis although profits are lower than anticipated at the commencement
of the year with the statutory loss for the period also reflecting the impact
of a non-cash impairment of £32.5m on the holding value of the Datashred
intangible asset arising on historic acquisition.
Pricing is negating inflation pressures and cost management plans are being
actioned although activity levels are varied across the business units with
weak market conditions in technology recycling, indications of customers
reducing spend on some of the Group's more discretionary service lines and the
headwind of increased interest rates.
Cashflows continue to be strong with 84% cash conversion(5) with a
corresponding reduction in net debt and leverage in line with expectations at
1.8x. A proportion of interest rates were fixed in H1 through conversion of
£25m of the Group's floating debt facility into a fixed term / fixed rate
USPP with interest rate hedges undertaken post period end on a further £25m
of the floating debt facility.
Adjusted basic earnings per share for the period were 8.4p (H1 2022: 12.4p)
and reflect lower operating profit, higher interest costs and a higher tax
rate. The statutory loss per share of 20.5p (H1 2022: 7.5p earnings per share)
reflects the impairment of the Datashred intangible asset and would be 3.2p
before the effects of the impairment.
An interim dividend of 1.85p (H1 2022: 2.6p) will be paid on 20 October 2023
to shareholders on the register on 22 September 2023, maintaining the
approximate ratio of dividend to adjusted earnings per share.
Income Statement
Revenue was broadly flat for the period at £139.6m (H1 2022: £140.3m), with
storage revenues up 11%, long term contracts and recurring income up 3%,
relocations revenue up 7% but other service income, IT asset and paper trading
down 13%.
The table below summarises the effects of pricing, activity levels and prior
year acquisitions on H1 revenues and indicates that the positive pricing
effect of £5.8m across the businesses are offset by the weakness of revenues
in Technology (-£0.9m) and the effect of a reduction in non-recurring
contracts (-£5.3m).
Revenue H1 2023 H1 2022 Price Activity change Non-repeats Acq'n Change
£m £m change % change change %
% % %
Restore Records Management 59.3 55.9 +6% - - - +6%
Restore Digital 25.8 31.2 +5% -5% -17% - -17%
Digital & Information Management 85.1 87.1 +6% -2% -6% - -2%
Restore Technology 16.3 17.2 +1% -16% - +10% -5%
Restore Datashred 18.6 18.3 +2% - - - +2%
Restore Harrow Green 19.6 17.7 +1% +4% - +6% +11%
Secure Lifecycle Services 54.5 53.2 +1% -4% - +5% +2%
Total 139.6 140.3 +4% -2% -4% +2% -0%
Within the Digital and Information management division, Records Management
performed well with price and activity driven revenue growth offsetting
inflationary pressures. In Digital, the business is lapping a strong
comparative with £5.3m of revenue in the comparable period attributable to a
large non-recurring scanning contracts. Other Digital revenues from cloud
storage and recurring services, such as digital mailrooms, have performed in
line with expectations.
Records Management is exiting the period in strong shape with Digital
experiencing a slow-down in bulk scanning projects as a result of customers
managing their budgets although the increasing proportion of recurring
revenues, largely due to the acquisition of EDM in 2021 and its subsequent
development, is in line with the strategy to develop a more rounded digital
services business of scale.
In Secure Lifecycle Services, Harrow Green and Datashred have grown revenues
as a result of increased activity levels and pricing actions.
However, the Technology business continued to experience low volumes of
quality IT assets for recycling during H1 with recent IDC data on Q2
indicating a further period of reduced new laptop sales of -13% suggesting
that this trend is likely to continue through H2.
Although this is believed to be a largely cyclical effect caused by pandemic
demand patterns, the current lack of volume has significantly reduced profit
expectation from this business unit for the year although we are encouraged by
the expansion and scale of the other Technology lifecycle income streams
including secure onsite data destruction, pre and mid-life services and server
recovery and resale.
The profitability for the period was lower primarily due to quality of assets
in Technology and the effect of the non-repeat contracts in Digital with
adjusted EBITDA down 5% to £38.3m and adjusted PBT down 28% to £15.1m after
the additional effect of higher interest costs. The statutory loss before tax
was £25.9m and is stated after a non-cash impairment charge of £32.5m that
primarily relates to the intangible assets arising on the 2016 acquisition of
Datashred. Before impairment, the statutory profit before tax would be £6.6m.
The table below summarises the key aspects to performance in the period with
the positive price effect of £5.8m offsetting cost inflation of £5.0m,
whilst reduced activity levels in Digital (non-repeat contracts) and
Technology (asset quality) impact operating profit by £6.0m, and interest
costs increased by £1.9m against H1 2022. Other non-cash effects benefiting
adjusted profit were £1.3m and are primarily due to the net effect of
non-cash charges relating to long term incentive provisions and IFRS16
charges.
£m
H1 2022 Adjusted profit before tax 20.9
Price increases 5.8
Cost inflation (5.0)
Technology/Digital activity (6.0)
Bank interest (1.9)
Other 1.3
H1 2023 Adjusted profit before tax 15.1
Adjusted profit items
Management believe that presentation of an adjusted profit before tax assists
readers of the accounts to better understand the performance of the business.
The adjusting items during the period are described below.
H1 2023 H1 2022 Change
£m £m
Impairment of intangible assets 32.5 - n/a
Amortisation of intangible assets 6.3 5.9 +7%
Acquisition related transaction/advisory costs 0.2 0.8 -75%
Restructuring and redundancy 1.0 0.1 +900%
Strategic IT reorganisation 1.0 - n/a
Total adjusting items 41.0 6.8 +503%
The £32.5m non-cash impairment of intangible assets relates to the historic
acquisition of Datashred. Amortisation of intangible assets increased versus
H1 2022 as a result of prior year acquisitions. Acquisition related
transaction / advisory costs are lower due to low levels of acquisition with
restructuring costs primarily relating to redundancy on the strategic
organisation restructure and site closure of Dunsfold. IT reorganisation costs
relate to specific strategic programmes to consolidate finance and other
operational systems.
Balance Sheet and Cashflow
The Balance Sheet as at 30 June 2023 remains strong, with key ratios across
working capital and trade debt consistent with prior periods.
Cashflows were also strong with a reduction in net debt to £97.9m and
leverage of 1.8x.
The net debt was further diversified during H1 by the introduction of £25m of
fixed term USPP, building on the improvement of the floating rate bank
facility in 2022. Together with the introduction of interest hedging on the
floating facility, interest cost certainty is substantially increased with a
policy to hedge or fix rate on 50-70% of debt.
On review of the Datashred business following recent paper price reductions
and a period of relative stability in working patterns, management have
reduced their medium-term expectation of tonnages that the business unit will
collect for processing and the pricing of recycled paper bales. This, together
with an increase in the cost of capital resulting from recent interest rate
rises, has led to a reduction in expectation of the value of future cashflows.
As such, management have reviewed the carrying value of the Datashred
investment, that largely arose on the acquisition of the PHS paper shredding
business in 2016, and have applied an impairment of £32.5 on the carrying
value of the investment leaving a remaining value of £27.5m.
Notes
5. Calculated as free cashflows (reconciled in statement of cashflows),
divided by adjusted operating profit after tax (using a standard tax rate)
FINANCIAL STATEMENTS
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
Unaudited Unaudited
six months ended six months ended Audited
30 June 2023 30 June 2022 year ended
£'m £'m 31 December 2022
Note £'m
Revenue - continuing operations 2 139.6 140.3 279.0
Cost of sales (80.1) (78.7) (155.4)
Gross profit 59.5 61.6 123.6
Administrative expenses (46.3) (42.6) (89.2)
Movement in trade receivables loss allowances - - (0.2)
Impairment of intangible assets (32.5) - -
Operating (loss)/profit (19.3) 19.0 34.2
Finance costs (6.6) (4.9) (10.9)
(Loss)/profit before tax (25.9) 14.1 23.3
Taxation 4 (2.2) (3.8) (6.5)
(Loss)/profit after tax (28.1) 10.3 16.8
Other comprehensive income - - -
(Loss)/profit and total comprehensive (loss)/income for the period (28.1) 10.3 16.8
attributable to owners of the parent
(Loss)/earnings per share attributable to owner of the parent (pence)
Total
- Basic 6 (20.5p) 7.5p 12.3p
- Diluted 6 (20.5p) 7.3p 12.2p
The reconciliation between the statutory results shown above and the non-GAAP
alternative performance measures are shown below:
Operating (loss)/profit (19.3) 19.0 34.2
Adjustments for:
Adjusting items - Amortisation of intangible assets 3 6.3 5.9 12.1
Adjusting items - Administrative expenses 3 2.2 0.9 5.6
Adjusting items - Impairment 3 32.5 - -
Adjustments* 41.0 6.8 17.7
Adjusted operating profit 21.7 25.8 51.9
Depreciation of property, plant and equipment and right-of-use assets 16.6 14.5 29.6
Earnings before interest, taxation, depreciation, amortisation, impairment and 38.3 40.3 81.5
adjusting items (adjusted EBITDA)
(Loss)/profit before tax (25.9) 14.1 23.3
Adjustments* (as stated above) 41.0 6.8 17.7
Adjusted profit before tax 15.1 20.9 41.0
*£0.3m of bank refinancing charges were treated as adjusting items in
deriving the Group's alternative performance measures at H1 22 but have been
restated consistent with the presentation at FY22.
Condensed Consolidated Statement of Financial Position
As at 30 June 2023
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Note
ASSETS
Non-current assets
Intangible assets 5 293.5 330.7 331.9
Property, plant and equipment 80.5 78.6 79.7
Right-of-use assets 95.6 93.3 101.4
Deferred tax asset - 5.3 -
469.6 507.9 513.0
Current assets
Inventories 2.2 2.3 2.0
Trade and other receivables 66.8 72.6 70.0
Corporation tax receivable 0.3 - -
Cash and cash equivalents 25.3 29.9 30.2
94.6 104.8 102.2
Total assets 2 564.2 612.7 615.2
LIABILITIES
Current liabilities
Trade and other payables (49.9) (55.7) (49.2)
Financial liabilities - lease liabilities (21.6) (20.2) (19.2)
Current tax liabilities - (2.6) (1.6)
Provisions (1.7) (1.4) (1.7)
(73.2) (79.9) (71.7)
Non-current liabilities
Financial liabilities - borrowings 10 (123.2) (133.4) (133.7)
Financial liabilities - lease liabilities (83.5) (87.4) (90.3)
Deferred tax liabilities (30.4) (33.2) (30.9)
Provisions (15.8) (7.9) (15.4)
(252.9) (261.9) (270.3)
Total liabilities 2 (326.1) (341.8) (342.0)
Net assets 238.1 270.9 273.2
EQUITY
Share capital 6.8 6.8 6.8
Share premium account 187.9 187.9 187.9
Other reserves 6.5 8.8 6.9
Retained earnings 36.9 67.4 71.6
Equity attributable to owners of parent 238.1 270.9 273.2
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2023
Attributable to owners of the parent
Share Share Other Retained Total
capital premium reserves earnings equity
£'m £'m £'m £'m £'m
Balance at 1 January 2022 (audited) 6.8 187.9 7.0 63.5 265.2
Profit for the period - - - 10.3 10.3
Total comprehensive loss for the period - - - 10.3 10.3
Transactions with owners
Dividends - - - (6.4) (6.4)
Share-based payments charge - - 1.8 - 1.8
Balance at 30 June 2022 (unaudited) 6.8 187.9 8.8 67.4 270.9
Balance at 1 July 2022 6.8 187.9 8.8 67.4 270.9
Profit for the period - - - 6.5 6.5
Total comprehensive income for the period - - - 6.5 6.5
Transactions with owners
Dividends - - - (3.5) (3.5)
Share-based payments charge - - (0.1) - (0.1)
Deferred tax on share-based payments - - (0.7) - (0.7)
Transfer* - - (2.1) 2.1 -
Purchase of treasury shares - - (1.1) - (1.1)
Disposal of treasury shares - - 2.1 (0.9) 1.2
Balance at 31 December 2022 (audited) 6.8 187.9 6.9 71.6 273.2
Balance at 1 January 2023 6.8 187.9 6.9 71.6 273.2
Loss for the period - - - (28.1) (28.1)
Total comprehensive loss for the period - - - (28.1) (28.1)
Transactions with owners
Dividends - - - (6.6) (6.6)
Share-based payments charge - - (0.4) - (0.4)
Balance at 30 June 2023 (unaudited) 6.8 187.9 6.5 36.9 238.1
*In 2022 a net amount of £2.1 million was reclassified from share-based
payment reserve to retained earnings in respect of lapsed and exercised
options.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2023
Note Unaudited Unaudited Audited
six months ended six months ended year ended
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Cash generated from operating activities 8 32.5 28.5 65.2
Net finance costs (5.5) (5.9) (11.4)
Income taxes paid (4.8) (2.8) (6.0)
Net cash generated from operating activities 22.2 19.8 47.8
Cash flows from investing activities
Purchase of property, plant and equipment and applications software 2 (5.6) (5.1) (11.0)
Purchase of subsidiary, net of cash acquired (1.1) (8.8) (10.8)
Purchase of trade and assets - (0.7) (0.7)
Cash flows used in investing activities (6.7) (14.6) (22.5)
Cash flows from financing activities
Dividends paid - - (9.9)
Purchase of treasury shares (0.2) - (1.1)
Proceeds from disposal of treasury shares 0.1 - 1.2
Repayment of revolving credit facility (35.0) - (145.8)
Drawdown of revolving credit facility - 1.0 146.8
Drawdown of US Private Placement notes facility 25.0 - -
Principal element of lease repayments (10.3) (9.2) (19.2)
Net cash used in financing activities (20.4) (8.2) (28.0)
Net decrease in cash and cash equivalents (4.9) (3.0) (2.7)
Cash and cash equivalents at start of period 30.2 32.9 32.9
Cash and cash equivalents at the end of period 10 25.3 29.9 30.2
A reconciliation between the statutory results shown above and the non-GAAP
free cashflow measure is shown below:
Cash generated from operating activities 32.5 28.5 65.2
Less: Income tax paid (4.8) (2.8) (6.0)
Less: Purchase of property, plant and equipment and application software (5.6) (5.1) (11.0)
Less: Principal element of lease repayments (10.3) (9.2) (19.2)
Add: Adjusting items (excl. impairment and amortisation) 3 2.2 0.9 5.6
Free cashflow* 14.0 12.3 34.6
*Calculated as cash generated from operating activities less income taxes
paid, capital expenditure and lease payments, but before adjusting items
(excluding amortisation and impairment).
Notes to the Consolidated Interim report
For the six months ended 30 June 2023
1 Basis of Preparation
The half year report has been prepared in accordance with IAS 34, Interim
Financial Reporting, adopting accounting policies that are consistent with
those of the previous financial year and corresponding half year reporting
period,
2 Segmental Analysis
The Group is organised into two main operating segments, Digital and
Information Management and Secure Lifecycle Services and incurs central costs.
The vast majority of trading of the Group is undertaken within the United
Kingdom. Segment assets include intangibles, property, plant and equipment,
right-of-use assets, inventories, receivables and operating cash. Central
assets include deferred tax and head office assets. Segment liabilities
comprise operating liabilities. Central liabilities include income tax and
deferred tax, corporate borrowings and head office liabilities. Capital
expenditure comprises additions to computer software, property, plant and
equipment. Segment assets and liabilities are allocated between segments on an
actual basis.
Revenue - Continuing operations
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Restore Records Management 59.3 55.9 113.7
Restore Digital 25.8 31.2 54.5
Digital and Information Management 85.1 87.1 168.2
Restore Technology 16.3 17.2 35.8
Restore Datashred 18.6 18.3 37.4
Restore Harrow Green 19.6 17.7 37.6
Secure Lifecycle Services 54.5 53.2 110.8
Total revenue 139.6 140.3 279.0
The revenue from external customers was derived from the Group's principal
activities primarily in the UK (where the Company is domiciled).
Segment information
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Digital and Information Management 20.9 23.8 44.8
Secure Lifecycle Services 2.8 5.5 11.0
Central (4.9) (2.6) (7.6)
Amortisation of intangible assets (6.3) (5.9) (12.1)
Impairment of intangible assets (32.5) - -
Share-based payment credit/(charge) 0.7 (1.8) (1.9)
Operating (loss)/profit (19.3) 19.0 34.2
Finance costs (6.6) (4.9) (10.9)
(Loss)/profit before tax (25.9) 14.1 23.3
The reconciliation between the statutory results shown above and the non-GAAP
alternative performance measures are shown below:
Digital and Information Management
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Operating profit 20.9 23.8 44.8
Adjusting Items - 0.8 2.6
Adjusted operating profit 20.9 24.6 47.4
Secure Lifecycle Solutions
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Operating profit 2.8 5.5 11.0
Adjusting Items 0.5 0.1 0.8
Adjusted operating profit 3.3 5.6 11.8
Digital and Information Management Secure Lifecycle Services Head Office Unaudited
£'m
£'m
£'m
30 June 2023
Total
£'m
Segment assets 431.5 120.8 11.9 564.2
Segment liabilities 108.8 53.9 163.4 326.1
Capital expenditure 4.4 1.1 0.1 5.6
Depreciation and amortisation 16.3 6.4 0.2 22.9
Unaudited
30 June 2022
Segment assets 441.3 152.3 19.1 612.7
Segment liabilities 117.2 52.6 172.0 341.8
Capital expenditure 3.9 1.2 - 5.1
Depreciation and amortisation 14.2 6.1 0.1 20.4
Audited
31 December 2022
Segment assets 446.3 158.3 10.6 615.2
Segment liabilities 115.4 63.7 162.9 342.0
Capital expenditure 8.4 2.2 0.4 11.0
Depreciation and amortisation 29.2 11.9 0.6 41.7
3 Adjusting items
Restore's strategy is to grow through organic expansion, strategic
acquisitions and margin enhancement through efficiency and scale. To assess
progress in delivery of this strategy, management believe it is useful to
provide readers of the accounts with alternative performance measures ('APMs')
that describe the performance of the Group before the effects of significant
costs or income that are considered to be distorting due to their nature, and
non-cash amortisation primarily arising from acquired intangible assets.
Adjustments made from statutory measures to adjusted measures are referred to
as adjusting items and include amortisation, expenses associated with
acquisitions and subsequent integration costs, costs associated with major
restructuring programmes, and other significant costs that are considered to
be distorting due to their nature when assessing the performance of the
business.
The £32.5m non-cash impairment of intangible assets relates to the historic
acquisition of Datashred. Amortisation of intangible assets increased versus
H1 2022 as a result of prior year acquisitions.
For the six months ended 30 June 2023, adjusting administrative costs were
£2.2m, including £0.2m of acquisition related costs, £1.0m of restructuring
and redundancy costs and £1.0m in respect of strategic IT reorganisation. For
the six months ended 30 June 2022, adjusting costs were £0.9m, including
£0.8m acquisition related restructuring costs and £0.1m acquisition related
transaction costs. For the year ended 31 December 2022, adjusting costs were
£5.6m, including £1.4m of acquisition related transaction/advisory costs,
£2.6m of restructuring and redundancy costs, £0.9m of property related costs
and £0.7m in respect of strategic IT reorganisation.
4 Taxation
The current tax charge for the period to 30 June 2023 is anticipated to be
£2.2m, based on the estimated effective tax rate for the Group.
5 Intangible Assets
Goodwill Customer relationships Trade Applications software IT Total
£'m
£'m
names
£'m
£'m
£'m
Cost
1 January 2022 212.5 168.8 4.3 10.3 395.9
Arising on acquisition of subsidiaries 3.5 5.1 - - 8.6
Arising on acquisition of trade and assets 0.2 0.6 - - 0.8
Additions - external - - - 0.1 0.1
Disposals - - - (0.4) (0.4)
30 June 2022 216.2 174.5 4.3 10.0 405.0
Arising on acquisition of subsidiaries 1.2 3.3 - 0.2 4.7
Arising on acquisition of trade and assets - 0.1 - - 0.1
Fair Value Adjustment 1.7 - - - 1.7
Additions - external - - - 0.8 0.8
Disposals - - - (0.3) (0.3)
30 December 2022 219.1 177.9 4.3 10.7 412.0
Additions - external - - - 0.4 0.4
Disposals - - - - -
30 June 2023 219.1 177.9 4.3 11.1 412.4
Accumulation amortisation and impairment
1 January 2022 17.6 42.6 2.8 5.7 68.7
Charge for the year - 5.2 0.1 0.6 5.9
Disposals - - - (0.3) (0.3)
30 June 2022 17.6 47.8 2.9 6.0 74.3
Charge for the year - 5.2 0.1 0.9 6.2
Disposals - - - (0.4) (0.4)
31 December 2022 17.6 53.0 3.0 6.5 80.1
Charge for the year - 5.4 0.1 0.8 6.3
Disposals - - - - -
Impairment 32.5 - - - 32.5
30 June 2023 50.1 58.4 3.1 7.3 118.9
Carrying amount
30 June 2023 169.0 119.5 1.2 3.8 293.5
31 December 2022 201.5 124.9 1.3 4.2 331.9
30 June 2022 198.6 126.7 1.4 4.0 330.7
For the purpose of impairment testing, goodwill and other intangibles are
allocated to business units which represent the lowest level at which that
those assets are monitored for internal management purposes. The recoverable
amount of each cash-generating unit ('GCU') is determined from value-in-use
calculations. The calculations use pre-tax cash flow projections through to
the end of 2027 and a pre-tax discount rate.
An impairment review was conducted at HY 2023, as a result of weak volume and
quality of recycled asset sales in Technology, and the recent drop in paper
price as well as a re-assessment of long-term volume in Datashred. The
impairment review covered Technology and Datashred only, as no impairment
indicators were identified in respect of the Group's other CGUs. The CGUs
tested for impairment at HY 2023 have compound average growth rates for
revenue ranging from 4%-6% over the period 2024-2027. Terminal cash flows are
based on projections for FY27, assumed to grow perpetually at 2%. The
forecasts have been discounted using a pre-tax discount rate of 12.8%.
The impairment review performed, which included downside scenario modelling,
indicated the need for an impairment in Datashred of £32.5m. An impairment
has resulted from reduced expectations on service activity, paper volumes and
recycled paper pricing, as well as an increase in the discount rate partly
driven by the change in interest rate.
No impairment was required to the Technology CGU.
Datashred
The impairment charge of £32.5m is sensitive to changes in revenue
assumptions as well as to changes in the discount rate. More optimistic
assumptions reduce the impairment, whereas more conservative assumptions
increase the impairment. The scenario which forms the basis of the impairment
assumes paper pricing of £170-£175 per tonne, steady compound average growth
in paper tonnages of 1.0%, and 4.5% compound average growth in service
revenue.
Assuming 0% growth in paper tonnages increases the impairment charge by
£0.2m. A £5/tonne reduction in the paper price increases the impairment by
£2.1m. Reducing the compound average growth rate of service revenue to 4%
increases the impairment by £4.2m. An increase in the discount rate by 0.5%
results in an additional impairment of £1.0m.
Technology
The reduced level of profitability in Technology is considered to be cyclical,
however an increase in the discount rate or the businesses not achieving the
growth in profitability forecast for FY27 could result in an impairment. An
increase in the discount rate to 13.6% using management's base case would
result in an impairment of £0.4m, with a further increase of 0.1% resulting
in an impairment of £0.8m. A 10% reduction in the terminal year EBITDA would
result in an impairment of £1.5m. These downside scenarios are before taking
any mitigating actions such as capex reductions, which would increase the
headroom in the model.
6 Earnings per ordinary share
Basic earnings per share have been calculated on the profit for the period
after taxation and the weighted average number of ordinary shares in issue
during the period.
Unaudited Unaudited Audited
six months ended six months ended year ended
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Weighted average number of shares in issue 136,924,067 136,674,067 136,761,738
Total (loss)/profit for the period (£28.1m) £10.3m £16.8m
Total basic (loss)/earnings per ordinary share (20.5p) 7.5p 12.3p
Weighted average number of shares in issue 136,924,067 136,674,067 136,761,738
Share options 663,859 4,777,957 1,264,065
Weighted average fully diluted number of shares in issue 137,587,926 141,452,024 138,025,803
Total fully diluted earnings per share (20.5p) 7.3p 12.2p
Adjusted earnings per share
The Directors believe that 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 six months ended year ended
30 June 2023 30 June 2022* 31 December 2022
£'m £'m £'m
(Loss)/profit before tax (25.9) 14.1 23.3
Adjustments:
Adjusting items - Amortisation of intangible assets 6.3 5.9 12.1
Adjusting items - Impairment 32.5 - -
Adjusting items - Administrative expenses 2.2 0.9 5.6
Adjusted profit before tax 15.1 20.9 41.0
*£0.3m of bank refinancing charges were treated as adjusting items in
deriving the Group's alternative performance measures at H1 22 but have been
restated consistent with the presentation at FY22.
The adjusted earnings per share, based on weighted average number of shares in
issue during the period, 136.9m (2022: 136.7m) is calculated below:
Unaudited Unaudited Audited
six months ended six months ended year ended
30 June 2023 30 June 2022* 31 December 2022
Adjusted profit before tax (£'m) 15.1 20.9 41.0
Tax at 23.5% (2022: 19.0%) (£'m) (3.6) (4.0) (7.8)
Adjusted profit after tax (£'m) 11.5 16.9 33.2
Adjusted basic earnings per share 8.4p 12.4p 24.3p
Adjusted fully diluted earnings per share 8.4p 12.0p 24.1p
*£0.3m of bank refinancing charges were treated as adjusting items in
deriving the Group's alternative performance measures at H1 22 but have been
restated consistent with the presentation at FY22.
7 Dividends
In respect of the current period, the Directors declare an interim dividend of
1.85p per share (2022: £2.6p). The estimated dividend to be paid is £2.5m
(2022: £3.6m) and will be paid on 20 October 2023 to those shareholders on
the register as at 22 September 2023.
8 Cash generated from operating activities
Unaudited Unaudited Audited year
six months ended six months ended ended
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Continuing operations
(Loss)/profit before tax (25.9) 14.1 23.3
Depreciation of property, plant and equipment and right-of-use assets 16.6 14.5 29.6
Amortisation of intangible assets 6.3 5.9 12.1
Impairment of intangible assets 32.5 - -
Net finance costs 6.6 4.9 10.9
Share-based payments (credit)/charge (0.7) 1.8 1.9
Share-based payment settlement (0.4) - -
Increase in inventories (0.3) (0.1) (0.3)
Decrease/(increase) in trade and other receivables 3.2 (14.8) (11.9)
(Decrease)/increase in trade and other payables (5.4) 2.2 (0.4)
Cash generated from operating activities 32.5 28.5 65.2
10 Financial liabilities - borrowings
Unaudited Unaudited Audited
30 June 2023 30 June 2022 31 December 2022
£'m £'m £'m
Non-current
Bank loans - secured 125.0 135.0 135.0
Deferred financing costs (1.8) (1.6) (1.3)
123.2 133.4 133.7
Analysis of net debt
Cash at bank and in hand 25.3 29.9 30.2
Bank loans due within one year - - -
Bank loans due after one year (123.2) (133.4) (133.7)
(97.9) (103.5) (103.5)
ENDS
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