TIDMHSS
RNS Number : 4386B
HSS Hire Group PLC
08 October 2020
HSS Hire Group Plc
Interim report: Half-year results for the 26 week period ended
27 June 2020
Resilient performance, digital strategy accelerated
HSS Hire Group plc ("HSS" or the "Group") today announces
results for the 26 week period ended 27 June 2020.
Financial Highlights(1) (Unaudited) H1 2020 H1 2020 H1 2019 Change
(IFRS 16 basis) ( non-IFRS16 basis) ( non-IFRS16 basis) (excl IFRS 16)
Revenue GBP125.8m GBP125.8m GBP161.4m (22.1)%
---------------- --------------------- --------------------- ---------------
Adjusted EBITDA(2) GBP28.7m GBP16.8m GBP27.0m (37.9)%
---------------- --------------------- --------------------- ---------------
Adjusted EBITDA margin 22.8% 13.3% 16.7% (3.4)pp
---------------- --------------------- --------------------- ---------------
Adjusted EBITA(3) GBP1.1m GBP(0.3)m GBP8.8m GBP(9.1)m
---------------- --------------------- --------------------- ---------------
Adjusted EBITA margin 0.9% (0.2)% 5.4% (5.6)pp
---------------- --------------------- --------------------- ---------------
ROCE(4) n/a (6) 16.2% 21.9% (5.7)pp
---------------- --------------------- --------------------- ---------------
Net debt leverage(5) n/a (6) 2.9x 3.0x 0.1x
---------------- --------------------- --------------------- ---------------
Other extracts
---------------- --------------------- --------------------- ---------------
Operating (loss) / profit GBP(0.7)m GBP(2.4)m GBP4.8m GBP(7.1)m
---------------- --------------------- --------------------- ---------------
Loss before tax GBP(12.9)m GBP(12.5)m GBP(7.4)m GBP(5.1)m
---------------- --------------------- --------------------- ---------------
Total Basic (loss) / earnings per
share (7.57)p (7.37)p 4.44p (11.81)p
---------------- --------------------- --------------------- ---------------
-- Decisive response to COVID-19
o Safety and wellbeing measures implemented across the Group
including home-working where possible
o Good operational and customer service levels maintained
through Customer Distribution Centres (CDC) and OneCall rehire
business
o Leveraged recent technology investments, fully utilising
digital channels and launch of new low-contact Click-and-Collect
service
-- Improving revenue and profit trend since April with recovery ahead of expectations
o Group Adjusted EBITDA and Adjusted EBITA returned to pre-COVID
levels in September
o Revenue now above 90% of FY19 levels recovering from 63% in
Q2
o Group EBITDA remained positive throughout pandemic
-- Strengthened liquidity position through pro-active cash and cost management
o Cash and total facility headroom of GBP68.7m at 27 June,
maintained at GBP66.4m at 26 September
o Net debt leverage at 2.9x (non-IFRS16 basis), 30% headroom
against June quarterly covenant test
o Headroom of c0.6x against Q3 covenant test
-- Accelerating digital strategy to drive value and create further efficiencies
o Digital platform upgrade completed with ongoing investment to
further enhance customer experience
o Customers switching online, c30% of all new contracts raised
through digital channels
o Next stage of automated OneCall platform successfully piloted
with roll out starting in Q4
o New national coverage operating model being implemented in
partnership with regional builders merchants resulting in material
reduction in fixed costs and access to increased customer
footfall
o Accordingly, the business is now operating above 90% of FY19
levels with 145 branches closed
o Further investment planned in digital platforms to be a more
agile, technology-driven business and allow the business to reduce
its physical footprint to a leaner branch structure
o Consequently the company proposes to permanently close 134 of
its branches and has entered into consultation with around 300
employees
o The Group is working with property restructuring advisors to
finalise this site reduction
-- Further to our previous announcement on 27 May 2020, the
COVID-19 situation is likely to remain uncertain for some time.
Accordingly the Group continues to consider it prudent not to
provide market guidance in the near-term
Steve Ashmore, Chief Executive Officer, said:
"Our primary concern since the outbreak of COVID-19 has been the
safety and wellbeing of our colleagues, customers, suppliers and
other stakeholders. We responded quickly and decisively to preserve
cash, optimise financial performance and ensure continuity of
supply to our customers. I am incredibly proud of all our employees
for their dedicated hard work in helping do this.
Whilst COVID-19 had a significant impact on our performance in
the first six months, I am encouraged by the resilience of HSS
during a very challenging period. Our recent investment in
technology has proved critical, allowing us to support our
customers during lockdown, our digital channels and
Click-and-Collect service providing low-contact alternatives to
branches. As a result, we have now seen revenue return to above 90%
of 2019 levels with profitability back to pre-COVID-19 levels.
While our strategic ambitions remain unchanged, COVID-19 has
demonstrated that we are now ready to accelerate our strategy by
further investing in our technological platforms. These investments
will allow us to reduce our physical footprint which, whilst
regrettably resulting in the loss of around 300 roles, allows us to
become a more agile, technology-driven business which is essential
in our markets as well as reducing costs and enhancing shareholder
value. This will build on our already differentiated commercial
proposition and create the most advanced, customer-centric offer in
an increasingly competitive marketplace."
Notes
1) Results for H1 20 and H1 19 are for continuing operations and
exclude the UK Platforms business which was sold in January
2019
2) Adjusted EBITDA is defined as operating profit before
depreciation, amortisation, and exceptional items. For this purpose
depreciation includes the net book value of hire stock losses and
write offs, and the net book value of other fixed asset disposals
less the proceeds on those disposals
3) Adjusted EBITA defined as Adjusted EBITDA less depreciation
4) ROCE calculated as Adjusted EBITA for the 12 months to 27
June 2020 divided by the average of total assets less current
liabilities (excluding intangible assets, cash and debt items) over
the same period
5) Net debt leverage is calculated as closing net debt divided
by adjusted EBITDA for last 12 months (LTM).
6) In adopting IFRS16 the Group has applied the cumulative
catch-up ("modified") transition method. As such FY19 has not been
restated with ROCE and net debt leverage therefore provided on a
non-IFRS 16 basis only.
-Ends-
Disclaimer:
This announcement contains forward-looking statements relating
to the business, financial performance and results of HSS Hire
Group plc and the industry in which HSS Hire Group plc operates.
These statements may be identified by words such as "expect",
"believe", "estimate", "plan", "target", or "forecast" and similar
expressions, or by their context. These statements are made on the
basis of current knowledge and assumptions and involve risks and
uncertainties. Various factors could cause actual future results,
performance or events to differ materially from those described in
these statements and neither HSS Hire Group plc nor any other
person accepts any responsibility for the accuracy of the opinions
expressed in this presentation or the underlying assumptions. No
obligation is assumed to update any forward-looking statements.
Notes to editors
HSS Hire Group plc provides tool and equipment hire, re-hire and
related services in the UK and Ireland through a nationwide network
and its OneCall re-hire business. It offers a one-stop shop for all
equipment through a combination of our complementary rental and
re-hire businesses to a diverse, predominantly B2B customer base
serving a range of end markets and activities. Over 90% of its
revenues come from business customers. HSS is listed on the Main
Market of the London Stock Exchange. For more information please
see www.hsshiregroup.com .
For further information, please contact:
HSS Hire Group plc Tel: 020 3757 9248 (on 8 October
2020)
Steve Ashmore, Chief Executive Thereafter, please email: Investors@hss.com
Officer
Paul Quested, Chief Financial
Officer
Greig Thomas, Head of Group
Finance
Teneo Tel: 07785 528363 / 07557 491860
Matt Thomlinson
Tom Davies
Chief Executive Officer's report
The first six months of 2020 posed unprecedented challenges for
our colleagues, customers, suppliers and other stakeholders. We
responded by focusing on the safety of our workforce, ensuring
continuity of supply for our customers and optimising our financial
performance. While a solid first quarter was followed by a weaker
second quarter as a result of the COVID-19 pandemic, the business
remained resilient and proactive measures enabled us to return to
90% of prior year revenue during September. Although the situation
remains challenging, the period has provided significant insight
and given us the opportunity to accelerate our strategic plans set
out in 2018: to delever the group, transform the Tool Hire business
and strengthen its commercial proposition.
COVID-19 response
Following the publication of Government guidelines on 23 March
we took immediate and decisive action to protect our colleagues,
preserve cash and maintain continuity of supply to critical
customers. Since then our technology investments have enabled our
office-based colleagues to successfully work from home,
comprehensive social distancing and safety measures have been
implemented across all our open locations, and increased
communication is in place across the organisation.
We continued to provide a reliable service for our customers,
keeping our Customer Distribution Centres open throughout and I am
very proud of the dedication shown by our operations teams during
this time. To complement this we launched our Click-and-Collect
proposition in mid-April, offering customers a low-contact
alternative to visiting branches, and the uptake has been strong
with around 24% of contracts now fulfilled this way.
Our branch network was closed on 23 March and the majority of
this network remains closed today. The closures are not having a
significant impact on our levels of trading, with customers placing
orders through our digital channels, over the phone and on email,
which are then fulfilled through deliveries or Click-and-Collect.
This shift away from branches for both ordering and fulfilment is
an acceleration of changes in customer behaviour that we have
witnessed over several years.
Our OneCall business has proved resilient thanks to the
diversity of its supply chain and the efficiency of its new
technology platform which has played a significant role in
supporting business continuity and keeping our Customer
Distribution Centres open throughout. Whilst our training business
shrank significantly at the height of lockdown, we continued to
offer online training and since the lockdown has eased, we have
seen a rapid recovery in demand.
In response to COVID-19, we have also taken swift and decisive
actions to reduce costs, conserve cash and strengthen our balance
sheet. We took advantage of government job retention schemes,
furloughing 60% of colleagues in April. We have since returned
two-thirds of these colleagues back to work as demand has returned.
Alongside this action, senior management took significant salary
reductions throughout quarter two.
We have also worked with landlords to agree rent holidays and
taken advantage of VAT payment deferrals and rates relief for our
branch network. Whilst capex investment has been reduced, we have
continued to invest where there is clear and profitable demand.
As a result of these efforts, liquidity headroom has increased
to GBP68.7m at 27 June and has been maintained at healthy levels
since this date. At the half year we have covenant headroom of 29%
and, based on Q3 performance, we have passed the next quarterly
covenant test.
With the improving revenue trend and cost action, our EBITDA
remained positive throughout Q2 and continues to step forward. This
resilience is testament to the hard work and dedication of our
colleagues who I would like to thank for their efforts during a
very challenging period.
Strategy update
Whilst COVID-19 has presented the business with considerable
challenges, it has also provided significant opportunities in two
key areas:
Firstly, the pandemic has accelerated the shift in customer
behaviour with a dramatic increase in the use of digital platforms
in the sales and fulfilment channels. Since May 2020, digital
channels have consistently accounted for over 30% of all orders.
This has dovetailed with our strategy to invest in technology, with
our customer app and improved website strengthening our
differentiated commercial proposition.
Secondly, the pandemic has demonstrated that there is a lower
cost, more agile business model for rental. The technology we
introduced last year has been a key enabler in operating this model
and we have been delighted by how it has performed throughout the
pandemic. As a result, and with the recent launch of HSS Pro, we
are now ready to transform and become a more agile,
technology-driven business.
On this basis, we now propose to accelerate HSS' digital
strategy by making further investment in our technology platforms.
Going forward, this investment will allow the business to reduce
its physical footprint and operate a leaner branch structure,
focused around its core CDC units and key branches. Consequently
the Group proposes to permanently close 134 of its branches and is
entering into consultation with around 300 colleagues.
To support this initiative, HSS is partnering with regional
builders merchants to maintain national coverage at lower cost.
Early trials of this model have been successful, not only in
improving cost agility by switching fixed costs with variable costs
but also in providing the business access to increased customer
footfall. These proposed changes will enable us to optimise the
efficiency of our network, improve customer service and enhance
shareholder value, while driving overall cost agility and reducing
overheads. This will build on our already differentiated commercial
proposition and create the most advanced, customer-centric offer in
an increasingly competitive marketplace.
Group Financial Performance
The Group has adopted IFRS16 Leases in the period, the impact of
which is summarised in Note 2 of the condensed consolidated
financial statements. The Group has applied the cumulative catch-up
('modified') transition method and, as prescribed by the standard,
comparators have not been updated. In the commentary that follows
and in the narrative disclosures performance and variance is
between the results reported under IFRS16 and the comparator period
under IAS 17 and IFRIC 4 unless otherwise noted.
Revenue and segmental contribution
Revenue in H1 20 was GBP125.8m, 22.1% lower than the previous
year (H1 19: GBP161.4m). On an underlying basis, (after excluding
the impact of loss of Services revenue associated with a change to
one managed service contract), revenue declined 19.7%. This year on
year performance mainly reflects the impact of the COVID-19
pandemic and associated lockdowns in the UK and Ireland.
Turning to segmental performance, Rental and related revenues
were GBP84.6m in H1 20 (H1 19: GBP110.3m), 23.3% lower than in H1
19. This performance was driven by COVID-19 related lockdowns
impacting HSS and our customers. As a result, contribution is 22.3%
down at GBP57.1m (H1 19: GBP73.5m). Margin has very slightly
improved to 67.5% (H1 19: 66.7%) thanks to effective price control,
cost action taken and operating lease costs transferring to
depreciation as a result of adopting IFRS16.
Services revenues declined on an underlying basis by 7.3% to
GBP41.2m (H1 19: GBP51.2m) reflecting a resilient OneCall rehire
business offset by a significant reduction in Training revenue as a
result of centres having to completely close. Contribution
decreased to GBP6.1m (H1 19: GBP8.2m), with margins reducing to
14.7% (H1 19: 16.0%), reflecting a mix impact from the closed
training centres.
Rental and related revenues and Services contribution together
benefited from around GBP2.2m from a total GBP6.6m of government
grant furlough income in the UK and Ireland, with the balance
allocated across branch and selling and central costs.
Costs
Cost of sales reduced to GBP63.6m during the period (H1 19:
GBP75.9m) primarily as a result of the COVID-19 related decline in
our Services business. Distribution costs decreased by GBP3.2m
versus the prior year to GBP13.5m (H1 19: GBP16.7m). The primary
driver was the decisive cost control action taken by the
business.
Administrative expenses decreased by GBP7.9m to GBP56.5m (H1 19:
GBP64.3m) with the reduction mainly driven by the cost action
already noted offset by increased provisions against Trade
receivables as the Group adjusted its view of expected credit
losses in a post-COVID-19 economy. GBP1.5m was due to IFRS16
adoption - the majority of operating lease costs are in
administrative expenses and under IFRS16 an element of these is
replaced by interest on the discounted lease liability.
An exceptional credit of GBP0.8m was recognised in H1 20 as a
result of changes to the Group's onerous lease provisions including
GBP0.3m reversal of rent review accruals on adoption of IFRS16. In
H1 19 exceptional costs of GBP2.8m were recognised including
GBP1.7m accelerated amortisation of debt issue costs following
early repayment of debt post the disposal of UK Platforms, a
GBP0.5m increase in the dark stores provision and GBP0.5m related
to cost saving initiatives.
Net finance expenses were in line with the prior year at
GBP12.1m (H1 19: GBP12.1m) reflecting the GBP2.0m increase in
interest on lease liabilities as a result of adopting IFRS16
largely offset by accelerated amortisation of debt issue costs in
the prior year of GBP1.7m following the sale of UK Platforms.
Other operating income
The increase in Other operating income to GBP7.1m (H1 19:
GBP0.3m) was driven predominately by the receipt of GBP6.6m in
grant income as a result of participation in the UK Job Retention
Scheme and a similar scheme operated in the Republic of Ireland.
Rates grants of GBP0.3m were also received.
Profitability
Adjusted EBITDA of GBP28.7m in H1 20 is higher than the prior
year (H1 19: GBP27.0m) including an increase of GBP11.9m due to the
adoption of IFRS16 (under which operating lease rental cost is
replaced by depreciation and interest). Excluding IFRS16, Adjusted
EBITDA was down GBP10.3m, with the corresponding adjusted EBITDA
margin dropping 3.4pp to 13.3% (H1 19: 16.7%) reflecting the impact
of COVID-19 on revenues offset by mitigating cost actions.
Adjusted EBITA decreased from GBP8.8m in H1 19 to GBP1.1m in H1
20, and to a loss of GBP0.3m once the impact of IFRS16 is removed,
with the margin reducing to (0.2)% (H1 19 5.4%) for the reasons
described above.
The result of the drivers noted above is that the Group
recognised a loss before tax of GBP12.9m versus a GBP7.4m loss in
the prior year .
The basic and diluted loss per share was 7.57p in H1 20 versus a
basic profit per share of 4.44p in H1 19 with the prior year
benefitting from the profit on disposal of UK Platforms. The
diluted profit per share was 3.80p in the prior year.
Return on Capital Employed
ROCE (on a non-IFRS16 basis) decreased to 16.2% reflecting the
reduction of EBITA driven by COVID-19 (H1 19 21.9%). Although
average capital employed did reduce as a result of reduced debtors
and careful management of capital expenditure, this wasn't
sufficient to fully offset the EBITA impact.
Net debt
Net debt at 27 June 2020 was GBP236.8m including the impact of
adding circa GBP81.8m of additional lease liabilities on transition
to IFRS16. Excluding the IFRS16 impact, Net debt is GBP156.7m, a
reduction of GBP22.8m from the year end as a result of cash
preservation activity following the emergence of COVID-19. Headroom
in the Group's total facilities including net cash was
GBP81.8m.
The debt facilities consist of a GBP182.0m senior finance
facility, with GBP167.0m maturing in June 2023 and GBP15.0m in
January 2021, along with a fully drawn revolving credit facility of
GBP17.2m maturing in January 2023 and an unutilised overdraft
facility of GBP6m.
Dividend
Beyond dealing with the immediate priorities of responding to
COVID-19, the Board remains firmly focused on reducing net debt in
line with the Group's strategy. As such, it believes that the
interests of the shareholders of the Group are best served by not
paying a dividend until the net debt leverage ratio falls below
2.5x at the earliest. This is in line with the senior finance
facility agreement.
Going concern
While we are encouraged by the resilience HSS has shown during
this period of unprecedented disruption, we continue to model a
number of scenarios on the potential impact that COVID-19 could
have on the Group results. In certain forecasts, there is an
indication that financial covenants could be breached, indicating
the existence of a material uncertainty in the adoption of going
concern should our lenders not support addressing these areas if
they arise. These continue to be discussed with our lenders, all of
whom express their ongoing commitment and support for the business
strategy. Our conclusion on going concern is expanded upon in Note
2 to the condensed consolidated financial statements.
Risks and uncertainties
The principal risks and uncertainties that could have a material
impact upon the Group's performance over the remaining 26 weeks of
the 2020 financial year have not changed significantly from those
described in the Group's 2019 Annual Report and are summarised in
note 15 of this interim report.
The main risk expected to affect the Group in the remaining 26
weeks of the 2020 financial year is macro-economic conditions,
which includes the impact that COVID-19 and Brexit related
developments could have on the business.
Responsibility Statement
We confirm to the best of our knowledge that:
(a) the condensed interim set of financial statements has been
prepared in accordance with IAS 34 "Interim Financial Reporting" as
adopted by the European Union;
(b) the Interim Report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(c) the Interim Report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions
and changes therein).
By order of the Board
Steve Ashmore
Director
7 October 2020
HSS Hire Group plc
Unaudited condensed consolidated income statement
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
Note GBP000s GBP000s
Revenue 3 125,817 161,436
Cost of sales (63,616) (75,892)
Gross profit 62,201 85,544
--------------------------------------- ------ --------- ---------
Distribution costs (13,544) (16,719)
Administrative expenses (56,465) (64,339)
Other operating income 4 7,068 268
Adjusted EBITDA(1) 3, 16 28,710 27,038
Less: Depreciation (1) 9,10 (27,632) (18,276)
--------------------------------------- ------ --------- ---------
Adjusted EBITA(1) 16 1,078 8,762
Less: Exceptional items 5 802 (1,018)
Less: Amortisation(1) 8 (2,620) (2,990)
--------------------------------------- ------ --------- ---------
Operating (loss)/profit (740) 4,754
--------------------------------------- ------ --------- ---------
Net finance expense 6 (12,140) (12,124)
Adjusted loss before tax (11,062) (1,623)
Less: Exceptional items (non-finance) 5 802 (1,018)
Less: Exceptional items (finance) 5 - (1,739)
Less: Amortisation 8 (2,620) (2,990)
--------------------------------------- ------ --------- ---------
Loss before tax (12,880) (7,370)
--------------------------------------- ------ --------- ---------
Income tax charge - (109)
Loss from continuing operations (12,880) (7,479)
--------------------------------------- ------ --------- ---------
Profit on disposal of discontinued
operations - 14,869
Profit from discontinued operations,
net of tax - 162
(Loss)/profit for the financial
period (12,880) 7,552
--------------------------------------- ------ --------- ---------
Total (loss)/earnings per share
(pence)
Basic (loss)/earnings per share 7 (7.57) 4.44
Diluted (loss)/earnings per share 7 (7.57) 3.80
(1) Adjusted EBITDA is defined as operating profit before
depreciation, amortisation, and exceptional items. For this
purpose
depreciation includes the net book value of hire stock losses
and write offs, and the net book value of other fixed asset
disposals less the proceeds on those disposals. Adjusted EBITA is
defined as operating profit before amortisation and exceptional
items.
The notes form part of these condensed consolidated financial
statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of comprehensive
income
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
GBP000s GBP000s
(Loss)/profit for the financial period (12,880) 7,552
Items that may be reclassified to profit
or loss:
Foreign currency translation differences
arising on consolidation of foreign
operations 842 516
Gains/(losses) arising on cash flow
hedges 86 (344)
Other comprehensive profit for the
period, net of tax 928 172
------------------------------------------- --------- ---------
Total comprehensive (loss)/profit for
the period (11,952) 7,724
=========================================== ========= =========
The notes form part of these condensed consolidated financial
statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of financial
position
27 June 28 December
2020 2019
Note GBP000s GBP000s
ASSETS
Non-current assets
Intangible assets 8 159,618 160,378
Property, plant and equipment 9 71,545 101,851
Right of use assets 10 99,140 -
Derivative financial instruments - 14
330,303 262,243
Current assets
Inventories 3,266 3,735
Trade and other receivables 11 65,037 88,396
Cash 62,704 22,658
---------- ------------
131,007 114,789
Total assets 461,310 377,032
LIABILITIES
Current liabilities
Trade and other payables 12 (68,450) (66,031)
Borrowings including lease
liabilities 13 (43,154) (5,355)
Provisions 14 (6,832) (8,145)
---------- ------------
(118,436) (79,531)
Non-current liabilities
Borrowings including lease
liabilities 13 (246,674) (185,729)
Provisions 14 (28,795) (32,470)
Deferred tax liabilities (341) (341)
(275,810) (218,540)
Total liabilities (394,246) (298,071)
Net assets 67,064 78,961
---------------------------------- ----- ---------- ------------
EQUITY
Share capital 1,702 1,702
Merger reserve 97,780 97,780
Warrant reserves 2,694 2,694
Foreign exchange translation
reserve 240 (602)
Cash flow hedging reserve (220) (306)
Retained deficit (35,132) (22,307)
Total equity 67,064 78,961
---------------------------------- ----- ---------- ------------
The notes form part of these condensed consolidated financial
statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of changes in
equity
Foreign Cash
exchange flow
Share Merger Warrant translation hedging Retained Total
capital reserve reserve reserve reserve deficit equity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 30 December 2019 - as
previously presented 1,702 97,780 2,694 (602) (306) (22,307) 78,961
Implementation of IFRS 16 - - - - - (166) (166)
--------- --------- --------- ------------- --------- --------- ---------
At 30 December 2019 - as
restated 1,702 97,780 2,694 (602) (306) (22,473) 78,795
Total comprehensive income
for the period
Loss for the period - - - - - (12,880) (12,880)
Foreign currency translation
differences arising on
consolidation
of foreign operations - - - 842 - - 842
Cash flow hedge - - - - 86 - 86
Total comprehensive income
for the period - - - 842 86 (12,880) (11,952)
--------- --------- --------- ------------- --------- --------- ---------
Transactions with owners
recorded directly in equity
Share-based payment - - - - - 221 221
At 27 June 2020 1,702 97,780 2,694 240 (220) (35,132) 67,064
========= ========= ========= ============= ========= ========= =========
Foreign Cash
exchange flow
Share Merger Warrant translation hedging Retained Total
capital reserve reserve reserve reserve deficit equity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
At 29 December 2018 1,702 97,780 2,694 180 (162) (31,728) 70,466
Total comprehensive income
for the period
Profit for the period - - - - - 7,552 7,552
Foreign currency translation
differences arising on consolidation
of foreign operations - - - 516 - - 516
Cash flow hedge - - - - (344) - (344)
Total comprehensive income
for the period - - - 516 (344) 7,552 7,724
--------- --------- --------- ------------- --------- --------- --------
Transactions with owners recorded
directly in equity
Share-based payment - - - - - 254 254
--------- --------- --------- ------------- --------- --------- --------
At 29 June 2019 1,702 97,780 2,694 696 (506) (23,922) 78,444
========= ========= ========= ============= ========= ========= ========
The notes form part of these condensed consolidated financial
statements.
HSS Hire Group plc
Unaudited condensed consolidated statement of cash flows
26 weeks 26 weeks
ended ended
27 June 29 June
Note 2020 2019
Cash flows from operating activities GBP000s GBP000s
(Loss)/profit after tax (12,880) 7,552
Adjustments for:
- Taxation charge - 109
- Amortisation 8 2,620 2,993
- Depreciation 9,10 25,294 14,231
- Accelerated depreciation relating
to hire stock customer losses
and hire stock write-offs 9,10 2,324 4,194
- Loss on disposal of property, plant
and equipment and right of
use assets 9,10 14 -
- Profit on disposal of subsidiary - (14,869)
- Share-based payment charge 221 254
- Foreign exchange losses on operating
activities 516 541
- Net finance expense 6 12,140 12,124
Changes in working capital (excluding
the effects of disposals and exchange
differences on consolidation):
- Inventories 469 641
- Trade and other receivables 11 20,697 (73)
- Trade and other payables 12 4,154 2,743
- Provisions 14 (2,770) (3,032)
Net cash flows from operating activities
before changes in hire equipment 52,799 27,408
Purchase of hire equipment 9 (6,630) (10,738)
Cash generated from operating activities 46,169 16,670
--------- ---------
Net interest paid (8,871) (9,803)
Tax reclaimed 648 962
Net cash generated from operating
activities 37,946 7,829
--------- ---------
Cash flows from investing activities
Proceeds on disposal of businesses,
net of cash disposed of - 46,123
Purchases of non-hire property, plant,
equipment and software 8,9 (3,411) (3,315)
Net cash generated (used in)/from
investing activities (3,411) 42,808
--------- ---------
Cash flows from financing activities
Proceeds from borrowings (third parties) 13 17,200 -
Repayments of borrowings 13 - (51,018)
Finance lease payments 13 - (4,197)
Lease liability payments 13 (11,689) -
Net cash used in financing activities 5,511 (55,215)
--------- ---------
Net increase/(decrease) in cash 40,046 (4,578)
Cash at the start of the period 22,658 19,907
Cash at the start of the period -
continuing operations 62,704 17,832
Cash at the start of the period -
discontinued operations - 2,075
---------
Cash at the end of the period - continuing
operations 62,704 15,329
========= =========
The notes form part of these condensed consolidated financial
statements.
HSS Hire Group plc
Notes forming part of the unaudited condensed consolidated
financial statements
1. General information
The Company is a public limited company which is listed on the
London Stock Exchange and is incorporated and domiciled in the
United Kingdom. The address of the registered office is Oakland
House, 76 Talbot Road, Old Trafford, Manchester, England, M16 0PQ.
These condensed consolidated financial statements comprise the
Company and its subsidiaries (the 'Group') and cover the 26 week
period ended 27 June 2020.
The Group is primarily involved in providing tool and equipment
hire and related services in the United Kingdom and the Republic of
Ireland.
The condensed consolidated financial statements were approved
for issue by the Board on 7 October 2020.
The condensed consolidated financial statements do not
constitute the Statutory Accounts within the meaning of Section 434
of the Companies Act 2006 and have not been subject to audit by the
Group's auditor. Statutory Accounts for the year ended 28 December
2019 were approved by the Board on 26 May 2020 and delivered to the
Registrar of Companies. The auditor's report on those accounts was
unqualified and did not contain a statement under Section 498(2) or
(3) of the Companies Act 2006. The report did draw attention to the
Directors' conclusion that a material uncertainty existed that may
cast significant doubt on the Group and Parent Company's ability to
continue as a going concern. As set out in Note 2 the Directors
have reached the same conclusion on approving these condensed
consolidated financial statements.
2. Basis of preparation and significant accounting policies
The condensed consolidated financial statements for the 26 weeks
ended 27 June 2020 have been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and relevant International Financial
Reporting Standards ('IFRS') as adopted by the European Union
(including IAS 34 Interim Financial Reporting). The condensed
consolidated financial statements should be read in conjunction
with the Group's Annual Report and Accounts for the year ended 28
December 2019, which were prepared in accordance with IFRS as
adopted by the European Union.
Accounting policies are consistent with those in the Statutory
Accounts for the year ended 28 December 2019 other than for IFRS16
which was adopted in the period, and Government grants which is a
policy that applied to a new transaction type in the period. Both
are included in this note.
IFRS16 Implementation
IFRS 16 Leases is mandatory for periods beginning on or after 1
January 2019 and accordingly the Group has adopted the standard
from the 29 December 2019 (the date of initial adoption or DIA).
The Group has worked with third party specialists to develop IFRS
16 policies along with processes and systems to manage their
successful implementation.
Adoption of IFRS16 has had a significant impact on the Condensed
consolidated income statement and Condensed consolidated statement
of financial position as set out in the tables below. There is no
impact on the Group's underlying cash flows.
Impact of IFRS 16 on the Condensed consolidated income
statement
26 weeks ended 27 June
2020
Pre adoption IFRS 16 As reported
of IFRS impact
16
GBP000s GBP000s GBP000s
Revenue 125,817 - 125,817
Cost of sales (63,771) 155 (63,616)
Gross profit 62,046 155 62,201
--------------------------------------- ------------- --------- ------------
Distribution costs (13,667) 123 (13,544)
Administrative expenses (57,973) 1,508 (56,465)
Other operating income 7,220 (152) 7,068
Adjusted EBITDA 16,784 11,926 28,710
Less: Depreciation (17,068) (10,564) (27,632)
--------------------------------------- ------------- --------- ------------
Adjusted EBITA (284) 1,362 1,078
Less: Exceptional items 530 272 802
Less: Amortisation (2,620) - (2,620)
--------------------------------------- ------------- --------- ------------
Operating (loss)/profit (2,374) 1,634 (740)
--------------------------------------- ------------- --------- ------------
Net finance expense (10,172) (1,968) (12,140)
Adjusted loss before tax (10,456) (606) (11,062)
Less: Exceptional items (non-finance) 530 272 802
Less: Amortisation (2,620) - (2,620)
--------------------------------------- ------------- --------- ------------
Loss before tax (12,546) (334) (12,880)
--------------------------------------- ------------- --------- ------------
The adoption has resulted in an increase of GBP0.3m in the loss
before tax that would have been reported under IAS17.
Administrative expenses reduced by GBP1.2m, the result of
discounting lease liabilities with the discount unwind being
reflected in net finance expense. Cost of sales and distribution
costs reduced for the same reason (largely on vehicle leases). In
addition to the impact of discounting, GBP0.3m of rent review
accruals were released to administrative expenses on transition. As
variable lease costs these are not accounted for under IFRS16 until
agreed. Other operating income decreases on adoption with sub-lets
income replaced by depreciation on the net investment in sub-lease
created.
The increase in net finance expense is driven by discounting as
noted above, with the front-end loading of the discount resulting
in an additional GBP0.6m of interest versus the equivalent
operating lease cost that would have been recognised under
IAS17.
Adjusted EBITDA, which the Group reports as an additional
performance measure is significantly increased (GBP12m) under
IFRS16 as a result of operating lease costs being replaced by
depreciation and interest.
Under the adoption method chosen by the Group (see below)
comparators are not restated and as a result the Group has included
commentary on a non-IFRS 16 basis in the financial review and CEO
report where required to explain the underlying performance of the
business.
Impact of IFRS 16 on the Condensed consolidated statement of
financial position
29 December 2019
Pre adoption IFRS 16 Post adoption
of IFRS impact of IFRS
16 16
GBP000s GBP000s GBP000s
Intangible assets 160,378 - 160,378
Property, plant and equipment 101,851 (24,852) 76,999
Right of use assets - 104,059 104,059
Derivative financial instruments 14 - 14
Current assets 114,789 (1,851) 112,938
Lease liabilities - (98,351) (98,351)
Finance leases (16,583) 16,583 -
Other liabilities (240,532) 2,024 (238,508)
Provisions (40,615) 2,222 (38,393)
Deferred tax liabilities (341) - (341)
Net assets 78,961 (166) 78,795
============= ========= ==============
Right of use assets totalling GBP104m were created on transition
with GBP24.8m of this being the result of reclassifying hire stock
assets held under finance lease from property, plant and equipment.
Lease liabilities of GBP98m were created with GBP16.6m being the
equivalent transfer of finance lease liabilities. The difference
between lease liability and asset is the impact of adjusting the
right of use asset for prepayments, accruals and onerous lease
provisions. A net investment in sub-leases, representing where the
Group has sub-let excess space or properties under a finance lease,
was created totalling GBP1.9m.
Capitalisation of lease contracts
Under IFRS 16, the Group capitalises the right of use of all its
property leases, vehicle leases, hire and other equipment leases
previously held under operating leases.
The Group has applied the cumulative catch-up ('modified')
transition method. Under this option the Group has applied the
option that calculates the right-of-use asset as equal to the lease
liability for leases previously accounted for as operating leases.
The comparative information has not been restated and continues be
reported under IAS 17 and IFRIC 4. The Group has recognised a right
of use (ROU) asset representing its right to use the underlying
asset and a corresponding lease liability representing its
obligation to make lease payments. The ROU asset is adjusted for
any prepaid or accrued lease payments relating to that lease that
were recognised in the statement of financial position immediately
before the DIA. The company has taken the practical expedient
available to rely on its assessment of whether a lease is onerous
by applying IAS 37 immediately before the date of initial
application, reducing the carrying value of its ROU asset at the
DIA.
Operating lease expenses are replaced by a depreciation of right
of use assets expense and an interest expense as the interest rate
applied to the Group's lease liabilities unwinds.
Lease term
The lease term will correspond to the duration of the contracts
signed except in cases where the Group is reasonably certain that
it will exercise contractual termination or extension options.
For property, the Group's policy is to use the full lease term
(as opposed to first exercisable break date) for trading branches,
distribution centres and offices unless there is an intention to
exit the property at the reporting date. Had lease liabilities been
calculated to the first break rather than lease end date the
transition liability would have reduced by around GBP23m.
For properties which are occupied beyond lease end date,
liabilities are calculated based on specific extension clauses if
they exist. Where they do not the Group reviews leases at twice
annually and extends for a maximum of six months provided notice
has not been served by the Group or relevant landlord. The increase
in liabilities as a result of this judgement was less than GBP1m on
transition.
Given the tenures and values involved, any similar judgements
applied to vehicle and equipment leases are immaterial.
Discount rates
The Group has assessed that the interest rate implicit in the
lease is not readily determinable for leases other than hire fleet
financed via the lines agreed for that purpose with the Group's
lenders. The Group therefore uses an incremental borrowing rate for
all other leases, taking advantage of the expedient available to
apply a single rate to leases of similar characteristics.
The incremental borrowing rate in use at transition and for new
leases in the period is 3.5% for vehicles and equipment and between
5.1% and 6.0% for property leases.
The discount rate selected for non-property leases is the rate
at which the Group expects to finance assets of a similar class.
For property, rates are those at which the Group might expect to
borrow at if acquiring an interest in property, over five and ten
year tenures. These rates are adjusted upwards for properties
considered to be higher risk because of geographic region or
age.
Lessor accounting
The Group acts as intermediate lessor on vacant properties it
sublets to assist in covering costs until the lease term ends or a
break clause can be triggered. The Group has assessed whether the
sub-lease is a finance or operating lease in the context of the ROU
asset being leased. When the sublet is identified as a finance
lease, a net investment in the sublease is created and included in
Trade and other receivables and the corresponding ROU asset is
accounted for as a disposal.
Sale and leaseback transactions
Under IFRS 16 the Group continues to account for any sale and
leaseback transactions entered into for large hire equipment prior
to 28 December 2019 as a sale and leaseback transaction. The Group
has recognised a lease liability and ROU asset on 29 December 2019
measured in the same way as other finance leases on this date.
IFRS16 and COVID-19 concessions
The Group has not yet adopted any of the practical reliefs
available to preparers as a result of the amendment to IFRS16
published by the IASB in May 2020 (COVID-19-Related Rent
Concessions). The amendment had not been adopted by the EU at the
balance sheet date. The Group is likely to review this approach in
its Annual report and accounts for FY20 and may adopt one or more
of the reliefs available.
Going concern
At 27 June 2020, the Group's financing arrangements consisted of
a fully drawn senior finance facility of GBP182.0m, undrawn
overdraft facilities of GBP6.0m, fully drawn revolving credit
facilities of GBP17.2m and finance lease lines to fund hire fleet
capital expenditure, of which GBP13.1m had not been utilised. Both
the senior finance facility and revolving credit facility are
subject to a net debt leverage financial covenant test every
quarter. At the balance sheet date the Group had 29% headroom
against this covenant.
The Group's forecasts and projections taking into account
current trading post COVID-19, strategic initiatives and reasonably
possible changes in trading performance, show that the business
will be able to operate within the level of its facilities for at
least 12 months from the approval date of these condensed
consolidated interim financial statements.
In the first 12 weeks of FY20 COVID-19 did not have a material
impact on the Group's performance. However, the first signs of a
trading slowdown were detected in week 13, following the
Government's lockdown instruction. In response to this instruction,
the Group temporarily closed the majority of its UK branches and
moved to a delivery-only operation through its national network of
Customer Distribution Centres (CDCs) and its OneCall re-hire
business, providing essential equipment to critical customers.
Since this date, and after establishing additional safe working
practices, the Group has added Click-and-Collect capability at each
CDC and re-opened key branches.
Whilst it is difficult to quantify the impact COVID-19 will have
on the Group's financial results, the Directors have considered a
number of downside scenarios. In preparing these, key revenue
assumptions have been applied for the period from October 2020 to
October 2021; namely reductions in core hire revenue of between 12%
and 25% against the Group's original forecasts for Q4 FY20 followed
by between 10% and 15% from January 2021 to December 2022.
These downside scenarios have been mitigated by the expected
impact of the restructuring action taken to migrate to the Group's
new operating model and by the close management of capex to demand.
Liquidity headroom had increased to GBP68.7m at the balance sheet
date and been maintained at healthy levels since then. The Group
could sustain between 12% and 14% reduction in core hire revenue
against pre-COVID-19 forecasts without breaching financial
covenants.
There are certain forecast scenarios which indicate that
financial covenants would be breached. Should a breach occur, the
Group would seek to obtain a waiver agreement with the senior
finance facility and revolving credit facility lenders. Given the
lack of certainty on reaching agreement with the lenders on a
waiver in the event of a breach, the existence of a material
uncertainty which may cast significant doubt on the Group's and
Parent Company's ability to continue as a going concern is
indicated. The Directors have noted that discussions with the
Group's lenders have resulted in ongoing commitment being expressed
to the business and support for the Board's response to the
COVID-19 pandemic. Accordingly, the Group continues to adopt the
going concern basis in preparing its Consolidated Financial
Statements.
The financial statements do not include the adjustments that
would be required should the going concern basis of preparation no
longer be appropriate.
Government Grants
The Group reports any government grant income within Other
operating income. The income is recognised when there is a
reasonable assurance that the relevant entity or the wider Group
will comply with the conditions attached to the grant and that the
grants will be received.
The grant income is recognised in the same period as any related
costs for which the grants are intended to compensate.
Fair value measurement
A number of the Group's accounting policies and disclosures
require the determination of fair value, for both financial and
non-financial assets and liabilities. Set out below is an analysis
of the valuation method of the Group's financial instruments.
The different levels in the fair value hierarchy have been
defined as follows:
-- Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities.
-- Level 2: inputs other than quoted prices included within
level 1 that are observable, for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Fair values have been determined for measurement purposes based
on the following methods:
Derivative instruments (level 2)
The fair values of interest rate swaps are calculated as the
present value of the estimated future cash flows based on the terms
and maturity of each contract and using market interest rates as
applicable for a similar instrument at the measurement date. Fair
values reflect the credit risk of the instrument and include
adjustments to take account of the credit risk of the Group entity
and counterparty where appropriate.
The fair values of interest rate swap contracts are calculated
by management based on external valuations received from the
Group's bankers and are based on anticipated future interest
yields.
3. Segmental reporting
The Group's operations are segmented into the following
reportable segments:
- Rental and related revenue.
- Services.
Rental and related revenue comprises the rental income earned
from owned tools and equipment, including powered access, power
generation and HVAC assets, together with directly related revenue
such as resale (fuel and other consumables), transport and other
ancillary revenues.
Services comprise the Group's HSS OneCall rehire business and
HSS Training. HSS OneCall provides customers with a single point of
contact for the hire of products that are not typically held within
HSS' fleet and are obtained from approved third party partners; HSS
Training provides customers with specialist safety training across
a wide range of products and sectors.
Contribution is defined as segment operating profit before
branch and selling costs, central costs, depreciation, amortisation
and exceptional items. In the 26 weeks ending 27 June 2020 the
Group received GBP6.6m in grant income (26 weeks ending 29 June
2019: nil) as a result of participation in the UK COVID-19 Job
Retention Scheme and a similar scheme operated in the Republic of
Ireland. Income has been allocated to segments based on where the
underlying costs were incurred. This resulted in GBP1.6m being
allocated to Rental and related contribution and GBP0.6m to
Services contribution, GBP4.2m to Branch and Selling Costs and
GBP0.2m to Central costs. GBP0.3m of grant income related to
property rates was allocated to Branch and Selling Costs.
All segment revenue, operating profit, assets and liabilities
are attributable to the principal activity of the Group being the
provision of tool and equipment hire and related services in, and
to customers in, the United Kingdom and the Republic of Ireland.
Revenue from one customer was 10% or more of Group Revenue in the
period ending 27 June 2020 (26 weeks ending 29 June 2019: one
customer was 10% or more of Group Revenue).
26 weeks ended 27 June 2020
Rental
(and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
Total revenue from external
customers 84,574 41,243 - 125,817
-------------- --------- --------- ---------
Contribution 57,100 6,055 - 63,155
Branch and selling costs (23,026) (23,026)
Central costs (11,419) (11,419)
Adjusted EBITDA 28,710
Add: Exceptional credit 802 802
Less: Depreciation and
amortisation (15,729) (236) (14,287) (30,252)
Operating profit (740)
Net finance expenses (12,140)
Loss before tax (12,880)
---------
As at 27 June 2020
Rental
(and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
Non-current assets net
book value
Intangibles 154,248 1,547 3,823 159,618
Property, plant and
equipment 48,018 219 23,308 71,545
Right of use assets 26,705 287 72,148 99,140
Current assets 131,007
Current liabilities (118,436)
Non-current liabilities (275,810)
Net assets 67,064
----------
26 weeks ended 29 June 2019
Rental
(and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
Total revenue from external
customers 110,267 51,169 - 161,436
-------------- --------- --------- ---------
Contribution 73,505 8,164 - 81,669
Branch and selling costs (42,610) (42,610)
Central costs (12,021) (12,021)
Adjusted EBITDA 27,038
Less: Exceptional items (1,018) (1,018)
Less: Depreciation and
amortisation (16,313) (110) (4,843) (21,266)
Operating profit 4,754
Net finance expenses (12,124)
Loss before tax (7,370)
---------
As at 28 December 2019
Rental
(and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
Non-current assets net
book value
Intangibles 155,624 785 3,969 160,378
Property, plant and equipment 76,794 187 24,870 101,851
Unallocated corporate assets
Derivative financial instruments 14 14
Current assets 114,789 114,789
Current liabilities (79,531) (79,531)
Non-current liabilities (218,540) (218,540)
----------
Net assets 78,961
----------
4. Other operating income
During the period ended 27 June 2020 the Group received GBP6.6m
(2019: nil) as a result of participation in the UK COVID-19 Job
Retention Scheme and a similar scheme operated in the Republic of
Ireland. Rates grants of GBP0.3m were also received (2019: nil).
The balance of GBP0.2m represents sub-let rental income of vacant
properties that are not deemed onerous (2019: sub-let income of
GBP0.3m).
5. Exceptional items
Items of income or expense have been shown as exceptional
because of their size and nature or because they are outside the
normal course of business. An analysis of the amount presented as
exceptional items in the consolidated income statement is given
below.
During the period ended 27 June 2020, the Group has recognised a
net exceptional credit as follows:
Included
in administrative
expenses
GBP000s
Onerous leases (828)
Cost reduction programme 26
Exceptional items (802)
===================
During the period ended 29 June 2019, the Group recognised net
exceptional costs as follows:
26 weeks
Included Included Included Included ended
in cost in distribution in administrative in finance 29 June
of sales costs expenses expense 2019
GBP000s GBP000s GBP000s GBP000s GBP000s
Onerous leases - - 483 - 483
Cost reduction programme 13 396 126 - 535
Accelerated amortisation
of debt issue costs - - - 1,739 1,739
Exceptional items 13 396 609 1,739 2,757
========== ================= =================== ============ =========
Exceptional items incurred in 2020 and 2019
Costs related to onerous properties: branch and office
closures
An exceptional credit of GBP0.5m has been recognised in the 26
weeks ended 27 June 2020 relating to an opening release of onerous
lease provision (prior to adoption of IFRS16). An additional credit
of GBP0.1m from lease liability was recognised as a result of
surrendering properties. This was offset by GBP0.1m of non-lease
costs incurred related to onerous properties. There have been three
branch closures during the period as a result of a change in
business model whereby HSS utilises space in third-party builders
merchant locations (26 weeks to 29 June 2019: no branch
closures).
On adoption of IFRS16 GBP0.3m of onerous lease provision was
released, mainly related to rent-review accruals, which, as
variable lease costs, are not included in lease liabilities under
the standard.
Provisions are created net of expected sub-let income. During
the 26 weeks to 27 June 2020, sub-let income of GBP0.2m was
received and recognised as negative provision utilisation.
Cost reduction programme
During 2019 the Group reacted to market headwinds by taking
initiatives to reduce costs which included internal restructuring
and in the 26 weeks ended 27 June 2020 the Group incurred minor
costs related to the completion of that activity.
In 2019 the Group recognised a charge of GBP0.5m related to the
closure of a centre used for hire fleet refurbishment and exiting
contracts related to the operation of the cross-dock facility used
to redistribute assets across the network as well as internal
restructuring.
Exceptional item incurred in 2019 only
Accelerated amortisation of debt issue costs
During 2019 an element of the proceeds from the UK Platforms
disposal was used to repay debt. The early repayment resulted in
accelerated amortisation of debt issue costs of GBP1.7m.
6. Finance income and expense
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
GBP000s GBP000s
Interest received on cash deposits (24) (8)
Bank loans and overdrafts 234 212
Interest on financial instruments 100 22
Senior finance facility 8,167 8,431
Finance leases - 365
Interest on lease liabilities 2,322 -
Interest unwind on discounted provisions 142 109
Debt issue costs 1,199 1,254
Exceptional accelerated amortisation
of debt issue costs - 1,739
Net finance expense 12,140 12,124
========= =========
7. Earnings per share
26 weeks 26 weeks ended
ended 29 June 2019
27 June
2020
Continuing Total
Basic (loss)/earnings per share operations
(Loss)/profit for the year and earnings
used in basic EPS 'GBP000 (12,880) (7,479) 7,552
Weighted average number of shares
'000s 170,207 170,207 170,207
--------- ------------ --------
Basic (loss)/earnings per share (pence) (7.57) (4.39) 4.44
Basic (loss)/earnings per share is calculated by dividing the
result attributable to equity holders by the weighted average
number of ordinary shares in issue for that period.
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
Weighted average number
of shares 000s 000s
Basic weighted average number
of shares 170,207 170,207
Dilutive effect of issued
equity instruments 33,717 28,497
Diluted weighted average
number of shares 203,925 198,704
=========================== =============================
All of the Group's potentially dilutive equity derivatives were
anti-dilutive for the purpose of diluted basic loss per share for
the 26 week period ended 27 June 2020 and dilutive for the 26 week
period ended 29 June 2019, with the exception of the 2017 options
which were anti-dilutive in both periods.
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
Diluted (loss)/earnings per share Total operations
(Loss)/profit for the year and earnings used
in basic EPS 'GBP000 (12,880) 7,552
Weighted average number of shares '000s 170,207 198,704
--------- -----------------
Diluted (loss)/earnings per share (pence) (7.57) 3.80
For the 26 week period ended 27 June 2020 the diluted loss per
share is calculated using the loss for the year divided by the
weighted average number of shares in issue. For the 26 week period
ended 29 June 2019 diluted earnings per share is calculated using
the profit for the year divided by the weighted average number of
shares in issue assuming the conversion of its potentially dilutive
equity derivatives outstanding, being nil-cost share options (LTIP
shares), market value options, warrants and Sharesave Scheme share
options.
The following is a reconciliation between basic loss per share
from continuing operations and adjusted basic loss per share from
continuing operations.
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
Basic loss per share (pence) (7.57) (4.39)
Add back:
Exceptional items per share (1) (0.47) 1.62
Amortisation per share (2) 1.54 1.76
Tax charge per share - 0.06
Charge:
Tax at prevailing rate 1.23 0.18
Adjusted basic and diluted loss per share (pence) (5.27) (0.77)
========= =========
(1) Exceptional items per share are calculated as total finance
and non-finance exceptional items
divided by the weighted average number of shares in issue through the period.
(2) Amortisation per share is calculated as the amortisation
charge divided by the weighted average number of shares in issue
through the period.
8. Intangible assets
Customer
Goodwill relationships Brands Software Total
GBP000s GBP000s GBP000s GBP000s GBP000s
Cost
At 29 December
2019 124,877 26,744 23,222 24,409 199,252
Additions - - - 1,860 1,860
Disposals -
At 27 June 2020 124,877 26,744 23,222 26,269 201,112
--------- --------------- -------- --------- --------
Amortisation
At 29 December
2019 - 18,694 525 19,655 38,874
Charge for the
period - 1,328 48 1,244 2,620
At 27 June 2020 - 20,022 573 20,899 41,494
--------- --------------- -------- --------- --------
Net book value
At 27 June 2020 124,877 6,722 22,649 5,370 159,618
========= =============== ======== ========= ========
Customer
Goodwill relationships Brands Software Total
GBP000s GBP000s GBP000s GBP000s GBP000s
Cost
At 30 December
2018 124,877 26,744 23,222 22,228 197,071
Additions - - - 1,026 1,026
At 29 June 2019 124,877 26,744 23,222 23,254 198,097
--------- --------------- -------- --------- --------
Amortisation
At 30 December
2018 - 15,996 427 16,991 33,414
Charge for the
period - 1,349 73 1,568 2,990
At 29 June 2019 - 17,345 500 18,559 36,404
--------- --------------- -------- --------- --------
Net book value
At 29 June 2019 124,877 9,399 22,722 4,695 161,693
========= =============== ======== ========= ========
Customer
Goodwill relationships Brands Software Total
GBP000s GBP000s GBP000s GBP000s GBP000s
Cost
At 30 December
2018 124,877 26,744 23,222 22,228 197,071
Additions - - - 2,339 2,339
Disposals - - - (158) (158)
At 28 December
2019 124,877 26,744 23,222 24,409 199,252
--------- --------------- -------- --------- --------
Amortisation
At 30 December
2018 - 15,996 427 16,991 33,414
Charge for the
period - 2,698 98 2,726 5,522
Disposals - - - (62) (62)
At 28 December
2019 - 18,694 525 19,655 38,874
--------- --------------- -------- --------- --------
Net book value
At 28 December
2019 124,877 8,050 22,697 4,754 160,378
========= =============== ======== ========= ========
The Group tests property, plant and equipment, goodwill and
indefinite life brands for impairment annually and considers at
each reporting date whether there are indicators that impairment
may have occurred. The emergence of COVID-19 and the resulting
reduction in revenue and closure of HSS locations is considered to
be an indicator of impairment and accordingly an impairment review
has been performed.
The Group has three CGUs: HSS Core, HSS Power and Climate
Control. The recoverable amounts of the goodwill and indefinite
life brands, which are allocated to CGUs, are estimated from value
in use (VIU) calculations which model pre-tax cash flows for the
next four and a half years together with a terminal value using a
long-term growth rate. The key assumptions underpinning the
recoverable amounts of the CGUs tested for impairment are those
regarding the discount rate, forecast revenue, EBITDA, and capital
expenditure including cash flows required to maintain the Group's
right of use assets.
The key variables applied to the VIU calculations were
determined as follows:
-- Cash flows were derived based on a post COVID-19 forecast for
H2 2020 and model of the business for the following two years (to
the end of 2022). Operational activity and capital expenditure then
had a long-term growth rate applied to it giving a model of four
and a half years in total after which a terminal value was
calculated. The long-term growth factor used was 1.8% for each of
the CGUs (2019: 1.4%).
-- A pre-tax discount rate of 9.1% (2019: 9.1%), calculated by
reference to a weighted average cost of capital (WACC) based on an
industry peer group of quoted companies. The discount rate used has
not been updated from that in use at year end due to the calculated
risk-free and market returns decreasing as a result of COVID-19
leading to a lower WACC figure. The Directors felt that using this
lower WACC was inappropriate in the current economic climate - this
would have significantly increased headroom. The approach will be
revisited in the impairment review to be carried out in advance of
year-end reporting.
An impairment may be identified if changes to any of the factors
mentioned above become significant, including underperformance of
the Group against forecast, negative changes in the UK tool hire
market or deterioration in the UK economy, which would cause the
Directors to reconsider their assumptions and revise their cash
flow projections.
Based on the VIU modelling and impairment testing, the Directors
do not consider an impairment charge to be required in respect of
any of the property, plant and equipment, right-of-use, goodwill
and indefinite life brand assets carried in the balance sheet at 27
June 2020 for any of the CGUs.
Sensitivity analysis performed on the model does not result in
an impairment charge. For the Group, at 27 June 2020, the headroom
between VIU and carrying value of the related assets was GBP138.2m
(2019: GBP291.3m). The Directors' sensitivity analysis shows that
an increase in the discount rate to 16.61% (2019: 26.7%) or a
long-term growth rate of negative 0.72% (2019: negative growth rate
of 4.2%) would require impairment of the most sensitive CGU.
In addition, the Directors assessed a downside scenario which
assumed further lock-down restrictions as a result of COVID-19.
Given the level of headroom in VIU these calculations show, the
Directors did not envisage reasonably possible changes, either
individually or in combination, to the key assumptions that would
be sufficient to cause an impairment charge at the balance sheet
date.
On the 8th October 2020 the Group announced a programme of
restructuring which includes the permanent closure of around 130 of
its branches. All the impacted branches are allocated to the HSS
Core CGU due to their dependence on the wider group to generate
income. Once a branch ceases trading it is no longer dependent on
the wider network and as such becomes a standalone asset and
subject to impairment testing on that basis. Since the decision to
permanently close branches was made after the balance sheet date
the branches are included within the HSS Core CGU in the impairment
testing carried out.
As a result of the decision to close branches the Group expects
a reduction in right of use assets of around GBP13m. Since the
forecasts used in the impairment review already assume the
operation of a reduced branch network the headroom calculated will
increase by approximately the same amount.
9. Property, plant and equipment
Materials
& equipment
Land & Plant held for
buildings & machinery hire Total
GBP000s GBP000s GBP000s GBP000s
Cost
At 29 December 2019 73,505 61,925 184,799 320,229
Transferred to right
of use assets - - (44,199) (44,199)
Foreign exchange differences 118 149 734 1,001
Additions 1,012 551 7,279 8,842
Disposals (559) (236) (9,778) (10,573)
At 27 June 2020 74,076 62,389 138,835 275,300
----------- ------------- ------------- ---------
Accumulated depreciation
At 29 December 2019 54,437 55,936 108,005 218,378
Transferred to right
of use assets - - (19,347) (19,347)
Foreign exchange differences 95 123 426 644
Charge for the period 1,971 887 9,187 12,045
Disposals (343) (168) (7,454) (7,965)
At 27 June 2020 56,160 56,778 90,817 203,755
----------- ------------- ------------- ---------
Net book value
At 27 June 2020 17,916 5,611 48,018 71,545
=========== ============= ============= =========
Materials
& equipment
Land & Plant held for
buildings & machinery hire Total
GBP000s GBP000s GBP000s GBP000s
Cost
At 30 December 2018 73,293 62,685 195,384 331,362
Foreign exchange differences - (14) (11) (25)
Additions - 2,287 16,142 18,429
Disposals - - (12,148) (12,148)
At 29 June 2019 73,293 64,958 199,367 337,618
----------- ------------- ------------- ---------
Accumulated depreciation
At 30 December 2018 51,431 55,125 115,677 222,233
Charge for the period 917 2,538 10,627 14,082
Disposals - - (7,954) (7,954)
At 29 June 2019 52,348 57,663 118,350 228,361
----------- ------------- ------------- ---------
Net book value
At 29 June 2019 20,945 7,295 81,017 109,257
=========== ============= ============= =========
Materials
& equipment
Land & Plant held for
buildings & machinery hire Total
GBP000s GBP000s GBP000s GBP000s
Cost
At 30 December 2018 73,293 62,685 195,384 331,362
Foreign exchange differences - (95) (840) (935)
Additions 2,415 1,891 27,097 31,403
Disposals (2,131) (1,482) (37,988) (41,601)
Transfers (72) (1,074) 1,146 -
At 28 December 2019 73,505 61,925 184,799 320,229
----------- ------------- ------------- ---------
Accumulated depreciation
At 30 December 2018 51,431 55,125 115,677 222,233
Foreign exchange differences - (79) (546) (625)
Charge for the period 4,316 2,521 21,764 28,601
Impairment 209 154 - 363
Disposals (1,568) (1,469) (29,157) (32,194)
Transfers 49 (316) 267 -
At 28 December 2019 54,437 55,936 108,005 218,378
----------- ------------- ------------- ---------
Net book value
At 28 December 2019 19,068 5,989 76,794 101,851
=========== ============= ============= =========
The results of the impairment review for property, plant and
equipment are included in Note 8.
10. Right of use assets
Equipment
for hire
and internal
Property Vehicles use Total
GBP000s GBP000s GBP000s GBP000s
Cost
Recognised on transition
date 56,558 21,577 25,924 104,059
Foreign exchange differences 167 26 - 193
Additions 3,254 961 3,652 7,867
Disposals (110) (136) - (246)
At 27 June 2020 59,869 22,428 29,576 111,873
--------- --------- -------------- --------
Accumulated depreciation
Charge for the period 6,180 3,927 2,871 12,978
Disposals (110) (135) - (245)
At 27 June 2020 6,070 3,792 2,871 12,733
--------- --------- -------------- --------
Net book value
At 27 June 2020 53,799 18,636 26,705 99,140
========= ========= ============== ========
On the 8(th) October 2020 the Group announced a programme of
restructuring which includes the permanent closure of around 130 of
its branches. The impact of the decision on ROU assets is explained
in Note 8.
11. Trade and other receivables
27 June 28 December
2020 2019
GBP000s GBP000s
Gross trade receivables 52,055 72,056
Less provision for impairment (5,642) (3,745)
-------- ------------
Net trade receivables 46,413 68,311
Other debtors 4,094 2,762
Net investment in subleases 1,727 -
Prepayments 6,218 10,499
Accrued income 6,585 6,824
Total trade and other receivables 65,037 88,396
======== ============
The following table details the movements in the provision for
impairment of trade receivables:
27 June 28 December
2020 2019
GBP000s GBP000s
Balance at the beginning of the
period (3,745) (3,819)
Movement in provision (1,897) 74
Balance at the end of the period (5,642) (3,745)
======== ============
The provision for impairment of trade receivables is comprised
as follows:
27 June 28 December
2020 2019
GBP000s GBP000s
Bad debt provision (2,999) (1,568)
Credit note provision (2,643) (2,177)
(5,642) (3,745)
======== ============
The bad debt provision based on expected credit losses and
applied to trade receivables, all of which are current, is as
follows:
27 June 2020
Categories Current 0-60 61-365 1 - 2 Total
days days years
Contract assets 45,189 5,825 6,479 1,147 58,640
Expected loss rate 2.4% 7.8% 17.5% 27.0% 5.1%
Provision for impairment
charge 1,101 452 1,136 310 2,999
28 December 2019
Categories Current 0-60 61-365 1 - 2 Total
days days years
Contract assets 63,633 7,500 6,631 1,116 78,880
Expected loss rate 1% 3.0% 8.3% 13.9% 2.0%
Provision for impairment
charge 633 228 552 155 1,568
Contract assets consist of trade receivables and accrued
income.
The bad debt provision is estimated using the simplified
approach to expected credit loss methodology and is based upon past
default experience and the Directors' assessment of the current
economic environment for each of the Group's ageing categories.
The Directors have given specific consideration to the impact of
COVID-19 on the general economy, particularly given expected
tapering of government support. At the balance sheet date the Group
has not seen a marked increase in debt write-offs, in fact reduced
sales combined with an intense focus on collections have resulted
in debt that is significantly lower than year end. However the
Group expects the situation to deteriorate as government support is
reduced and localised COVID-19 lockdowns continue. Given the above,
historical losses are not a good predictor of future failures and
the Group has exercised judgement in increasing the expected loss
rates across all categories of debt. In so doing the provision has
been increased by around GBP1.5m from that which would have been
required based on rates used at year end. The position is being
monitored closely and the Group expects to review these judgements
at year-end based on ageing of debt, write-offs in the second half
of the year and the economic outlook at that point.
The provision for credit notes has increased predominately as
the result of an expected increase in credit notes during the
second half of 2020 for revenue billed between April and June as
lock-down restrictions were being lifted.
12. Trade and other payables
27 June 28 December
2020 2019
GBP000s GBP000s
Current
Trade payables 27,966 33,841
Other taxes and social security
costs 12,598 6,856
Other creditors 1,485 1,565
Accrued interest on borrowings 3,383 3,608
Accruals 22,872 20,058
Deferred income 146 103
68,450 66,031
======== ============
13. Borrowings and lease liabilities
27 June 28 December
2020 2019
GBP000s GBP000s
Current
Senior finance 15,000 -
facility
Lease liabilities 28,154 -
Obligations under
finance leases - 5,355
43,154 5,355
======== ============
Non-current
Senior finance
facility 160,700 174,501
Revolving credit 17,200 -
facility
Lease liabilities 68,774 -
Obligations under
finance leases - 11,228
246,674 185,729
======== ============
The senior finance facility is stated net of unamortised debt
issue costs of GBP6.3m (29 December 2019: GBP7.5m). The nominal
value of the Group's loans at each reporting period date is as
follows:
27 June 28 December
2020 2019
GBP000s GBP000s
Senior finance
facility 181,982 181,982
Revolving credit 17,200
facility -
199,182 181,982
======== ============
The interest rates on the Group's borrowings are as follows:
Interest 27 June 28 December
rate type 2020 2019
Senior finance %age above
facility Floating LIBOR 8.00% 8.00%
%age above
Finance leases Floating LIBOR 3.10% 3.10%
Revolving credit %age above
facility Floating LIBOR 2.50% 2.50%
-------- ------------
The weighted average interest rates on the Group's borrowings
and lease liabilities are as follows:
27 June 28 December
2020 2019
Borrowings 8.57% 10.40%
Lease liabilities 5.12% -
Finance leases - 4.80%
-------- ------------
The Group's leases and borrowings have the following maturity
profile:
27 June 2020 28 December
2019
Lease Finance
liabilities Borrowings leases Borrowings
GBP000s GBP000s GBP000s GBP000s
Less than one
year 25,332 16,348 6,306 -
Two to five
years 52,162 231,735 11,615 237,228
Over five years 23,887 - - -
------------- ----------- -------- -----------
101,381 248,083 17,921 237,228
Less interest
cash flows:
Senior finance
facility - (47,079) - (55,246)
Revolving credit
facility - (1,822) - -
Leases (4,453) - (1,338) -
-------------
Total principal
cash flows 96,928 199,182 16,583 181,982
============= =========== ======== ===========
The maturity profile, excluding interest cash flows, of the
Group's leases is as follows:
27 June 28 December
2020 2019
Lease Finance
liabilities leases
GBP000s GBP000s
Less than one year 28,154 5,355
Two to five years 56,471 11,228
More than five
years 12,303 -
96,928 16,583
============= ============
The Group has undrawn committed borrowing facilities of GBP19.1m
at 27 June 2020 (28 December 2019: GBP36.6m) under its facilities
in place at that date. Including net cash balances, the Group had
access to GBP81.8m at 27 June 2020 (28 December 2019: GBP59.3m) of
combined liquidity from available cash and undrawn committed
borrowing facilities.
14. Provisions
Onerous Onerous
leases Dilapidations contracts Total
GBP000s GBP000s GBP000s GBP000s
At 29 December 2019 4,833 16,209 19,573 40,615
Eliminated on transition
to IFRS 16 (2,222) - - (2,222)
Utilised during the period (235) (198) (1,687) (2,120)
Unwind of discount 2 22 114 138
Released (803) - - (803)
Foreign exchange - 19 - 19
At 27 June 2020 1,575 16,052 18,000 35,627
======== ============== =========== ========
Of which:
Current 396 3,326 3,110 6,832
Non-current 1,179 12,726 14,890 28,795
1,575 16,052 18,000 35,627
======== ============== =========== ========
Onerous Onerous
leases Dilapidations contracts Total
GBP000s GBP000s GBP000s GBP000s
At 30 December 2018 4,745 16,779 22,808 44,332
Additions 4,942 555 - 5,497
Utilised during the period (2,570) (790) (3,580) (6,940)
Unwind of discount 20 49 345 414
Released (2,304) (360) - (2,664)
Foreign exchange differences - (24) - (24)
At 28 December 2019 4,833 16,209 19,573 40,615
======== ============== =========== ========
Of which:
Current 2,043 2,990 3,112 8,145
Non-current 2,790 13,219 16,461 32,470
-----------
4,833 16,209 19,573 40,615
======== ============== =========== ========
On the 8(th) October 2020 the Group announced a programme of
restructuring which includes the permanent closure of around 130 of
its branches. The Group expects to recognise additional provisions
related to the non-rent costs of onerous properties of around
GBP4m.
15. Risks and uncertainties
The principal risks and uncertainties which could have a
material impact upon the Group's performance over the remaining 26
weeks of the 2020 financial year have not changed significantly
from those set out on pages 26 to 31 of the Group's 2019 Annual
Report, which is available at
https://www.hsshiregroup.com/wp-content/uploads/2020/06/HSS_ARA2019_WEBSITE.pdf.
These risks and uncertainties are:
1) Macroeconomic conditions;
2) Competitor challenge;
3) Strategy execution;
4) Customer service;
5) Third party service levels;
6) IT infrastructure;
7) Financial risk;
8) Inability to attract and retain personnel; and
9) Safety, legal and regulatory requirements
COVID-19 is considered in terms of its impact on each of the
principal risks and uncertainties. The main risk expected to affect
the Group in the remaining 26 weeks of the 2020 financial year is
macroeconomic conditions, which includes the impact COVID-19 and
Brexit related developments could have on the prevailing demand
from new and existing customers within the numerous and diverse
market sectors which HSS serves.
16. Adjusted EBITDA and Adjusted EBITA
Adjusted EBITDA is calculated as follows:
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
GBP000s GBP000s
Operating (loss)/profit (740) 4,754
Add: Depreciation of property, plant
and equipment 12,045 14,082
Add: Accelerated depreciation relating
to hire stock customer losses, hire
stock write offs and other asset
disposals 2,609 4,194
Add: Depreciation of right of use
assets 12,978 -
Add: Amortisation 2,620 2,990
EBITDA 29,512 26,020
Add: Exceptional items (802) 1,018
Adjusted EBITDA 28,710 27,038
=========
Adjusted EBITA is calculated as follows:
26 weeks 26 weeks
ended ended
27 June 29 June
2020 2019
GBP000s GBP000s
Operating (loss)/profit (740) 4,754
Add: Amortisation 2,620 2,990
EBITA 1,880 7,744
Add: Exceptional items (802) 1,018
Adjusted EBITA 1,078 8,762
========
17. Post Balance Sheet Event
On the 8(th) October 2020 the Group announced its intention to
accelerate its digital strategy by further investing in its
technology platforms. This investment will allow the business to
reduce its physical footprint and operate a leaner branch
structure, focused around its core CDC units and key branches.
Consequently, the Group proposes to permanently close around 130 of
its branches and has entered into a consultation period with c. 300
employees.
The expected impact of this restructuring on the Group's
impairment review, right of use assets and provisions is disclosed
in the relevant note within these financial statements. In addition
the Group expects to incur other restructuring costs, including
redundancy, of between GBP2 and GBP3m.
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END
IR KZMGGRNMGGZM
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October 08, 2020 02:00 ET (06:00 GMT)
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