Final Results
24/01/2023 07:00
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RNS Number : 6148N Sureserve Group PLC 24 January 2023
24 January 2023
Sureserve Group plc
("Sureserve" or the "Group")
Final results for the year ended 30 September 2022
Delivering strategic growth
Sureserve, the Social Housing Energy Services Group, is pleased to announce
its audited results for the year ended 30 September 2022.
Financial highlights
· Revenue(*1) increased by 27.0% to £275.1m (2021: £216.6m)
· EBITA(*1,2) increased by 36.6% to £16.8m (2021: £12.3m)
· Profit before tax(*1) increased by 40.5% to £15.6m (2021:
£11.1m)
· Adjusted basic earnings per share(*3) increased by 28.6% to 9.0p
(2021: 7.0p)
· Net cash(*4) (excluding IFRS 16 lease liabilities) increased to
£23.3m (2021: £16.4m)
· Order book(*1) increased by 18.0% to £593.5m (2021: £502.9m)
Operational overview
· Internal efficiencies have improved EBITA margin(*1) to 6.1%
(2021: 5.7%)
· 99 contract wins valued at £247.0m (2021: £400.0m)
· Average contract length now 6 years (2021: 5 years)
· Over 90% of contracts in the gas businesses have price-index
linked clauses
· CorEnergy acquired in December 2021 for £7.6m performing ahead
of management expectations, improving the Group's credentials in renewables
· Good progress made on ESG as we deliver on our targets and
sustainability strategy
· Board strengthened with the appointment of Peter Smith (CEO), Sam
Vohra (CFO) and Tania Songini (Non-Executive Director)
Outlook
· The Group's order book(*1) provides good visibility of revenue
streams with 79% of FY23 expected revenue covered by the order book at the
start of the financial year
· Despite the inflationary cost pressures, the Group has mitigated
the effects of these demonstrating the resilience of our business model
· The Group's momentum has continued with a good start to trading
in FY23
· The Board remains confident in the outlook for FY23
Peter Smith, Chief Executive Officer of Sureserve, commented:
"I am pleased to report a year of progress at Sureserve building on last
year's momentum to achieve strong increases in revenue and profits. Our order
book(*1) of £593.5m is a tremendous asset, providing a clear line of sight of
future revenues, and the shift to longer term contracts that we have seen
gives us confidence in the year ahead and beyond.
Last year we stated our ambition to be to be the UK's leading social housing
energy services provider. We remain focused on pursuing a strategy of both
organic growth and acquisitions to increase our presence in the gas heating
and renewables sectors, and our acquisition of CorEnergy has proven to be a
successful addition to our renewables expertise. In a fragmented market, our
defined strategy supports our ambitions to be a leading social housing energy
services provider delivering projects that matter at the forefront of the UK
energy transition.
The Group's experienced management teams are well placed to support our
clients through the energy transition, and deliver against our ambition to
double our sales and further improve net margins and earnings per share within
the next four years.
I would like to thank the whole Sureserve team for their hard work during the
year. We continue to offer a critical service to our clients, and I believe
the business is well placed to benefit from the opportunities that lie ahead."
Notes
(*1) - From continuing operations. Continuing operations comprises the Social
Housing Energy Services division and Central costs segment. Sureserve Fire and
Electrical Limited and Precision Lift Services Limited have been classified as
assets held for sale and are excluded from continuing operations.
(*2) - EBITA is defined as Operating profit before impairment of goodwill,
amortisation of acquisition related intangibles and exceptional items.
(*3) - Adjusted basic earnings per share from continuing and discontinued
operations excluding impairment of goodwill, amortisation of acquisition
related intangibles, exceptional items and their associated tax effect.
(*4) - From continuing and discontinued operations. The cash from discontinued
operations is presented within assets held for sale.
Enquiries:
Sureserve Group
Peter Smith, Chief Executive Officer 07590 929 431
Sameet Vohra, Chief Financial Officer 07834 740 059
Camarco (Financial Public Relations)
Ginny Pulbrook 020 3757 4992
Rosie Driscoll
Toby Strong
Shore Capital (Nominated Adviser and Broker) 020 7408 4090
Stephane Auton
Daniel Bush
Tom Knibbs
Fiona Conroy
Notes to editors
Sureserve is a leading UK social housing energy services Group. The Group was
founded in 1988 and is headquartered in Dartford. It currently employs 2,673
staff from 31 offices across the UK.
Chairman's statement
In FY22 we achieved a 36.6% increase in EBITA to £16.8m (FY21: £12.3m). Our
focus, as always, is on adjusted basic earnings per share which improved to
9.0p, 28.6% better than the previous year (FY21: 7.0p). We now have all the
key staff who have performance responsibility, the Chief Executive Officer,
Chief Financial Officer, and subsidiary Managing Directors, on earnings
focused share options.
In last year's Chairman's statement, I outlined our then new strategy which is
to build upon our position as a leading heating, and heating maintenance
provider to the social housing sector in the UK. We estimate that, with about
12% of the £1.3 billion annual social housing gas market, we are already a
leading provider. Our ambition is to double our sales and significantly
improve our net margin and earnings per share within the next four years.
The four key deliverables for the Group outlined last year were:
1. Bolt on acquisitions in the gas-heating space.
2. Continued organic growth from existing businesses.
3. Strategic acquisitions of renewable energy businesses.
4. Driving internal efficiencies to better our EBITA margin on sales.
We have unambiguously achieved organic growth in revenues (from continuing
operations). In FY22 revenues increased by 27.0% compared with FY21.
Our internal efficiencies in continuing operations have improved EBITA margin
to 6.1% (from 5.7% in FY21) despite the well reported inflationary pressures.
We remain committed to our stated acquisition strategy and have identified a
number of opportunities that would potentially meet our strategic criteria. We
are reviewing several of these opportunities and are positive on the outlook
for progress in this area. As we have previously stated, we intend to sell our
two businesses held for disposal.
Your Board was strengthened in FY22 by the appointments of Peter Smith (CEO),
Sameet Vohra (CFO), and Tania Songini (Non-Executive Director) who has
considerable experience of renewable energy. I am grateful to all of my fellow
directors, whose judgement and insight has proved invaluable to the Group.
Nick Winks
Non-Executive Chairman
Chief Executive's review
Trading has been strong throughout the year, with the Group achieving revenues
of £275.1m and EBITA of £16.8m from continuing operations. Our cash position
increased to £23.3m from £16.4m in FY21. Whilst the global economy has been
impacted by a number of challenges, not least war in Ukraine, the ongoing
energy price increases and domestic inflation, the services we offer remain of
critical importance to our clients and are predominantly driven by
non-discretionary, regulatory standards. There have been challenges with the
availability of some components, but we continue to adapt and find solutions.
Our clients have also been supportive and understanding, showing a good deal
of flexibility where required. I would like to thank both our suppliers and
our clients for the collaborative approach they continue to demonstrate.
Our year-end order book of £593.5m is a tremendous asset. To have such clear
line of sight to future revenues is a real strength of the Group. A large
number of contracts in our gas businesses are price-index linked, providing a
level of inflation protection. The recent shift towards longer term contracts,
some over seven years, has helped our forward visibility and we continue to
benefit from high on-going appointment and retention levels. Our average
contract length is now 6 years, with several long term contract wins and
extensions noted elsewhere in this report. Having this client commitment
enables us to plan and resource accordingly. Contract wins of £247.0m in FY22
reinforces our confidence in the Group's on-going and future success.
The past year has seen changes to the executive team. With my elevation to the
Chief Executive Officer role, a thorough search began for my successor to the
Chief Financial Officer role. Sam Vohra joined the Group in December 2021,
initially on an interim basis, but it rapidly became clear that he would make
an excellent permanent Chief Financial Officer and I was delighted when he
secured the role in April 2022. He brings a fresh perspective as well as
considerable experience.
In 2021 we identified Social Housing Energy Services as our core market and
stated our ambition to be the UK's leading social housing energy services
provider. That strategy encompasses both strong organic growth and
acquisitions to increase our existing presence in gas heating and find
companies in the longer-term renewables sector, which will leave us well
placed as the UK's energy system transitions, alongside improving our internal
efficiencies.
The acquisition of CorEnergy in December 2021 has been a real success
performing better than our expectations and has integrated well into the
Sureserve Group. CorEnergy provides us with skills and knowledge of the
renewables market, which will be essential to enable us to grow the business
and focus on the UK's energy transition. Its team has doubled in size in the
past year, has moved to new larger premises and its pipeline of opportunities
is considerable. CorEnergy provides a good example of the type of renewables
acquisitions we are seeking.
We continue to review a number of acquisition opportunities and are positive
on the outlook for 2023. As previously stated, we have two businesses which do
not fit our renewed strategy and we continue to search for buyers.
ESG remains central to the work we do. I attended our Sureserve Academy Awards
in May 2022 at Old Trafford where prizes were awarded across each of the
subsidiary businesses. I would like to give my special congratulations to
Lexie Smith, of Providor, who won the overall award. We undertook an Employee
Engagement Survey in May 2022, our first since November 2020. The results were
encouraging and helped to identify areas where we can improve which we are
focused on. I am particularly proud of Sureserve achieving the Armed Forces
Covenant Silver Award for our commitment to employing and supporting
ex-services personnel in the business. Additionally, we were delighted to
announce our three-year sponsorship of the Young Persons Trust for the
Environment Better Planet Schools programme. As we announced last year, we are
committed to transitioning our fleet of vans and cars from diesel to electric.
The worldwide shortage of key components has made this more challenging than
anticipated and caused delays. However, at the end of September 2022, 11% of
our fleet was electric up from 3% in September 2021.
The Sureserve Foundation held its second fund raising dinner in November 2022.
The Foundation seeks to reduce the burden of fuel poverty in the UK, by
raising charitable donations. I am delighted to report that this event raised
in excess of £60,000 towards this most worthwhile of causes.
The strength of Sureserve comes from the commitment, passion and skills of
those whom we employ and, as always, I want to thank all our staff for all
they do. Their dedication to our clients, suppliers and colleagues is key to
our ongoing success.
Peter Smith
Chief Executive Officer
Operational review
Group Summary
As we announced in our full year results last year, the Group's growth
strategy will build on our expertise, experience and leading position in the
market as a social housing energy services provider across the UK. We believe
that by combining selective and targeted acquisitions alongside developing
organic growth opportunities, there is potential for continued substantial
growth within the Group in the years ahead.
We were pleased to announce during FY22 that we achieved carbon neutrality for
our Scope 1 and 2 emissions and Scope 3 Business Travel and Waste, for all UK
operations for the financial reporting year, 1st October 2020 - 30th September
2021. Working with the Carbon Trust, we have taken steps to calculate the
Group's carbon footprint and satisfactorily offset this to achieve carbon
neutrality in accordance with PAS 2060.
We are proud to support ex-Forces personnel and reservists in rewarding,
long-term careers across our businesses. We recognise the valuable experience
and skills offered by ex-service men and women. As a signatory of the Armed
Forces Covenant and through a close partnership with CTP (Career Transition
Partnership) we continue to create exciting opportunities to join the Group.
The Group had a strong financial year, continuing the momentum seen in the
prior year, despite the broader macroeconomic environment and inflationary
cost pressures. This demonstrates the resilience of the business model which
is based on predictable and recurring revenues in areas supported by
non-discretionary and regulatory led spend. Our growth is underpinned by high
levels of long term contracts and frameworks for which we have continued to
see high appointment and retention levels. We are also continuing to see an
increase in contract lengths, with a number of contracts of over seven years
in duration recently won, taking the average contract length to 6 years. Our
client base, largely of local authorities and housing associations, provides
us with sustainable partnerships that we regard as blue chip.
As previously reported our refreshed strategy is to drive growth from within
our specialism of social housing energy services ('SHES'). We believe this
focus plays to our core strengths and in identifying business areas where we
have an established market position, we can maximise our growth potential. The
results below have therefore been presented on a continuing operations basis
(including the SHES business and central costs) and do not include our fire
and electrical or lift businesses which are classified as being held for sale
(with the 2021 prior year comparatives being restated).
The Group delivered year on year revenue growth of 27.0% to £275.1m (FY21:
£216.6m). This was driven by strong organic growth from new contract wins,
extensions and additional spending from certain clients, together with the
inclusion of CorEnergy which was acquired in December 2021. We saw strong
growth across our gas compliance businesses from contract wins and extensions,
and an increase in the level of renewables work, particularly in the Aaron
Services business. The energy efficiency, renewables and smart metering
businesses also saw significant growth compared to last year. Part of this was
a return to more normalised trading levels where revenues had been impacted in
the prior year from Covid-19 restrictions in place, particularly in the energy
efficiency and smart metering businesses. However, we also saw increases from
planned growth in smart metering from investments in additional people and
training. This increases our operational capabilities and improves opportunity
through our partnership with our utility clients.
EBITA increased by 36.6% to £16.8m (FY21: £12.3m), with this additional
profitability driven by a combination of factors. Improved EBITA performance
within gas was revenue and volume led, following contract wins and extensions.
CorEnergy profitability was a positive benefit compared to the prior year.
This is pleasing and also resulted in a positive impact to FY22 EBITA, both in
absolute terms and on a margin basis. The Providor headcount and training
investments made in the first half of this year impacted the overall EBITA
margin but will result in future benefit as scale continues to increase.
Looking forward
We remain optimistic around opportunities for continued growth within the
Group, which underpins our refreshed strategy. We believe our businesses have
a positive outlook, with many opportunities for growth ahead. Our strong
position is reinforced by the Government's continued emphasis on a net zero
target for carbon emissions by 2050 with current legislation supporting this
target. The Group and our experienced management teams are well placed to
support our clients through the energy transition, and we will continue to
monitor developments as opportunities present themselves.
The current energy environment in the UK has prompted additional actions from
the Government. One such action, announced in November 2022, is the
introduction of a new £1bn ECO+ scheme, which will provide funding for
hundreds of thousands of homes across the country to install new home
insulation. This is part of wider actions across energy policy to help the UK
meet its ambition of becoming energy independent. The new scheme will extend
support to those who do not currently benefit from any other Government
support to upgrade their homes and is in addition to the existing £6.6bn
'Help to Heat' energy schemes. Around one-fifth of the £1bn fund will also be
targeted towards the most vulnerable, including those on means tested benefits
or in fuel poverty. The Group has been active in delivering other Energy
Company Obligation ('ECO') schemes and is well placed to benefit from these
new opportunities as they arise.
Energy services and future energy transition is a core focus moving forward
and we believe we have developed a successful basis for achieving growth both
organically and through acquisition. Our established presence in the
installation of solar PV works, battery storage projects, energy efficient
lighting, air source heat pumps and electric vehicle charging points presents
our experienced management team with attractive growth opportunities going
forward that we are well placed to deliver on. The backdrop of climate change
and ongoing Government initiatives, and future commitments, is believed likely
to provide ongoing opportunities to increase our delivery in these, and
associated, service areas.
As we communicated at the time, purchasing CorEnergy is a key example of the
type of strategic acquisition we wish to pursue. CorEnergy is a business
focused on delivering sustainable energy solutions for public and private
sector organisations, supplementing our energy services and immediately
enhancing earnings for the Group. In line with our refreshed strategy, we will
continue to review other appropriate acquisition opportunities as we expand
our scale, service mix and geographical offering.
The nature of our Group, particularly our gas businesses, remains as a core
service provider to customers, including vital emergency repair and testing
services to properties. Our continued growth further strengthens our position
in the gas sector, with a true national reach and market leading businesses.
Nearly all of our gas contracts include annual contractual price increases
which are either CPI linked, or another associated price index linked, with
the increase typically falling due on the contract anniversary date.
Consequently, we are well positioned to continue our growth both organically
and through further acquisitions in what are mostly fragmented and regional
markets. Each of the gas businesses achieved double-digit revenue growth and
we remain confident that our experienced leadership in this stable sector
provides a strong platform for further growth and cash generation underpinned
by a strong order book.
While we are not exposed to fluctuations in wholesale gas prices given our
position as an installer and maintainer of heating assets, we are well
positioned to benefit from UK Government initiatives to reduce fuel poverty,
particularly in times when wholesale energy prices are high for extended
periods. Our role is to support our client base and the end user with
compliant, safe and effective heating. In addition to the gas heating services
and products we more generally work with, we are seeing increased demand for
alternative heat sources. This includes, but is not limited to, air source
heat pumps. The Government has targeted 600,000 heat pump installations per
year by 2028 as part of its 2050 net zero initiative. We therefore believe
this will continue to be an area of focus and an opportunity for growth as we
move forward. It is seen as largely supplementary to existing revenue streams.
The Board is encouraged that high bidding success rates, and contract
retention levels, continue to be achieved by the Group. The order book from
continuing operations totalled £593.5m at the end of September 2022. This
represented an 18.0% increase compared to last year (September 2021:
£502.9m). On an overall Group basis, the order book totalled £640.2m (2021:
£527.1m). This provides visibility over future revenue, profitability and
cash flow, and allows longer term planning to occur, which helps drive
efficiency. The order book is consistent with our previously stated view
around our targeted efforts on long term contracts that provide opportunities
to deliver profitably in our core areas. We continue to target securing
contracts with long term visibility and robust value. We remain confident in
our future profitable growth with a significantly increased order book value
and good visibility on future earnings, underpinning our belief in a robust
financial outlook.
Operational summary
Gas
The Group's gas businesses provide planned and responsive maintenance,
installation and repair services predominantly to local authority and housing
association clients, in the areas of domestic and commercial gas. These
activities include the installation of lower carbon renewable technologies
such as air source heat pumps.
Each of the three gas businesses, Sure Maintenance, K&T Heating and Aaron
Services, delivered double-digit growth compared to the prior year. Following
the increase in size of Aaron Services, both organically and from the
acquisition of Vinshire in 2021, the three gas businesses are now more similar
in revenue size. In addition to winning new business, this is in part due to
the contractual price increase mechanisms included within nearly all of the
contracts. The latter has helped to mitigate against some of the temporary
cost pressures experienced during the year resulting in increased
profitability. As well as project-based work, we provide contracted service
and repair work throughout the year. The gas businesses normally have more
callouts during colder months, resulting in higher labour and materials costs.
This seasonality drives higher levels of profitability and cash generation in
the warmer months when call-out rates are lower, and a proportion of our
engineers can be redeployed to jobs that yield further income. As a result, a
significant proportion of the annual profit occurs during the second half of
the financial year.
The gas businesses continued their track record of new wins during the year.
The most significant awards included a Gas Servicing, Repair and Installation
Contract with L&Q for £68.0m over an eight year period; a heating
services, repairs and installations contract with Longhurst Group for up to
£30.0m over a maximum of five years; a contract with Metropolitan Thames
Valley Housing valued at more than £20.0m for domestic, commercial heating
and electrical works over a four-year term; £20.0m of work over a maximum of
10 years for heating servicing, repairs and installations on behalf of the
London Borough of Tower Hamlets;; a 10-year gas servicing and maintenance
contract with Wandle Housing Association for over £10.0m; and an award of
£10.0m over 10 years with Southend-on-Sea Borough Council.
Other notable achievements included the improvement of energy efficiency at
Widnes Vikings Stadium through the delivery of renewable energy upgrades for
Halton Borough Council, and Sure Maintenance being recognised as Heating
Contractor of the Year at the 2022 ASCP Safety & Compliance Awards.
Water and air hygiene
H2O is our water and air risk assessment specialist provider across the UK.
Performance of the business has continued to be positive with strong client
service supporting consistent delivery. The business has again achieved
several wins in the year including a number of individual awards for water
testing and sampling including £0.7m with London Borough of Merton, £0.8m
with Sanctuary Housing Group, £0.5m with Royal Borough of Kensington and
Chelsea and in excess of £0.5m with Metropolitan Thames Valley Housing for
water hygiene risk assessments and monitoring.
Smart metering
Providor is our leading national installer of smart meters (operating as a
meter asset manager and meter operator), undertaking work for utility
suppliers which are required by the UK Government to install smart meters in
every home across England, Wales and Scotland. The business is among the most
experienced in the ongoing UK-wide roll-out and remains focused on existing
contract delivery through to the current installation deadline of 31 December
2025. As of September 2022, over 26 million of the newly installed meters were
operating in smart mode. With more than 55 million smart meter installations
required in total, there remains a significant market opportunity ahead of the
roll-out deadline.
The business has delivered considerable growth in the year from previous wins
and extensions, supported in part by the recruitment of new engineers. The
business continues to assess new revenue prospects, from both new clients and
existing contractual relationships. This represents an ongoing opportunity to
grow further with confidence over operational delivery. The business did
witness short term challenges from the pandemic effects during the year,
notably from employee absences midway through the first half of the year when
high levels of Covid-19 isolation were experienced across the UK.
Profitability has decreased compared to last year, largely due to the upfront
investment costs associated with engineer recruitment and training as the
business resized for future volume growth. The Group expects that this
investment will result in improved long-term margins as the business grows.
Providor has extensive experience of the national smart meter roll-out and
continues to apply careful management to the situation. We consider our
contractual positions while seeking to provide strong and secure employment
for our engineers. We recognise that ongoing volatility in gas prices has
adversely impacted numerous energy supplier businesses and their ability to
trade. We are fortunate that our client base is the larger utility companies
who are better placed to successfully navigate pricing volatility. In
addition, Ofgem will tend to appoint these larger energy suppliers to take on
the smart meter obligations of any failed suppliers. This may further increase
the volume of future work with our existing customers. It may also give us
access to more engineers via either direct employment or our subcontractor
arrangements, where appropriate opportunities present. The UK Government has
confirmed that it remains committed to the smart meter roll-out and that it
aligns with its net zero commitment.
Energy efficiency and renewables
These businesses provide a range of energy efficiency services such as
insulation, heating and energy efficient technologies. The latter includes air
source heat pumps, solar PV, battery storage, energy efficient lighting and
electric vehicle charging points through the Everwarm and CorEnergy
businesses. Everwarm provides these services predominantly for social housing
and private homes, through grant funding, with CorEnergy having a focus on
non-domestic premises. The Everwarm business also includes our joint ventures,
Warmworks and Arbed, which are similarly focused on energy efficiency works in
domestic properties backed by Government funding.
Sureserve delivers energy efficiency measures that support carbon emissions
savings for utility companies, enabling them to meet their legislative
targets. The insulation operations are driven by seasonal influences, as we
are unable to render or use the fixing glue necessary for insulation below
certain temperatures. As a result, we typically experience a far larger number
of productive working days in summer, compared to winter months, with higher
revenues and margins normally achieved in the second half of the financial
year. CorEnergy works are project based and therefore not subject to the same
seasonality.
Results across our energy efficiency businesses saw increased profitability in
the Everwarm business together with a positive contribution from the newly
acquired CorEnergy business. Everwarm's improved performance was principally
due to the increase in revenues. We saw increased delivery and performance in
comparison to last year within the Scottish Warmworks joint venture. This was
due to a mix of growth in the business with new workstreams added and Warmer
Homes Scotland work for the Scottish Government largely returning to normal
compared to the prior year where Covid-19 restrictions had remained. Profit
from the Arbed joint venture was also ahead of last year, but primarily
resulted from one-off management actions related to the end of the Arbed 3
scheme. The contribution from CorEnergy since its acquisition in December 2021
has been positive and ahead of our expectations.
The energy efficiency and renewables businesses continued to see several large
wins and awards as reflected in the order book growth. The largest win for
Everwarm was a four year energy services contract with Aberdeenshire Council
for £10.0m. A number of other £1m+ wins and framework placements throughout
the year give management confidence for further new work opportunities, along
with existing client contracts and opportunities supporting the Warmworks
joint venture. CorEnergy also saw a number of wins including works for
Liverpool City Council for £2.5m, works in excess of £1.5m with Dorset
Council, and various other ongoing and associated works. We have already seen
additional opportunities from CorEnergy's involvement in the Group and access
to frameworks and other tenders which may not have been available to it prior
to acquisition. An example of this is the contract with the UK Ministry of
Defence for solar PV procurement for £5.4m. We believe the complementary
services offered by CorEnergy represent a continued opportunity for growth in
the Group.
We continue to believe we are well placed to deliver on behalf of our utility
partners based on our management team's extensive experience in this area. The
'ECO4' scheme, which commenced on 1 April 2022, commits funding of £1bn per
year until 31 March 2026. Additionally, the ECO+ scheme announced in November
2022 will provide a further £1bn in funding. This should provide further
opportunity for Everwarm to deliver increased volumes.
The Public Sector Decarbonisation Scheme supports the aim of reducing
emissions from public sector buildings by 75% by 2037. Phase 3B announced a
further £635m of grant funding available for non-domestic public sector
buildings for the financial years 2023 to 2025, this scheme provides an
ongoing revenue stream for CorEnergy for consultancy and contracting works for
existing and new public sector clients.
Our Warmworks joint venture delivering the Warmer Homes Scotland initiative
for the Scottish Government saw continued momentum in performance and client
delivery. The Warmworks joint venture announced the acquisition of Connected
Response Ltd in December 2021, which will provide a more diverse range of
heating solutions to those in need and will continue to support the growth of
the business.
As previously reported, the Arbed 3 programme for the Welsh Government has now
concluded with details yet to be finalised for any successor scheme. We will
monitor this alongside other appropriate opportunities. The joint venture has
concluded the installation programme and is currently undertaking remaining
post-installation obligations. The Group continues to work elsewhere in Wales,
particularly the energy retrofit scheme with Pobl Group in Penderi.
Outlook
The continuity of key individuals and consistent growth have provided us with
a stable platform to deliver quality services for our client base. Like many
others, due to a combination of factors we are continuing to experience some
upward cost pressures on certain materials, labour and fuel prices. However,
we are well placed to address these challenges through our resilient business
model, where we benefit from a high proportion of price-index linked
contracts, and the experience of our management teams and workforce. Our long
term collaborative approach with clients and key supply chain partnerships
will assist us in continuing to mitigate cost pressures wherever possible.
Our mix of customer propositions and service offerings based on established
long-term contractual relationships underpins our future prospects. We expect
that the UK Government will remain committed to providing sufficient funding
to address fuel poverty in this highly regulated sector. Our view remains that
the Group's significant wealth of management experience and client
relationships gives Sureserve a market leading proposition in energy services
and energy transition. We believe that our ECO credentials will allow us to
continue to service our large utility clients as well as others. This means we
are well placed to provide a high quality service to our customers and deliver
effectively for all of our stakeholders.
Our financial performance and order book growth have continued to improve
throughout FY22, building on last year's momentum. This is underpinned by high
levels of long term contracts and frameworks for which we have continued to
see high appointment and retention levels. Our client base, consisting largely
of local authorities and housing associations, provides us with the continuity
to move forward with partners which we regard as blue chip. Our plans support
our ambitions to be the leading social housing energy services provider
delivering projects that matter at the forefront of the UK energy transition.
We remain confident in the ongoing prospects of the businesses.
Peter Smith
Chief Executive Officer
Chief Financial Officer's review
Following the update to the Group's strategy during the year, the Board of
Directors has changed the basis of segmental reporting to move away from the
previously reported two segment reporting basis (Compliance and Energy
Services) to a single business segment of "Social Housing Energy Services".
As part of the updated strategy, the Group is looking to dispose of the
Sureserve Fire and Electrical Limited and Precision Lift Services Limited
entities and so these have been included as assets held for sale. The Social
Housing Energy Services operating segment and central costs are shown as
continuing operations and exclude these two businesses that are held for sale.
Group revenue from continuing operations(*1), increased by 27.0% to £275.1m
(2021: £216.6m), reflecting strong revenue growth across all businesses.
CorEnergy, which was acquired in December 2021, has performed ahead of the
Board's expectations, contributing to Group revenue of £9.8 million including
the full revenue relating to the solar PV MOD contract, in conjunction with
another group company, and achieving EBITA of £1.0 million post-acquisition.
Total Group revenue from continuing and discontinued operations increased by
26.8% to £309.3m (2021: £244.0m).
Group EBITA from continuing operations(*1,2), increased by 36.6% to £16.8m
(2021: £12.3m) reflecting strong revenue growth, notwithstanding the
inflationary macroeconomic backdrop experienced in the second half of the
year, and the investments made in headcount and training in the smart metering
business where headcount increased during the year to meet demand from our
utility customers. Central costs were £3.4m (2021: £2.7m) with the increase
primarily relating to higher IFRS2 share scheme accounting charges, M&A
advisory costs, as well as certain one-off items. Total Group EBITA from
continuing and discontinued operations increased by 27.4% to £18.6m (2021:
£14.6m).
The Group reported an operating profit(*1) of £16.4m (2021: £12.1m), after
£0.3m of amortisation charges for acquisition intangibles (2021: £nil),
£nil impairment of goodwill (2021: £0.2m) and exceptional costs of £0.1m
(2021: £nil) relating to acquisition costs for CorEnergy.
The net finance expense(*1) was £0.9m (2021: £1.0m), and taxation(*1) was
£2.5m (2021: £2.0m). The profit after tax(*1), was £13.1m (2021: £9.1m).
The Group reported an operating loss from discontinued operations of £1.7m
(2021: operating profit of £2.7m), after a £3.5m goodwill impairment charge
(2021: £nil) and exceptional income of £nil (2021: £0.4m). The loss after
tax from discontinued operations was £2.0m (2021: profit after tax of
£2.3m).
Finance expense
The net finance expense(*1) was £0.9m (2021: £1.0m), which represented the
interest charged on our borrowing facilities (net of finance income), together
with the amortisation of loan arrangement fees and other interest, which
totalled £0.3m (2021: £0.5m). The 2022 figure also includes £0.5m interest
on lease agreements (2021: £0.5m) in accordance with IFRS16.
Tax
The tax charge on the profit before tax(*1) was £2.5m (2021: £2.0m). The
effective tax rate of 15.9%, was lower than the statutory corporation tax rate
of 19% due to true-up adjustments in respect of the prior year tax charge and
tax adjustments in relation to share based payments.
Our net cash tax payment(*3) for the year was £3.1m (2021: £2.4m) reflecting
the higher profitability of the Group during the year.
The net deferred tax asset as at 30 September 2022 was £0.4m (2021: £0.3m).
The movement primarily related to a reduction in the deferred tax on
accelerated capital allowances being offset by additional deferred tax on
short term timing differences and share based payments. Further details are
set out in note 26.
Earnings per share
Basic earnings per share from continuing operations were 8.0 pence (2021: 5.7
pence), based on profit after tax from continuing operations of £13.1m (2021:
£9.1m). Group adjusted basic earnings per share(*3) was 9.0 pence (2021: 7.0
pence).
Our statutory profit(*4) for the year was £11.1m (2021: £11.4m). Based on
the weighted average number of shares in issue during the year of 163.9m, this
resulted in basic earnings per share of 6.8 pence (2021: 7.1 pence) from
continuing and discontinued operations.
Cash flow performance
Our operating cash flow(*4) for the period was an inflow of £16.4m (2021:
£14.2m), and the management of working capital remains an area of continued
focus. This includes accrued income, receivables and payables, and we manage
these balances within our existing banking facilities. However, we recognise
the importance of supporting our supply chain and have ensured that we have
continued to pay our suppliers to contractual terms.
Acquisition of CorEnergy Limited
On 7 December 2021, the Group acquired the entire issued share capital of
CorEnergy Limited. The consideration paid for CorEnergy was £6.6m, plus a
working capital adjustment of £1.0m (paid in cash), taking the total
consideration paid to £7.6m. £3.3m was satisfied through cash and a
further £3.3m in the issue of 3,704,811 new ordinary shares of 10p each in
Sureserve which were issued at an effective price of 89.4p each.
Net cash
At 30 September 2022, the Group had net cash (including cash balances in
assets held for sale) excluding lease liabilities(*4) of £23.3m (2021:
£16.4m).
2022 2021
£'000 £'000
Cash and cash equivalents 19,319 16,444
Unamortised finance costs (included in other receivables) 151 27
Net cash pre-lease liabilities 19,470 16,471
Lease liabilities (15,076) (12,043)
Total net cash in continuing operations 4,394 4,428
Cash and cash equivalents in assets held for sale 3,989 -
Lease liabilities in assets held for sale (599) -
Total net cash (including lease liabilities) 7,784 4,428
Total net cash (excluding lease liabilities) 23,308 16,444
The total net cash, including lease liabilities(*4) of £15.7m (2021:
£12.0m), was £7.8m (2021: £4.4m).
Banking arrangements
In December 2021, the Group renewed its bank facilities to provide an
overdraft facility of £5,000,000 together with a three year revolving credit
facility of £15,000,000 which runs to 31 January 2025.
As at 30 September 2022 the revolving credit facility remained undrawn (2021:
£nil), and remained undrawn as at the date of issuing this report. National
Westminster Bank ('NatWest') continues to be an excellent and supportive
banking partner.
Statement of financial position
The principal items in our balance sheet are goodwill, right of use assets and
working capital.
There was a decrease in goodwill of £1.5m from 30 September 2021, due to the
reallocation of goodwill relating to assets held for sale of £7.8m offset by
an increase of £6.2m in relation to the acquisition of CorEnergy. As at 30
September 2022, there are £nil acquisition intangibles (2021: £nil)
remaining on the statement of financial position as these have been fully
amortised.
Right of use assets has increased by £2.8m to £14.4m (2021: £11.6m) which
primarily relates to an increase in our commercial vehicle fleet over the
year.
Net current assets (excluding cash and lease liabilities) (*4) stood at £8.0m
(2021: net current liability of £1.4m). Net current assets stood at £25.2m
(2021: £11.0m).
The principal balances in working capital are noted below and reflect a
continued focus on working capital management:
As at 30 September 2022 As at 30 September 2021
£m £m
Trade receivables 23.1 18.4
Accrued income 22.1 17.9
Trade payables (31.2) (24.9)
Accruals (11.1) (11.7)
(*1) - From continuing operations. Continuing operations comprises the Social
Housing Energy Services division and Central costs segment. Sureserve Fire and
Electrical Limited and Precision Lift Services Limited have been classified as
assets held for sale and are excluded from continuing operations.
(*2) - EBITA is defined as Operating profit before impairment of goodwill,
amortisation of acquisition related intangibles and exceptional items.
(*3) - Adjusted basic earnings per share from continuing and discontinued
operations excluding impairment of goodwill, amortisation of acquisition
related intangibles, exceptional items and their associated tax effect.
(*4) - From continuing and discontinued operations. The cash from discontinued
operations is presented within assets held for sale.
Risks
The Board considers strategic, financial and operational risks and identifies
actions to mitigate those risks.
Our year-end review included an assessment of accrued income, of which the
balance was £22.1m at the reporting date (2021: £17.9m), and this is
regularly reviewed for impairment. Accrued income represents a balance sheet
risk in our industry and we continue to ensure a balanced approach between
risk and possible outcome on final invoicing.
We continue to manage a number of potential risks and uncertainties, including
claims and disputes which are common to other similar businesses which could
have a material impact on short- and longer-term performance. The Board
remains focused on the outcome of a number of contract settlements on which
there is a range of outcomes for the Group in terms of both cash flow and
impact on the consolidated statement of comprehensive income.
In preparing our annual accounts, we have taken a view on the financial risk
of pending claims and disputes and seek to provide in full for potential
shortfalls, whilst taking account of potential counterclaims, such that we
have a collectively balanced position of risk across all such matters.
Going Concern statement
The Directors acknowledge the Financial Reporting Council's 'Guidance on going
concern, risk and viability' issued in June 2020. The Group's business
activities, together with factors likely to affect its future development,
performance and position, are set out in the Strategic Report within the 2022
Annual Report. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial Review, as
part of the Strategic Report of the 2022 Annual Report. In addition, note 32
to the consolidated Financial Statements within the 2022 Annual Report
includes details of the Group's approach to financial risk management, its
financial instruments and hedging activities, and its exposure to credit risk
and liquidity risk.
In assessing the Group and Company's ability to continue as a going concern,
the Board reviews and approves the annual budget, three-year plan and a
rolling 12 month forecast, including forecasts of cash flows, borrowing
requirements and covenant headroom. The Board reviews the Group's sources of
available funds and the level of headroom available against its committed
borrowing facilities and associated covenants. The Group's financial
forecasts, considering possible sensitivities in trading, indicate that the
Group will be able to operate within the level of its committed borrowing
facilities and within the requirements of the associated covenants for the
foreseeable future. NatWest remains very supportive of the Group and in
December 2021, the Group renewed its bank facilities to provide an overdraft
facility of £5,000,000 together with a three year revolving credit facility
of £15,000,000 which runs to 31 January 2025. The Directors have a reasonable
expectation that the Group and Company have adequate resources to continue
their operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis of accounting in preparing the
financial statements.
Sameet Vohra
Chief Financial Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2022
Notes 2022 2021
(restated) (*1)
£'000 £'000
Continuing operations
Revenue 4 275,096 216,577
Cost of sales (234,049) (180,275)
Gross profit 41,047 36,302
Other operating expenses (25,644) (25,198)
Share of results of joint venture 19 1,424 1,158
Operating profit before exceptional and other items 4,5 16,827 12,262
Acquisition costs 8 (120) -
Amortisation of acquisition related intangibles (269) -
Impairment of goodwill 15 - (188)
Operating profit 16,438 12,074
Finance expense 9 (864) (1,000)
Profit before tax 4,5 15,574 11,074
Taxation 12 (2,481) (1,997)
Profit for the period attributable to the equity holders of the Group from 13,093 9,077
continuing operations
(Loss) / profit for the period from discontinued operations 6 (2,022) 2,275
Profit for the period attributable to the equity holders of the Group 11,071 11,352
Earnings per share from continuing operations
Basic 14 8.0p 5.7p
Diluted 14 7.8p 5.6p
(Loss) / earnings per share from discontinued operations
Basic 14 (1.2p) 1.4p
Diluted 14 (1.2p) 1.4p
Earnings per share from continuing and discontinued operations
Basic 14 6.8p 7.1p
Diluted 14 6.6p 7.0p
Adjusted earnings per share
Basic 14 9.0p 7.0p
Diluted 14 8.8p 6.8p
The accompanying notes are an integral part of this consolidated statement of
comprehensive income.
(*1) The prior year numbers have been restated due to two entities classified
as discontinued at 30 September 2022 (see note 6 for further details).
(
)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 September 2022
2022 2021
Notes £'000 £'000
Non-current assets
Goodwill 15 40,932 42,479
Other intangible assets 16 1,403 820
Property, plant, and equipment 17 1,989 2,009
Right of use assets 18 14,363 11,564
Interests in joint ventures 19 2,494 1,660
Deferred tax assets 26 444 344
61,625 58,876
Current assets
Inventories 20 5,059 4,199
Trade and other receivables 21 53,996 43,249
Cash and cash equivalents 19,319 16,444
78,374 63,892
Assets classified as held for sale 6 15,338 -
Total current assets 93,712 63,892
Total assets 155,337 122,768
Current liabilities
Trade and other payables 22 54,070 47,397
Lease liabilities 27 5,494 4,071
Provisions 25 497 403
Income tax payable 238 1,003
60,299 52,874
Liabilities directly associated with assets classified as held for sale 6 8,233 -
Total current liabilities 68,532 52,874
Net current assets 25,180 11,018
Non-current liabilities
Lease liabilities 27 9,582 7,972
Provisions 25 1,467 1,596
11,049 9,568
Total liabilities 79,581 62,442
Net assets 75,756 60,326
Equity
Called up share capital 28 16,589 16,122
Share premium account 30 28,740 25,620
Share-based payment reserve 30 634 349
Merger reserve 30 20,067 20,067
Retained earnings 9,726 (1,832)
Equity attributable to equity holders of the Company 75,756 60,326
The financial statements of Sureserve Group plc (registered number 09411297)
were approved by the Board of Directors and authorised for issue on 23 January
2023. They were signed on its behalf by:
S Vohra
Director
The accompanying notes are an integral part of this consolidated statement of
financial position.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2022
Share capital Share premium account Share-based payment reserve Own shares Merger reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 October 2020 15,934 25,408 650 (290) 20,067 (11,663) 50,106
Profit for the year - - - - - 11,352 11,352
Dividends paid (Note 13) - - - - - (1,595) (1,595)
Issue of shares (exercise of options) 188 212 - - - (105) 295
Equity settled share based payments, net of tax - - 168 - - - 168
Reserve transfer - - (469) 290 - 179 -
At 30 September 2021 16,122 25,620 349 - 20,067 (1,832) 60,326
Profit for the year - - - - - 11,071 11,071
Issue of shares (acquisition of CorEnergy Limited) (Note 34) 370 2,942 - - - - 3,312
Issue of shares (exercise of options) 97 178 - - - - 275
Equity settled share based payments, net of tax - - 381 - - 391 772
Reserve transfer - - (96) - - 96 -
At 30 September 2022 16,589 28,740 634 - 20,067 9,726 75,756
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2022
2022 2021
(restated) (*1)
Notes £'000 £'000
Cash flows from operating activities
Cash generated from operations 33 16,372 12,259
Interest paid (791) (885)
Income taxes paid (2,637) (2,037)
Net operating cash flows from discontinued activities 3,408 4,833
Net cash generated from operating activities 16,352 14,170
Cash flows from investing activities
Purchase of shares in subsidiary, net of cash acquired (2,661) (200)
Purchase of property, plant, and equipment (765) (1,528)
Purchase of intangible assets (911) (543)
Sale of property and equipment 7 18
Net investing cash flows from discontinued activities (85) (44)
Net cash used in investing activities (4,415) (2,297)
Cash flows from financing activities
Proceeds from issue of shares 275 295
Dividend paid to shareholders - (1,595)
Repayment of lease liabilities (4,797) (3,505)
Finance issue costs (201) -
Net financing cash flows from discontinued activities (350) (303)
Net cash used in financing activities (5,073) (5,108)
Net increase in cash and cash equivalents 6,864 6,765
Cash and cash equivalents at beginning of year 16,444 9,679
Cash and cash equivalents at end of year 23,308 16,444
Cash and cash equivalents 19,319 16,444
Cash and cash equivalents included in assets held for sale 3,989 -
Cash and cash equivalents at end of year 23,308 16,444
The accompanying notes are an integral part of this consolidated statement of
cash flows.
Cash and cash equivalents shown above excludes capitalised loan arrangement
fees.
(*1) The prior year numbers have been restated due to two entities classified
as discontinued at 30 September 2022 (see note 6 for further details).
(
)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
General Information
Sureserve Group plc is a company incorporated in England and Wales under the
Companies Act. The address of the registered office is Crossways Point 15,
Victory Way, Crossways Business Park, Dartford, Kent, DA2 6DT.
The consolidated Financial Statements are presented in Pounds Sterling because
that is the currency of the primary economic environment in which the Group
operates. The principal activities are discussed in the operational review of
the annual report.
Financial Information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2022 or 2021 but is
derived from those accounts. Statutory accounts for 2021 have been delivered
to the registrar of companies, and those for 2022 will be delivered in due
course. The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
Annual Report and Accounts and Annual General Meeting
The 2022 Annual Report and Accounts and Notice of the Annual General Meeting
will be posted to shareholders and published on the Group's website at
https://www.sureservegroup.co.uk/plc/investors/
(https://www.sureservegroup.co.uk/plc/investors/) shortly. The Annual General
Meeting is to be held on 21 March 2023.
1. Basis of preparation
Basis of accounting
The consolidated financial statements of Sureserve Group Plc are prepared in
accordance with the historical cost convention, in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards. The
Company's ordinary shares are quoted on AIM, a market operated by the London
Stock Exchange.
The principal accounting policies adopted are set out below.
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Group's Financial
Statements except as noted below.
All amounts disclosed in the financial statements and notes have been rounded
off to the nearest thousand pounds sterling unless otherwise stated.
Adoption of new and revised standards
The accounting policies adopted are consistent with those of the previous
financial year.
New standards and interpretations not applied
The International Accounting Standards Board issued the following standards
and interpretations for annual periods beginning on or after the effective
dates as noted below. The adoption of the below standards is not expected to
have a significant impact on the financial statements.
IAS/IFRS standards Effective for accounting periods starting on or after
IFRS 17 Insurance Contracts 1 January 2023
IFRS 3 (amendment): reference to the conceptual framework Business combinations 1 January 2022
IAS 37 (amendment): onerous contracts - cost of fulfilling a contract Provisions, contingent liabilities, and contingent assets 1 January 2022
IAS 16 (amendment): proceeds before intended use Property, plant, and equipment 1 January 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
1. Basis of Preparation (continued)
Basis of consolidation
The consolidated Financial Statements incorporate the assets, liabilities,
income, and expenses of the Group. The Financial Statements of the
subsidiaries are prepared for the same financial reporting period as the
Company. Where necessary, adjustments are made to the Financial Statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group. Intercompany transactions, balances and unrealised gains and
losses transactions between Group companies are eliminated on consolidation.
As a consolidated statement of comprehensive income is published, a separate
profit and loss account for the parent company is omitted from the Financial
Statements by virtue of section 408 of the Companies Act 2006.
Going concern
The Directors have a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for the
foreseeable future. The Directors regard the foreseeable future as no less
than 12 months following publication of its annual Financial Statements, so in
practical terms, 16 months from the reporting date. The Directors review and
approve the annual budget, three-year plan and forecasts, including forecasts
of cash flows, borrowing requirements and covenant headroom, taking account of
reasonable possible changes in trading performance and the current state of
its operating market and are satisfied that the Group should be able to
operate within the level of its current facilities and in compliance with the
covenants arising from those facilities. In December 2021, the Group renewed
its bank facilities to provide an overdraft facility of £5,000,000 together
with a revolving credit facility of £15,000,000 which runs to 31 January
2025. At 23 January 2023, the revolving cash facility remained undrawn.
Accordingly, the directors have adopted the going concern basis in preparing
the financial information. Please see further statement in the strategic
report.
2. Significant accounting policies
Operating segments
Following the update to the Group's strategy during the period, the Board of
Directors has changed the basis of segmental reporting to move away from the
previously reported two segment reporting basis (Compliance and Energy
Services) to a single business segment of "Social Housing Energy Services".
Costs are allocated to the appropriate segment as they arise with central
overheads apportioned on a reasonable basis. Operating segments are presented
in a manner consistent with internal reporting, with inter-segment revenue and
expenditure eliminated on consolidation.
Business combinations
Acquisitions of subsidiaries are accounted for using the acquisition method.
The consideration transferred in a business combination is measured at fair
value, which is calculated as the sum of the acquisition-date fair values of
assets transferred by the Group, liabilities incurred by the Group to the
former owners of the acquired company and the equity interest issued by the
Group in exchange for control of the acquired company. Acquisition-related
costs are recognised as non-trading exceptional costs in profit or loss as
incurred.
At the acquisition date, the identifiable assets acquired and liabilities
assumed are recognised at their fair value. Goodwill is measured as the
excess of the sum of the consideration transferred over the net of the
acquisition-date amounts of the identifiable assets acquired and liabilities
assumed. If, after reassessment, the net of the acquisition-date amounts of
the identifiable assets acquired and liabilities assumed exceeds the sum of
the consideration transferred, the excess is recognised immediately in profit
or loss as a bargain purchase gain.
When the consideration transferred by the Group in a business combination
includes an asset or liability resulting from a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date
fair value and included as part of the consideration transferred in a business
combination. Changes in fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted retrospectively, with
corresponding adjustments against goodwill. Measurement period adjustments are
adjustments that arise from additional information obtained during the
'measurement period' (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent
consideration that do not qualify as measurement period adjustments depends on
how the contingent consideration is classified. Contingent consideration that
is classified as equity is not remeasured at subsequent reporting dates and
its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or liability is remeasured at
subsequent reporting dates in accordance with IFRS 9 or IAS 37 as appropriate,
with the corresponding gain or loss being recognised in profit or loss.
Acquisition costs
Management believes that acquisition costs are exceptional in nature and they
are presented as such in the income statement, so as not to distort
presentation of the underlying performance of the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
2. Significant accounting policies (continued)
Goodwill
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is reviewed for impairment at least annually.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which the goodwill has been allocated
are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not reversed in a subsequent
period.
On disposal of a subsidiary, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
Intangible assets
Intangible assets with finite useful lives are carried at cost less
accumulated amortisation and accumulated impairment losses. Amortisation is
recognised on a straight line basis over their useful lives. The estimated
useful life and amortisation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted for on a
prospective basis.
The estimated useful life for each asset type is set out below.
· Computer software and capitalised development costs - three to
five years
· Development costs are capitalised when the asset is identifiable,
the value can be measured reliably and it is probable that economic benefits
will flow to the Group.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognised separately
from goodwill are initially recognised at their fair value at the acquisition
date (which is regarded as their cost). Intangible assets are recognised if
they are separable from the acquired entity or give rise to other
contractual/legal rights. The amounts ascribed to such intangibles are arrived
at by using suitable valuation techniques.
Subsequent to initial recognition, intangible assets acquired in a business
combination are reported at cost less accumulated amortisation and accumulated
impairment losses, on the same basis as intangible assets that are acquired
separately.
The estimated useful economic lives and the methods used to determine the cost
of intangibles acquired in a business combination are as follows:
Intangible
asset
Useful economic
life
Valuation method
· Contracted customer order book Remaining period of
the contract Expected cash flows receivable
· Customer
relationships Five
years
Expected cash flows receivable
· Non-compete agreements Five
years
With or without method
Derecognition of intangible assets
An intangible asset is derecognised on disposal, or when no future economic
benefits are expected from use or disposal. The gain or loss from
derecognition of an intangible asset, measured as the difference between the
net disposal proceeds and the carrying amount of the asset is recognised in
profit or loss when the asset is derecognised.
Property, plant, and equipment, and right of use assets
Property, plant, and equipment, and right of use assets are stated at cost
less accumulated depreciation and any recognised impairment loss.
Depreciation is calculated so as to write off the cost of a tangible asset,
less its estimated residual value, over the estimated useful economic life of
that asset on the following bases:
· Leasehold improvements: over the period of the lease
· Plant &
equipment: 15%
to 33.33% per annum on a straight-line basis
· Fixtures & fittings:
20% to 33.33%
per annum on a straight-line basis
· Motor vehicles: 25% per
annum on a straight-line basis
· Right of use assets: over the period of
the lease
The estimated useful lives, residual values and depreciation method are
reviewed at the end of each reporting period, with the effect of any changes
in estimate accounted for on a prospective basis. Right of use assets are
depreciated over their expected useful lives on the same basis as owned assets
or, where shorter, over the term of the relevant lease.
An item of property, plant and equipment is derecognised upon disposal, or
when no future economic benefits are expected to arise from the continued use
of the asset. The gains or loss arising on the disposal or scrappage of an
asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
2. Significant accounting policies (continued)
Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of tangible and
intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the
impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount
of the cash-generating unit to which the asset belongs. When a reasonable and
consistent basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are allocated
to the smallest group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
An intangible asset with an indefinite useful life is tested for impairment at
least annually and whenever there is an indication that the asset may be
impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted. If
the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in profit or loss,
unless the relevant asset is carried at a revalued amount, in which case the
reversal of the impairment loss is treated as a revaluation increase.
Exceptional items
Items which are significant by their size and/or nature require separate
disclosure and are reported separately in the statement of comprehensive
income. Details of exceptional items are explained in Note 8.
Revenue
Revenue recognition is determined according to the requirements of IFRS 15
"Revenue from contracts with customers". All revenue is considered revenue
from contracts with customers as defined by IFRS 15. IFRS 15 prescribes a
five-step model of accounting for revenue recognition which includes
identifying the contract, identifying performance obligations, determining the
transaction price, allocating the transaction price to different performance
obligations and the timing of recognition of revenue in connection with
different performance obligations.
For contracts with multiple components to be delivered such as solar panels,
servicing and repairs, management applies judgement to consider whether those
promised goods and services are: (i) distinct - to be accounted for as
separate performance obligations; (ii) not distinct - to be combined with
other promised goods or services until a bundle is identified that is
distinct; or (iii) part of a series of distinct goods and services that are
substantially the same and have the same pattern of transfer to the customer.
At contract inception the total transaction price is estimated, being the
amount to which the Group expects to be entitled and has rights to under the
present contract. This includes the fixed price stated in the contract and an
assessment of any variable consideration resulting from variation orders,
discounts, rebates, refunds, performance bonuses, penalties, service credits.
Variable consideration is estimated based on the expected value or the most
likely outcome method and is only recognised to the extent that it is highly
probable that a subsequent change in its estimate would not result in a
significant revenue reversal.
Once the total transaction price is determined, the Group allocates this to
the identified performance obligations in proportion to their relative
stand-alone selling prices and recognises revenue when (or as) those
performance obligations are satisfied.
For each performance obligation identified in the contract, the Group
determines if revenue will be recognised over time or at a point in time.
Performance obligations satisfied over time
The Group recognises revenue over time on contracts where any of the following
criteria is met;
· The customer simultaneously receives and consumes the benefits
provided by the Group's performance as the Group performs it; or
· The services provided creates or enhances an asset that the
customer controls; or
· The services provided do not create an asset with an alternative
use to the Group and the Group has an enforceable right to payment for
performance completed to date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
2. Significant accounting policies (continued)
Revenue (continued)
The Group typically recognises revenue on an over time basis for the
following:
· Certain energy services
· Gas services
· Fire services
· Water and air hygiene services
· Lift services
For each performance obligation to be recognised over time, the Group applies
a revenue recognition method that faithfully depicts the Group's performance
in transferring control of the goods or services to the customer. This
decision requires assessment of the real nature of the goods or services that
the Group has promised to transfer to the customer. The Group applies the
relevant output or input method consistently to similar performance
obligations in other contracts.
Performance obligations satisfied at a point in time
If the criteria for satisfying a performance obligation over time are not met,
revenue is recognised at the point in time when control of the goods or
services transfers to the customer. This will be at the point when the jobs
are completed and there is a right to invoice.
The Group typically recognises revenue on a point in time basis for the
following:
· Smart metering
· Certain energy services
(i) Schedule of Rates ("SOR") contracts
SOR contracts are set based on predetermined rates for a list of services and
duties required by the customer.
For short term jobs usually completed within a few days, the right to
consideration is considered to correspond directly with the value of
performance completed to date as measured by the amounts specified for each
job set out on the rate card. Revenue is recognised when the jobs are
completed or invoiced. Where deemed appropriate, the Group will utilise the
practical expedient within IFRS 15 and recognise revenue in line with amounts
invoiced. Contract fulfilment costs are expensed as incurred.
For longer term jobs, the Group applies the relevant output or input revenue
recognition method for measuring progress that depicts the Group's performance
in transferring control of the goods or services to the customer. Contract
fulfilment costs are expensed as incurred.
Certain longer term jobs use the output method based upon surveys of
performance completed or milestones reached which allow the Group to recognise
revenue on the basis of direct measurements of the value to the customer of
the goods or services transferred to date relative to the remaining goods or
services under the contract.
Under the input method, revenue is recognised in direct proportion to costs
incurred where the transfer of control is most closely aligned to the Group's
efforts in delivering the service.
(ii) Fixed price (or lump sum) service contracts
Certain contracts, in particular for gas servicing and maintenance, are
procured on a fixed price basis. Revenue qualifies for recognition over time
as the customer receives and consumes the benefits from the service as it is
being provided. Revenue for maintenance/reactive activities is recognised on a
straight line basis over the term of the contract. Where servicing and
maintenance activity is expected to take place evenly throughout the
performance period, revenue is recognised on a straight-line basis over the
contract term. Where activity is more aligned to periodic service events, then
revenue is allocated to those events and recognised over the contract term
when those events take place. Contract fulfilment costs are expensed as
incurred.
(iii) Accrued income and deferred income
The Group's customer contracts include a diverse range of payment schedules
which are often agreed at the inception of longer term jobs under which it
receives payments throughout the term of the contracts.
Where revenue recognised at the period end date is more than amounts invoiced,
the Group recognises an accrued income contract asset for this difference.
Where revenue recognised at the period end date is less than amounts invoiced,
the Group recognises a deferred income contract liability for this difference.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
2. Significant accounting policies (continued)
Employee benefits
Retirement benefit costs
The Group contributes to the personal pension plans of certain employees of
the Group. The assets of these schemes are held in independently administered
funds. The pension cost charged in the Financial Statements represents the
contributions payable by the Group in accordance with IAS 19.
Share-based payments
The Company has issued equity-settled share-based awards and free shares to
certain employees. The fair value of share-based awards with non-market
performance conditions is determined at the date of the grant using a
bi-nominal model. The fair value of share-based awards with market related
performance conditions is determined at the date of grant using the Monte
Carlo model. Share-based awards are recognised as expenses based on the
Company's estimate of the shares that will eventually vest, on a straight line
basis over the vesting period, with a corresponding increase in the share
option reserve.
At each reporting date the Company revises its estimates of the number of
options that are expected to vest based on service and non-market performance
conditions. The amount expensed is adjusted over the vesting period for
changes in the estimate of the number of shares that will eventually vest. The
impact of the revision of the original estimates, if any, is recognised in
profit or loss such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserves. Options with
market-related performance conditions will vest based on total shareholder
return against a selected group of quoted market comparators. Following the
initial valuation, no adjustments are made in respect of market based
conditions at the reporting date.
Employee Benefit Trust
The Company established an Employee Benefit Trust upon its IPO, whose remit is
to hold Sureserve Group plc shares on behalf of its employees. The trust is
wholly funded by the Group and although legally independent is deemed to be
controlled by the Group as the Trust relies on it for funding and the Company
is able to remove and appoint the trustees. The assets and liabilities of the
Trust are therefore consolidated with those of the Group.
Finance income and costs
Interest receivable and payable on bank balances is credited or charged to the
statement of comprehensive income as incurred.
Finance arrangement fees and issue costs are capitalised and netted off
against borrowings. All other borrowing costs are written off to the statement
of comprehensive income as incurred. If there are nil borrowing costs the
finance arrangement fees are included within other receivables.
Notional interest payable, representing the amortisation of loan arrangement
fees, is charged to finance costs.
Costs incurred in raising finance
Costs incurred in raising finance are capitalised and amortised through the
profit and loss account over the term of the funding. In the event that the
associated finance product is refinanced prior to its expiring, the
unamortised costs are treated as an "Other Item" on the face of the statement
of comprehensive income, to the extent that they are replaced with fees and
costs associated with raising the new finance.
Assets held for sale
Assets and liabilities within a disposal group classified as held for sale are
presented separately and measured at the lower of their carrying amounts
immediately prior to their classification as held for sale and their fair
value less costs to sell. However, some held for sale assets such as financial
assets or deferred tax assets, continue to be measured in accordance with the
Group's relevant accounting policy for those assets. Once classified as held
for sale, the assets are not subject to depreciation or amortisation. Any
profit or loss arising from the sale of a discontinued operation or its
remeasurement to fair value less costs to sell is presented as part of a
single line item, profit, or loss from discontinued operations.
Discontinued operations
A discontinued operation is a component of the Group that either has been
disposed of or is classified as held for sale. A discontinued operation
represents a separate major line of the business. Profit or loss from
discontinued operations comprises the post-tax profit or loss of discontinued
operations and the post-tax gain or loss recognised on the measurement to fair
value less costs to sell or on the disposal group(s) constituting the
discontinued operation.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
2. Significant accounting policies (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The current tax payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the statement of comprehensive
income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable
or deductible. The Group's asset for current tax is calculated using tax rates
prevailing at the year end.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the Financial
Statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are generally recognised for all
taxable temporary differences; deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises from the
initial recognition of goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each statement of
financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is calculated at the tax rates that have been enacted or
substantively enacted at the statement of financial position date. Deferred
tax is charged or credited in the statement of comprehensive income, except
when it relates to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying amount of
its assets and liabilities. Deferred tax assets and liabilities are offset
when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Current and deferred tax are recognised in profit or loss, except when they
relate to items that are recognised in other comprehensive income or directly
in equity, in which case, the current and deferred tax are also recognised in
other comprehensive income or directly in equity, respectively. When current
tax or deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the business
combination.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where appropriate, labour and overheads which
have been incurred in bringing the inventories to their present location and
condition. Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in marketing,
selling and distribution. Provision is made, where appropriate, to reduce the
value of inventory to its net realisable value.
Government grants
The Group recognises a government grant when it is receivable. Government
grants are offset against applicable costs where appropriate, as opposed to
being reported as other income.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of a past event, and where it is probable that the
Group will be required to settle that obligation and the amount can be
reliably estimated. The amount recognised as a provision is the best
estimate of the consideration required to settle the present obligation at the
statement of financial position date, taking into account the risks and
uncertainties surrounding the obligation. Where a provision is measured
using the cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows (when the time value of money
is material). Details of material provisions are disclosed unless it is not
practicable to do so or where it could be expected to prejudice seriously the
position of the entity.
Contingent liabilities
Where a provision or accrual is deemed to be required it has been included
within the consolidated statement of financial position. For contingent
liabilities where an economic outflow is possible, it is often not practicable
to estimate the financial effect due to the range of estimation uncertainty.
For contingent liabilities where the possibility of economic outflow is
remote, disclosure of the estimated financial effect is not required.
Contingent liabilities acquired in a business combination are initially valued
at fair value at the acquisition date. At the end of subsequent reporting
periods, such contingent liabilities are measured at the higher of the amount
that would be recognised in accordance with IAS 37 and the amount initially
recognised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
2. Significant accounting policies (continued)
Joint ventures
Under IFRS 11 joint ventures are accounted for under the equity method of
accounting. A joint venture is a joint arrangement whereby the parties have
joint control of the arrangement and have rights to the net assets of the
arrangement. Loans receivable from joint ventures and investments in joint
venture entities are reviewed for impairment at each year end.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument. The principal financial assets and
liabilities of the Group are as follows:
(a) Trade and other receivables
Trade and other receivables are recognised initially at fair value and
measured subsequently at amortised cost less any provision for impairment
losses including expected credit losses. In accordance with IFRS 9 the Group
applies the simplified approach to measuring expected credit losses which uses
a lifetime expected loss allowance for all trade receivables and accrued
income contract assets, estimated using a combination of historical experience
and forward-looking information.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with a
maturity of three months or less. Bank overdrafts are presented as current
liabilities to the extent that there is no right of offset with cash balances.
A contractual obligation from a customer is completed when the payment is
approved on the customer's banking system, whether this be via BACS or same
day transfer, with cash being recognised as the contractual obligation is
released.
(c) Trade and other payables
Trade and other payables are not interest bearing and are stated initially at
fair value and subsequently held at amortised cost.
(d) Bank and other borrowings
Interest-bearing bank and other loans are recorded at the fair value of the
proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are
accounted for at amortised cost and on an accruals basis in the statement of
comprehensive income using the effective interest method. Interest is added to
the carrying value of the instrument to the extent that they are not settled
in the period in which they arise.
(e) Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of
the financial instrument's contractual obligations rather than the financial
instrument's legal form. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of its
liabilities.
(f) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Leases
The Group assesses whether a contract is a lease at inception of the contract.
A lease conveys the right to direct the use and obtain substantially all of
the economic benefits of an identified asset for a period of time in exchange
for consideration.
A right of use asset and corresponding lease liability are recognised at
commencement of the lease. The lease liability is measured at the present
value of the lease payments, discounted at the rate implicit in the lease, or
if that cannot be readily determined, at the group's incremental borrowing
rate specific to the type of asset. The lease liability is subsequently
measured at amortised cost using the effective interest rate method. It is
remeasured, with a corresponding adjustment to the right of use asset, when
there is a change in future lease payments resulting from a rent review, or
change in the Group's assessment of whether it is reasonably certain to
exercise a purchase, extension or break option. The right of use asset is
initially measured at cost, comprising: the initial lease liability and any
dilapidation or restoration costs. The right of use asset is subsequently
depreciated on a straight-line basis over the shorter of the lease term or the
useful life of the underlying asset. The right of use asset is tested for
impairment if there are any indicators of impairment. Leases of low value
assets and short-term leases of 12 months or less are expensed to the Group
income statement over the lease term.
Nature and purpose of each reserve in equity
Share capital is determined using the nominal value of shares that have been
issued.
Share premium represents the difference between the nominal value of shares
issued and the fair value of the total consideration receivable at the issue
date.
Equity-settled share-based employee remuneration is credited to the
share-based payment reserve until the related share options are exercised.
Upon exercise the share-based payment reserve is transferred to retained
earnings.
The merger reserve was created in relation to the Group reorganisation under
IFRS 3, in which Sureserve Group plc replaced Sureserve Holdings Limited as
the Group's ultimate parent company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
3. Critical accounting judgements and key sources of uncertainty
In the application of the Group's accounting policies, which are described in
Note 2, the Directors are required to make judgements, estimates and
assumptions about the carrying amount of assets and liabilities that are not
readily apparent from other sources. These estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or the period of
the revision and future periods if the revision affects both current and
future periods.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that may have a significant risk of causing
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are discussed below.
Revenue recognition
Revenue is recognised based on the stage of completion of job or contract
activity. Certain types of service provision pricing mechanisms require
minimal estimation and judgement; however service provision lump sum and
longer term contracts do require judgements and estimates to be made to
determine the stage of completion and the expected outcome for the individual
contract. A sum will be recognised in relation to accrued income on the
statement of financial position, details of which are described in Note 21.
The accrued income balance at 30 September 2022 was £22.1m (2021: £17.9m).
These assessments include a degree of uncertainty and therefore if the key
judgements and estimates change, further adjustments of recoverable amounts
may be necessary. Revenue is generated from a large number of contracts with
customers, such that there is limited sensitivity to material revisions
arising from changes in estimates on individual contracts.
Provisions for legal and other claims
The Group continues to manage a number of potential risks and uncertainties,
including claims and disputes, which are common to other similar businesses
and which could have a material impact on short and longer term performance.
The Board remains focused on the outcome of a number of contract settlements
on which there is a range of outcomes for the Group in terms of both cash flow
and impact on the statement of comprehensive income.
In quantifying the likely outturn for the Group, the key judgements and
estimates will typically include:
· The scope of the Group's assessed responsibility
· An assessment of the potential likelihood of economic outflow
· An estimation of economic outflow (including potential
likelihood)
· A commercial assessment of potential further liabilities
Estimates of amounts provided take account of legal advice where sought.
Details of specific cases are not disclosed due to potential commercial
sensitivity. Provisions at 30 September 2022 includes £1.1m (2021: £1.1m) in
respect of the disposal of Lakehouse Contracts Limited and Foster Property
Maintenance Limited - see Notes 8 and 25 for details of the basis of
estimation used, as well as Note 31 Contingent liabilities.
The total carrying value of provisions at 30 September 2022 was £2.0m (2021:
£2.0m) - see Note 25 for further details.
Impairment of intangible assets and goodwill
The Group assesses whether there are any impairment indicators for
non-financial assets at each reporting date using a discount rate of 13.1%
(2021: 7.3%). Goodwill is tested for impairment annually and at other times
when such indicators exist. Other non-financial assets are tested for
impairment when there are indicators that the carrying amounts may not be
recoverable.
When value-in-use calculations are undertaken, management must estimate the
expected future cash flows from the cash-generating unit and choose a suitable
discount rate in order to calculate the present value of those cash flows.
These cash flows are based on the Board approved annual budget and three year
plan. Further details are given in Note 15.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 September 2022
4. Operating segments
The Group's chief operating decision maker is considered to be the Board of
Directors. The Group's operating segments are determined with reference to the
information provided to the Board of Directors in order for it to allocate the
Group's resources and to monitor the performance of the Group.
Following the update to the Group's strategy during the period, the Board of
Directors has changed the basis of segmental reporting to move away from the
previously reported two segment reporting basis (Compliance and Energy
Services) to a single business segment of "Social Housing Energy Services."
The services provided to customers within Social Housing Energy Services
comprises of the following:
· Installation, maintenance and repair-on-demand of gas appliances
and central heating systems, and air and water hygiene solutions where we
contract predominantly under framework agreements to predominantly housing
associations and local authorities.
· Consultancy and project management services for renewables and
other technology.
· Services in the energy efficiency sector, including external,
internal and cavity wall insulation, loft insulation, gas central heating,
boiler upgrades and other renewable technologies. The services are offered
under various energy saving initiatives including Energy Company Obligations
("ECO"), Green Deal and the Scottish Government's HEEPs ("Home Energy
Efficiency Programme") Affordable Warmth programme. Clients include housing
associations, social landlords, local authorities and private householders and
we have trading relationships with all of the large utility suppliers and many
of the leading smaller suppliers.
· Metering services involving the installation, servicing and
administration of smart meter devices and associated data.
All revenue and profit is derived from operations in the United Kingdom only.
The profit measure the Board used to evaluate performance is operating profit
before amortisation of acquisition intangibles, impairment of goodwill and
exceptional items (acquisition costs), as outlined below and on the face of
the income statement.
The Group accounts for intercompany trading on an arm's length basis. All
intercompany trading is eliminated on consolidation.
The following is an analysis of the Group's revenue and Operating profit
before amortisation of acquisition intangibles, impairment of goodwill and
exceptional items (acquisition costs) by reportable segment:
2022 2021
(restated)
£'000 £'000
Continuing revenue
Social Housing Energy Services 276,029 219,555
Intercompany elimination (933) (2,978)
Total revenue 275,096 216,577
No customer represents more than 10% of revenue.
Reconciliation of operating profit before exceptional and other items to
profit before taxation
2022 2021
(restated)
£'000 £'000
Continuing operating profit before exceptional and other items by segment
Social Housing Energy Services 20,236 15,011
Central costs (3,409) (2,749)
Total operating profit before exceptional and other items 16,827 12,262
Amortisation of acquisition intangibles (269) -
Impairment of goodwill - (188)
Acquisition costs (120) -
Finance expense (864) (1,000)
Profit before taxation from continuing operations 15,574 11,074
Only the Group consolidated statement of financial position is regularly
reviewed by the chief operating decision maker and consequently no segment
assets or liabilities are disclosed here under IFRS 8.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
5. Profit before taxation
2022 2021
(restated)
£'000 £'000
Profit before taxation is stated after charging/(crediting):
Amount of inventories recognised as an expense (Note 20) 71,258 58,927
Depreciation of property, plant, and equipment (Note 17) 726 681
Depreciation of right of use assets (Note 18) 5,036 4,403
Amortisation of intangible assets (Note 16) 597 451
Staff costs 98,904 85,307
Profit on disposal of property, plant, and equipment (7) (208)
6. Assets held for sale and discontinued operations
Following the update to the Group's strategy, the Group is looking to dispose
of the Sureserve Fire and Electrical Limited and Precision Lift Services
Limited businesses, and a disposal process has commenced which is expected to
be completed within 12 months. Accordingly, as required under IFRS, the
associated assets and liabilities have consequently been presented as held for
sale at 30 September 2022. The businesses were both initially classified as
held for sale at 31 March 2022. An impairment review was undertaken at that
time and this did not indicate any impairment of the carrying value of either
business. Subsequent to 31 March 2022, based on offers received for the
Precision Lifts Limited business, an impairment charge of £3.5m was
recognised in respect of goodwill.
The results of the discontinued operations, which have been included in the
profit for the year, were as follows:
2022 2021
(restated)
£'000 £'000
Revenue 34,177 27,437
Cost of sales (27,397) (21,067)
Gross profit 6,780 6,370
Other operating expenses (4,988) (4,037)
Exceptional income - 387
Impairment of goodwill (3,460) -
Operating (loss) / profit (1,668) 2,720
Finance expense (24) (16)
(Loss) / profit before tax from discontinued operations (1,692) 2,704
Taxation (330) (429)
(Loss) / profit for the period attributable to the equity holders of the Group (2,022) 2,275
from discontinued operations
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
6. Assets held for sale and discontinued operations (continued)
2022
£'000
Current assets
Goodwill 4,321
Other intangible assets 16
Property, plant and equipment 87
Right-of-use assets 594
Deferred tax asset 88
Inventories 1,713
Trade and other receivables 4,530
Cash and cash equivalents 3,989
Total assets classified as held for sale 15,338
Current liabilities
Trade and other payables 6,958
Income tax payable 366
Lease liabilities 599
Provisions 310
Total liabilities directly associated with current assets classified as held 8,233
for sale
Net assets held for sale 7,105
The proceeds of disposal are expected to exceed the carrying amount of the
related net assets after the impairment charge of £3,460,000.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
7. Auditor's remuneration
2022 2021
£'000 £'000
The analysis of the auditor's remuneration is as follows:
Fees payable to the Company's auditor and their associates for audit services
to the Group:
- The audit of the Company's and Group's annual accounts 125 100
- The audit of the Company's subsidiaries 350 250
Total audit fees 475 350
Fees payable to the Company's auditor and their associates for other services
to the Group:
- Agreed upon procedures on interim results 40 35
Total non-audit fees 40 35
8. Exceptional items
2022 2021
(restated)
£'000 £'000
Release of provision for potential legal settlement costs - 800
Costs on disposal of Lakehouse Contracts Limited and Foster Property - (800)
Maintenance Limited
Acquisition costs of CorEnergy Limited (120) -
(120) -
Exceptional items are considered non-trading because they are not part of the
underlying trade of the Group.
Acquisition costs comprise legal and professional costs in relation to
acquisition of CorEnergy Limited and amounted to £0.1m (2021: nil).
Lakehouse Contracts Limited and Foster Property Maintenance Limited were sold
on 17 August 2018 were previously disclosed as discontinued operations. The
Board has reviewed the nature and time elapsed in classifying these and
determined they are exceptional items.
Exceptional items comprise:
· £nil (2021: £0.8m) of additional costs provided for in the
year, relating to legacy transactions
· £nil (2021: (£0.8m)) release of provisions for potential legal
settlement costs, (see further details in note 31)
On 20 December 2019, Mapps Group Limited, the acquirer of Lakehouse Contracts
Limited and Foster Property Maintenance Limited, went into liquidation. During
the year we corresponded with the Liquidators and advisers to both Mapps Group
Limited and Lakehouse Contracts Limited in an effort to progress and resolve
any outstanding claims. We are still awaiting the provision of necessary
information from the Liquidators in order to progress matters. £nil
additional costs (2021: £0.8m) have been provided for during the year. At 30
September 2022, the group has provisions for liabilities relating to the
disposal of £1.1m (2021: £1.1m). In addition to the amounts provided for
above, there are a number of potential contingent liabilities arising from the
disposal including, but not limited to:
• Potential claims under parent company guarantees and bonds for projects.
The value of bonds and guarantees is included within Note 31
• Potential claims under clauses in the sale and purchase agreement
including working capital adjustments and warranties/indemnities. Resolution
of these outstanding claims is in the hands of the Liquidators of Mapps Group
Limited and Lakehouse Contracts Limited
Whilst a claim has been received from the Liquidators of Lakehouse Contracts
Limited, the Group has claims against Lakehouse Contracts Limited and Mapps
Group Limited for amounts that exceed their best estimate of any amounts that
may potentially be due to Lakehouse Contracts Limited and Mapps Group Limited
under clauses in the sale and purchase agreement. The Board is in continuing
dialogue with all parties.
Further details are not disclosed on the basis that such disclosure would be
seriously prejudicial.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
9. Finance income and finance expenses
2022 2021
(restated)
£'000 £'000
Finance expenses
Interest payable on bank overdrafts and loans 194 378
Loan arrangement fee amortisation 78 109
Interest on lease agreements (Note 27) 543 455
Other interest payable 49 58
864 1,000
10. Information relating to employees
The average number of employees, including Directors, employed by the Group
during the year was:
2022 2021
(restated)
Number Number
Direct labour and contract management 1,656 1,525
Administration and support 759 662
2,415 2,187
2022 2021
(restated)
The aggregate remuneration was as follows: £'000 £'000
Wages and salaries 87,181 75,410
Social security 9,365 7,783
Pension costs - defined contribution plans 2,474 1,829
Equity-settled share-based payments 381 285
99,401 85,307
11. Retirement benefit obligations
The Group contributes to the personal pension plans of certain employees of
the Group. The assets of these schemes are held in independently
administered funds. From 1 February 2014, the Group contributes to a new
workplace pension scheme for all employees in compliance with the automatic
enrolment legislation. The Group paid £2,474,000 in the year ended 30
September 2022 (2021 (restated): £1,829,000). At the reporting date,
£375,330 of contributions were payable to the funds (2021: £442,000).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
12. Tax on profit on ordinary activities
2022 2021
(restated)
£'000 £'000
Current tax
Current year 3,213 1,846
Current tax - prior year (476) 95
Total current tax 2,737 1,941
Deferred tax (Note 26) (256) 56
Total tax on profit on ordinary activities 2,481 1,997
The tax assessed for the year differs from the standard rate of corporation
tax in the UK. The differences are explained below:
2022 2021
(restated)
£'000 £'000
Profit before tax 15,574 11,074
Effective rate of corporation tax in the UK 19% 19%
Profit before tax at the effective rate of corporation tax 2,959 2,104
Effects of:
Income not deductible for tax purposes (341) (101)
Adjustment of deferred tax to closing tax rate (54) (89)
Current tax credited to equity 90 -
Deferred tax credited to equity 302 -
Current tax - prior year (476) 95
Deferred tax - prior year 1 (12)
Tax charge for the year 2,481 1,997
Factors that may affect future charges
The closing deferred tax provision has been calculated at 25% in accordance
with the rate enacted at the statement of financial position date.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the
corporation tax rate would increase to 25%. This new law was substantively
enacted on 24 May 2021.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
13. Dividends
The Board did not recommend the payment of a dividend for the year ended 30
September 2022 (2021: nil).
The final dividend for the year ended 30 September 2020 of 1p per share
amounting to £1.6million was paid in the prior year.
14. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
2022 2021
(restated)
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 163,895,387 160,267,970
per share
Diluted
Effect of dilutive potential ordinary shares:
Share options 3,694,811 2,910,442
Weighted average number of ordinary shares for the purposes of diluted 167,590,198 163,178,412
earnings per share
Earnings for the purpose of basic and diluted earnings per share from 13,093 9,077
continuing operations being net earnings attributable to the owners of the
Company from continuing operations (£'000)
Basic earnings per share from continuing operations 8.0p 5.7p
Diluted earnings per share from continuing operations 7.8p 5.6p
(Loss) / earnings for the purpose of basic and diluted earnings per share from (2,022) 2,275
discontinued operations being net earnings attributable to the owners of the
Company from discontinued operations (£'000)
Basic (loss) / earnings per share from discontinued operations (1.2p) 1.4p
Diluted (loss) / earnings per share from discontinued operations (1.2p) 1.4p
Earnings for the purpose of basic and diluted earnings per share being net 11,071 11,352
profit after tax attributable to the owners of the Company from continuing and
discontinued operations (£'000's)
Basic earnings per share 6.8p 7.1p
Diluted earnings per share 6.6p 7.0p
Earnings, for the purpose of basic and diluted earnings per share, being net 14,695 11,153
profit after tax attributable to the owners of the Company from continuing and
discontinued operations, adjusted for the tax effected impairment of goodwill,
amortisation of acquisition intangibles and exceptional items (£'000's)
Basic earnings per share 9.0p 7.0p
Diluted earnings per share 8.8p 6.8p
The number of shares in issue at 30 September 2022 was 165,892,554 (2021:
161,213,788).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
15. Goodwill
£'000
At 1 October 2021 42,479
Acquisition of CorEnergy Limited 6,234
Transfer of Sureserve Fire and Electrical Limited and Precision Lift Services (7,781)
Limited to
assets held for sale
At 30 September 2022 40,932
Goodwill arising on consolidation represents the excess of the fair value of
the consideration transferred over the fair value of the Group's share of the
net assets of the acquired subsidiary at the date of acquisition.
Goodwill is not amortised but is reviewed for impairment on an annual basis or
more frequently if there is an indication that goodwill may be impaired.
Goodwill acquired in a business combination is allocated to cash-generating
units ("CGUs") according to the level at which management monitors that
goodwill.
Goodwill is carried at cost less accumulated impairment losses.
The carrying value of goodwill is allocated to the following CGUs:
2022 2021
CGU £'000 £'000
K&T Heating Services Limited 3,774 3,774
Sureserve Fire and Electrical Limited - 3,717
Everwarm Limited 17,476 17,476
H2O Nationwide Limited 2,209 2,209
Providor Limited 3,037 3,037
CorEnergy Limited 6,234 -
Sure Maintenance Limited 4,225 4,225
Aaron Services Limited 3,977 3,977
Precision Lifts Limited - 4,064
40,932 42,479
An asset is impaired if its carrying value exceeds the unit's recoverable
amount which is based upon value in use. At each reporting date impairment
reviews are performed by comparing the carrying value of the CGU to its value
in use. At 30 September 2022 the value in use for each CGU was calculated
based upon the cash flow projections of the latest Board-approved three-year
forecasts together with a further two years estimated and an appropriate
terminal value to perpetuity.
Future forecasted profits are estimated by reference to the average operating
margins achieved in the period immediately before the start of the forecast
period.
The estimated growth rates are based on past experience and knowledge of the
individual markets. The Directors believe that the Social Housing Energy
Services markets will continue to present strong growth opportunities for the
CGUs outlined above. Management believes that future growth in these markets
is underpinned by a number of factors including:
· A pipeline of new tenders
· Further opportunities to work with other Group companies
· Client demand for safe buildings
· Adjacent market opportunities
The assumptions used in the impairment reviews are outlined below:
The growth rate applied to the cash flows in years four and five of the
impairment review performed at 30 September 2022 was 4% (2021: 4%). A terminal
growth rate of 2% (2021: 2%) was applied. The pre-tax discount rate applied
was 13.1% (2021: 7.3%). Three different types of sensitivity analysis have
been performed on two entities that showed potential indicators of impairment,
including a 20% reduction in revenue and a reduction in the operating profit
margin of between 1% and 2%. The Directors consider that any reasonably
possible change in the key assumptions would not cause the carrying amount to
exceed its recoverable amount.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
16. Other intangible assets
Acquisition intangibles
Computer software Contracted customer order book Customer relationships Non-compete agreements Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 October 2020 1,873 18,606 14,655 1,670 36,804
Additions 545 - - - 545
Disposals (272) - - - (272)
At 30 September 2021 2,146 18,606 14,655 1,670 37,077
Acquisition of CorEnergy Limited - 269 - - 269
Additions 911 - - - 911
At 30 September 2022 3,057 18,875 14,655 1,670 38,257
Amortisation
At 1 October 2020 1,147 18,606 14,655 1,670 36,078
Amortisation charge 451 - - - 451
Disposals (272) - - - (272)
At 30 September 2021 1,326 18,606 14,655 1,670 36,257
Amortisation charge 328 269 - - 597
At 30 September 2022 1,654 18,875 14,655 1,670 36,854
Carrying value
At 30 September 2022 1,403 - - - 1,403
At 30 September 2021 820 - - - 820
Contracted customer order book
The value placed on the order book was based upon the cash flow projections
over the contracts in place when a business is acquired. Due to
uncertainties with trying to forecast revenues beyond the contract term, the
Directors have valued contracts over the contractual term only. The value of
the order book was amortised over the remaining life of each contract which
typically range from one to five years.
Customer relationships
The values placed on the customer relationships were based upon the
non-contractual expected cash inflows forecast on the base business over and
above contracted revenues. The value of customer relationships was amortised
over five years.
Non-compete agreements
The value placed on the non-compete agreements was based upon the non-compete
clause and knowledge and know-how of the former owners of the acquired
businesses. The value of non-compete agreements was amortised over five
years.
All acquisition intangibles have been fully amortised as at 30 September 2022.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
17. Property, plant, and equipment
Leasehold improvements Plant & equipment Fixtures and fittings Motor vehicles Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 October 2020 676 1,389 1,760 176 4,001
Additions 635 586 349 - 1,570
Disposals (71) (223) (307) (61) (662)
At 30 September 2021 1,240 1,752 1,802 115 4,909
Transfer to assets held for sale (119) (55) (223) (18) (415)
Additions 21 455 289 - 765
Disposals (177) - (29) - (206)
At 30 September 2022 965 2,152 1,839 97 5,053
Depreciation
At 1 October 2020 460 765 1,396 168 2,789
Charge for the year 99 355 227 - 681
Disposals (2) (208) (307) (53) (570)
At 30 September 2021 557 912 1,316 115 2,900
Transfer to assets held for sale (113) (50) (175) (18) (356)
Charge for the year 114 379 233 - 726
Disposals (177) - (29) - (206)
At 30 September 2022 381 1,241 1,345 97 3,064
Net book value
At 30 September 2022 584 911 494 - 1,989
At 30 September 2021 683 840 486 - 2,009
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
18. Right of use assets
Leasehold property Commercial Vehicles Total
£'000 £'000 £'000
Cost
At 1 October 2020 3,235 7,034 10,269
Acquisition of Vinshire Gas Services Limited - 283 283
Additions 3,325 6,025 9,350
Disposals (130) (1,006) (1,136)
At 30 September 2021 6,430 12,336 18,766
Transfer to assets held for sale (179) (771) (950)
Variations - 50 50
Additions 77 8,230 8,307
Disposals - (808) (808)
At 30 September 2022 6,328 19,037 25,365
Depreciation
At 1 October 2020 1,111 2,401 3,512
Charge for the year 1,074 3,329 4,403
Disposals (130) (583) (713)
At 30 September 2021 2,055 5,147 7,202
Transfer to assets held for sale (111) (479) (590)
Charge for the year 938 4,098 5,036
Disposals - (646) (646)
At 30 September 2022 2,882 8,120 11,002
Net book value
At 30 September 2022 3,446 10,917 14,363
At 30 September 2021 4,375 7,189 11,564
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
19. Group entities
Subsidiaries
The Group's subsidiary undertakings are:
Country of incorporation Class of capital % Principal activity
Aaron Services Limited England Ordinary 100 Maintenance and installation of domestic gas heating systems
Sureserve Fire and Electrical Limited England Ordinary 100 Fire protection and building electrical services
Bury Metering Services Limited England Ordinary 100 Non-trading
CorEnergy Limited England Ordinary 100 Renewable and energy saving services
Everwarm Limited Scotland Ordinary 100 Energy and insulation services
H2O Nationwide Limited England Ordinary 100 Duct and water tank cleaning and refurbishment and building services hygiene
Just Energy Solutions Limited England Ordinary 100 Non-trading
K & T Heating Services Limited England Ordinary 100 Maintenance and installation of domestic gas heating systems
Precision Lift Services Limited England Ordinary 100 Lift installation, modernisation, and maintenance services
Providor Limited England Ordinary 100 Smart Metering
Smart Metering Limited England Ordinary 100 Non-trading
Sure Maintenance Limited England Ordinary 100 Maintenance and installation of domestic gas heating systems
Sureserve Compliance Services Limited England Ordinary 100 Intermediate holding company
Sureserve VGS Limited (formerly known as Sureserve Construction Services England Ordinary 100 Intermediate holding company
Limited)
Sureserve Design and Build Limited England Ordinary 100 Non-trading
Sureserve Energy Services Limited England Ordinary 100 Intermediate holding company
Sureserve Holdings Limited (*) England Ordinary 100 Intermediate holding company
Vinshire Gas Services Limited England Ordinary 100 Non-trading
* Directly held investment
The registered office of all entities above is Crossways Point 15, Victory
Way, Crossways Business Park, Dartford, Kent, DA2 6DT except for Everwarm
Limited whose registered office is 3 Inchcorse Place, Whitehill Industrial
Estate, Bathgate, Scotland, EH48 2EE.
Joint ventures
The Group's joint ventures are:
Country of incorporation Class of capital % Principal activity
Warmworks Scotland LLP Scotland Ordinary 33.33 Energy and insulation services
Arbed am Byth Wales Ordinary 50 Energy and insulation services
Details of joint ventures
2022 2021
£'000 £'000
Carrying value of investment in Arbed am Byth 187 536
Carrying value of investment in Warmworks Scotland LLP 2,307 1,124
2,494 1,660
Warmworks, a joint venture with Changeworks Resources for Life and the Energy
Saving Trust Enterprises Limited, commenced trading in September 2015, and the
profit for 2022 was £1,273,000 (2021: profit of £1,013,000). The registered
office of Warmworks Scotland LLP is 1 Carmichael Place, Leith, Edinburgh,
Midlothian, EH6 5PH.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
19. Group entities (continued)
Arbed am Byth, a joint venture with the Energy Saving Trust Enterprises
Limited, commenced trading in August 2018, and the profit for 2022 was
£151,000 (2021: £146,000). The registered office of Arbed am Byth is 33
Cathedral Road, Cardiff, Wales, CF11 9HB.
The Arbed programme for the Welsh Government was delivered via our joint
venture with the Energy Saving Trust. The scheme ended in November 2021, with
a 12-month period following this for any warranty / service work.
20. Inventories
2022 2021
£'000 £'000
Raw materials and consumables 5,059 4,199
There are no inventories at 30 September 2022 or 30 September 2021 carried at
fair value less costs to sell. The Directors consider that the replacement
value of inventories is not materially different from their carrying value.
There was no specific security held at either reporting date over inventory.
£71,258,000 (2021 (restated): £58,927,000) of inventories were recognised as
an expense in the year.
21. Trade and other receivables
2022 2021
£'000 £'000
Current
Trade receivables 23,115 18,414
Other receivables 5,664 3,698
Prepayments 3,122 3,219
Accrued income 22,095 17,918
53,996 43,249
Other receivables include sales retentions of £3,002,000 (2021: £2,920,000),
rebates receivable of £805,000 (2021: £516,000), and finance issue costs of
£151,000 (2021: £27,000).
2022 2021
£'000 £'000
Trade receivables
Trade receivables not due 19,876 16,386
Trade receivables past due 1-30 days 2,465 1,666
Trade receivables past due 31-60 days 300 84
Trade receivables past due 61-90 days 100 93
Trade receivables past due over 90 days 761 433
Gross trade receivables 23,502 18,662
Provision for credit losses brought forward (248) (446)
Credit note applied 121 -
Acquisition of CorEnergy Limited (41) -
Amounts written off 4 208
Provision charged to profit or loss in the year (223) (10)
Provision for credit losses carried forward (387) (248)
Net trade receivables 23,115 18,414
The provision for credit losses of £387,000 (2021: £248,000) includes
£387,000 (2021: £148,000) of trade receivables over 90 days past their due
date.
The Directors consider that the carrying amount of trade receivables
approximates to their fair value. Debts provided for and written off are
determined on an individual basis and included in other operating expenses in
the financial statements. The Directors believe the credit risk is low due to
the majority of the Group's customer base being either public sector or
regulated bodies. The Group's maximum exposure on credit risk is fair value on
trade receivables as presented above. The Group has not pledged any trade
receivables as security. At the end of the year three clients represented over
5% of the total balance of trade receivables (2021: one client).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
21. Trade and other receivables (continued)
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables
and contract assets (accrued income). To measure expected credit losses on a
collective basis, trade receivables and contract assets are grouped based on
similar credit risk and aging. The contract assets have similar risk
characteristics to the trade receivables for similar types of contracts. The
expected loss rates are based on the Group's historical credit losses
experienced over the 5 year period prior to the period end. The historical
loss rates are then adjusted for current and forward-looking information on
macroeconomic factors affecting the Group's customers. The Group has
identified key macroeconomic factors in the locations where the Group
operates.
22. Trade and other payables
2022 2021
£'000 £'000
Current
Trade payables 31,200 24,937
Sub-contract retentions 805 727
Accruals 11,097 11,727
Deferred income 1,693 980
Social security and other taxes 7,901 7,524
Other payables 1,374 1,502
54,070 47,397
The Directors consider that the carrying amount of trade payables approximates
to their fair value for each reported period. Trade payables are
non-interesting bearing. Average settlement days are 74 days (2021: 68
days).
23. Borrowings
In December 2021, the Group renewed its bank facilities to provide an
overdraft facility of £5,000,000 together with a revolving credit facility of
£15,000,000 which runs to 31 January 2025. The revolving credit facility
remained undrawn on 30 September 2022 and 30 September 2021. There is a
charge over all of the Company's assets in respect of continuing security for
the Group's obligations to pay under the revolving credit facility with
NatWest.
24. Net cash
2022 2021
£'000 £'000
Cash and cash equivalents 19,319 16,444
Unamortised finance costs (included in other receivables) 151 27
Net cash pre-lease liabilities 19,470 16,471
Lease liabilities (note 27) (15,076) (12,043)
Total net cash in continuing operations 4,394 4,428
Cash and cash equivalents in assets held for sale 3,989 -
Lease liabilities in liabilities held for sale (599) -
Total net cash 7,784 4,428
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
25. Provisions
Legal and other
£'000
At 1 October 2020 4,046
Additional provision 746
Released during the year (1,187)
Utilised in the year (1,606)
At 30 September 2021 1,999
Additional provision 338
Additional provision on acquisition 40
Utilised in the year (413)
At 30 September 2022 1,964
Current provisions 497
Non-current provisions 1,467
Legal and other
Provisions relate to property dilapidation obligations, potential contract
settlement costs and other potential legal settlement costs. These are
expected to result in an outflow of economic benefit over the next one to five
years. See notes 8 and 31 for further details.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
26. Deferred taxation
Accelerated capital allowances Short term timing differences Share based payments Acquisition intangibles Unutilised losses Total
£'000 £'000 £'000 £'000 £'000 £'000
Asset / (provision) bought forward as at 1 October 2020 93 229 56 - 139 517
(Debit) / Credit to P&L (260) 72 89 - 43 (56)
Deferred tax on share- based payments recognised in equity - - (117) - - (117)
(Liability) / asset carried forward as at 30 September 2021 (167) 301 28 - 182 344
Transfer of assets held for sale 10 (98) - - - (88)
Acquisition of CorEnergy Limited (1) - - (67) - (68)
(Debit) / Credit to P&L (264) 102 351 67 - 256
Deferred tax on share- based payments recognised in equity - - - - - -
(Liability) / asset carried forward as at 30 September 2022 (422) 305 379 - 182 444
At 30 September 2022
Non-current asset - 305 379 - 182 866
Non-current liability (422) - - - - (422)
Net deferred tax (liability) / asset (422) 305 379 - 182 444
At 30 September 2021
Non-current asset - 301 28 - 182 511
Non-current liability (167) - - - - (167)
Net deferred tax asset (167) 301 28 - 182 344
Deferred tax assets and liabilities are offset where the Group has a legally
enforceable right to do so.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
27. Lease liabilities
Present value of minimum lease payments
£'000
At 1 October 2020 6,836
Repayments (4,283)
Interest 475
New obligations on acquisition 283
Variation in terms 18
New obligations 9,332
Obligations cancelled (618)
At 30 September 2021 12,043
Transfer to liabilities held for sale (365)
Repayments (5,341)
Interest 543
Variation in terms 50
New obligations 8,307
Obligations cancelled (161)
At 30 September 2022 15,076
Future lease payments are due as follows:
Present value of minimum lease payments
£'000
Less than one year 5,494
Between two and five years 9,582
At 30 September 2022 15,076
Less than one year 4,071
Between two and five years 7,972
At 30 September 2021 12,043
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
28. Called up share capital
Allotted, called-up and fully paid:
2022 2021 2022 2021
Number Number £ £
165,892,554 161,213,788 Ordinary shares of £0.10 each 16,589,255 16,121,379
Details of options granted under the Group's share scheme are contained in
Note 29.
Voting rights
The holders of ordinary shares are entitled to receive notice of, attend or
participate in any general meeting of the Company and to receive any notice of
a written resolution proposed to be passed by the Company.
On a show of hands at a meeting the holders of any such shares shall be
entitled to one vote for all such shares held.
On a poll at a meeting, for a written resolution, the holder of such shares
shall be entitled to such number of votes as corresponds to the nominal value
(in pence) or the relevant shares held.
29. Share-based payments
The Company has established a Share Incentive Plan (SIP), Sharesave Scheme
(SAYE), Company Share Option Plan (CSOP), Performance Share Plan (PSP) and a
Special Incentive Award Plan (SIAP).
The charge recognised for share based payments in the year was £381,000
(2021: £168,000) net of tax.
Sharesave Scheme (SAYE)
The SAYE is open to all employees who satisfy certain criteria, particularly
relating to period of employment. The exercise price is equal to the average
of the closing quoted market price for the preceding three days less a
discretionary discount approved by the Board of not less than 80% of the
market value of a share. The Scheme is for three years, during which the
holder must remain in the employment of the Group. The shares can be exercised
within six months from the maturity of the Scheme.
Company Share Option Plan (CSOP)
The CSOP is open to all employees at the discretion of the Remuneration
Committee. The exercise price is equal to the average of the closing quoted
market price at the date of grant. The vesting period is for three years,
during which the holder must remain in the employment of the Group and is
conditional on the achievement of a mix of market and non-market performance
conditions from the date of granting the option to the date of potential
exercise.
Performance Share Plan (PSP)
The PSP is open to certain employees at the discretion of the Remuneration
Committee at a limit not exceeding 150% of the individual's base salary at the
date of grant. The exercise price is £nil. The vesting period is for three
years, during which the holder must remain in the employment of the Group and
is conditional on the achievement of a mix of market and non-market
performance conditions from the date of granting the option to the date of
potential exercise.
Special Incentive Award Plan (SIAP)
Awards granted under the SIAP take the form of options to acquire Sureserve
Shares for nil consideration. The awards will have no beneficial tax status.
Only employees who are also Directors of the Company may be granted an award
under the SIAP. The Remuneration Committee will have absolute discretion to
select the persons to whom awards may be granted and in determining the number
of shares to be subject to each award.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
29. Share based payments (continued)
SAYE CSOP PSP SIAP
Number
At 1 October 2020 3,810,884 3,113,153 840,000 800,000
Granted - - - 180,000
Lapsed (769,129) (137,870) - -
Exercised (551,336) (272,643) - (980,000)
At 30 September 2021 2,490,419 2,702,640 840,000 -
Granted 1,719,442 - 696,125 -
Lapsed (343,399) (366,583) (110,000) -
Exercised (812,632) (161,323) - -
At 30 September 2022 3,053,830 2,174,734 1,426,125 -
Weighted average exercise price (p)
At 1 October 2021 29.40p 42.84p - -
Granted 66.40p - - -
Lapsed 30.56p 42.91p - -
Exercised 25.81p 40.75p - -
Outstanding at 30 September 2022 50.01p 42.99p - -
Outstanding value at 30 September 2021 29.40p 42.84p - -
Fair value of options granted
Weighted fair value of one option 20.30p 18.24p 61.66p -
Assumptions used in estimating the fair value (weighted average)
Share price at date of grant 59.10p 42.75p 65.53p -
Exercise price 50.01p 42.99p 0.00p -
Expected dividend yield 0.87% 3.57% 2.20% -
Risk free rate 0.86% 0.04% 0.48% -
Expected volatility 37.50% 56.91% 47.45% -
Expected life 3.31 years 5.41 years 3.00 years -
In the year ended 30 September 2022, options were granted in respect of the
SAYE and PSP schemes.
The weighted average remaining contractual life of outstanding options at 30
September 2022 was 1.3 years (2021: 1.2 years).
The SAYE, CSOP and PSP options were valued under the binomial methodology.
The PSP options granted in FY22 were valued under the Monte Carlo methodology.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
29. Share-based payments (continued)
The inputs into the Binomial model are as follows: 2022 2021
Share price (p) 83.00 -
Exercise price (p) 66.40 -
Expected volatility (%) 38.35 -
Expected life (years) 3.19 -
Risk-free rate (%) 1.40 -
Expected dividend yield (%) 0.00 -
The inputs into the Monte Carlo model are as follows: 2022 2021
Share price (p) 83.50 - 93.50 27.1
Exercise price (p) 0.00 0.00
Expected volatility (%) 36.72 - 36.94 34.90
Expected life (years) 3.00 1.50
Risk-free rate (%) 0.64 - 1.48 0.71
Expected dividend yield (%) 0.00 - 2.52 1.00
Expected volatility was based upon the historical volatility over the expected
life of the schemes. The expected life is based upon scheme rules and reflect
management's best estimates for the effects of non-transferability, exercise
restrictions and behavioral considerations.
30. Reserves
Share premium reserve
The share premium account represents amounts received in excess of the nominal
value of shares on issue of new shares, net of the direct costs associated
with issuing those shares.
Merger reserve
On 23 March 2015 Sureserve Group plc (then Lakehouse plc) was listed on the
Premium Listing segment of the Official List and trading on the Main Market of
the London Stock Exchange. As part of a restructuring accompanying the Initial
Public Offering ("IPO") of the Group on 23 March 2015, Sureserve Group plc
replaced Sureserve Holdings Limited as the Group's ultimate parent company by
way of a share exchange agreement. Under IFRS 3 this has been accounted for
as a group reconstruction under merger accounting.
Merger accounting principles for this combination gave rise to a merger
reserve of £20,067,000.
Share based payment reserve
See note 29 for further details.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
31. Guarantees and contingent liabilities
The Company and certain subsidiaries have, in the normal course of business,
given guarantees and performance bonds relating to the Group's contracts
totalling £3,537,900 (2021: £5,463,000). A subsidiary of the Group has
provided a guarantee of £750,000 (2021: £750,000) to the Warmworks Scotland
LLP joint venture.
Contingent liabilities in respect of the disposal of Lakehouse Contracts
Limited and Foster Property Maintenance Limited are disclosed in Note 8.
32. Financial instruments
Financial instruments comprise both financial assets and financial
liabilities. The carrying value of these financial assets and liabilities are
assumed to approximate their fair values.
The principal financial assets in the Group comprise trade, loans and other
receivables and cash and cash equivalents. The principal financial liabilities
in the Group comprise borrowings which are categorised as debt at amortised
cost, together with trade and other payables, other long-term liabilities,
which are classified as other financial liabilities.
Financial risk management
The Group's objectives when managing finance and capital are to safeguard the
Group's ability to continue as a going concern in order to provide returns to
shareholders and benefits to other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. The Group is not subject to
any externally imposed capital requirements.
The main financial risks faced by the Group are liquidity risk, credit risk
and market risk (which includes interest rate risk). Currently the Group
only operates in the UK and only transacts in Sterling. It is therefore not
exposed to any foreign currency exchange risk. The Board regularly reviews
and agrees policies for managing each of these risks.
Categories of financial instruments
Financial assets measured at amortised cost
2022 2021
Financial assets £'000 £'000
Current financial assets
Trade receivables, loans, and other receivables 50,874 40,030
Cash and cash equivalents 19,319 16,444
70,193 56,474
Financial liabilities measured at amortised cost
2022 2021
Financial liabilities £'000 £'000
Current financial liabilities
Trade and other payables 44,428 38,027
Lease liabilities 5,494 4,071
Total current financial liabilities 49,922 42,098
Non-current financial liabilities
Lease liabilities 9,582 7,972
59,504 50,070
The Directors consider that the carrying amounts of financial assets and
financial liabilities recorded at amortised cost in the financial statements
approximate their fair values.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
32. Financial instruments (continued)
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group
has adopted a policy of only dealing with creditworthy counterparties and
obtaining sufficient collateral where appropriate, as a means of mitigating
the risk of financial loss from defaults. The Group does not enter into
derivatives to manage its credit risk.
The maximum exposure to credit risk at the reporting date is represented by
the carrying value of the financial assets in the statement of financial
position. The Group does not have any significant credit risk exposure to
any single counterparty or any group of counterparties having similar
characteristics.
There has been a minimal history of bad debts as the majority of its sales are
to local government councils or housing trust partnerships and as a
consequence the Directors do not consider that the Group has a material
exposure to credit risk.
Market risk
As the Group only operates in the UK and only transacts in Sterling, the
Group's activities expose it primarily to the financial risks of changes in
interest rates only and as a consequence of being debt free the Directors do
not consider that the Group has a material exposure to interest rate risk.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board,
which has established an appropriate liquidity risk management framework for
the management of the Group's short, medium and long term funding and
liquidity management requirements. The Group's policy on liquidity is to
ensure that there are sufficient committed borrowing facilities to meet the
Group's long to medium-term funding requirements.
The Group manages liquidity risk by maintaining adequate reserves, banking
facilities and reserve borrowing facilities, by continuously monitoring
forecast and actual cash flows, and by matching the maturity profiles of
financial assets and liabilities.
(a) Interest rate risk
The Group's revolving credit facility has floating interest rates based on a
margin above LIBOR/SONIA. Since the facility was undrawn during both
financial years, the Group was not exposed to any interest rate risk.
(b) Interest rate sensitivity analysis
The Group's principal borrowings attract floating rate interest. On a
weighted average of £nil (2021: £nil) of debt in the year, a half per cent
increase in the floating interest rate would have increased annual interest
payable by £nil (2021: nil).
33. Cash generated from operations
2022 2021
(restated)
£'000 £'000
Operating profit 16,438 12,074
Adjustments for:
Depreciation 5,762 4,743
Share-based payments 381 285
Amortisation of intangible related assets 597 451
Impairment of goodwill and acquisition intangibles - 188
Profit on disposal of property, plant, and equipment (7) (208)
Changes in working capital:
Inventories (1,634) (1,061)
Trade and other receivables (11,145) (5,258)
Trade and other payables 6,054 2,704
Provisions (74) (1,659)
Cash generated from operations 16,372 12,259
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
34. Business combinations
CorEnergy Limited
On 7 December 2021, the Group, acquired the entire issued share capital of
CorEnergy Limited. The consideration paid for CorEnergy was £6.6 million,
plus a working capital adjustment of £1 million (paid in cash), taking the
total consideration paid to £7.6 million. £3.3 million was satisfied through
cash and a further £3.3 million in the issue of 3,704,811 new ordinary shares
of 10p each in Sureserve which were issued at an effective price of 89.4p
each.
The Directors consider the value assigned to goodwill represents the acquired
workforce, expected synergies to be generated from cross-selling opportunities
through the extension of the Group's service and solutions offering in
renewables, and access to new customers and markets as a result of this
acquisition. It is not expected that any goodwill will be deductible for tax
purposes. All costs of the acquisition have been recognised as an exceptional
expense in the statement of comprehensive income in the period in which it was
incurred, the total cost recognised is £120,000.
The effect of the acquisition on the Group's assets and liabilities were as
follows:
Provisional
fair value
£'000
Assets
Current
Trade and other receivables 671
Cash 1,651
Total current assets 2,322
Total assets 2,322
Liabilities
Current
Provisions (40)
Trade and other payables (1,045)
Total liabilities (1,085)
Net assets acquired 1,237
Goodwill 6,234
Acquisition intangibles, net of deferred tax 202
7,673
Satisfied by:
Cash consideration 3,312
Share consideration 3,312
Working capital adjustment (paid in cash) 1,049
7,673
Post-acquisition results
The results for CorEnergy Limited since the acquisition date, included within
the consolidated Statement of Comprehensive Income for the period ended 30
September 2022, are:
£'000
Revenue 5,072
Operating profit 1,025
Interest -
Profit before tax 1,025
Taxation (191)
Profit for the period 834
8.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2022
34. Business combinations (continued)
Results of business combinations during the period
If the acquisition of CorEnergy Limited had occurred on 1 October 2021, the
consolidated statement of comprehensive income for the Group for the period
ended 30 September 2022, would have been:
£'000
Revenue 275,646
Operating profit 16,532
Interest (864)
Profit before tax 15,668
Taxation (2,498)
Profit for the period from continuing operations 13,169
Loss from assets held for sale (2,022)
Profit for the period 11,147
35. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this Note.
Trading transactions
The Company's subsidiary, Everwarm Limited, provides services to Warmworks
Scotland LLP, a joint venture with Changeworks Resources for Life and Energy
Saving Trust Enterprises Limited. £15,604,000 of services were provided in
2022 (2021: £9,609,000). £702,000 was charged to Everwarm Limited from
Warmworks Scotland LLP for services provided in 2022 (2021: £848,000).
At 30 September 2022 Everwarm Limited had a receivable owing from Warmworks
amounting to £2,209,000 (2021: £1,601,000), and a payable of £6,000 (2021:
£138,000).
The Company's subsidiary, Everwarm Limited, provides services to Arbed am
Byth, a joint venture with Energy Saving Trust Enterprises Limited. As at 30
September 2022 Everwarm Limited had a receivable owing from Arbed am Byth
amounting to £nil (2021: £3,000). £488,000 was charged by Everwarm Limited
to Arbed am Byth for services provided in 2021 (2021: £243,000). £13,000 was
charged to Everwarm Limited from Arbed am Byth for services provided in 2022
(2021: £nil).
Remuneration of key management personnel
The remuneration of the Directors and members of the Board, together with
other key management personnel of the Group, is set out below in aggregate for
each of the categories specified in IAS 24 - Related Party Disclosures. The
key management personnel are the members of the Executive Management Team.
Further information about the remuneration of individual Group Directors is
provided in the audited part of the remuneration report;
2022 2021
Number Number
Number of members of the Executive Management Team at each year end 13 15
2022 2021
£'000 £'000
Short-term employee benefits 3,350 2,766
Share-based payment charge 180 113
Post-employment benefits 272 211
Compensation for loss of office 150 187
3,952 3,277
In addition to the above dividends were paid to directors of £nil (2021:
£1,000). Gains on exercise of share options were £nil (2021: £860,000).
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