Interim Results
17/05/2022 07:00
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RNS Number : 6860L Sureserve Group PLC 17 May 2022
17 May 2022
Sureserve Group plc
("Sureserve" or the "Group")
Unaudited Interim Results for the six months ended 31 March 2022 (H1 FY22)
Continued momentum, high revenue visibility and strong order book drives
confident outlook for full year
Sureserve, the Social Housing Energy Services Group, is pleased to announce
its unaudited interim results for the six-month period ended 31 March 2022.
Financial highlights
· Revenue from continuing operations(*1): £126.2m (H1
2021: £101.8m), a 24.0% increase on H1 2021
· Operating profit from continuing operations(*1,2): £5.1m (H1
2021: £3.6m), 41.7% growth on H1 2021
· Profit before tax from continuing operations(*1): £4.3m, (H1
2021: £3.2m) representing 34.4% growth on H1 2021
· Basic Earnings per share from continuing operations(*1): 2.2p (H1
2021: 1.6p), a 37.5% increase on H1 2021
· Net cash(*3) (excluding lease liabilities): £11.8m (31 March
2021: £9.7m)
· Order book from continuing operations(*1) of £512.1m (31 March
2021: £340.9m), a 50.2% increase on H1 2021
Operational overview
· Integration of CorEnergy successfully completed, following
acquisition in December 2021, expanding Sureserve Group's services in
sustainable energy solutions
· New contract wins and contract extensions in Social Housing
Energy Services ("SHES") of £101.2m (H1 2021: £65.7m), a 54.0% increase
· Board strengthened with appointment of Sam Vohra as CFO and Tania
Songini as Non-Executive director
· ESG actions underway across the Group with initiatives including
an employee SAYE scheme offer, Employee Engagement Survey, Academy Awards, a
partnership with the Armed Forces, and continued transition of fleet to
electric vehicles.
Outlook
· Strategically positioned to deliver clear growth in our
market-leading SHES businesses
· Sureserve is cementing its position at the forefront of the
energy transition in the UK with an established presence in growth markets of
energy efficiency, solar PV, air source heat pumps and battery storage
· 96% of FY22 expected revenue covered by the order book(*1),
providing visibility of revenue streams
· Continued momentum into full year with high revenue visibility
from long-term, regulatory-led local authority and housing association
contracts
· General economic headwinds in terms of cost increases may have an
impact, but mitigating actions put in place to minimise these.
(*1) - Continuing operations comprises the Social Housing Energy Services
division and Central costs segment. Two businesses, Sureserve Fire and
Electrical Limited and Precision Lift Services Limited have been classified as
businesses held for sale and are excluded from continuing operations.
(*2) - Operating profit before impairment of goodwill, amortisation of
acquisition related intangibles and acquisition costs
(*3) - From continuing operations and businesses held for sale
Nick Winks, Non-Executive Chairman of Sureserve, commented:
"The performance during the first half of 2022 reflects Sureserve's market
leading position and delivery of quality social housing energy services. We
remain focused on pursuing the growth strategy which we announced earlier this
year and continue to review potential acquisition targets, with the aim of
purchasing businesses which are both services and earnings enhancing, whilst
maintaining our price discipline.
The business continues to benefit from high revenue visibility gained from the
long-term nature of our local authority and housing association contracts and
the £512m order book covers 96% of our expected revenue for the FY22
financial year.
Although there are general economic headwinds in terms of cost increases, we
have put in place mitigating actions to minimise the impact. Accordingly, we
remain confident in the prospects for the second half of 2022
Enquiries:
Sureserve Group
Nick Winks, Chairman 07973 316 544
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
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 some
2,588 staff from 28 offices across the UK. Following the strategic review
announced in January 2022, the Group now reports performance under a single
"Social Housing Energy Services" division.
Chairman's statement
Introduction and trading performance
The first half of FY22 was encouraging, with both total Group and continuing
operations showing strong sales growth and EBITA growth over the same six
months in FY21 when we continued to experience the effect of some Covid
restrictions.
Our cash position as at 31 March 2022 was £11.8m (£9.7m at 31 March 21)
after having paid cash consideration of £4.3m to acquire CorEnergy in
December 2021.
Board
The composition of the Board has been strengthened by two recent appointments.
Having undertaken a formal process, Sam Vohra was appointed as a director and
Chief Financial Officer in April 2022. Sam brings considerable finance,
commercial and M&A experience gained in previous senior finance leadership
roles. Tania Songini was appointed as a Non-Executive director in May 2022 and
joins the Audit Committee. Tania's familiarity with renewable energy as well
as her extensive knowledge of M&A, and her skills in formulating strategy
will be invaluable to the Group in the years ahead.
Outlook
In line with our previously announced growth strategy, we continue to look for
bolt-on acquisitions as well as more strategic acquisitions. In terms of
potential targets, we will be absolutely focused on our core Social Housing
Energy Services market where we are continuing to develop a strong position
with established clients and a growing number of long-term contracts.
Our two businesses, which are held for sale, Sureserve Fire and Electrical
Limited and Precision Lift Services Limited, continue to perform well thereby
giving the opportunity to achieve the right price and the right buyer for each
business.
Although there are general economic headwinds in terms of cost increases, we
have put in place mitigating actions to minimise the impact. With an order
book of £512m, of which nearly £400m relates to FY23 and beyond, we remain
confident in the prospects for the second half of 2022.
Chief Executive's review
Trading in the first half of the year has been positive. Despite the broader
economic challenges the UK currently faces, we continue to provide services
that are both essential to our clients and the communities we serve and form
an important part of the energy transition currently underway. Our order book
stood at a record £512m at 31 March 2022, from continuing operations, and
contract wins for H1 2022 were £101m.
We are delighted with the acquisition of CorEnergy, which we completed in
December 2021, and subsequent integration. The business has gone from strength
to strength and being a part of a wider Group has enabled it to submit for
opportunities which previously had not been available to it due to the size of
the business. In return, the CorEnergy team brings a new dynamic to our
existing business and has very quickly established itself as part of the
Sureserve family. It is also encouraging to note the number of new hires and
an imminent move into larger premises for CorEnergy, both required following
recent contract win successes.
As we noted in our Preliminary Results announcement for FY21, we are focused
on growth, both organic and through acquisition. We are working with corporate
advisers on acquisition targets, a number of which we have identified with
potential, but we are focused on acquiring businesses which will be services
and earnings enhancing at the right price, so are being patient whilst
undertaking the search process. Conversely, following the update to the
Group's strategy as announced in our preliminary results for FY21, we have
identified two of our businesses, Sureserve Fire and Electrical Limited and
Precision Lift Services Limited, as being held for sale and are looking for
suitable opportunities for disposal. Both businesses continue to trade
strongly and are operating very much as business as usual in the meantime.
The recent appointment of Sam Vohra as CFO on a permanent basis is excellent
news for the Group. From his arrival on an interim basis in December 2021, Sam
has shown strong leadership qualities, excellent financial knowledge, and a
good degree of commerciality. He is a great addition to an already strong
leadership team.
At the full year FY21 results, our Chairman made note of the need to review
our internal efficiencies. As part of this commitment, we recently completed a
review of our central costs, as a result of which a small number of people
have left the business. We thank them for their contribution to Sureserve and
wish them well for the future.
As always ESG is at the heart of what we do as a Group. In recent months we
have been immensely proud to receive the Armed Forces Covenant Silver Award
for our commitment to employing and supporting ex-services personnel in the
business and we see this as a partnership that will only expand over time. We
launch our latest Employee Engagement Survey in May 2022, our first since
November 2020 and we look forward to receiving feedback on both what we
already do well and those things that we need to do better. Our recent Save As
You Earn (SAYE) offer saw good take up from employees, who have the
opportunity to buy shares at a discounted price over a period of time, but we
know we can do more.
In terms of the environmental agenda, we remain as committed as ever to
transitioning our vehicles to electric and whilst the worldwide shortage of
component parts and vehicles has restricted our progress, our current fleet is
6% electric, up from 3% as at 30 September 2021, we would hope to be at least
10% at the end of this financial year.
We look forward to our Academy Awards Day on 19th May 2022. This is the
perfect opportunity to celebrate the depth and breadth of talent we currently
have undertaking training. Across the Group we have more than 300 people
undertaking training, of whom over 100 are apprentices. The inaugural event
was held in May 2019, and we are delighted to finally be able to hold our
second event. The Sureserve Foundation, which does such great work to help
those in fuel poverty, will also hold its second Fundraising Dinner in
September 2022.
As ever the strength of Sureserve comes from the commitment, competence, and
enthusiasm of those who work for us and serve our clients and communities so
well. I want to record my personal thanks to all of them, both for what they
have done to date and will continue to do in the future.
Operational review
Group summary
As we announced in our full year results reported in January, the Group's
growth strategy will build on our expertise, experience, and leading position
in the market as an energy services provider to social housing clients across
the UK. We believe that by combining selective and targeted acquisitions
alongside developing organic growth opportunities, there is an opportunity for
significant growth for the Group in the years ahead.
The Group has had an encouraging start to the current financial year and is
continuing the momentum seen in FY21. This demonstrates the resilience of the
business model which is based on predictable and recurring revenues in areas
supported by regulatory led spend. This growth 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, 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 SHES basis and do not include
our Fire and Electrical or Lift businesses as a result, as these businesses
are classified as being held for sale (with the 2021 prior period comparatives
being restated).
Financial performance
SHES: six months ended 31 March Unaudited Unaudited Change
6 months to 31 March 2022 6 months to 31 March 2021 (restated)
Revenue (£m) *(1) 126.2 101.8 24.0%
EBITA (£m) *(2) 6.7 5.4 24.1%
EBITA margin 5.3% 5.2% 0.1ppts
*(1) Revenue from continuing operations after inter-segment elimination of
£0.6m in H1 2022 and £1.7m in H1 2021.
*(2) EBITA is defined as operating profit before amortisation of acquisition
related intangibles, impairment of goodwill and acquisition costs.
The Group delivered period-on-period revenue growth of 24.0% to £126.2m (H1
FY21: £101.8m). This was driven by continued new contract wins, contract
extensions and additional spending from certain clients. These effects were
seen particularly across our Gas compliance businesses where we are witnessing
sustained revenue growth. The Energy Efficiency, Renewables and Smart Metering
businesses also saw significant growth compared to H1 FY21. Part of this was a
return to more normalised trading levels where revenues had been impacted in
the comparable prior period from the 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 engineer headcount and training. This increases our engineer numbers and
improves opportunity through our partnership with our utility clients. We also
saw a positive contribution from the CorEnergy acquisition.
EBITA increased by 24.1% to £6.7m (H1 FY21: £5.4m), with this additional
profitability driven by a combination of factors. Improved EBITA performance
within Gas was revenue-led, given the increases above. Everwarm energy
efficiency work volumes and profitability have largely returned to
pre-pandemic levels with both revenue and EBITA higher than the comparable
period in H1 FY21 both in absolute terms and on a percentage point basis. The
Providor headcount and training investments made in H1 did impact on EBITA,
but this will result in future benefits as the business' scale continues to
increase.
Looking forward
We remain optimistic around opportunities for continued growth within the
Group, underpinned by our refreshed strategy. We believe our businesses have a
positive outlook, with many opportunities for growth ahead reinforced by the
Government's continued emphasis on a net zero target for carbon emissions by
2050. Momentum continues to build around that agenda. 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 arise.
Energy services and future energy transition is a core focus moving forward
and we believe we have developed a successful basis for growth to be pursued
both organically and through acquisition. Our established presence in the
installation of energy efficiency measures, solar PV works, air source heat
pumps, EV charging points and battery storage projects all represent
attractive growth sectors which our experienced management teams are well
placed to deliver. The backdrop of climate change and ongoing Government
initiatives, and future commitments, is likely to provide ongoing
opportunities to increase our delivery in these, and associated, service
areas.
As we previously noted in December 2021, the acquisition of CorEnergy Limited
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 being 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.
As previously communicated, the nature of our Group and particularly our Gas
businesses remains a core service 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 business. We
are well positioned to grow further both organically and through further
acquisition in the fragmented and regional market. The gas businesses are all
showing strong revenue growth and we remain confident that our experienced
leadership in this stable sector provides a strong platform to continue our
aims of further growth and cash generation.
We are not exposed to fluctuations in wholesale gas prices given our position
as an installer and maintainer of heating assets. 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 continue to be
achieved by the Group. The period end order book for SHES was £512.1m which
represents a 50.2% increase on the comparative period (31 March 2021:
£340.9m). This provides a predictability of future revenues 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 with a significantly increased
order book value and high visibility on future revenues, underpinning our
confidence in the prospects for the second half of 2022.
SHES 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. Following
the increase in size of Aaron Services, both organically and from the
acquisition of Vinshire in the comparable period, the three gas businesses are
now more similar in revenue size. This gives the Group a robust base of
trading and allows further internal benchmarking and comparability studies to
enhance performance.
Each of the three gas businesses, Sure Maintenance, K&T Heating and Aaron
Services is delivering revenue growth compared to H1 FY21. This has led to
increased profitability despite some of the cost pressures being experienced.
We are predominantly paid on a fixed price basis for service and repair work
evenly throughout the year. The gas businesses have more call-outs 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 revenue. As a result,
historically a significant proportion of the division's annual profit arises
during the second half of the financial year.
The gas businesses continued their track record of new wins during the period.
The most significant of these was previously announced by the Group for
securing £17.0m of work over a maximum of ten years for heating servicing,
repairs, and installations on behalf of the London Borough of Tower Hamlets.
Further significant awards include in excess of £20.0m with Metropolitan
Thames Valley Housing for domestic, commercial heating and electrical works
over a four-year term. A further significant award over ten years of £10.0m
with Southend on Sea Borough Council, in addition to £0.8m of heating
maintenance with First Choice Homes were supplemented by other smaller gas
servicing and maintenance wins.
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 exceptional
client service supporting consistent delivery. The business has again
delivered several wins in the period, and we are also hopeful the trend to
reduced Covid-19 related impacts from regular clients such as restaurants,
hotels and gyms will continue. Wins include 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), which undertakes work for both large
and small utility suppliers, who are required to install smart meters in every
home in England, Wales, and Scotland. The business is among the most
experienced in the ongoing UK-wide government roll-out and remains focused on
existing contract delivery through to the current Government smart meter
deadline of 31 December 2025. While slightly more than half of the 55m total
meters within the roll-out have now been installed as smart, a significant
market opportunity remains.
The business has delivered considerable growth in the period from previous
contract wins and extensions, in addition to the engineer headcount growth as
mentioned above. The business continues to review new contract opportunities,
both from new clients and existing contractual relationships. The business did
witness short-term challenges from the pandemic effects during the period,
notably from employee absences in December and January from increased levels
of Covid isolation and absences. Profitability reduced as compared to the
comparable period last year largely due to the increased mobilisation
investment into engineer recruitment and training as the business plans and
builds for future growth in volumes.
Providor has extensive experience of the national smart meter roll-out and
continues to apply careful management to the situation. We recognise that the
recent volatility in gas prices has significantly impacted some of the smaller
energy supplier businesses and their ability to trade. We are fortunate that
our client base are the larger utility companies who are better placed to
successfully navigate pricing volatility. In addition, these larger suppliers
remain likely be appointed by Ofgem to take over the smaller suppliers and
their smart meter obligations. This therefore may further increase our volume
of future work with those customers. It may also give us access to more
engineers, either directly or through subcontractor arrangements, where
appropriate opportunities arise. The UK Government has confirmed that it
remains committed to the smart meter rollout as it aligns with their net zero
commitment.
Energy efficiency and renewables
Our energy services businesses provide a range of energy efficiency services
such as insulation, heating, and energy efficient measures. The latter
includes EV charging points, air source heat pumps, battery storage, energy
efficient lighting and solar PV through the Everwarm and CorEnergy businesses.
Everwarm provides these services predominantly for social housing and private
homes with CorEnergy having a focus on non-domestic premises. The Everwarm
business also includes our joint ventures, Warmworks and Arbed, which also
focus on similar energy efficiency works in domestic properties.
Sureserve delivers energy efficiency measures that support carbon emissions
savings for utility companies, which enables them to meet their legislative
targets. The insulation operations are driven by seasonal influences, as we
are unable to render or use fixing glue necessary for insulation at certain
lower temperatures. As a result, we typically experience a far larger number
of productive working days in the summer, compared to the winter months, with
the result that this business also sees higher revenues and margins in H2 each
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 greater activity and performance in
comparison to same period 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 as compared to the prior period where Covid-19
restrictions had remained. The Arbed joint venture saw performance in line
with expectations, given the scheme ended in November 2021. CorEnergy's
contribution to the Group since acquisition has been positive and in line with
our expectations given the investments being made within the business.
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 £3.0m award with Moray Council, focusing on solar PV, battery,
and air source heat pump works. A number of smaller wins and framework
placements gives management confidence for future work opportunities, along
with existing client contracts and opportunities supporting the Warmworks
joint venture also. CorEnergy also saw a number of wins including works in
excess of £1.5m with Dorset Council, approximately £0.9m with
Gloucestershire NHS Trust and various other ongoing and associated works. We
are already seeing additional opportunities from CorEnergy's involvement in
the Group and access to frameworks and other tenders which would not have been
available to them prior to acquisition. We believe the complementary services
offered by CorEnergy represent a continued opportunity for growth in the
Group.
Carbon prices remained largely stable during the period. We continue to
believe that we are well placed to deliver on behalf of our utility partners
based on our management team's extensive experience in this area. The new
'ECO4' scheme, which commenced on 1 April 2022 is set to increase in total
size to £1bn per year from £640m. This should provide further opportunity
for Everwarm to deliver increased volumes. Importantly ECO-4 is also expected
to continue until 31 March 2026.
Our Warmworks joint venture which delivers 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 allow 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 in relation to the energy retrofit scheme with Pobl Group in
Swansea.
Outlook
The continuity and support 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 currently
experiencing some upward cost pressures on certain materials, fuel, and labour
supply. However, we believe we are well placed to address these challenges
through the experience of our management teams and workforce, and the business
model. Our long-term partnership approach with clients and key supply chain
relationships will also enable us to mitigate inflationary pressures where
possible.
Our mix of customer proposition and service offering based on established
contractual relationships underpins our future prospects. Although carbon
pricing remains important, we believe that the Government will remain
committed to addressing funding for fuel poverty in this highly regulated
sector. Our view remains that the Group's significant wealth of management
experience and client relationships gives our business a market leading
proposition in energy services and energy transition. We believe 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 quality service to
our customers and deliver effectively for all our stakeholders.
We believe our financial performance and order book growth supports our
progress in FY22, continuing the momentum seen in FY21, and remain confident
in the prospects for our SHES businesses for FY22. 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 continuity
moving forward with clients whom we regard as blue chip. Our ambition and plan
is to be a leading social housing energy services provider in the UK such that
we are at the forefront of the energy transition.
Chief Financial Officer's review
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 segments (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
classified 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, increased by 24.0% to £126.2m (H1
2021: £101.8m), reflecting strong revenue growth across the gas and energy
efficiency businesses, recognising that the prior period comparatives were
impacted by the Covid-19 restrictions in place at the time. CorEnergy, which
was acquired in December 2021, reported revenue of £1.8 million and EBITA of
£0.2 million post-acquisition.
Group EBITA from continuing operations, increased by 41.7% to £5.1m (H1 2021:
£3.6m) reflecting revenue growth offset by investments made in headcount and
training in the smart metering business, the inflationary backdrop and costs
incurred on efficiency measures in the period. Central costs were £1.6m (H1
2021: £1.8m).
The Group reported an operating profit of £4.7m (H1 2021: £3.6m), after
£0.3m of amortisation charges for acquisition intangibles (H1 2021: £nil)
and exceptional costs of £0.1m (H1 2021: £nil) relating to acquisition costs
for CorEnergy.
The net finance expense was £0.4m (H1 2021: £0.4m), and taxation was £0.8m
(H1 2021: £0.6m). The profit after tax, from continuing operations, was
£3.5m (H1 2021: £2.6m).
Profit after tax for businesses held for sale increased by 11% to £1.0m (H1
2021: £0.9m).
Tax
The effective tax rate for the period was 19%, which was in line with the
statutory rate of corporation tax, and we expect the full year effective tax
rate to be at this level.
Earnings per share
Basic earnings per share from continuing operations were 2.2 pence (H1 2021:
1.6 pence), based on profit after tax from continuing operations of £3.5m (H1
2021: £2.6m).
Our statutory profit for the half year was £4.5m (H1 2021: £3.5m). Based on
the weighted average number of shares in issue during the year of 162.9m, this
resulted in basic earnings per share of 2.8 pence (H1 2021: 2.2 pence) from
continuing operations and businesses held for sale.
Cash flow performance
Our operating cash flow for the period was an inflow of £3.0m (H1 2021:
£4.4m) 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 as normal.
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 £6.6 million,
plus a working capital adjustment of £1m (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 share price of 89.4p each.
Net cash / (debt)
At 31 March 2022, the Group had net cash (including cash balances in assets
held for sale) excluding lease liabilities of £11.8m (31 March 2021: £9.7m).
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 Audited year ended 30 September 2021
£'000 £'000 £'000
Cash and cash equivalents 8,857 9,647 16,444
Cash and cash equivalents included in assets held for sale 2,963 - -
11,820 9,647 16,444
Unamortised finance costs (included in other
receivables) 185 82 27
Net cash pre-lease liabilities 12,005 9,729 16,471
Lease liabilities (11,450) (10,910) (12,043)
Lease liabilities included in liabilities held for sale (484) - -
Total net cash/(debt) from continuing operations and assets held for sale 71 (1,181) 4,428
The total net cash including lease liabilities was £0.1m (31 March 2021: net
debt of £1.2m).
Banking arrangements
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. We had drawn £nil as at 31 March
2022 (31 March 2021: £nil) under the revolving credit facility, and as at the
date of this report the facility remained undrawn. National Westminster Bank
('NatWest') continues to be a highly supportive banking partner.
We are confident that our banking facilities provide sufficient support in
managing our corporate affairs and provides capacity to plan for future
growth, particularly in bidding with confidence on new contracts, and funding
strategic organic and acquisitve growth.
Statement of financial position
The principal items in our balance sheet are goodwill and working capital.
There was a decrease in goodwill of £1.4m from 30 September 2021, due to the
reallocation of goodwill relating to assets held for sale of £7.6m offset by
an increase of £6.2m in relation to the acquisition of CorEnergy. As at 31
March 2022, there are £nil acquisition intangibles remaining on the statement
of financial position as these have been fully amortised.
As at 31 March 2022, net current assets stood at £19.6m (31 March 2021:
£6.0m).
The principal items of working capital are noted below and reflect the
continued focus on working capital:
31 March 2022 31 March 2021 30 September 2021
£m £m £m
Trade receivables 26.3 20.5 18.4
Accrued income 16.8 12.5 17.9
Trade payables (29.5) (23.3) (24.9)
Accruals (10.2) (9.8) (11.7)
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 £16.8m at the reporting date (31 March 2021: £12.5m). Accrued
income is reviewed regularly for impairment and 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 counter-claims, such that we
have a collectively balanced position of risk across all such matters.
Going concern statement
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 reasonable sensitivities in forecast 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 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
unaudited interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2022
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 (restated) Unaudited year ended 30 September 2021 (restated)
Notes £'000 £'000 £'000
Revenue 2 126,243 101,815 216,577
Cost of sales (108,707) (86,167) (180,275)
Gross profit 17,536 15,648 36,302
Other operating expenses (13,165) (12,867) (25,198)
Share of results of joint venture 712 850 1,158
Operating profit before impairment of goodwill, amortisation of acquisition 2 5,083 3,631 12,262
intangibles and acquisition costs
Impairment of goodwill - - (188)
Amortisation of acquisition intangibles (269) - -
Acquisition costs (115) - -
Operating profit 4,699 3,631 12,074
Finance expense (365) (410) (1,000)
Profit before tax from continuing operations 2 4,334 3,221 11,074
Taxation 3 (807) (625) (1,997)
Profit for the period attributable to the equity holders of the Group from 3,527 2,596 9,077
continuing operations
Profit for the period from businesses held for sale 4 1,006 941 2,275
Profit for the period attributable to the equity holders of the Group 4,533 3,537 11,352
Earnings per share from continuing operations
Basic 5 2.2p 1.6p 5.7p
Diluted 5 2.1p 1.6p 5.6p
Earnings per share from continuing operations and businesses held for sale
Basic 5 2.8p 2.2p 7.1p
Diluted 5 2.7p 2.2p 7.0p
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 March 2022
Unaudited as at 31 March 2022 Unaudited as at 31 March 2021 Audited as at 30 September 2021
Notes £'000 £'000 £'000
Non-current assets
Goodwill 6 41,079 42,810 42,479
Other intangible assets 1,184 822 820
Property, plant and equipment 1,870 1,968 2,009
Right-of-use assets 10,956 10,675 11,564
Interest in joint ventures 2,032 1,352 1,660
Deferred tax asset 420 517 344
57,541 58,144 58,876
Current assets
Inventories 4,042 3,181 4,199
Trade and other receivables 52,682 42,479 43,249
Cash and cash equivalents 7 8,857 9,647 16,444
Assets held for sale 4 20,010 - -
85,591 55,307 63,892
Total assets 143,132 113,451 122,768
Current liabilities
Trade and other payables 53,485 44,268 47,397
Lease liabilities 7 4,132 3,646 4,071
Provisions 523 368 403
Income tax payable 915 1,060 1,003
Liabilities held for sale 4 6,914 - -
65,969 49,342 52,874
Net current assets 19,622 5,965 11,018
Non-current liabilities
Lease liabilities 7 7,318 7,264 7,972
Provisions 1,509 2,951 1,596
8,827 10,215 9,568
Total liabilities 74,796 59,557 62,442
Net assets 68,336 53,894 60,326
Equity
Called up share capital 16,508 15,959 16,122
Share premium account 28,606 25,474 25,620
Share-based payment reserve 420 749 349
Own shares - (290) -
Merger reserve 20,067 20,067 20,067
Retained earnings 2,735 (8,065) (1,832)
Equity attributable to equity holders of the Group 68,336 53,894 60,326
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2022
Share-based
Share premium account payment
Share reserve Own shares Merger reserve Retained earnings Total
capital equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 October 2020 (audited) 15,934 25,408 650 (290) 20,067 (11,663) 50,106
Profit for the period - - - - - 3,537 3,537
Issue of shares (exercise of options) 25 66 - - - - 91
Share based payments - - 160 - - - 160
Reserve transfer - - (61) - - 61 -
At 31 March 2021 (unaudited) 15,959 25,474 749 (290) 20,067 (8,065) 53,894
Profit for the period - - - - - 7,815 7,815
Dividends paid - - - - - (1,595) (1,595)
Issue of shares 163 146 - - - (105) 204
Share based payments (net of tax) - - 8 - - - 8
Reserve transfer - - (408) 290 - 118 -
At 30 September 2021 (audited) 16,122 25,620 349 - 20,067 (1,832) 60,326
Profit for the period - - - - - 4,533 4,533
Issue of shares 386 2,986 - - - - 3,372
Share based payments (net of tax) - - 105 - - - 105
Reserve transfer - - (34) - - 34 -
At 31 March 2022 (unaudited) 16,508 28,606 420 - 20,067 2,735 68,336
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 March 2022
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 Audited year ended 30 September 2021
Notes £'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations 9 3,037 4,409 17,492
Net interest paid (326) (280) (901)
Taxation (939) (796) (2,421)
Net cash used in operating activities from businesses held for sale (328) - -
Net cash generated from operating activities 1,444 3,333 14,170
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (2,661) (200) (200)
Purchase of property, plant and equipment (404) (1,077) (1,570)
Purchase of intangible assets (524) (319) (545)
Sale of property, plant and equipment 7 - 18
Net cash used in investing activities from businesses held for sale (44) - -
Net cash used in investing activities (3,626) (1,596) (2,297)
Cash flows from financing activities
Proceeds from issue of shares 60 91 295
Dividend paid to shareholders - - (1,595)
Repayment of lease liabilities (2,147) (1,860) (3,808)
Finance issue costs (201) - -
Net cash used in financing activities from businesses held for sale (154) - -
Net cash used in financing activities (2,442) (1,769) (5,108)
Net (decrease) / increase in cash and cash equivalents (4,624) (32) 6,765
Cash and cash equivalents at beginning of year 16,444 9,679 9,679
Cash and cash equivalents at end of period / year 11,820 9,647 16,444
Cash and cash equivalents 8,857 9,647 16,444
Cash and cash equivalents included in assets held for sale 2,963 - -
Cash and cash equivalents at end of period / year 11,820 9,647 16,444
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 31 March 2022
1. Basis of preparation
The results presented in this report are unaudited and they have been prepared
in accordance with the recognition and measurement principles of UK-adopted
International Accounting Standards that are expected to be applicable to the
financial statements for the year ending 30 September 2022 and on the basis of
the accounting policies to be used in those financial statements. The figures
for the year ended 30 September 2021 are extracted from the statutory accounts
of the Group for that period. The condensed consolidated financial statements
do not include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the Group's annual
financial statements, being the statutory financial statements for Sureserve
Group plc, as at 30 September 2021, which have been prepared in accordance
with International Accounting Standards in conformity with the requirements of
the Companies Act 2006.
The condensed consolidated financial statements for the six months ended 31
March 2022 do not comprise statutory accounts within the meaning of Section
434 of the Companies Act 2006. Statutory accounts for the year ended 30
September 2021 have been approved by the Board of Directors and delivered to
the Registrar of Companies. These accounts, which contained an unqualified
audit report under Section 495, did not include a reference to any matters to
which the auditor drew attention by way of emphasis of matter and did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
Significant accounting policies
The accounting policies adopted in the preparation of the condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 30
September 2021.
Seasonality
The Group has seasonal influences in specific areas. The gas entities
experience higher activity levels during colder weather, leading to higher
working capital requirements and lower profitability in the winter, and the
opposite in the summer. Within Everwarm it is not possible to render walls or
use fixing glue at temperatures below three degrees centigrade, nor perform
cladding work in high winds. As such, weather has an influence on this
business, meaning that the Group must plan to increase capacity during warmer
and more settled periods to compensate for time lost during colder ones.
2. 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 segments (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 inter-segment trading on an arm's length basis. All
inter-segment 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:
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 Unaudited year ended 30 September 2021
(restated) (restated)
£'000 £'000 £'000
Continuing revenue
Social Housing Energy Services 126,874 103,517 219,555
Inter-segment elimination (631) (1,702) (2,978)
Total revenue 126,243 101,815 216,577
Reconciliation of operating profit before exceptional and other items to
profit before taxation
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 Unaudited year ended 30 September 2021
(restated) (restated)
£'000 £'000 £'000
Continuing operating profit before exceptional and other items by segment
Social Housing Energy Services 6,720 5,427 15,011
Central costs (1,637) (1,796) (2,749)
Total operating profit before exceptional and other items 5,083 3,631 12,262
Amortisation of acquisition intangibles (269) - -
Impairment of goodwill - - (188)
Acquisition costs (115) - -
Finance expense (365) (410) (1,000)
Profit before taxation from continuing operations 4,334 3,221 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.
3. Taxation
The income tax charge for the six months ended 31 March 2022 is calculated
based upon the effective tax rates expected to apply to the Group for the
financial year of 19%.
4. Assets held for sale
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
businesses have been classified as assets held for sale at 31 March 2022.
The results of the businesses held for sale, which have been included in the
profit for the year, were as follows:
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 (restated) Unaudited year ended 30 September 2021 (restated)
£'000 £'000 £'000
Revenue 17,280 12,741 27,435
Cost of sales (13,756) (9,838) (21,065)
Gross profit 3,524 2,903 6,370
Other operating expenses (2,272) (1,733) (4,037)
Exceptional income - - 387
Operating profit 1,252 1,170 2,720
Finance expense (11) (8) (20)
Investment income - - 4
Profit before tax from businesses held for sale 1,241 1,162 2,704
Taxation (235) (221) (429)
Profit for the period attributable to the equity holders of the Group from 1,006 941 2,275
businesses held for sale
Assets and liabilities of businesses held for sale
Unaudited as at 31 March 2022
£'000
Non-current assets
Goodwill 7,631
Other intangible assets 20
Property, plant and equipment 71
Right-of-use assets 479
Deferred tax asset 56
Inventories 761
Trade and other receivables 8,029
Cash and cash equivalents 2,963
Total assets classified as held for sale 20,010
Current liabilities
Trade and other payables (6,430)
Lease liabilities (484)
Total liabilities classified as held for sale (6,914)
Net assets of businesses held for sale 13,096
The proceeds of disposal are expected to exceed the carrying amount of the
related net assets and accordingly no impairment losses have been recognised
on the classification of these businesses as being held for sale.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 (restated) Unaudited year ended 30 September 2021 (restated)
Number Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 162,946,985 159,518,741 160,267,970
per share
Diluted
Effect of dilutive potential ordinary shares:
Share options 3,188,785 3,843,300 2,910,442
Weighted average number of ordinary shares for the purposes of diluted 166,135,770 163,362,041 163,178,412
earnings per share
Earnings for the purpose of basic and diluted earnings per share from 3,527 2,596 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 2.2p 1.6p 5.7p
Diluted earnings per share from continuing operations 2.1p 1.6p 5.6p
Earnings for the purpose of basic and diluted earnings per share being net 4,533 3,537 11,352
profit after tax attributable to the owners of the Company from continuing
operations and businesses held for sale (£'000's)
Basic earnings per share 2.8p 2.2p 7.1p
Diluted earnings per share 2.7p 2.2p 7.0p
The number of shares in issue as at 31 March 2022 was 165,080,074 (31 March
2021 was 159,587,390).
6. Goodwill
£'000
At 1 October 2021 42,479
Acquisition of CorEnergy Limited 6,231
Transfer of Sureserve Fire and Electrical Limited and Precision Lift Services (7,631)
Limited to assets held for sale
At 31 March 2022 41,079
7. Net cash / (debt)
Unaudited as at 31 March 2022 Unaudited as at 31 March 2021 Audited as at 30 September 2021
£'000 £'000 £'000
Cash and cash equivalents 8,857 9,647 16,444
Unamortised finance costs (included in other 185 82 27
receivables)
Net cash pre-lease liabilities 9,042 9,729 16,471
Lease liabilities (11,450) (10,910) (12,043)
Total net (debt)/cash in continuing operations (2,408) (1,181) 4,428
Cash and cash equivalents included in assets held for sale 2,963 - -
Lease liabilities included in liabilities held for sale (484) - -
Total net cash/(debt) from continuing operations and assets held for sale 71 (1,181) 4,428
8. 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 £6.6m, plus a
working capital adjustment of £1m (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 share price of 89.4p each.
The effect of the acquisition on the Group's assets and liabilities were as
follows:
Provisional
fair value
£'000
Assets
Non-current
Deferred tax asset 131
Current
Trade and other receivables 671
Cash 1,651
Total current assets 2,322
Total assets 2,453
Liabilities
Current
Provisions (40)
Trade and other payables (1,222)
Total liabilities (1,262)
Net assets acquired 1,191
Goodwill 6,231
Acquisition intangibles 202
7,624
Satisfied by:
Cash consideration 3,312
Share consideration 3,312
Working capital adjustment (paid in cash) 1,000
7,624
Post-acquisition results
The results for CorEnergy Limited since the acquisition date, included within
the consolidated Statement of Comprehensive Income for the period ended 31
March 2022, are:
£'000
Revenue 1,769
Operating profit 184
Interest -
Profit before tax 184
Taxation (35)
Profit for the period 149
8. 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 31 March 2022, would have been:
£'000
Revenue 126,793
Operating profit 4,794
Interest (365)
Profit before tax 4,429
Taxation (825)
Profit for the period from continuing operations 3,604
Profit from businesses held for sale 1,006
Profit for the period 4,610
9. Cash used in continuing operations
Unaudited six months ended 31 March 2022 Unaudited six months ended 31 March 2021 (restated) Unaudited year ended 30 September 2021 (restated)
£'000 £'000 £'000
Operating profit 4,699 3,631 12,073
Adjustments for:
Operating profit from businesses held for sale (note 4) - 1,170 2,720
Depreciation 2,647 2,223 5,084
Amortisation of intangible assets 427 213 451
Share-based payments 105 160 285
Impairment of goodwill - - 188
Profit on disposal of property, plant and equipment (7) (16) (208)
Changes in working capital:
Inventories (615) (147) (1,158)
Trade and other receivables (11,220) (2,786) (3,661)
Trade and other payables 6,968 688 3,765
Provisions 33 (727) (2,047)
Cash generated from operations 3,037 4,409 17,492
10. Related party transactions
There have been no material changes to the related party balances disclosed in
the Group's Annual Report and Accounts 2021 and there have been no related
party transactions that have materially affected the financial position or
performance of the Group in the six months to 31 March 2022.
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