TIDMHSS
RNS Number : 9550W
HSS Hire Group PLC
29 April 2021
HSS Hire Group Plc
Audited Results for HSS Hire Group plc for the year ended 26
December 2020
Strategy delivering improved performance
HSS Hire Group plc ("HSS" or the "Group") today announces
results for the year ended 26 December 2020
Financial Highlights(1) FY20 FY20 FY19(6) Change
(IFRS 16 basis) ( pre-IFRS16 basis) ( pre-IFRS16 basis) (pre-IFRS 16)
Revenue GBP269.9m GBP269.9m GBP328.0m (17.7)%
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Adjusted EBITDA(2) GBP69.4m GBP47.0m GBP63.9m (26.4)%
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Adjusted EBITDA margin 25.7% 17.4% 19.5% (2.1)pp
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Adjusted EBITA(3) GBP19.8m GBP16.7m GBP26.5m GBP(9.8)m
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Adjusted EBITA margin 7.3% 6.2% 8.1% (1.9)pp
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ROCE(4) 10.7% 15.2% 20.8% (5.6)pp
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Net debt leverage(5) 2.8x 2.6x 2.8x 0.2x
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Other extracts
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Operating profit / (loss) GBP1.5m GBP(3.5)m GBP16.8m GBP(20.3)m
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Loss before tax GBP(23.6)m GBP(24.3)m GBP(5.8)m GBP(18.5)m
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Basic loss per share (12.02)p (12.40)p (3.66)p (8.74)p
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-- Resilient performance through COVID-19 with strong trading in Q4
o Progressive revenue growth over H2 FY20, trading revenues in
Q4 at 94% of 2019 levels
o Positive EBITDA maintained throughout FY20, Q4 ahead of prior
year
o Decisive actions taken maintained healthy EBITDA margins and
ROCE
-- Strengthened balance sheet, reduced leverage
o Net debt (pre-IFRS16) materially reduced to GBP120.4m (FY19:
GBP179.5m)
o Leverage reduced to 2.56x (pre-IFRS 16)
o Capital raise realised GBP52.6m gross proceeds
o Strong working capital management, overdue debt at lowest
level in over 5 years
-- Accelerated strategy implementation to better serve our customers and suppliers
o Transformed our national operating model, delivering GBP15m
annualised net cost savings and improved operational efficiency
o Expanded low cost builders merchant network, currently 31
locations and growing
o Continued technology investment including enhancements to
HSS.com, 22% of transactions online in Q4
o OneCall automated platform expanded to cover our full range of
products and services, improving the customer experience with a
faster and more efficient ordering process
-- Strong start to FY21
o Q1 FY21 EBITDA (pre-IFRS 16) ahead of both FY20 and FY19
o Revenue continues to improve, Q1 FY21 like for like(7) at
around FY19 levels
o Leverage (pre-IFRS 16) further reduced to 2.1x as at 3(rd)
April 2021, targeting FY21 exit rate below 2.0x
o Reached agreement to surrender 95% of the 134 closed branches,
minimal ongoing liability
o Sale of Laois completed April 2021 for EUR11.2 million,
reinvestment into additional capex for core Tool Hire business
o Strategy delivering, well positioned to capitalise on market
opportunities.
Steve Ashmore, Chief Executive Officer, said:
"HSS has delivered a resilient performance in a year of
unprecedented disruption. The onset of the pandemic had a
significant impact across our markets but decisive action to
preserve cash and adapt our business supported a strong recovery in
the second half of the year with EBITDA ahead of 2019 levels in the
final quarter.
During the course of the year, we took the decision to
accelerate the implementation of our strategy. By increasing our
focus on digital platforms, closing 134 of our branches, and
partnering with builders merchants, we have been able to maintain
national coverage while significantly reducing fixed costs. We are
grateful for the overwhelming shareholder support for our strategy
and in October successfully completed a GBP53m capital raise,
further strengthening our balance sheet.
This significant progress has been possible due to the hard work
and dedication of our colleagues who have shown outstanding
commitment during a uniquely challenging year. Our people are the
heart of our business and our most important asset and I would like
to thank them for their hard work.
We have had an encouraging start to 2021, with EBITDA in the
first quarter ahead of 2019 and 2020 levels. We are well positioned
to capitalise on market opportunities as we continue to build on
our differentiated commercial proposition to create the most
advanced, customer-centric offer in the tool hire marketplace."
Notes
1) Results for FY20 and FY19 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 26
December 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. On this basis FY19 has not
been restated to reflect the standard
7) Like for like excludes impact of loss of Services volume
associated with FY19 announced change to one managed service
contract and impact of additional week's trading in Q1 FY21
-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 and related
services in the UK and Ireland through a nationwide network and its
OneCall rehire business. It offers a one-stop shop for all
equipment through a combination of its complementary rental and
re-hire business 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 AIM
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 29
April 2021)
Steve Ashmore, Chief Executive Officer Thereafter, please email:
Investors@hss.com
Paul Quested, Chief Financial Officer
Greig Thomas, Head of Group Finance
Teneo Tel: 07557 491 860
Tom Davies Tel: 07703 330 269
Charles Armitstead
Numis Securities (Nominated Adviser Tel: 020 7260 1000
and Broker)
Stuart Skinner
George Price
Chairman's Statement
2020 has demonstrated the resilience of our Group and the value
of our digital transformation to customers and suppliers. We
responded exceptionally well to COVID-19 whilst continuing the
excellent execution of our strategic plan. The acceleration of our
strategy has put the foundations in place for our transformation
into a digitally-led, agile leader in the equipment services
market.
Accelerating our strategy
Dear shareholder,
We have made considerable progress in delivering our strategy
during 2020 despite the challenging market conditions. The Group
has delivered a resilient performance, both operationally and
financially, taking fast, decisive action in response to COVID-19
thereby ensuring the safety of our colleagues, customers, suppliers
and other stakeholders as well as protecting the Group's
liquidity.
The onset of the pandemic in March 2020 and the subsequent
national lockdown significantly impacted performance as our
business, customers and suppliers adapted to working in the new
environment. By leveraging our rapidly evolving technology platform
we were able to adapt our operating model, including the
introduction of low-contact Click-and-Collect capability, and
maintain customer service through our national Customer
Distribution Centres and OneCall rehire business. Revenues
recovered to 94% of FY19 levels by Q4 FY20. Combined with cost
action, this has meant that Adjusted EBITDA has remained positive
throughout 2020, improving throughout the year from the low point
of April 2020.
During 2020 preserving liquidity has been a key focus. Multiple
actions were taken across the business including deferring capital
expenditure, working with landlords to agree rent holidays and
taking advantage of Government job retention schemes. I am pleased
that these actions have strengthened the Group's liquidity
position.
We have also continued to execute against the strategic
priorities we launched in December 2017. During 2020 we invested
further in our technology platform and restructured our network
allowing us to continue providing national coverage with a
significantly lower and more flexible cost base. I am pleased with
the progress made implementing our strategy and believe that these
changes will further optimise our network efficiency, improve
customer service and ultimately enhance shareholder value.
The Board was delighted by the strong support of our
shareholders for the Group's strategy during the capital raise
which completed in December 2020. GBP52.6m of gross proceeds were
raised enabling a reduction in net debt (a key element of our
Delever the Group strategic priority) and further investment in our
technology platforms and hire fleet to support the Tool Hire
business.
Sector opportunity
The UK hire industry is large (GBP4bn), but still highly
fragmented and the players relatively homogeneous. Most companies
have struggled to differentiate their offering and embrace new
technologies, providing a significant opportunity for HSS to take a
lead. I am confident that the digital transformation programme
taking place at HSS will deliver clear advantages for the Group,
its customers, colleagues, suppliers and investors alike.
Delivering our strategy
I am pleased to report that, despite the backdrop of COVID-19,
material progress has been made against all our strategic
priorities with significant changes implemented to create the
foundations to transform our colleague, customer and supplier
experiences.
Our digital transformation continued with the upgrade of HSS.com
and the launch of HSS Pro POS, a single online platform that
enables every colleague to offer the full range of the Group's
services to customers. This platform represents the evolution of
our existing OneCall integrated system. We will continue to invest
in our technology in 2021 as we deliver what I believe to be a very
exciting roadmap.
Since the start of the first national lockdown, the Group has
successfully trialled alternative sales models, including sales
colleagues working remotely and partnership concessions with
regional builders merchant chains.
The success of these trials, combined with the acceleration of
customer behaviour towards the use of our digital platforms in
sales and fulfilment channels, has demonstrated that there is a
lower cost, more agile business model for rental. This was
evidenced by the Group returning to revenue of over 90% of FY19
levels at the end of September with just 20% of the branch network
open.
Consequently, the Group permanently closed 134 of its 234
locations, saving cGBP15m per annum. Working with our property
restructuring partners, we have now successfully surrendered or
agreed to surrender 95% of these sites.
We now have market-leading technology platforms supported by a
national agile distribution network and extensive rehire business,
enabling us to transform to a digitally-led agile equipment
services provider which we believe will deliver superior
returns.
Our results
FY20 performance has been heavily impacted by COVID-19. After a
solid first quarter, the first national lockdown resulted in a
weaker second quarter; however the business remained resilient and
proactive measures enabled us to return to 94% of prior year
revenue through Q4 FY20.
Total revenue for the year declined 17.7% with our Rental
segment down 21.0% and Services showing more resilience down 3.3%
like-for-like (after excluding the loss of Services revenue
associated with a change to one managed services contract), having
benefited from complementary revenue streams such as PPE sales.
Through effective cost management segment margins were
maintained.
Adjusted EBITDA (pre-IFRS 16) for the year at GBP47.0m, whilst a
26.4% decline year on year, benefited from the decisive management
actions taken by the Group in response to the pandemic which have
enabled margins to be maintained at 17.4% (2019: 19.5%). Adjusted
EBITA (pre-IFRS 16) was GBP16.7m with margin at 6.2%.
Working capital management has been exceptional during FY20 with
overdue debt reducing by GBP3.0m since last year. This, combined
with the liquidity preservation actions in response to COVID-19 and
gross proceeds from the recent capital raise (GBP52.6m), mean net
debt (pre-IFRS16) has reduced to GBP120.4m (2019: GBP179.5m) and
liquidity headroom (cash and undrawn revolving credit/overdraft
facility) has increased to GBP103.6m as at 26 December 2020 from
GBP45.9m in FY19. Group net debt leverage (pre-IFRS16 basis) was
2.6x, down from last year (2019: 2.8x), and the lowest level since
the Group listed in 2015, an achievement all the more significant
given the backdrop of COVID-19.
Capital expenditure was reduced in the financial year, and
tightly managed to match the lower sales volume. We continue to use
our insight tools, ensuring that investment is targeted on products
with high demand and margins. Consequently ROCE (pre-IFRS16)
remained healthy at 15.2% (2019: 20.8%).
Our results, including the impact of IFRS 16, are discussed in
more detail in the Financial Review.
Our Board and management team
The Board aspires to lead by example and practice the HSS
values: Make it: Safe, Happen, Better and Together.
I want to thank all Directors for their individual
contributions, determination and increased governance which helped
the Group calmly navigate through another year of change for our
business against the backdrop of a global pandemic.
Governance
I reported last year that we were taking steps to implement the
changes to corporate governance reflected in the 2018 Code and
reinforce the work we were already doing. Since then, the Company
has moved markets and, with its shares admitted to trading on AIM
in January 2021, the Board has decided to adopt the QCA Corporate
Governance Code, in line with many other AIM companies. We are
reporting this year under the 2018 Code and from FY21 onwards will
report under the QCA Corporate Governance Code. More detail on
this, including our efforts to date around stakeholder engagement,
can be found in the Corporate Governance section and throughout the
Strategic Report.
Our people
The strength of our culture shone through this year and I am
proud to be able to represent HSS. The way the Group responded in
such a resilient manner to the challenges of the COVID-19 pandemic
as well as accelerating many aspects of our strategy is a testament
to the dedication, skills, can-do attitude and adaptability of our
colleagues. This strong resonance with our culture, purpose and
values has been evidenced by further improvement in our colleague
engagement score in the 2020 survey. On behalf of the Board, I
would like to take this opportunity to thank everyone for all of
their extraordinary efforts during 2020.
Sustainability
Our primary responsibility is always to ensure the safety of HSS
colleagues, customers, suppliers and other stakeholders, and never
more so than in the current climate. To this end the Board remains
fully committed to providing a safe and secure environment for all,
monitoring and supporting senior management's plans including the
implementation of COVID-19 safe practices. The processes and
procedures in place have been appropriately recognised with the
Group becoming ISO 45001 (Occupational Health and Safety)
accredited during 2020.
Pleasingly, the progress has been translated well into results
with another material reduction in the number of RIDDORs (incidents
reported under the Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations 2013) with only 2 reported in FY20 (FY19:
11). This remains an ongoing focus.
The Board is also active in ensuring that the business operates
with transparency and integrity, delivering a sound economic
performance, whilst paying close attention to reducing our impact
on the environment, and that we are contributing in a positive way
to the local communities in which we operate.
Dividend
The Board is committed to delivering our strategic priorities,
and after careful consideration of the performance of the Group
during the year, believes it is in the best interests of the
shareholders of the Group to not pay a final dividend in respect of
2020. The Board will re-evaluate this position once the net debt
leverage ratio falls below 2.5x.
Looking ahead
Our business has demonstrated significant resilience in 2020,
maintaining high customer service levels despite challenging
conditions. Our strategic investment in technology is meeting
changing customer needs and providing a high level of
differentiation in a competitive marketplace. Combined with our
more agile, lower cost national operating model and strengthened
balance sheet, we believe the Group is well positioned to take
advantage of recovering trading conditions as they occur and
deliver enhanced returns for our shareholders.
I am delighted with the Group's performance at the start of
2021. Despite being in a national lockdown, revenue has continued
to recover towards FY19 levels. Adjusted EBITDA (pre-IFRS16 basis)
for Q1 FY21 is ahead of the comparable periods for FY19 and
FY20.
We are well placed to benefit as restrictions are relaxed in the
coming months.
Disposal of Laois Hire
To continue our strategic focus on the tool hire business we
announced after the balance sheet date the sale of Laois, our Irish
large plant hire business, to Briggs Equipment Ireland limited. The
Laois business has made an excellent contribution to the Group over
recent years and I wish our former colleagues every success for the
future. As part of the disposal we have entered into a commercial
agreement with Briggs to ensure we continue to provide our Irish
customers with their large plant requirements.
Alan Peterson OBE
Chairman
Chief Executive Officer's Strategic Review
I am pleased to report a resilient performance and good
strategic progress despite the challenging market conditions in
2020. We took decisive action throughout the year, immediately
reacting to lockdown to protect colleagues and customers, whilst
offering continuity of supply, before accelerating our strategy,
transforming our operating model and removing significant fixed
costs. We have continued to invest in our technology platforms to
drive digital adoption, and this, together with our new agile
operating model, sets us up very well to differentiate ourselves in
the market.
Resilient business, accelerating strategy
2020 was a year of both challenge and opportunity. I am pleased
to report that the business responded quickly and decisively to the
challenges presented by COVID-19 in the first half of the year, and
then took advantage of the opportunities presented as the market
recovered in the second half, accelerating the delivery of our
strategy.
The excellent progress made can be attributed to four key
factors:
1. People. Our colleagues really excelled this year,
exemplifying our cultural values: Make it: Safe, Happen, Better and
Together. I am very proud of the way they adapted to new working
practices, stayed safe and continued to deliver exceptional
customer service in challenging conditions.
2. Technology. Our technology platform put us in a great
position, allowing customers to switch to digital channels in April
and enabling our launch of Click-and-Collect in May. Technology
also supported home working for all office-based colleagues in
March.
3. Resilient Business Model. Our national network of Customer
Distribution Centres allowed us to continue to offer high levels of
customer service on critical projects during the initial lockdown.
Our substantial Services division, in particular OneCall, provided
a valuable source of equipment to customers who were facing supply
chain challenges.
4. Strong Governance. It is testament to the governance we have
in place that the Board, Executive Team and senior leadership teams
have been able to calmly navigate the Group through the year,
particularly during the rapidly changing environment we found
ourselves in during Q2.
Our business exists to equip our customers with the tools,
training and information required so they can safely and
efficiently build, maintain and operate the UK and Ireland's
infrastructure and services. Our customers are responsible for
schools, hospitals, housing, offices, factories, roads, retail,
hospitality and many other important elements of our
infrastructure. It is therefore critical that we offer consistently
good service, never more so than during the pandemic.
Our Services business, which has a vast supply chain, is a
convenient source of equipment for customers wanting a one-stop
shop for all their equipment needs. This year we sourced
significant amounts of personal protective equipment, welfare units
and cleaning equipment as our customers adapted to new working
practices on site.
Overview of the year
During the first quarter of 2020 we traded in line with our
expectations and made progress on several strategic initiatives. We
continued to invest in our technology platforms and to drive
customers to our digital channels. In our pursuit of leaner
operating models, we set up several builders merchant concessions
and removed some excess distribution capacity.
By February we were putting in place additional plans in
response to the increasing threat of COVID-19. We equipped
office-based colleagues with the technology to work from home,
trialling this in early March. In our branches we introduced social
distancing measures including new signage, barriers and screens. We
also identified high-risk colleagues and encouraged shielding, and
from a very early stage we increased colleague communications.
Trading was largely unaffected until the Government announcement
of a national lockdown on 23 March. At this point we immediately
closed all of our branches. We kept open our network of Customer
Distribution Centres, so that we could continue servicing critical
projects, but we stopped serving cash customers for safety
reasons.
We relaxed this in May alongside the launch of our low-contact
Click-and-Collect service.
Whilst some activity continued in April, many construction sites
were initially closed and demand fell significantly. Revenues
initially fell to 50% of prior year levels, with varying
performance across divisions and geographies. Our rehire business
was particularly resilient, as was our heating, ventilation and
cooling business All Seasons Hire.
In response to the fall in revenue we focused on maximising
liquidity. We preserved colleagues' roles using the Government's
Job Retention Scheme, furloughing 60% of colleagues at peak and
agreed a tapered series of salary reductions from Board level
through to managers. Tax support was also utilised, deferring PAYE
and VAT payments (all of which were settled before the financial
year end), and obtaining business rates relief for our branch
network. We worked with landlords, negotiating rent holidays and
our lenders supported us with repayment deferrals. Discretionary
spend was significantly reduced, as was capital expenditure to
reflect weaker demand. In addition, our debt collection team was
strengthened to ensure strong working capital management.
These actions allowed us to increase liquidity to over GBP68m by
June and maintain a significant amount of headroom against our debt
covenants during this critical period..
The role of technology
Our technology platform, which has seen significant investment
over the last two years, served us really well during the pandemic.
The home working we introduced in March was enabled in part by the
Brenda technology introduced to the OneCall business in 2019. The
Customer App launched in April 2019, and the enhancements made over
the last two years to our website, helped address a surge in demand
for online ordering, which in May exceeded 40% of all orders. Our
technology also made possible the launch of Click-and-Collect, as
well as
contact-free deliveries and collections .
Colleagues living our values
I said it at the outset, but it is worth repeating; our
colleagues made an incredible contribution to our success this year
in the face of unprecedented challenges. I cannot thank them enough
for the dedication and determination they demonstrated.
They MADE IT SAFE, adapting to new working practices and using
the additional protective equipment provided.
They MADE IT HAPPEN, offering continuity of service for our
customers working on critical projects during lockdown.
They MADE IT BETTER, launching our Click-and-Collect service in
May and continuing to enhance customers' online experience.
And they MADE IT TOGETHER, supporting each other during
difficult times and maximising cross-selling opportunities.
I am very proud of our colleagues and our culture, and was
delighted to see the improvements in engagement scores in our
recent colleague survey, which has been achieved despite a period
of significant challenge and change. Colleague participation was at
its highest since we began these surveys in 2016, with 84% of
colleagues completing the survey. Our engagement score was also at
its highest, at 75%, from 72% in 2019, and significantly above the
industry average in the UK of 61%. I am also delighted to report a
record reduction in RIDDORS and our highest ever levels of safety
observations.
Accelerating our strategy
In my Strategic Review in last year's Annual Report I
highlighted our desire to drive e-channel adoption, to continue
digitising our business and to optimise our go-to-market
proposition, becoming more agile. COVID-19 accelerated a change in
customer behaviour and allowed us to prove an alternative operating
model with significantly fewer branches.
During April and May customers shifted to our digital channels,
utilising our website and Customer App technology. They also
shifted towards delivery rather than collection. These shifts in
behaviour accelerated a long-term trend away from branch-based
customer interactions.
As demand returned in May and June, we resisted the temptation
to open up our branch network and instead began trialling remote
sales teams. Sales colleagues returned from furlough, but worked
from home, responding to customer enquiries and raising orders.
This worked extremely well and by September we saw revenue return
to 90% of prior year levels with the majority of our branches still
closed.
During the summer we also accelerated the roll-out of HSS hire
desk concessions inside regional builders merchants, something we
had pioneered late in 2019. They provide additional
Click-and-Collect venues at materially lower cost. These locations
typically give us access to significantly higher footfall than we
experience in traditional hire branches, and access to new
customers. We are very pleased to finish the year with 24 builders
merchants concessions, which together are typically raising 10% of
daily Group contracts, and we are excited to be planning a further
26 in 2021.
The shift in customer behaviours, the successful trials of
remote sales teams and builders merchant concessions, and the
resultant return to 90% of pre-COVID revenues led us to announce
the permanent closure of 134 branches in October 2020.
Unfortunately, this was also accompanied by the loss of c300
colleagues who were made redundant as part of this restructure.
Together these changes have delivered a net fixed cost saving of
cGBP15m per annum, and I am pleased to report that in the final
quarter of the year we traded at 94% of 2019 levels with this new
operating model. This is an incredible achievement and testament to
the hard work of our colleagues.
Our technology development continued in the final quarter of the
year, with the roll-out of HSS Pro POS, a web-based front end for
our salesforce enabling them to place orders across our full range
of products and services, quickly and easily on their mobile
devices and laptops. This has been developed on the technology
platform created to deliver the OneCall system, Brenda, in
2019.
With our restructure complete, revenues significantly recovered,
a leaner, more agile operating model in place and advancing
technology, we finished the year well placed to achieve our vision
of being the digitally-led leader in our industry.
Capital raise
In the second half of the year, in pursuit of our strategic goal
to reduce leverage below 2.5x, we approached our largest investors
for additional capital. The successful outcome of this capital
raise, GBP52.6m of gross proceeds, completed on 8 December, is
testament to investors' belief in our compelling strategic plan.
The capital raise has enabled us to significantly reduce net debt,
and will allow us to continue investing in our technology platforms
and hire fleet to support our strategy going forward.
2021 project focus
We enter 2021 with three strategic projects that will help
deliver our vision:
1. Technology Development
2. Sales Acquisition
3. Standout Service
Technology Development. We continue to develop the Brenda
technology, striving for quicker response times, higher conversion
rates, better service and improved margins. In 2021 we plan to
roll-out the technology to the procurement teams of our larger
customers, providing them with direct online access to our
services. We also intend to integrate the technology with our
website, providing smaller customers with instant access to our
entire offering.
Sales Acquisition. We are very pleased with the performance of
our remote sales teams and builders merchant concessions, but both
models are still in their infancy. We believe there is much more
scope to optimise their performance, improve sales acquisition and
ultimately take market share. This project will fully leverage our
new operating model, allowing us to grow the business while
minimising fixed cost.
Standout Service. There remains an opportunity in our sector to
differentiate on service, by offering outstanding reliability,
delivering and collecting at the agreed time. Our technology
platform now allows us to introduce enhanced scheduling and route
optimisation functionality which will be the focus of our
operations teams in 2021.
Our market
The equipment hire market in the UK is large, cGBP4bn, and
fragmented with approximately 1,000 small independent hire
companies. It is attractive because it covers a wide range of
equipment and a diverse set of end-markets. We believe there is
still a lack of differentiation amongst the leading players,
particularly when it comes to digital adoption. Our investment in
technology, combined with our transition to a digitally-led and
more agile business model, will set us apart going forward.
Whilst COVID-19 had a significant impact on trading in 2020, the
current trading environment appears strong with limited impact from
the Government's third national lockdown. The construction sector
appears much more resilient this time with companies far better
prepared with COVID-19 working practices, virus testing and
personal protection now well established. With the Government's
plans to relax restrictions in the coming months, we see further
strengthening of demand, and whatever the short term brings us, our
new operating model is well placed to adapt and take advantage.
To summarise, I believe the business is in great shape to
deliver on our strategy and our performance framework. We are well
positioned with a more agile cost base, a superior, digitally-led
proposition and a strengthened balance sheet, allowing us to
continue achieving our strategic goals and differentiating in this
fragmented market. We retain our vision of being the market-leading
digitally-led brand for equipment services.
On 6th April 2021 we sold Laois Hire, our Irish large plant
rental business, to Briggs Equipment Ireland Limited for EUR11.2m.
This disposal is consistent with our strategy to focus on the core
Tool Hire business. As part of the transaction, HSS entered into a
commercial agreement with Briggs to ensure we continue to provide
our Irish customers with their large plant requirements. As the
disposal occurred after 26th December 2020 it has been treated as a
non-adjusting post balance sheet event.
Steve Ashmore
Chief Executive Officer
Financial Review
Decisive action, balance sheet strengthened
Financial highlights - pre and post IFRS16(1,2)
2020
2020 2020 pre-IFRS16 v.
GBPm reported pre-IFRS16 2019 2019
--------------------------- --------- ---------- ------------ ------ ---------------
Revenue Rental 180.8 180.8 229.0 (21.0)%
---------------------------
Services 89.1 89.1 99.0 (10.0)%
------------------------------------- ---------- ------------ ------ ---------------
Group 269.9 269.9 328.0 (17.7)%
------------------------------------- ---------- ------------ ------ ---------------
Contribution(3) Rental 122.9 122.0 155.5 (21.5)%
---------------------------
Services 12.6 12.6 15.5 (18.7)%
------------------------------------- ---------- ------------ ------ ---------------
Group 135.5 134.6 171.0 (21.3)%
------------------------------------- ---------- ------------ ------ ---------------
Adjusted EBITDA(4) 69.4 47.0 63.9 (26.4)%
-------------------------------------- ---------- ------------ ------ ---------------
Adjusted EBITA(4) 19.8 16.7 26.5 (37.0)%
-------------------------------------- ---------- ------------ ------ ---------------
Operating Profit/(Loss)(4) 1.5 (3.5) 16.8 (20.3)
-------------------------------------- ---------- ------------ ------ ---------------
1 The Group adopted IFRS16 Leases in 2020 and chose the modified
retrospective approach under which prior year figures are not
restated. The reported results for FY20 are therefore not
comparable directly to the prior year. Commentary within this
review considers pre- and post-IFRS16 results where relevant to aid
comparability. An explanation of the adoption and impact of IFRS16
on results is provided in note 2.
2 2019 results are for continuing operations
3 Contribution is defined as revenue less cost of sales
(excluding depreciation and exceptional items), distribution costs
and directly attributable costs (for each segment).
4 These measures are not reported on a segmental basis because
branch and selling costs, central costs and exceptional items
(non-finance) are allocated centrally rather than to each
reportable segment.
Overview
FY20 was an extraordinarily demanding year for the business as
we responded to COVID-19. Unsurprisingly the financial results have
been heavily impacted by the pandemic, however the resilience
demonstrated by each and every colleague to respond to the
challenge, maintain customer service and accelerate strategy
delivery has been truly exceptional.
Following the announcement of the first national lockdown in
March 2020, demand fell significantly with revenue, at its lowest
point, 50% of prior year levels. Decisive action was taken to
preserve cash including reducing fleet capital expenditure,
temporary reductions in Board and Management salaries, utilising
the Government job retention scheme, securing rates relief and
grants, agreeing rent holidays with a number of our landlords, a
significant reduction in discretionary spend and the deferral of
PAYE and VAT payments (although all tax deferrals were settled
prior to the financial year end). Additional focus and resource was
placed on working capital management; I am pleased to say this
resulted in a 20% reduction in overdue debt taking it to the lowest
level in my tenure with HSS.
During the year we accelerated our strategy execution,
continuing to invest in the technology roadmap and progressing to a
lower fixed-cost, more agile operating model, resulting in circa
GBP15m of annualised cost savings. This involved the permanent
closure of 134 branches. As at the date of this report we have
surrendered or reached agreement to surrender 95% of related
leases, limiting onerous lease liabilities going forward.
In December, shareholders demonstrated their support for the
business and our strategy by investing GBP52.6m via the placing of
new shares in the market. After fees, net proceeds were GBP50.8m
(see note 15). This positive endorsement materially reduced the
Group's net debt and strengthened the balance sheet.
The combination of the actions noted above ensured that the
Group delivered positive adjusted EBITDA throughout the year with
an improving trend as revenue recovered to close to 100% of FY19
levels, improved liquidity headroom to GBP103.6m (FY19: GBP45.9m),
reduced net debt leverage pre-IFRS16 to 2.6x (FY19: 2.8x) and
ensured that financial covenant tests were passed every
quarter.
While we continue to monitor the COVID-19 situation and respond
appropriately, I remain confident that the strategic changes made
for our customers and to our operating model put the Group in a
strong position to face the challenges and create future
shareholder value. This is evident in our strong start to FY21
where adjusted EBITDA pre-IFRS 16 for Q1 is above both FY20 and
FY19.
Revenue
Group revenue declined by 17.7% to GBP269.9m (FY19: GBP328.0m).
Q1 was in line with management expectations until the first
national lockdown in late March 2020 after which trading was
heavily impacted by COVID-19. Revenue dropped as low as 50% of
prior year in Q2 before recovering to 94% by Q4.
Group revenue growth is one of our KPIs as, combined with
estimates of market size and growth rates, it provides us with a
measure of our market share.
Segmental performance
Rental and related revenues
Our Rental revenues were significantly impacted by COVID-19,
declining by 21.0% to GBP180.8m (FY19: GBP229.0m) and accounted for
67.0% of Revenue (FY19: 69.8%).
While we scaled back capital investment we continued to invest
where customer demand was strong. Following the decision to
accelerate our strategy, which included rolling out HSS Pro POS and
other technology to sales colleagues and streamlining the operating
model with the permanent closure of 134 branches, we have been
pleased to see Rental and related revenue recover as the year
progressed. Rental and related revenues is one of our KPIs.
Contribution, defined as revenue less cost of sales (excluding
depreciation and exceptional items), distribution costs and
directly attributable costs, of GBP122.0m excluding a GBP0.9m
benefit on the adoption of IFRS16 (FY19: GBP155.5m) was down 21.5%
broadly in line with revenue, but benefiting from GBP2.7m of
COVID-19 support (see other operating income below).
Services
Services revenues decreased on a like-for-like basis by 3.3% to
GBP89.1m (FY19: GBP99.0m), accounting for 33.0% (FY19: 30.2%) of
Group revenues. This was principally due to the resilience
demonstrated in our HSS OneCall business which reacted quickly to
support customer demand on critical projects following the first
national lockdown, with the entire team able to move immediately to
remote working, a benefit of our investments in technology.
Meanwhile our HSS Training business also reacted quickly, switching
to online delivery of classes. The business has since recovered
very well.
Contribution from Services fell by 18.7% to GBP12.6m (FY19:
GBP15.5m), including GBP0.7m of COVID-19 grant income but higher
than the reported revenue growth rate, reflecting the impact of
fixed costs and mix on an unprecedented drop in overall demand due
to COVID-19.
Costs
Our cost analysis set out below is on a reported basis and
therefore includes exceptional costs, the most significant of which
are associated with our strategy acceleration.
Our cost of sales reduced by 12.9% to GBP130.4m from GBP149.7m,
mainly reflecting reduced sales volume and lower depreciation
following scaled back capital expenditure.
Distribution costs reduced to GBP28.1m (2019: GBP33.2m)
reflecting reduced operations during the lockdown but also the full
year benefit of cost actions taken in prior years.
Administrative expenses were reduced by GBP7.1m, of which
GBP4.9m was due to IFRS16 adoption with the balance being driven by
cost action including the reduction in the branch network in Q4.
Included within administrative expenses is GBP12.9m of exceptional
items (2019: GBP3.8m) - refer to the exceptional items section of
this review for more detail.
Adjusted EBITDA and Adjusted EBITA
Our Adjusted EBITDA pre-IFRS16 for 2020 was 26.4% lower at
GBP47.0m (2019: GBP63.9m) driven by the impact of COVID-19 on
revenues, offset partially by grant income and cost savings noted
above. IFRS16 resulted in GBP22.4m of additional EBITDA due to
lease costs previously reflected in EBITDA now reported as
depreciation and interest. As a result, the Group's Adjusted EBITDA
margin pre-IFRS16 for FY20 was 17.4% (FY19: 19.5%). Adjusted EBITDA
and margin pre-IFRS16 are included in our KPIs.
Our Adjusted EBITA pre IFRS16 was GBP16.7m (FY19: GBP26.5m), a
37.0% decline with reduced depreciation following careful
management of fleet to match demand. Adjusted EBITA margin
pre-IFRS16 decreased by 1.9pp to 6.2% (FY19: 8.1%).
Adjusted EBITA pre-IFRS16 and EBITA margin pre-IFRS16 are
included in our KPIs.
Other operating income
The Group benefited from government grant income of GBP9.8m as a
result of participating in the UK and Irish governments' furlough
programmes. GBP0.6m of grants for UK rates were also received.
Support has not been taken in 2021 and so it is expected that this
income will not recur. We also received GBP1.2m of insurance
proceeds following a successful claim under our business
interruption policy, with a further GBP1.2m received following the
year-end. The remaining GBP0.2m (2019: GBP0.5m) reflects income
received from the sub-letting of unutilised space across our
network.
Operating profit
Our operating profit decreased from GBP16.8m in 2019 to GBP1.5m
in 2020, driven by the impacts described above but also including a
GBP5.0m benefit from adoption of IFRS16.
Exceptional items
We have incurred exceptional expenditure in FY20, with the
majority of this being the result of our strategy acceleration,
part of which meant the permanent closure of 134 branches and,
unfortunately, the redundancy of around 300 colleagues.
The property related costs totalled GBP7.4m with GBP9.5m of this
being impairment of right of use assets associated with closed
branches. Additional non-lease onerous provisions associated with
the properties (e.g. rates and utilities) were established
totalling GBP2.1m. A gain of GBP4.0m was recognised on disposal of
leases in the year. A net credit of GBP0.3m was generated from the
impairment, reassessment or disposal of dilapidations liabilities.
Following the emergence of the pandemic the Group sought to agree
rent concessions from landlords - GBP0.3m of these were recognised
as exceptional because they were related to branches that were
non-trading.
GBP4.6m of non-property cost associated with the network
restructure was also recorded. Of this, GBP3.0m related to the
impairment or disposal of property plant and equipment and surplus
resale stock arising from the branch closures. GBP1.6m was expensed
on redundancy and associated costs.
GBP0.9m of costs were incurred related to the Capital Raise and
preparation for the transfer of the Group's listing to AIM, and a
downward revision of the rate used to discount the onerous contract
provision related to NDEC liability resulted in a GBP0.6m
charge.
Profit on disposal of UK Platforms (2019 only)
The disposal of UK Platforms resulted in a profit on disposal of
GBP14.8m in 2019. Proceeds were used to partially repay the senior
finance facility resulting in the accelerated amortisation of
related debt issue costs of GBP1.9m in 2019.
Finance costs
Net finance expense increased to GBP25.1m (FY19: GBP22.6m). The
increase is mainly driven by the adoption of IFRS16 which resulted
in GBP4.3m of additional interest, but offset by the GBP1.9m
accelerated amortisation of debt costs in the prior year.
Taxation
The Group has an immaterial net tax charge compared with a
charge of GBP0.4m in FY19. The Group made an overall loss for tax
purposes in the UK, and the key components of the current year
charge are Irish tax payable of GBP0.1m and a release of deferred
tax liabilities held in respect of fixed assets.
Reported and adjusted earnings per share
Our basic and diluted reported loss per share increased to a
loss of 12.02p (FY19: loss of 3.66p) due to COVID-19's impact on
trading, partially offset by the increase in average shares
following the capital raise in December.
Our basic adjusted earnings per share, being profit from
continuing operations before amortisation and exceptional costs
less tax at the prevailing rate of corporation tax divided by the
weighted average number of shares, moved from earnings of 2.76p in
FY19 to a loss of 2.03p in FY20. Our diluted adjusted earnings per
share, calculated in the same manner as basic adjusted earnings per
share but with the weighted average number of shares increased to
reflect Long-Term Incentive Plan (LTIP) and Sharesave options, was
a loss of 2.03p (FY19: earnings of 2.31p). These reflect the
decline in Adjusted profit before tax in FY20 compared with FY19.
Adjusted EPS (diluted) is one of our KPIs.
Capital expenditure
Additions to intangible assets and property, plant and equipment
in the year were GBP24.8m (2019: GBP33.7m) on a pre-IFRS16 basis.
The majority was invested to support our Rental business with
GBP19.0m (2019: GBP27.1m) spent on hire fleet, albeit scaled back
following the emergence of COVID-19. GBP3.3m was spent on
developing software assets as the Group continues its investment in
technology (FY19: GBP2.3m). The remaining GBP2.5m was spent on
property, plant and equipment (2019: GBP4.3m).
IFRS16 saw the introduction of right of use assets with GBP9.2m
of additions in the year, of which GBP4.1m relate to leases that
would previously have been categorised as operating leases.
Return on capital employed
Our ROCE pre-IFRS16 for FY20 was 15.2% compared with 20.8% for
FY19. ROCE is calculated as Adjusted EBITA from continuing
operations divided by the total of average total assets (excluding
intangible assets and cash) less average current liabilities
(excluding current debt items). Adjusted EBITA declined by GBP9.8m
(2019: GBP4.4m increase) whilst the average capital employed by the
Group decreased by 14.5% from the level calculated at the end of
2019, reflecting depreciation and asset disposals being higher than
capital expenditure and the significant reduction in trade
receivables.
On a reported basis for FY20 ROCE is 10.7%. ROCE is one of our
KPIs.
Trade and other receivables
There has been a reduction in Gross contract assets of 7.0%.
This is the result of reduced trading through the year and a very
strong focus on collections which has meant overdue debt has
reduced by GBP3.0m and to the lowest level in several years.
Despite the focus on collections the economic outlook is far
from certain given the ongoing pandemic and we have increased the
level at which we provide versus the historic loss rate. This
reflects our expectation that insolvencies will increase following
the removal of government furlough support. The situation will be
kept under review moving forward.
Provisions
The onerous contract related to exiting arrangements with
Unipart, which was established in 2017, saw GBP3.3m utilisation in
the year and additions of GBP0.6m after revising the discount rate.
This leaves GBP17.0m as the closing provision to be utilised over
the remaining five years of the contract.
Following IFRS16, onerous lease provisions have been eliminated
and now form part of Lease liability (see Leverage and net debt).
However, the Group has onerous property cost provisions for
non-lease costs (discussed earlier in the Financial review).
Adjustments made to the Group's dilapidations provision, which
has decreased from GBP16.2m in 2019 to GBP12.7m in FY20, are also
largely related to the reduction in the property footprint
described earlier.
Cash generated from operations
Net cash generated from operating activities was GBP34.1m for
FY20, an increase of GBP11.9m. IFRS16 accounts for an increase of
GBP16.7m with operating lease payments now recorded as finance
lease liability. Excluding this, a reduction of GBP4.8m was driven
by trading offset by liquidity preservation actions described
earlier.
Leverage and net debt
Net debt pre-IFRS16 (stated gross of issue costs) decreased by
GBP59.1m to GBP120.4m (FY19: GBP179.5m). This reflects the steps
taken to preserve liquidity following the emergence of COVID-19
including the completion of a Capital Raise in December, which
generated net proceeds of GBP50.8m. As at 26 December 2020 the
Group had access to GBP118.3m (2019: GBP59.3m) of combined
liquidity from available cash and undrawn committed borrowing
facilities. Our leverage (pre-IFRS16), calculated as net debt
divided by Adjusted EBITDA, decreased from 2.8x in FY19 to 2.6x at
the end of FY20. This was primarily due to the efforts made to
preserve liquidity already outlined offset by the decline in
adjusted EBITA. Leverage or Net Debt Ratio is one of our KPIs.
Net debt as reported is GBP194.6m with GBP74.3m of additional
lease liabilities arising from IFRS16 reported at the year-end
date.
Use of alternative performance measures to assess and monitor
performance
In addition to the statutory figures reported in accordance with
IFRS, we use alternative performance measures (APMs) to assess the
Group's ongoing performance. The main APMs we use are adjusted
EBITDA, adjusted EBITA, adjusted profit before tax, adjusted
earnings per share, leverage (or Net Debt Ratio) and ROCE, which,
with the exception of adjusted profit before tax, are included in
our KPIs.
We believe that Adjusted EBITDA, a widely used and reported
metric amongst listed and private companies, presents a 'cleaner'
view of the Group's operating profitability in each year by
excluding exceptional costs, finance costs, tax charges and
non-cash accounting elements such as depreciation and amortisation.
This metric is used to calculate any annual bonuses payable to
Executive Directors.
Additionally, analysts and investors assess our operating
profitability using the adjusted EBITA metric, which treats
depreciation charges as an operating cost to reflect the
capital-intensive nature of the sector in which we operate.
Analysts and investors also assess our earnings per share using
an adjusted earnings per share measure, calculated by dividing an
adjusted profit after tax by the weighted average number of shares
in issue over the period. This approach aims to show the implied
underlying earnings of the Group. The adjusted profit before tax
figure comprises the reported loss before tax of the business with
amortisation and exceptional costs added back. This amount is then
reduced by an illustrative tax charge at the prevailing rate of
corporation tax (currently 19%) to give an adjusted profit after
tax. Adjusted earnings per share is used as a performance metric
for the vesting of 2017 market value options and 2019 LTIP
awards.
The calculation of Adjusted EBITDA and Adjusted EBITA can vary
between companies, and a reconciliation of Adjusted EBITDA and
Adjusted EBITA to operating profit/(loss) and adjusted profit
before tax to loss before tax is provided on the face of the
Group's income statement. A reconciliation of reported loss per
share to adjusted earnings per share is provided in the full
Financial Statements.
In accordance with broader market practice we comment on the
amount of net debt in the business by reference to leverage (or Net
Debt Ratio), which is the multiple of our Adjusted EBITDA that the
net debt represents. This metric is also used in the calculation of
any annual bonuses payable to Executive Directors.
We use ROCE to assess the return (the Adjusted EBITA) that we
generate on the average tangible fixed assets and average working
capital employed in each year. We exclude all elements of net debt
from this calculation. This metric is also used as a performance
metric for the vesting of 2019 LTIP awards.
IFRS16 and APMs
In this, the year of IFRS16 adoption, the Group has made use of
additional APMs, being measures reported excluding the impact of
IFRS16. These are clearly identified as such in the measure
description and performance commentary. The Group believes that
such additional measures are helpful to readers of the Annual
Report and Accounts, particularly because under the method of
adoption chosen by the Group comparators are not restated. This
makes like-for-like performance analysis difficult without the use
of these measures. The Group does not expect to use the additional
measures in future years since from the FY21 report results will be
directly comparable.
Post-balance sheet event - sale of Laois Hire
As noted in the Chairman's introduction and CEO statement, we
announced on the 7th April the sale of Laois, our Irish large plant
hire business, to Briggs Equipment Ireland limited for EUR11.2m of
which EUR0.5m is deferred until completion accounts are finalised
in Q2 2021. The sale is in continuation of our strategy to focus on
the core Tool Hire business.
Paul Quested
Chief Financial Officer
Principal Risks and Uncertainties
Managing risk
The Group has risk management and internal control processes
which identify, assess and manage the risks likely to affect the
achievement of strategic priorities and performance objectives.
Ownership
The Board sets the strategic priorities and relevant KPIs for
the Group, monitors performance against these measures and
establishes the risk appetite.
Overall responsibility for the principal risks lies with the
Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
with specific mitigating actions and controls owned by senior
management. The Group risk register is maintained by the Risk and
Assurance Director and is collectively reviewed in detail by the
Executive Management Team (EMT) on a quarterly basis with changes
to the risk landscape, assessment and mitigating actions
agreed.
Identification
Risks are identified through a variety of sources, both
external, to ensure that developing risk themes are considered, and
from within the Group. This process is focused on those risks
which, if they occurred, would have a material financial or
reputational impact on the Group.
Assessment
Management identifies the controls in place for each risk and
assesses the impact and likelihood of the risk occurring, taking
into account the effect of these controls, being the residual risk.
This assessment is compared with the Group's risk appetite to
determine whether further mitigating actions are required.
Monitoring
A risk-based internal audit programme is in place to ensure that
assurance activity is targeted at key risk areas. Risk-based
assurance work is then reported to the Audit Committee on a
quarterly basis for review. In addition, the Risk and Assurance
Director reports to the EMT and the senior management team on a
monthly basis to review the findings of risk-based assurance
activity and investigation, provided by the internal audit and
Health, Safety, Environment and Quality (HSEQ) teams.
COVID-19
In 2020 the COVID-19 pandemic has had a material impact on the
risks across the Group, principally macroeconomic conditions and
Financial. Immediate steps were taken to ensure the safety of our
colleagues and customers, ranging from home working to the
introduction of low-contact Click-and-Collect capability, all
supported by clear, risk assessed procedures and policies. Decisive
action was also taken to preserve cash. Combined with the capital
raise completed in December 2020, these actions resulted in
increased liquidity and materially strengthened the Group balance
sheet. The EMT continues to regularly monitor the evolving COVID-19
situation with appropriate mitigating actions taken as
required.
Principal risks and strategy
The Board has carried out a robust assessment of the principal
financial and operating risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity, based on its three strategic priorities:
-- Delever the business (control cost)
-- Transform the Tool Hire business (increase profit)
-- Strengthen our commercial proposition (growth)
These risks, how they have changed and how they are mitigated
are shown in the table that follows.
Key
= Unchanged
+ Increased
- Decreased
Key risks Description and impact Mitigation
-------------------------------------- -------------------------------------- --------------------------------------
Macroeconomic conditions An economic downturn in the UK and The Group focuses on the 'fit-out,
Risk change Ireland may adversely affect the maintain and operate' markets, which
= Group's revenue and operating are less cyclical,
results by decreasing the demand for less discretionary and have a larger
its services and the prices it may proportion of recurring, spend than
charge. the new-build construction
The ongoing COVID-19 pandemic and sector. While the Group is not
resultant restrictions have a material isolated from the construction sector,
adverse impact on it focuses on the non-construction
demand and therefore financial portion of the market, with specific
performance. exposure in the facilities management,
retail, commercial
fit-out, property, utilities and
waste, infrastructure and energy
services markets.
Significant activity has been
undertaken in 2020 to mitigate the
impact of COVID-19, including
the deferral of capital expenditure
and utilising the Government's Job
Retention Scheme. This
also included accelerating the Group's
digital strategy and the optimisation
of the operating
network to a leaner, more agile cost
model through the closure of 134
physical locations and
transition to virtual branches. These
strategic changes mitigate any
downside in future demand.
We continue to monitor and model
economic performance, assessing
whether the business needs
to take further action from that of
2020. This is reviewed regularly by
the EMT.
-------------------------------------- -------------------------------------- --------------------------------------
Competitor challenge The Group's industry is highly The Group's implementation of its
Risk change competitive, and competition may digitally-led operating model has
= increase. The equipment rental reduced annual fixed costs
industry is highly fragmented, with by GBP15m. This, combined with the
competitors ranging from national economies of scale derived from being
equipment rental companies a national player,
to smaller multi-regional companies allows the Group to be highly
and small, independent businesses competitive.
operating in a limited The Group's national presence (through
number of locations. Competition in Customer Distribution Centres,
the market could lead to excess branches and partnerships
capacity and resultant with regional builders merchants),
pricing pressure. effective distribution service model
and well-maintained
fleet provide high levels of customer
availability.
Through its Services business, the
Group provides customers with access
to a significantly
wider range of products and
complementary services such as
training courses.
A key strategic priority is to
strengthen the Group's commercial
proposition, differentiating
in the market by developing the
Digital and Services business offer.
To date the technology
roadmap to support this has included
the upgrade of HSS.com, development of
the fully integrated
Customer App and enhancement of the
OneCall automated platform. All these
initiatives have
been implemented in line with planned
timescales and the Group's governance
process. Increased
technology investment is planned in
2021, utilising proceeds from the
Group's recent capital
raise.
A central trading team is in place to
monitor and manage changes in price,
providing controls
to ensure effective management. New
technology roll-out in 2021 will
provide further control.
-------------------------------------- -------------------------------------- --------------------------------------
Strategy execution Failure to successfully implement the A clearly defined and communicated
Risk change Group's strategic plans could lead to strategic plan has been established
= lower than forecast with appropriate performance
financial performance in terms of metrics and key performance
revenue growth and cost savings. indicators.
Prioritised projects have been
identified to deliver the strategic
plan and have been appropriately
resourced.
A clear governance structure has been
established, with accountabilities
designed to support
delivery on time, to quality and
within budget.
Implementation of projects is
monitored by the EMT with regular
updates, including initiative
specific deep dives, to the Board.
Throughout the pandemic investment in
the strategy has been maintained with
projects reprioritised
where appropriate, including the
implementation of digital technology
that supported the introduction
of a safe, low-contact
Click-and-Collect service, and the
telephone system upgrade which has
been critical in supporting home
working and the establishment of
virtual branches. The established
governance approach has ensured these
changes were implemented effectively.
-------------------------------------- -------------------------------------- --------------------------------------
Customer service The reliable supply of safe, The Group has clear business
Risk change good-quality and well-maintained continuity plans to ensure continuity
= equipment in a timely and of supply.
cost-effective COVID-19 risk assessments have been
manner is critical for delivery of the completed across all locations with
Group's customer promise. policies and procedures
The provision of the Group's expected implemented, including stricter
service levels depends on its ability hygiene protocols, to reduce the risk
to efficiently of a virus outbreak.
transport hire fleet across the These are reviewed frequently by both
network to ensure that it is in the operational management and independent
right place, at the right assurance teams
time and of the appropriate quality. to ensure compliance.
The Group is dependent on its Colleagues at our head office moved to
relationships with key suppliers to home working in March 2020. This
obtain equipment and other included our OneCall
services on acceptable terms. business, helping minimise any
Any disruption in supply, reduced disruption to the Services business
availability or unreliable equipment due to absenteeism. This
can reduce potential way of working has continued into
revenue and drive additional operating 2021.
costs into the business. In addition, Whilst COVID-19 had minimal impact on
a decline in rehire supply during 2020, the wide
the Group's customer service levels and diverse range
could result in a loss of customers of OneCall suppliers provides ongoing
and market share. flexibility to ensure continuity of
COVID-19 leads to disruption in supply supply for customers
for our customers due to site closures and manage the risk should one fail to
or colleague fulfil its obligations in the future.
absenteeism. We have worked closely with our
The supply chain is adversely impacted suppliers to ensure that appropriate
with rehire suppliers unable to fulfil spares have been available
their obligations throughout the pandemic and post
or by restricted access to spares Brexit.
leading to reduced product Extensive colleague training is
availability for our customers. conducted to ensure that testing and
repair quality standards
continue to be maintained.
The Group makes every effort to
evaluate its counterparties prior to
entering into significant
procurement contracts and seeks to
maintain a range of suppliers.
A number of business accreditations
are maintained, including ISO, which
provides our customers
with confidence in the quality of the
services provided.
-------------------------------------- -------------------------------------- --------------------------------------
Third party reliance A significant amount of the Group Third parties supporting OneCall are
Risk change revenue is derived from the Services subject to stringent procurement and
= business (OneCall) service criteria
which is dependent upon the and all contracts are subject to
performance of third party service demanding service level agreements.
providers. If any third parties Performance and quality
become unable or refuse to fulfil KPIs are monitored on an ongoing
their obligations, or violate laws or basis.
regulations, there The wide and diverse range of OneCall
could be a negative impact on the suppliers provides flexibility to
Group's operations leading to an select those who meet
adverse impact on profitability the required service levels.
and publicity. There is an extensive assessment
An important element of the strategy process before entering into a
is the expansion of the regional relationship with a builders
builders merchant model. merchant which requires EMT approval.
At the balance sheet date there were Legal contracts are in place with each
24 concessions with plans to expand to partner. Any
50 over 2021. concession is subject to a financial
The Group is reliant on the business case before opening. Risk
relationship with the relevant assessments are conducted
builders merchant and the provision at each location with follow up audits
of service in line with HSS standards. conducted by internal audit.
Performance of each location
is monitored and regularly reviewed
with the builders merchant partner.
-------------------------------------- -------------------------------------- --------------------------------------
IT infrastructure The Group requires an agile IT system The current IT system has been fully
Risk change that supports the delivery of its reviewed and, following extensive due
= strategic plan. Where diligence, the
this involves third party technology Group has engaged with third party
it is critical that this is technology providers to develop
effectively integrated into organisational agile capacity
the Group's core systems. ensuring that current and future IT
All Group systems need to be systems are optimised to deliver the
appropriately resourced to support the strategic plan.
delivery of day-to-day Third party specialists continue to be
business operations. Any IT system engaged to assess the appropriateness
malfunction may affect the ability to of IT controls,
manage its operations including the risk of malicious or
and distribute its hire equipment and inadvertent security attacks. This
services to customers, affecting includes penetration
revenue and reputation. testing on a regular basis to detect
An internal or external security weakness in our IT and cyber security.
attack, the risk of which has Any resultant
potentially increased with actions are prioritised through the
more home working, could lead to a Group's governance process. A detailed
loss of confidential information and review is scheduled
disruption to the for 2021.
business' transactions with customers With more colleagues home working,
and suppliers. improved antivirus software has been
introduced, and endpoint
detection and clean up tools have been
implemented to remove malware and
similar agents.
Disaster recovery tests are carried
out on a regular basis and appropriate
back-up servers
are in place to manage the risk of
primary server failure.
A cross-departmental Data Governance
Team is in place to ensure that
business process are,
and continue to be, adequate.
-------------------------------------- -------------------------------------- --------------------------------------
Financial To deliver its strategic goals the The Group raised gross proceeds of
Risk change Group must have access to funding at a GBP52.6m from the capital raise
- reasonable cost. completed in December 2020.
The impact of COVID-19 could lead to a Working capital management remains a
breach of financial covenants and clear focus with cash collection
requirement for additional targets (which roll
liquidity due to significantly reduced up into our net debt KPI) cascaded
demand and delays in customers throughout the business. These are
settling their debt. reviewed by the EMT
In executing the Group strategy, 134 on a regular basis. Overdue debt
branches were closed in October 2020, reduced by GBP3.0m in FY20.
some with unexpired The capital raise, strong working
term on the lease. Failure to capital management and COVID-19
surrender these leases will result in mitigating actions have
ongoing onerous liabilities enabled a material increase in
reducing free cash flow. liquidity headroom and ensured that
Some of the Group's customers may be financial covenant tests
unwilling or unable to fulfil the have been passed each quarter.
terms of their rental Working with property restructuring
agreements with the Group. Bad debts specialists, to date 95% of leases
and credit losses can also arise due related to the closed
to service issues branches have been surrendered or
or fraud. agreed to be surrendered.
Unauthorised, incorrect or fraudulent The risk of fluctuating interest rates
payments could be made, leading to reducing profitability has been
financial loss or mitigated by entering
delays in payment which could into an interest rate cap arrangement.
adversely affect the relationship with The Group runs extensive credit
suppliers and lead to checking for its account customers and
a disruption in supply. maintains strict credit
control over its diversified customer
base. Credit insurance is in place to
minimise exposure
to larger customer default risk.
The Group's investigation team
conducts proactive and reactive work
in order to minimise the
Group's exposure to fraud, and
provides ongoing training in this
area.
Payments and amendments authority is
defined by the Group's authorisation
matrix with periodic
IA risk-based audits to ensure that
they are being adhered to.
-------------------------------------- -------------------------------------- --------------------------------------
Inability to attract and retain The Group needs to ensure that the The Group regularly benchmarks market
personnel appropriate human resources are in rates and seeks to ensure a
Risk change place to support the competitive pay and benefits
= existing and future growth of the package. It also focuses on building
business. the right working environment for its
Failure to attract and retain colleagues. Training
high-performing colleagues could for colleagues is provided at all
adversely impact targeted financial levels to build capability and improve
performance. compliance. Training
Failure of colleagues to adapt to the is job related and behaviour focused,
new digitally-led operating model all through blended learning.
could adversely impact Colleague engagement surveys are
targeted financial performance. conducted, with actions taken as a
result of the feedback.
Integral to enabling delivery of the
Group's strategic goals are a series
of people-related
projects. These projects are aimed at
colleague development, retention and
engagement including
embedding Group values, equipping
individuals with the skills to succeed
in the new operating
model, targeted management
development, expansion of
apprenticeships and increased
communications
at all levels. These are managed and
monitored through a clear governance
structure.
-------------------------------------- -------------------------------------- --------------------------------------
Safety, legal and regulatory Failure to comply with laws or Robust governance is maintained within
requirements regulation, such as the Companies Act the Group including: a strong
Risk change 2006, accounting regulations, financial structure;
- health and safety law, the Bribery Act assurance provision from internal and
2010, Modern Slavery Act 2015, external audit, and employment of
Criminal Finances Act internal specialist
2017 or General Data Protection expertise supported by suitably
Regulation (GDPR), leading to material qualified and experienced external
misstatement and potential practitioners.
legal, financial and reputational Since the introduction of GDPR, the
liabilities for non-compliance. Group's Data Governance Team has
The Group operates in industries where continued to meet regularly
safety is paramount for colleagues, to review and monitor progress and
customers and the developments.
general public. Failure to maintain Training and awareness programmes are
high safety standards could lead to in place, focusing on anti-bribery,
the risk of serious anti-modern slavery,
injury or death. anti-facilitation of tax evasion and
COVID-19 has an adverse impact on data protection legislation.
colleague health and safety. However, Colleagues are encouraged to raise
the Group's response concerns through the policy, either
to COVID-19, the achievement of ISO through their line
45001 and a reduction in accidents manager, via any of our three
mean that the level whistleblowing officers (anonymously,
of risk faced is reducing. should a colleague so
wish) or via 'Protect', an independent
charity specialising in whistleblowing
advisory services.
The Audit Committee reviews all
whistleblowing cases, including
gaining satisfaction of appropriate
resolution.
The Group operates a clear health and
safety policy with ongoing risk
management, monitoring
of accidents and colleague engagement
overseen by the EMT and a Health and
Safety Forum comprising
senior managers. Additional assurance
and support is provided by a fully
skilled HSEQ team
and an internal Group investigation
team. This has been complemented in
the year with improved
reporting tools to make it easier to
log near misses and safety
observations. The Group is
ISO 45001 accredited.
In light of the pandemic, actions have
been taken to ensure colleague and
customer safety
ranging from stricter hygiene
procedures to the introduction of the
low-contact Click-and-Collect
service. Support is in place for
colleagues who need to self-isolate or
shield and mental
health programmes, including greater
communication, have been increased,
especially for those
remote working.
-------------------------------------- -------------------------------------- --------------------------------------
Consolidated Income Statement
For the year ended 26 December 2020
Year ended Year ended
26 December 2020 28 December 2019
Note GBP000s GBP000s
------------------------------------------------ ----- ----------------- -----------------
Revenue 3 269,933 328,005
Cost of sales (130,434) (149,706)
Gross profit 139,499 178,299
------------------------------------------------ ----- ----------------- -----------------
Distribution costs (28,072) (33,190)
Administrative expenses (121,743) (128,830)
Other operating income 4 11,815 542
Adjusted EBITDA 3 69,362 63,929
Less: Depreciation 10,11 (49,590) (37,396)
------------------------------------------------ ----- ----------------- -----------------
Adjusted EBITA 19,772 26,533
Less: Exceptional items (non-finance) 5 (13,076) (4,094)
Less: Amortisation 9 (5,197) (5,618)
------------------------------------------------ ----- ----------------- -----------------
Operating profit 1,499 16,821
------------------------------------------------ ----- ----------------- -----------------
Finance expense 6 (25,065) (22,609)
Adjusted (loss)/profit before tax (4,920) 5,806
Less: Exceptional items (non-finance) 5 (13,076) (4,094)
Less: Exceptional items (finance) 5 (373) (1,882)
Less: Amortisation 9 (5,197) (5,618)
------------------------------------------------ ----- ----------------- -----------------
Loss before tax (23,566) (5,788)
------------------------------------------------ ----- ----------------- -----------------
Income tax charge 7 (15) (436)
------------------------------------------------ ----- ----------------- -----------------
Loss from continuing operations (23,581) (6,224)
------------------------------------------------ ----- ----------------- -----------------
Profit on disposal of discontinued operations 5 - 14,770
Profit from discontinued operations, net of tax - 162
------------------------------------------------ ----- ----------------- -----------------
(Loss)/profit for the financial period (23,581) 8,708
------------------------------------------------ ----- ----------------- -----------------
(Loss)/profit per share (pence)
Continuing operations
Basic and diluted loss per share 8 (12.02) (3.66)
Adjusted basic (loss)/earnings per share(1) 8 (2.03) 2.76
Adjusted diluted (loss)/earnings per share(1) 8 (2.03) 2.31
Continuing and discontinued operations
Basic and diluted (loss)/earnings per share 8 (12.02) 5.12
Adjusted basic (loss)/earnings per share(1) 8 (2.03) 2.84
Adjusted diluted (loss)/earnings per share(1) 8 (2.03) 2.38
------------------------------------------------ ----- ----------------- -----------------
1 Adjusted (loss)/earnings per share is defined as profit before
tax with amortisation and exceptional costs added back less tax at
the prevailing rate of corporation tax divided by the weighted
average number of ordinary shares.
Consolidated Statement of Comprehensive Income
For the year ended 26 December 2020
Year ended Year ended
26 December 2020 28 December 2019
GBP000s GBP000s
----------------------------------------------------------------------------- ----------------- -----------------
(Loss)/profit for the financial period (23,581) 8,708
------------------------------------------------------------------------------ ----------------- -----------------
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign
operations 617 (782)
Gains/(losses) arising on cash flow hedges 306 (144)
------------------------------------------------------------------------------ ----------------- -----------------
Other comprehensive gain/(loss) for the period, net of tax 923 (926)
------------------------------------------------------------------------------ ----------------- -----------------
Total comprehensive (loss)/profit for the period (22,658) 7,782
------------------------------------------------------------------------------ ----------------- -----------------
Attributable to owners of the Company (22,658) 7,782
------------------------------------------------------------------------------ ----------------- -----------------
Consolidated Statement of Financial Position
For the year ended 26 December 2020
Year ended Year ended
26 December 2020 28 December 2019
Note GBP000s GBP000s
----------------------------------------- ---- ----------------- -----------------
ASSETS
Non-current assets
Intangible assets 9 158,498 160,378
Property, plant and equipment 10 62,024 101,851
Right of use assets 11 89,839 -
Derivative financial instruments - 14
----------------------------------------- ---- ----------------- -----------------
310,361 262,243
Current assets
Inventories 3,183 3,735
Trade and other receivables 12 75,880 88,396
Cash 97,573 22,658
----------------------------------------- ---- ----------------- -----------------
176,636 114,789
Total assets 486,997 377,032
----------------------------------------- ---- ----------------- -----------------
LIABILITIES
Current liabilities
Trade and other payables (61,821) (66,031)
Borrowings and finance lease liabilities 13 (38,395) (5,355)
Provisions 14 (7,448) (8,145)
Current tax liabilities (1) -
----------------------------------------- ---- ----------------- -----------------
(107,665) (79,531)
Non-current liabilities
Borrowings and finance lease liabilities 13 (245,276) (185,729)
Provisions 14 (26,206) (32,470)
Deferred tax liabilities (260) (341)
----------------------------------------- ---- ----------------- -----------------
(271,742) (218,540)
Total liabilities (379,407) (298,071)
----------------------------------------- ---- ----------------- -----------------
Net assets 107,590 78,961
----------------------------------------- ---- ----------------- -----------------
EQUITY
Share capital 15 6,965 1,702
Share premium 15 45,580 -
Warrant reserves 2,694 2,694
Merger reserve 97,780 97,780
Foreign exchange translation reserve 15 (602)
Cash flow hedging reserve - (306)
Retained deficit (45,444) (22,307)
------------------------------------- -------- --------
Total equity 107,590 78,961
------------------------------------- -------- --------
The Financial Statements were approved and authorised for issue
by the Board of Directors on 28 April 2021 and were signed on its
behalf by:
P Quested
Director
28 April 2021
Consolidated Statement of Changes in Equity
For the year ended 26 December 2020
Foreign
exchange Cash flow Retained
Share Share Warrant Merger translation hedging earnings/ Total
capital premium reserve reserve reserve reserve (deficit) equity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
--------------- ------------ ------------ ------------ -------- ----------- ------------ ------------ --------
At 29 December
2019 - as
previously
presented 1,702 - 2,694 97,780 (602) (306) (22,307) 78,961
Implementation
of IFRS 16
(note 2) - - - - - - (9) (9)
At 29 December
2019 - as
restated 1,702 - 2,694 97,780 (602) (306) (22,316) 78,952
--------------- ------------ ------------ ------------ -------- ----------- ------------ ------------ --------
Loss for the
period - - - - - - (23,581) (23,581)
Foreign
currency
translation
differences
arising on
consolidation
of foreign
operations - - - - 617 - - 617
Hedging of
financial
instruments - - - - - 306 - 306
--------------- ------------ ------------ ------------ -------- ----------- ------------ ------------ --------
Total
comprehensive
profit/(loss)
for the period - - - - 617 306 (23,581) (22,658)
--------------- ------------ ------------ ------------ -------- ----------- ------------ ------------ --------
Transactions
with owners
recorded
directly in
equity
Share issue 5,263 45,580 - - - - - 50,843
Share-based
payment charge - - - - - - 453 453
--------------- ------------ ------------ ------------ -------- ----------- ------------ ------------ --------
At 26 December
2020 6,965 45,580 2,694 97,780 15 - (45,444) 107,590
--------------- ------------ ------------ ------------ -------- ----------- ------------ ------------ --------
Foreign
exchange Cash flow
Share Share Warrant Merger translation hedging Retained Total
capital premium reserve reserve reserve reserve earnings equity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
-------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 30 December
2018 1,702 - 2,694 97,780 180 (162) (31,728) 70,466
Total
comprehensive
loss for the
period
Profit for the
period - - - - - - 8,708 8,708
Foreign
currency
translation
differences
arising on
consolidation
of foreign
operations - - - - (782) - - (782)
Hedging of
financial
instruments - - - - - (144) - (144)
-------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
comprehensive
(loss)/profit
for the
period - - - - (782) (144) 8,708 7,782
-------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Transactions
with owners
recorded
directly in
equity
Share-based
payment
charge - - - - - - 713 713
-------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
At 28 December
2019 1,702 - 2,694 97,780 (602) (306) (22,307) 78,961
-------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated Statement of Cash Flows
For the year ended 26 December 2020
Year ended Year ended
26 December 2020 28 December 2019
Note GBP000s GBP000s
-------------------------------------------------------------------------- ---- ----------------- -----------------
(Loss)/profit after income tax (23,581) 8,708
Adjustments for:
- Tax 15 436
- Profit on disposal of discontinued operations - (14,770)
- Amortisation 5,197 5,525
- Depreciation 44,709 28,750
- Accelerated depreciation relating to hire stock customer losses and hire
stock write-offs 4,727 8,257
- Impairment of property, plant and equipment and right of use assets 11,557 363
- Disposal of sub-lease 59 -
- Disposal of intangible assets - 96
- Loss on disposal of property, plant and equipment and right of use
assets 2,110 576
- Lease disposals (4,012) -
- Rent concessions (996) -
- Share-based payment charge 453 714
- Foreign exchange loss/(gains) on operating activities 535 (474)
- Finance expense 6 25,065 22,609
Changes in working capital (excluding the effects of disposals and
exchange differences on
consolidation):
- Inventories 552 589
- Trade and other receivables 9,845 5,863
- Trade and other payables (1,780) (4,362)
- Provisions (5,181) (3,718)
-------------------------------------------------------------------------- ---- ----------------- -----------------
Net cash flows from operating activities before changes in hire equipment 69,274 59,162
Purchase of hire equipment 10 (13,673) (18,972)
-------------------------------------------------------------------------- ---- ----------------- -----------------
Cash generated from operating activities 55,601 40,190
Net interest paid (22,052) (18,498)
Income tax repaid 552 490
-------------------------------------------------------------------------- ---- ----------------- -----------------
Net cash generated from operating activities 34,101 22,182
Cash flows from investing activities
Proceeds on disposal of business, net of cash disposed of - 45,618
Purchases of non-hire property, plant, equipment and software 9,10 (5,814) (6,670)
-------------------------------------------------------------------------- ---- ----------------- -----------------
Net cash (used in)/generated from investing activities (5,814) 38,948
Cash flows from financing activities
Proceeds from capital raise (net of share issue costs paid) 15 52,335 -
Proceeds from borrowings (third parties) 13 17,200 -
Repayment of borrowings - (51,018)
Capital element of lease liability payments (23,263) -
Capital element of net investment in sublease receipts 356 -
Capital element of finance lease payments - (7,361)
Net cash received/(paid) from financing activities 46,628 (58,379)
Net increase in cash 74,915 2,751
Cash at the start of the year 22,658 19,907
Cash at the end of the year 97,573 22,658
------------------------------------------------------------ -------- --------
1. Basis of preparation
The Group's financial information has been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union (EU) and on a basis consistent
with those policies set out in our audited financial statements for
the year ended 26 December 2020 (which will be available at
www.hsshiregroup.com/ investor-relations/financial-results). These
policies are consistent with those shown in the audited financial
statements for the year ended 28 December 2019 with the exception
of IFRS 16 Leases which the Group adopted in the year ended 26
December 2020. The financial statements were approved by the Board
on 28 April 2021.
The financial information for the year ended 26 December 2020
and the year ended 28 December 2019 does not constitute the
company's statutory accounts for those years. Statutory accounts
for the year ended 28 December 2019 have been delivered to the
Registrar of Companies. The statutory accounts for the year ended
26 December 2020 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
The auditors' reports on the accounts for the years ended 26
December 2020 and the year ended 28 December 2019 were unqualified
and did not contain a statement under 498(2) or 498(3) of the
Companies Act 2006. The auditors' report on the accounts for the
year ended 26 December 2020 did not draw attention to any matters
by way of emphasis but the report for the year ended 28 December
2019 included a reference to a material uncertainty related to
going concern as follows:
We draw attention to note 1e in the financial statements, which
indicates that the Group and Parent Company may breach their bank
covenants and may require further liquidity due to the possible
effects of the ongoing COVID-19 pandemic. As stated in note 1e,
these events or conditions, along with other matters as set out in
note 1e, indicate that a material uncertainty exists that may cast
significant doubt on the Group and Parent Company's ability to
continue as a going concern. Our opinion is not modified in respect
of this matter.
The Annual Report and Accounts for the year ended 26 December
2020 will be posted to shareholders in early May 2021.
Going concern
At 26 December 2020, the Group's financing arrangements
consisted of fully drawn senior finance and revolving credit
facilities of GBP199.2m, an undrawn overdraft facility of GBP6.0m
and finance lines to fund hire fleet capital expenditure, of which
GBP14.7m had not been utilised. Both the senior finance and
revolving credit facilities are subject to a net debt leverage
covenant test each quarter. At the financial year end the Group had
36% headroom against this covenant. Subsequent to year end the
Group repaid GBP15m of the senior finance facility and the GBP17.2m
RCF. Cash at 26 December 2020 was GBP97.6m (28 December 2019:
GBP22.7m).
The Directors have prepared a going concern assessment covering
the 12 month period from the date of signing of the Financial
Statements, which confirms that the Group is capable of continuing
to operate within its existing facilities and can meet its covenant
tests during that period. The key assumptions on which the
projections are based include an assessment of the impact of future
market conditions on projected revenues and the capital investment
required to support that level of revenue. The Group has considered
the impact of continued economic uncertainty resulting from
COVID-19 as part of its assessment.
The Group's base case used for the going concern assessment was
the Board approved budget and three year model. The budget assumes
a continued recovery of revenue during 2021 albeit a conservative
one in that it will not reach pre-COVID levels. The Group remains
comfortably within covenant tests and maintains sufficient
liquidity throughout the period modelled. In addition, the Board
has considered various downside scenarios including a 'reverse
stress test' case to assess the level of revenue (and ultimately
EBITDA) loss the Group could sustain without breaching covenants or
requiring additional liquidity should there be further COVID-19
lockdowns later in 2021. The reverse stress test scenario updates
the base case for actual performance for the 14 weeks to 3 April
2021 and assumes revenue is reduced so that, expressed as a
percentage of 2019 levels, it is 72% in Q4 2021 and 85% in Q1 2022,
mirroring the revenue decline experienced by the Group during the
first COVID-19 lockdown from April to September 2020. The only
mitigation applied is a cGBP3m reduction in capital expenditure
during the same period.
In this largely unmitigated 'reverse stress test' scenario the
Group maintains significant liquidity and meets its covenant
requirements. The Directors consider this scenario extremely
unlikely to occur given that it is worse than the industry's
current worst case expectation and the revenue profile seen in the
second and third national lockdowns was more than 90% of 2019
levels. The Group has introduced new operating procedures, launched
Click-and-Collect and changed its operating model, all of which
have reduced physical contact with customers and allowed trading to
continue. Similarly, customers now have established operating
procedures that allow their operations to continue and Government
has shown support for continuity in the construction sector.
Whilst the Directors consider that there is a degree of
subjectivity involved in their assumptions, taking into account the
adequacy of the Group's debt facilities, current and future
developments and the principal risks and uncertainties and, after
making appropriate enquiries, they have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing its Consolidated
Financial Statements.
2. New accounting standards, accounting standards not yet
effective and changes in accounting policy
Implementation of IFRS 16 Leases
IFRS 16 Leases is mandatory for periods beginning on or after 1
January 2019 and accordingly the Group has adopted the standard
from 29 December 2019 (the date of initial adoption or DIA). The
Group worked with third party specialists to develop IFRS 16
policies along with processes and systems to manage their
successful implementation.
Adoption of IFRS 16 has had a significant impact on the
consolidated income statement and 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 consolidated income statement for the
year ended 26 December 2020
Year ended 26 December 2020
--------------------------------------
IFRS 16
Pre adoption of IFRS 16 impact As reported
GBP000s GBP000s GBP000s
-------------------------------------- ----------------------- -------- -----------
Revenue 269,933 - 269,933
Cost of sales (130,851) 417 (130,434)
-------------------------------------- ----------------------- -------- -----------
Gross profit 139,082 417 139,499
-------------------------------------- ----------------------- -------- -----------
Distribution costs (28,637) 565 (28,072)
Administrative expenses (126,683) 4,940 (121,743)
Other operating income 12,726 (911) 11,815
Adjusted EBITDA 46,977 22,385 69,362
Less: Depreciation (30,311) (19,279) (49,590)
-------------------------------------- ----------------------- -------- -----------
Adjusted EBITA 16,666 3,106 19,772
Less: Exceptional items (14,981) 1,905 (13,076)
Less: Amortisation (5,197) - (5,197)
-------------------------------------- ----------------------- -------- -----------
Operating (loss)/profit (3,512) 5,011 1,499
-------------------------------------- ----------------------- -------- -----------
Net finance expense (20,798) (4,267) (25,065)
Adjusted loss before tax (4,035) (885) (4,920)
Less: Exceptional items (non-finance) (14,981) 1,905 (13,076)
Less: Exceptional items (finance) (97) (276) (373)
Less: Amortisation (5,197) - (5,197)
-------------------------------------- ----------------------- -------- -----------
(Loss)/profit before tax (24,310) 744 (23,566)
-------------------------------------- ----------------------- -------- -----------
The adoption has resulted in additional operating profit of
GBP5.0m compared to the loss before tax that would have been
reported under IAS 17. Administrative expenses reduced by GBP4.9m,
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). Other operating income decreases following adoption, with
sub-let income reduced to only discount unwind on the net
investment on sub-leases deemed to be finance leases.
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 GBP4.3m of interest versus the equivalent
operating lease cost that would have been recognised under IAS
17.
Adjusted EBITDA, which the Group reports as an additional
performance measure, is significantly increased (by GBP22.4m) under
IFRS 16 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.
Impact of IFRS 16 on the consolidated statement of financial
position at DIA
29 December 2019
--------------------------------- ----------------------------------------------
IFRS 16
Pre adoption of IFRS 16 impact As reported
GBP000s GBP000s GBP000s
--------------------------------- ----------------------- -------- -----------
Intangible assets 160,378 - 160,378
Property, plant and equipment 101,851 (29,312) 72,539
Right of use assets - 109,531 109,531
Derivative financial instruments 14 - 14
Current assets 114,789 (1,476) 113,313
Lease liabilities - (99,309) (99,309)
Finance leases (16,583) 16,583 -
Other liabilities (240,532) 1,752 (238,780)
Provisions (40,615) 2,222 (38,393)
Deferred tax liabilities (341) - (341)
Net assets 78,961 (9) 78,952
--------------------------------- ----------------------- -------- -----------
Right of use (ROU) assets totalling GBP109.5m were created on
transition with GBP29.3m of the total being a reclassification of
hire stock assets held under finance lease from property, plant and
equipment. Lease liabilities of GBP99.3m were created with GBP16.6m
being related to the transfer of finance lease liabilities. The
difference between lease liability and asset is the impact of
adjusting the ROU 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.
Reconciliation of transition date commitments under
non-cancellable operating leases to opening lease liability
The table below shows a reconciliation from the total operating
lease commitment as disclosed at 29 December 2019 to the total
lease liabilities recognised in the accounts immediately after
transition:
29 December 2019
GBP000s
------------------------------------------------------------------------------------------ ----------------
Operating lease commitments at 29 December 2019 (restated) 76,569
Finance leases for property, plant and equipment transferred from finance lease liability 16,583
Impact of discounting at the incremental borrowing rates as at 29 December 2019 (17,969)
Payments due for periods beyond break clauses where the Group expects not to exercise the
break 24,126
------------------------------------------------------------------------------------------ ----------------
Total lease liabilities recognised on 29 December 2019 99,309
------------------------------------------------------------------------------------------ ----------------
Capitalisation of lease contracts
Under IFRS 16, the Group capitalises the ROU of all its
qualifying 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 ROU asset as equal to the lease
liability for leases previously accounted for as operating leases.
The comparative information has not been restated and continues to
be reported under IAS 17 and IFRIC 4. The Group has recognised a
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 ROU
assets expense and an interest expense as the discount 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 early as 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
GBP24m. 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 least
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 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
sub-lets 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 by reference to the ROU
asset arising from the head lease. A sublease whose term covers
substantially all of the remaining economic life of the head lease
is accounted for as a finance lease; otherwise it is accounted for
as an operating lease. Rental income from operating leases is
recognised on a straight-line basis over the term of the relevant
lease.
Amounts due from lessees under finance leases are recognised as
receivables at the amount of the Group's net investment in the
leases. Finance lease income is allocated to accounting periods so
as to reflect a constant periodic rate of return on the Group's net
investment outstanding in respect of the leases.
IFRS 16 and COVID-19 concessions
The Group has taken advantage of the practical expedient
available under the amendment to IFRS 16. As such the Group
assessed if rent concessions that occurred as a direct consequence
of the COVID-19 pandemic meet the following conditions:
- the change in lease payments results in revised consideration
for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
- any reduction in lease payments affects only payments
originally due on or before 30 June 2021; and
- there is no substantive change to other terms and conditions
of the lease.
Where these conditions were met the change in the lease payments
were not accounted for as a lease modification. The amount of
qualifying rent concessions recorded in the income statement
amounted to GBP1.3m.
Government grants
The Group received grant income as a result of Government
support in response to the COVID-19 pandemic. Government grant
income is reported 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.
Holiday pay accrual
As a result of the COVID-19 pandemic an exception to HR policy
has been made, permitting colleagues to carry over an amount of
unused annual leave into 2021. The Directors consider that the
likelihood of any holidays not being utilised or paid out is low.
The Group has accrued for the related salaries, employer's national
insurance and pension costs.
Other standards effective for the first time in the year
IFRIC 23 Uncertainty over Income Tax Treatments: The standard is
effective for annual reporting periods beginning on or after 1
January 2019. The Company has considered the application of IFRIC
23 and concluded that its income tax filings do not contain any
uncertain positions requiring disclosure.
Standards effective in future periods
The Company is currently assessing the impact of the following
accounting standards and amendments:
IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors (Amendment -
Definition of Material);
IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-Current);
IFRS 3 Business Combinations (Amendment - Definition of
Business);
Conceptual Framework for Financial Reporting (Amendments to IFRS
3);
Revised Conceptual Framework for Financial Reporting;
IBOR Reform and its Effects on Financial Reporting - Phase 1
& 2;
Annual Improvements to IFRS: 2018-2020 Cycle;
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
(Amendment - Onerous Contracts - Cost of Fulfilling a
Contract);
IAS 16 Property, Plant and Equipment (Amendment - Proceeds
before Intended Use); and
IFRS 17 Insurance Contracts.
3. Segment reporting
The Group's operations are segmented into the following
reportable segments:
-- Rental and related revenue; and
-- Services.
Rental and related revenue comprises the rental income earned
from owned tools and equipment, including powered access, power
generation 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's 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. During the year the Group received GBP9.8m
in grant income (2019: GBPnil) 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
GBP2.7m being allocated to Rental and related contribution, GBP0.7m
to Services contribution, GBP5.9m to branch and selling costs,
GBP0.3m to central costs, and GBP0.2m to exceptional items. GBP0.6m
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 the Group revenue in
the year (2019: one).
Year ended 26 December 2020
-------------------------------------- ----------------------------------------------------
Rental
(and related revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
-------------------------------------- ---------------------- -------- -------- --------
Total revenue from external customers 180,843 89,090 - 269,933
-------------------------------------- ---------------------- -------- -------- --------
Contribution 122,914 12,629 - 135,543
Branch and selling costs (44,394) (44,394)
Central costs (21,787) (21,787)
Adjusted EBITDA 69,362
Less: Exceptional items (13,076) (13,076)
Less: Depreciation and amortisation (27,910) (600) (26,277) (54,787)
Operating profit 1,499
Net finance expenses (25,065)
Loss before tax (23,566)
Income tax (15)
Loss after tax (23,581)
-------------------------------------- ---------------------- -------- -------- --------
Year ended 26 December 2020
---------------------------------- ------------------------------------------------------
Rental
(and related revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- ---------------------- -------- --------- ---------
Additions to non-current assets
Property, plant and equipment 14,099 59 2,286 16,444
Right of use assets 4,880 - 4,357 9,237
Intangibles 979 861 1,477 3,317
---------------------------------- ---------------------- -------- --------- ---------
Non-current assets net book value
Property, plant and equipment 44,078 203 17,743 62,024
Right of use assets 26,976 212 62,651 89,839
Intangibles 153,804 1,246 3,448 158,498
Current assets 176,636 176,636
Current liabilities (107,665) (107,665)
Non-current liabilities (271,742) (271,742)
107,590
---------------------------------- ---------------------- -------- --------- ---------
Year ended 28 December 2019
----------------------------------------------------------------- -------------------------------------------
Rental
(and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
----------------------------------------------------------------- ------------- -------- -------- --------
Total revenue from external customers from continuing operations 228,973 99,032 - 328,005
----------------------------------------------------------------- ------------- -------- -------- --------
Contribution 155,490 15,518 - 171,008
Branch and selling costs (83,974) (83,974)
Central costs (23,105) (23,105)
Adjusted EBITDA 63,929
Less: Exceptional items (4,094) (4,094)
Less: Depreciation and amortisation (32,817) (217) (9,980) (43,014)
Operating profit 16,821
Net finance expenses (22,609)
Loss before tax from continuing operations (5,788)
Income tax (436)
Profit on disposal of discontinued operations 14,770
Profit for the year from discontinued operations 162
Profit after tax and discontinued operations 8,708
----------------------------------------------------------------- ------------- -------- -------- --------
Year ended 28 December 2019
---------------------------------- ---------------------------------------------
Rental
(and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- ------------- -------- --------- ---------
Additions to non-current assets
Property, plant and equipment 27,097 29 4,277 31,403
Intangibles - 878 1,461 2,339
---------------------------------- ------------- -------- --------- ---------
Non-current assets net book value
Property, plant and equipment 76,794 187 24,870 101,851
Intangibles 155,624 785 3,969 160,378
Unallocated corporate assets
Financial instruments 14 14
Current assets 114,789 114,789
Current liabilities (79,531) (79,531)
Non-current liabilities (218,540) (218,540)
78,961
---------------------------------- ------------- -------- --------- ---------
4. Other operating income
Year ended 26 December 2020 Year ended 28 December 2019
GBP000s GBP000s
-------------------------------------------------------- --------------------------- ---------------------------
COVID-19 Government grant income: job retention schemes 9,783 -
COVID-19 Government grant income: rates grants 595 -
Insurance proceeds (net of fees) 1,216 -
Sub-lease rental and service charge income 221 542
-------------------------------------------------------- --------------------------- ---------------------------
11,815 542
-------------------------------------------------------- --------------------------- ---------------------------
During the year the Group received GBP9.8m (2019: nil) as a
result of participation in the UK COVID-19 Job Retention Scheme and
a similar scheme in the Republic of Ireland; COVID-19 rates grants
of GBP0.6m (2019: nil); and GBP1.2m from a COVID-19 business
interruption insurance claim.
Sub-let rental income of GBP0.2m (GBP0.5m) was received on
vacant properties which are not onerous.
5. Exceptional items
Items of income or expense have been shown as exceptional either
because of their size or nature or because they are outside the
normal course of business. As a result, during the year ended 26
December 2020 the Group has recognised exceptional items as
follows:
Included in Included in Included in
Included in distribution administrative other operating Included in Year ended 26
cost of sales costs expenses income finance expense December 2020
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Onerous property
costs - - 7,058 (21) 373 7,410
Network
restructure 305 27 4,434 (152) - 4,614
Capital Raise
and AIM listing - - 868 - - 868
Onerous contract - - 557 - - 557
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
305 27 12,917 (173) 373 13,449
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
During the year ended 28 December 2019, the Group recognised
exceptional costs analysed as follows:
Included in
Included in Included in other Included in Included in Year ended
Included in distribution administrative operating finance discontinued 28 December
cost of sales costs expenses income expense operations 2019
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------- ------------- ------------- -------------- ------------- ------------- ------------ -------------
Onerous
leases - 9 2,924 (46) - 2,887
Accelerated
amortisation
of debt
issue costs - - - - 1,882 - 1,882
Cost
reduction
programme 17 308 519 - - - 844
Impairment of
property,
plant and
equipment - - 363 - - - 363
Exceptional
items -
continuing
operations 17 317 3,806 (46) 1,882 - 5,976
Business
divestiture
-
discontinued
operations - - - - - (14,770) (14,770)
------------- ------------- ------------- -------------- ------------- ------------- ------------ -------------
Total 17 317 3,806 (46) 1,882 (14,770) (8,794)
------------- ------------- ------------- -------------- ------------- ------------- ------------ -------------
Exceptional items incurred in 2020 and 2019
Costs related to onerous properties: branch and office
closures
In October the Group announced a decision to permanently close
134 stores as part of an acceleration of strategy. Since that date
the Group has been working hard to agree exits from these and
pre-existing dark stores. Right of use assets valuing GBP9.5m were
fully impaired following the decision to close stores in October.
Associated onerous property costs of GBP2.1m have been recognised,
including GBP0.4m in advisory fees. Around 60 of these leases were
also disposed during the year resulting in a net gain of GBP4.0m.
Interest (discount unwind) of GBP0.4m on dark store liability has
also been recognised through exceptional finance costs.
Dilapidations assets totalling GBP1.2m were written off as a
result of the decision to close branches, following which
settlements were agreed for certain properties resulting in a
release of liability of GBP1.2m. Reassessment of remaining
non-trading store liabilities resulted in a further release of
GBP0.3m. COVID-19 rent concessions have been negotiated with
landlords. GBP0.3m of the rent concession agreed has been
recognised as exceptional because it related to stores that were
already non-trading and previously been considered onerous.
During 2019 a distribution centre was closed with operations
transferred to nearby centres resulting in an onerous lease
provision of GBP2.1m. No other branches were closed; however, the
decision to cease using one of the floors at the Manchester
registered office resulted in an additional onerous lease provision
of GBP1.0m. The remaining reduction of GBP0.2m related to the
reassessment of existing dark store and onerous lease
provisions.
Network restructure (excluding onerous property items)
As a result of the decision to close branches and operate a more
flexible structure the Group incurred significant other,
non-property costs. 300 colleagues were placed at risk of
redundancy with the majority of these leaving the business on
completion of consultation. GBP1.6m has been recognised in this
regard. Property, plant and equipment GBP2.0m was impaired and a
further GBP0.8m disposed of. Excess resale stock valued at GBP0.3
was written off.
Capital raise and AIM listing
Fees totalling GBP0.9m were recognised related to the Group's
successful capital raise and preparation for its subsequent move to
AIM (which completed on 14 January 2021). These costs have been
classified as exceptional due to both their size and the infrequent
nature of the activity. Costs that related specifically to the
capital raise were deducted from the net proceeds and included in
the share premium account (note 15).
Onerous contract
The discount rate applied to the Group's provision for an
onerous contract related to the (closed) National Distribution and
Engineering Centre (NDEC) (note 14) was reviewed in line with
market conditions resulting in an addition of GBP0.6m to the
onerous contract provision.
Exceptional items incurred in 2019 only
Accelerated amortisation of debt issue costs
During 2019 an element of proceeds from the UK Platforms
disposal was used to repay debt. The early repayment resulted in
accelerated amortisation of debt issue costs of GBP1.9m.
Cost reduction programme
In light of headwinds that emerged in the market during 2019,
the Group undertook initiatives to reduce costs. These include the
closure of a centre used to refurbish hire stock and costs to exit
contracts related to the operation of a cross-dock facility used to
redistribute assets across the network. Internal restructuring was
also carried out, resulting in GBP0.8m of total costs which include
GBP0.6m redundancy costs.
Impairment of closed branch property, plant and equipment
During the year ended 28 December 2019, an impairment of GBP0.4m
to property, plant and equipment was recognised related to the
closed distribution centre and Manchester registered office
referenced above.
Business divestiture
On 19 July 2018 the Group announced the agreement to sell UK
Platforms Limited, HSS's powered access business, to Loxam. The
transaction completed in 2019 and was treated as a discontinued
operation.
6. Finance expense
Year ended Year ended
26 December 2020 28 December 2019
GBP000s GBP000s
--------------------------------------------------------- ----------------- -----------------
Senior finance facility 16,334 16,552
Debt issue costs 2,398 2,468
Lease liabilities 5,042 -
Finance leases - 721
Interest unwind on discounted provisions 429 414
Revolving credit facility 382 37
Interest on financial instruments 320 247
Bank loans and overdrafts 160 288
Exceptional accelerated amortisation of debt issue costs - 1,882
--------------------------------------------------------- ----------------- -----------------
25,065 22,609
--------------------------------------------------------- ----------------- -----------------
7. Income tax charge
(a) Analysis of tax charge in the year
Year ended Year ended
26 December 2020 28 December 2019
GBP000s GBP000s
------------------------------------------------- ----------------- -----------------
Current tax charge/(credit)
UK corporation tax on the result for the year 79 58
Adjustments in respect of prior years 17 (1,295)
------------------------------------------------- ----------------- -----------------
Total current tax charge/(credit) 96 (1,237)
Deferred tax (credit)/charge for the year
Deferred tax (credit)/charge for the year (646) 1,643
Deferred tax charge impact of change in tax rate 40 175
Adjustments in respect of prior years 525 (145)
------------------------------------------------- ----------------- -----------------
Total deferred tax (credit)/charge (81) 1,673
------------------------------------------------- ----------------- -----------------
Income tax charge 15 436
------------------------------------------------- ----------------- -----------------
In 2019 the Group received refunds of tax in Ireland related to
prior years totalling GBP1.3m.
(b) Factors affecting the income tax expense/(credit) in the
year
The tax assessed on the loss for the year differs from the
standard UK corporation rate of tax. The differences are explained
below:
Year ended Year ended
26 December 2020 28 December 2019
GBP000s GBP000s
-------------------------------------------------------------------------------- ----------------- -----------------
Loss before tax (23,566) (5,788)
-------------------------------------------------------------------------------- ----------------- -----------------
Loss before tax multiplied by the effective standard rate of corporation tax of
19% (2019:
19%) (4,478) (1,100)
Effects of:
Utilisation of tax losses brought forward - (3)
Unprovided deferred tax movements on short-term temporary differences and
capital allowance
timing differences 2,972 (609)
Adjustments in respect of prior years 542 (1,513)
Expenses not deductible for tax purposes 860 677
Losses carried forward - 452
Foreign tax suffered 79 58
Deferred tax write-back - 2,237
Impact of change in tax rate 40 237
-------------------------------------------------------------------------------- ----------------- -----------------
Income tax charge 15 436
-------------------------------------------------------------------------------- ----------------- -----------------
(c) Factors that may affect future tax charge
In the March 2021 Budget the Government announced that the 2021
Finance Bill will contain provisions for the standard rate of UK
corporation tax to increase to 25% from 1 April 2023. The existing
rate of 19% has been used to calculate the above deferred tax
disclosures above as the 2021 Finance Bill is not yet substantively
enacted.
The Group has an unrecognised deferred tax asset relating to
temporary timing differences on plant and equipment, intangible
assets and provisions of GBP12.8m (2019: GBP9.6m) and relating to
losses of GBP13.3m (2019: GBP10.4m).
These potential deferred tax assets have not been recognised on
the basis that it is not sufficiently certain when taxable profits
that can be utilised to absorb the reversal of the temporary
differences will be made.
8. Earnings per share
Loss after tax from
Loss after tax from Weighted average number of continuing operations per
continuing operations shares share
GBP000s 000s pence
---------------------------- ---------------------------- ---------------------------- ----------------------------
Year ended 26 December 2020 (23,581) 196,232 (12.02)
Year ended 28 December 2019 (6,224) 170,207 (3.66)
---------------------------- ---------------------------- ---------------------------- ----------------------------
Basic loss per share is calculated by dividing the result
attributable to equity holders by the weighted average number of
ordinary shares in issue for that year.
Diluted loss per share is calculated using the loss for the year
divided by the weighted average number of shares outstanding
assuming the conversion of potentially dilutive equity derivatives
outstanding, being market value options, nil-cost share options
(LTIP shares), restricted stock grants, deferred bonus shares,
Sharesave Scheme share options and warrants.
All of the Group's potentially dilutive equity derivative
securities were anti-dilutive for the purpose of diluted basic loss
per share for the years ended 26 December 2020 and 28 December
2019. This also applies to the adjusted diluted loss per share for
the year ended 26 December 2020, while the potentially dilutive
equity derivative securities were dilutive for the purpose of
diluted adjusted earnings per share for the year ended 28 December
2019, with the exception of the 2017 options which were
anti-dilutive due to the 2018 options lapsing if the 2017 options
vest.
The following is a reconciliation between the basic loss per
share and the adjusted basic earnings per share:
Year ended
Year ended 26 December 2020 28 December 2019
pence pence
----------------------------------------- ---------------------------- -----------------
Basic loss per share (12.02) (3.66)
Add back:
Exceptional items per share(1) 6.85 3.51
Amortisation per share(2) 2.65 3.30
Tax per share 0.01 0.26
Charge:
Tax credit/(charge) at prevailing rate 0.48 (0.65)
----------------------------------------- ---------------------------- -----------------
Adjusted basic (loss)/earnings per share (2.03) 2.76
----------------------------------------- ---------------------------- -----------------
1 Exceptional items per share is calculated as total exceptional
items divided by the weighted average number of shares in issue
through the year.
2 Amortisation per share is calculated as the amortisation
charge divided by the weighted average number of shares in issue
through the year.
The following is a reconciliation between the basic and diluted
loss per share and the adjusted diluted (loss)/earnings per
share:
Year ended Year ended
26 December 2020 28 December 2019
pence pence
---------------------------------------------------------------------------- ----------------- -----------------
Basic and diluted loss per share (12.02) (3.66)
Add back:
Adjustment to basic loss per share for the impact of dilutive securities(1) - 0.59
Exceptional items per share(2) 6.85 2.94
Amortisation per share(3) 2.65 2.77
Tax per share 0.01 0.21
Charge:
Tax credit/(charge) at prevailing rate 0.48 (0.54)
---------------------------------------------------------------------------- ----------------- -----------------
Adjusted diluted (loss)/earnings per share (2.03) 2.31
---------------------------------------------------------------------------- ----------------- -----------------
1 All of the Group's potentially dilutive equity derivative
securities were anti-dilutive for the purpose of adjusted diluted
loss per share for the year ended 26 December 2020. The warrants,
LTIP options, market value options, CSOP options, Sharesave scheme
options and Directors' deferred bonus shares were dilutive in the
year ended 28 December 2019, with the exception of the 2017 options
which were anti-dilutive.
2 Exceptional items per share is calculated as total finance and
non-finance exceptional items divided by the diluted weighted
average number of shares in issue through the year.
3 Amortisation per share is calculated as the amortisation
charge divided by the diluted weighted average number of shares in
issue through the year.
The weighted average number of shares (excluding the 2017
anti-dilutive options) for the purposes of calculating the adjusted
diluted earnings per share are as follows:
Year ended Year ended
26 December 2020 28 December 2019
Weighted average number of shares Weighted average number of shares
000s 000s
--------------------------------- ----------------------------------- -----------------------------------
Basic 196,232 170,207
Market value options - 14,915
Warrants - 8,510
LTIP share options - 7,576
CSOP options - 585
Sharesave Scheme options - 972
Directors' deferred bonus shares - 247
--------------------------------- ----------------------------------- -----------------------------------
Diluted 196,232 203,012
--------------------------------- ----------------------------------- -----------------------------------
9. Intangible assets
Goodwill Customer 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 - - - 3,317 3,317
Disposals - - - (146) (146)
---------------------- -------- ---------------------- -------- -------- --------
At 26 December 2020 124,877 26,744 23,222 27,580 202,423
---------------------- -------- ---------------------- -------- -------- --------
Amortisation
At 29 December 2019 - 18,694 525 19,655 38,874
Charge for the period - 2,654 97 2,446 5,197
Disposals - - - (146) (146)
---------------------- -------- ---------------------- -------- -------- --------
At 26 December 2020 - 21,348 622 21,955 43,925
---------------------- -------- ---------------------- -------- -------- --------
Net book value
---------------------- -------- ---------------------- -------- -------- --------
At 26 December 2020 124,877 5,396 22,600 5,625 158,498
---------------------- -------- ---------------------- -------- -------- --------
Goodwill Customer 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 year - 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
-------------------- -------- ---------------------- -------- -------- --------
Analysis of goodwill, indefinite life brands, other brands and
customer relationships by cash generating unit:
Other
Goodwill Indefinite life brands brands Customer relationships Total
GBP000s GBP000s GBP000s GBP000s GBP000s
-------------------- -------- ---------------------- -------- ---------------------- --------
Allocated to
HSS Core 111,497 21,900 236 4,397 138,030
Climate control 7,327 - 273 708 8,308
Power generation 6,053 - 191 291 6,535
-------------------- -------- ---------------------- -------- ---------------------- --------
At 26 December 2020 124,877 21,900 700 5,396 152,873
-------------------- -------- ---------------------- -------- ---------------------- --------
Other
Goodwill Indefinite life brands brands Customer relationships Total
GBP000s GBP000s GBP000s GBP000s GBP000s
-------------------- -------- ---------------------- -------- ---------------------- --------
Allocated to
HSS Core 111,497 21,900 256 6,849 140,502
Climate control 7,327 - 336 820 8,483
Power generation 6,053 - 205 381 6,639
-------------------- -------- ---------------------- -------- ---------------------- --------
At 28 December 2019 124,877 21,900 797 8,050 155,624
-------------------- -------- ---------------------- -------- ---------------------- --------
The remaining life of intangible assets other than goodwill and
indefinite life brands is between nil and fourteen years (2019: one
and fifteen years). For the purpose of calculating Adjusted EBITDA
and Adjusted EBITA, amortisation, as disclosed on the face of the
income statement, is calculated as the total of the amortisation
charge for the year and the loss on disposal of intangible
assets.
The Group tests property, plant and equipment, right of use
assets, goodwill and indefinite life brands for impairment annually
and considers at each reporting date whether there are indicators
that impairment may have occurred. The Group has three cash
generating units (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 five years
(2019: five 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 the budget for 2021 and
model of the business for the following two years (to the end of
2023).
-- Operational activity then had a long-term growth rate applied
to it while capital expenditure was specifically adjusted to
reflect expectations of spend in the following years giving a model
of five 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 9.16% (2019: 9.15%), calculated by
reference to a weighted average cost of capital (WACC) based on an
industry peer group of quoted companies.
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 a 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, goodwill or indefinite
life brands assets carried in the balance sheet at 26 December 2020
for any of the CGUs.
The Directors carried out sensitivity analysis on various inputs
to the models, including growth rates, discount rates and
percentage reductions to ongoing cash flows which did not result in
an impairment charge for any CGU. As part of the sensitivity
analysis the Directors assessed combined outcomes utilised as part
of the going concern and long-term viability assessments (refer to
note 1), particularly in light of the potential impact of economic
uncertainty arising from 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.
In respect of HSS Core, at 26 December 2020, the headroom
between VIU and carrying value of the related assets was GBP75.1m
(2019: GBP192.7m). The Directors' sensitivity analysis with regard
to the most sensitive CGU, HSS Core, shows that an increase in the
discount rate to 11.5% (2019: 26.7%) or a reduction in the
long-term growth rate to a decline of 0.7% (2019: decline of 4.2%)
would eliminate the headroom shown. In addition, the Directors have
assessed the combined impact of the long-term growth rate falling
to zero (2019: zero) and an increase in the discount rate of 1% to
10.16% (2019: 10.15%). This shows that the headroom drops to
GBP53.9m (2019: GBP131.3m) for HSS Core but that impairment is not
required for any CGU.
10. Property, plant and equipment
Materials & equipment held for
Land & buildings Plant & machinery hire Total
GBP000s GBP000s GBP000s GBP000s
----------------------------------- ---------------- ----------------- ---------------------------------- --------
Cost
At 29 December 2019 73,505 61,925 179,788 315,218
Transferred to right of use assets - - (46,888) (46,888)
Transferred from right of use
assets - - 3,144 3,144
Additions 1,284 1,061 14,099 16,444
Disposals (16,408) (7,748) (17,328) (41,484)
Foreign exchange differences 38 77 465 580
----------------------------------- ---------------- ----------------- ---------------------------------- --------
At 26 December 2020 58,419 55,315 133,280 247,014
----------------------------------- ---------------- ----------------- ---------------------------------- --------
Accumulated depreciation
At 29 December 2019 54,437 55,936 102,994 213,367
Transferred to right of use assets - - (17,576) (17,576)
Transferred from right of use
assets - - 1,652 1,652
Charge for the year 3,516 2,139 14,518 20,173
Impairment 1,789 227 - 2,016
Disposals (14,536) (7,592) (13,004) (35,132)
Foreign exchange differences 2 40 448 490
Transfers - (170) 170 -
----------------------------------- ---------------- ----------------- ---------------------------------- --------
At 26 December 2020 45,208 50,580 89,202 184,990
----------------------------------- ---------------- ----------------- ---------------------------------- --------
Net book value
----------------------------------- ---------------- ----------------- ---------------------------------- --------
At 26 December 2020 13,211 4,735 44,078 62,024
----------------------------------- ---------------- ----------------- ---------------------------------- --------
Materials & equipment
Land & buildings Plant & machinery held for hire Total
GBP000s GBP000s GBP000s GBP000s
----------------------------- ---------------- ----------------- --------------------- --------
Cost
At 30 December 2018(1) 73,293 62,685 190,373 326,351
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 61,925 179,788 315,218
----------------------------- ---------------- ----------------- --------------------- --------
Accumulated depreciation
At 30 December 2018(1) 51,431 55,125 110,666 217,222
Foreign exchange differences - (79) (546) (625)
Charge for the year 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 55,936 102,994 213,367
----------------------------- ---------------- ----------------- --------------------- --------
Net book value
----------------------------- ---------------- ----------------- --------------------- --------
At 28 December 2019 19,068 5,989 76,794 101,851
----------------------------- ---------------- ----------------- --------------------- --------
1 As part of the ongoing improvements to hire stock processes
some historic consolidation entries have been corrected which
resulted in a reduction to cost and accumulated depreciation of
GBP5.0m. The adjustment had no impact on net book value.
Transferred to right of use assets category represents the
transfer of assets previously recognised under finance leases,
while transferred from right of use assets category represents
assets no longer under lease acquired at the end of the lease term.
The right of use asset is depreciated over the lease term on a
straight line basis, except where the Group has the right, and
expects to exercise that right, to take ownership of the assets
after the end of the lease; in such cases the assets are
depreciated over the useful life.
Materials and equipment held for hire with a net book value of
GBP29.3m at 28 December 2019 (restated) were held under finance
leases and transferred to right of use assets on the adoption of
IFRS 16 Leases (note 2). The depreciation charge for assets held
under finance leases in the year ended 28 December 2019 was GBP5.5m
(restated). The amounts disclosed relating to assets held under
finance lease have been restated due to a review carried out as
part of IFRS 16 adoption. This had no impact on the total net book
value or depreciation charge in the 2019 financial statements.
The results of the impairment review for property, plant and
equipment are included in note 9.
11. Right of use assets
Property Vehicles Equipment for hire and internal use Total
GBP000s GBP000s GBP000s GBP000s
------------------------------------------- -------- -------- ----------------------------------- --------
Cost
Recognised on transition date 58,014 21,416 30,101 109,531
Foreign exchange differences 155 22 - 177
Additions 1,317 3,040 4,880 9,237
Re-measurements 6,931 17 - 6,948
Transfers to property, plant and equipment - - (3,144) (3,144)
Disposals (5,164) (814) (1,776) (7,754)
------------------------------------------- -------- -------- ----------------------------------- --------
At 28 December 2020 61,253 23,681 30,061 114,995
------------------------------------------- -------- -------- ----------------------------------- --------
Accumulated depreciation
Transfers to property, plant and equipment - - (1,652) (1,652)
Charge for the period 10,999 7,613 5,924 24,536
Impairments 9,541 - - 9,541
Disposals (5,137) (759) (1,373) (7,269)
------------------------------------------- -------- -------- ----------------------------------- --------
At 28 December 2020 15,403 6,854 2,899 25,156
------------------------------------------- -------- -------- ----------------------------------- --------
Net book value
------------------------------------------- -------- -------- ----------------------------------- --------
At 28 December 2020 45,850 16,827 27,162 89,839
------------------------------------------- -------- -------- ----------------------------------- --------
On adoption of IFRS 16 on 29 December 2019, the Group recognised
right of use assets representing the Group's right to use leased
assets. Right of use assets are depreciated over the lease term on
a straight line basis, except where the Group has the right, and
expects to exercise that right, to take ownership of the assets at
the end of the lease; in such cases the assets are depreciated over
the useful life and transferred to property, plant and equipment at
the end of the lease.
Right of use assets are measured at cost comprising the initial
measurement of lease liability, initial direct costs and
restoration costs. Right of use assets arising on transition to
IFRS16 are 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. During the year the
Group recorded re-measurements of GBP6.9m on its property leases
due to changes in property footprint, including lease extensions
and disposals following the decision to close 134 branches and
subsequent negotiations with landlords to surrender leases. Under
HSS accounting policy, locations that have not been permanently
closed are deemed to be part of a wider cash generating unit (CGU)
when being tested for impairment. The act of permanently closing a
location has the effect of separating it from the CGU and is also a
trigger for impairment. The value of ROU assets impaired as a
result of decision to permanently close locations is GBP9.5m.
Disclosures relating to lease liabilities are included in note
13.
12. Trade and other receivables
Year ended 26 December 2020 Year ended 28 December 2019
---------------------- ------------------------------------------------- -------------------------------------------
Provision for Provision for Net of
Gross impairment Net of provision Gross impairment provision
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
---------------------- -------- --------------------- ---------------- -------- --------------------- ----------
Trade receivables 66,434 (5,374) 61,060 72,056 (3,745) 68,311
Accrued income 6,965 (107) 6,858 6,824 - 6,824
---------------------- -------- --------------------- ---------------- -------- --------------------- ----------
Contract assets 73,399 (5,481) 67,918 78,880 (3,745) 75,135
---------------------- -------- --------------------- ---------------- -------- --------------------- ----------
Net investment in
sub-lease 1,497 - 1,497 - -
Other debtors 3,502 - 3,502 2,762 - 2,762
Prepayments 2,963 - 2,963 10,499 - 10,499
---------------------- -------- --------------------- ---------------- -------- --------------------- ----------
Total trade and other
receivables 81,361 (5,481) 75,880 92,141 (3,745) 88,396
---------------------- -------- --------------------- ---------------- -------- --------------------- ----------
The following table details the movements in the provision for
impairment of trade receivables and other receivables:
26 December 2020 28 December 2019
GBP000s GBP000s
--------------------------------------- ---------------- ----------------
Balance at the beginning of the period (3,745) (3,819)
Increase in provision (5,962) (4,590)
Utilisation 4,226 4,664
--------------------------------------- ---------------- ----------------
Balance at the end of the period (5,481) (3,745)
--------------------------------------- ---------------- ----------------
The provision for impairment of trade receivables is comprised
as follows:
26 December 2020 28 December 2019
GBP000s GBP000s
---------------------- ---------------- ----------------
Bad debt provision (3,023) (1,568)
Credit note provision (2,458) (2,177)
---------------------- ---------------- ----------------
(5,481) (3,745)
---------------------- ---------------- ----------------
The bad debt provision based on expected credit losses and
applied to trade receivables, all of which are current assets, is
as follows:
26 December 2020 Current 0 to 60 days past due 61 to 365 days past due 1 to 2 years past due Total
------------------------------ ------- --------------------- ----------------------- --------------------- ------
Contract assets 61,197 5,902 4,962 1,338 73,399
Expected loss rate 1.4% 4.6% 25.7% 47.5% 4.1%
Provision for impairment
charge 839 272 1,276 636 3,023
------------------------------ ------- --------------------- ----------------------- --------------------- ------
61 to 365
28 December 2019 Current 0 to 60 days past due days past due 1 to 2 years past due Total
-------------------------------- ------- --------------------- -------------- --------------------- ------
Contract assets 63,633 7,500 6,631 1,116 78,880
Expected loss rate 1.0% 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 2019. However, as has been
widely reported, there is an expectation that the situation will
deteriorate as Government support is reduced and that the rate of
insolvencies will increase. Given these facts, the Group considers
that historical losses are not a good predictor of future failures
and has exercised judgement in increasing the expected loss rates
across all categories of debt. In so doing the provision has been
increased by around GBP1.2m from that which would have been
required based on loss experience over the past two years. As in
the prior year, historical loss rates have been increased where
debtors have been identified as high risk with a reduction applied
to customer debt covered by credit insurance. The total amount
expensed was GBP4.1m (2019: GBP3.6m). Unless the counterparty is in
liquidation, these amounts are still subject to enforcement
action.
Provisions are made for credit notes expected to be raised after
year end for income recognised during the year.
The overall provisions for bad debt and credit notes amount to
7.5% of contract assets at 26 December 2020 (2019: 4.7%). A 0.5%
increase in the rate of provision required would give rise to an
increased provision of GBP0.4m (2019: GBP0.4m).
13. Borrowings
26 December 2020 28 December 2019
GBP000s GBP000s
--------------------------------- ---------------- ----------------
Current
Senior finance facility 15,000 -
Lease liabilities 23,395 -
Obligations under finance leases - 5,355
--------------------------------- ---------------- ----------------
38,395 5,355
--------------------------------- ---------------- ----------------
Non-current
Senior finance facility 161,899 174,501
Revolving credit facility 17,200 -
Lease liabilities 66,177 -
Obligations under finance leases - 11,228
--------------------------------- ---------------- ----------------
245,276 185,729
--------------------------------- ---------------- ----------------
The nominal value of the Group's loans at each reporting date is
as follows:
26 December 2020 28 December 2019
GBP000s GBP000s
-------------------------- ---------------- ----------------
Senior finance facility 181,982 181,982
Revolving credit facility 17,200 -
-------------------------- ---------------- ----------------
199,182 181,982
-------------------------- ---------------- ----------------
The Group's Senior finance facility and Revolving credit
facility (RCF) expire on 10 July 2023 and 10 January 2023
respectively. The GBP15.0m current element of the Senior finance
facility was repaid in January 2021 and the GBP17.2m RCF was repaid
in April 2021.
The senior finance facility and RCF are secured over the assets
of a Group company, Hero Acquisitions Limited, and all of its
subsidiaries. These subsidiaries comprise all of the trading
activities of the Group. The lenders under the RCF rank above those
under the senior finance facility. The overall GBP25.0m RCF
includes a GBP6.0m overdraft facility and a GBP1.8m guarantee
arrangement to secure the Group's card-acquiring services provided
by a third party.
The Group had undrawn committed borrowing facilities of GBP20.7m
at 26 December 2020 (2019: GBP36.6m), including GBP14.7m of finance
lines to fund hire fleet capital expenditure not yet utilised.
Including net cash balances, the Group had access to GBP118.3m of
combined liquidity from available cash and undrawn committed
borrowing facilities at 26 December 2020 (2019: GBP59.3m).
The interest rates on the Group's borrowings are as follows:
26 December 2020 28 December 2019
-------------------------- --------- ----------------- ---------------- ----------------
Senior finance facility Floating %age above LIBOR 8.0% 8.0%
Revolving credit facility Floating %age above LIBOR 2.5 to 3.0% 2.5%
Lease liabilities Floating %age above LIBOR 2.4 to 2.9% -
Finance leases Floating %age above LIBOR - 3.1%
-------------------------- --------- ----------------- ---------------- ----------------
The weighted average interest rates on the Group's borrowings
are as follows:
26 December 2020 28 December 2019
------------------ ---------------- ----------------
Borrowings 9.8% 10.4%
Lease liabilities 4.8% -
Finance leases - 4.8%
------------------ ---------------- ----------------
Amounts under the RCF are typically drawn for a one- to
three-month borrowing period, with the interest set for each
borrowing period based upon LIBOR and a fixed margin.
The Group's leases and borrowings have the following maturity
profile:
26 December 2020 28 December 2019
--------------------------- ----------------------------- --------------------
Finance
Lease liabilities Borrowings leases Borrowings
GBP000s GBP000s GBP000s GBP000s
--------------------------- ----------------- ---------- -------- ----------
Less than one year 27,452 30,581 6,306 16,423
Two to five years 55,544 208,725 11,615 220,805
More than five years 23,483 - - -
--------------------------- ----------------- ---------- -------- ----------
106,479 239,306 17,921 237,228
--------------------------- ----------------- ---------- -------- ----------
Less interest cash flows:
Senior finance facility - (38,822) - (55,246)
Revolving credit facility - (1,302) - -
Lease liabilities (16,907) - - -
Finance leases - - (1,338) -
--------------------------- ----------------- ---------- -------- ----------
Total principal cash flows 89,572 199,182 16,583 181,982
--------------------------- ----------------- ---------- -------- ----------
The maturity profile, excluding interest cash flows, of the
Group's leases is as follows:
26 December 2020 28 December 2019
Lease liabilities Finance leases
GBP000s GBP000s
--------------------- ------------------ ----------------
Less than one year 23,395 5,355
Two to five years 47,030 11,228
More than five years 19,147 -
--------------------- ------------------ ----------------
89,572 16,583
--------------------- ------------------ ----------------
Finance leases held at 28 December 2019 principally related to
hire fleet assets.
14. Provisions
Onerous
property costs Dilapidations Onerous contracts Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- --------------- ------------- ----------------- --------
At 29 December 2019 4,833 16,209 19,573 40,615
Adoption of IFRS 16 (note 2) (2,222) - - (2,222)
Additions 5,326 1,452 - 6,778
Utilised during the period (601) (2,726) (3,330) (6,657)
Unwind of provision 7 204 218 429
Impact of change in discount rate 88 747 557 1,392
Releases (3,472) (3,226) - (6,698)
Foreign exchange - 17 - 17
---------------------------------- --------------- ------------- ----------------- --------
At 26 December 2020 3,959 12,677 17,018 33,654
---------------------------------- --------------- ------------- ----------------- --------
Of which:
Current 1,328 2,823 3,297 7,448
Non-current 2,631 9,854 13,721 26,206
---------------------------------- --------------- ------------- ----------------- --------
3,959 12,677 17,018 33,654
---------------------------------- --------------- ------------- ----------------- --------
Onerous
leases Dilapidations Onerous 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 provision 20 49 345 414
Released, including disposal on sale of business (2,304) (360) - (2,664)
Foreign exchange - (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
------------------------------------------------- -------- ------------- ----------------- --------
Onerous property costs
Provisions for onerous property costs relate to the current
value of contractual liabilities for future rates payments and
other unavoidable costs on leasehold properties the Group no longer
uses or where a site is partially in use and as a whole,
loss-making. Until the implementation of IFRS 16 on 29 December
2019, the provision also included amounts for future rent payments.
The Company has taken the practical expedient available under IFRS
16 to rely on its assessment of whether a lease is onerous by
applying IAS 37 Provisions, Contingent Liabilities and Contingent
Assets immediately before the date of initial application, reducing
the carrying value of its right of use asset on implementation.
This resulted in the elimination of onerous property costs of
GBP2.2m and a corresponding impairment of the right of use asset on
transition date.
The liabilities, assessed on a property-by-property basis, are
expected to arise over a period of up to 9 years (2019: 8 years)
with the weighted average of the onerous property costs post IFRS
16 being 3.76 years (2019: pre IFRS 16 3.9 years). Prior to
implementation of IFRS 16, they were stated net of expected sub-let
income based on existing sub-let agreements (2019: GBP0.7m).
Provisions for onerous property costs relate to the current value
of contractual liabilities for future rates payments and other
unavoidable costs. These costs are treated as exceptional. The
onerous property cost provision has been inflated at a rate of 0.1%
(2019: discounted at 0.9%). A 1% increase in the discount rate at
26 December 2020 would reduce the provision post the implementation
of IFRS 16 by GBP0.09m (2019: pre IFRS 16 GBP0.1m).
Since the implementation of IFRS 16, right of use assets are
subject to impairment testing (note 9). Prior to the implementation
of IFRS 16, the assessment of whether a site was onerous was based
on the current year profit or loss being projected forward to the
end of the lease. In considering profitability, expected sub-let
income for unused space was considered. The amount of expected
sub-let income leases included in the onerous lease provision
amounted to GBP0.9m at 28 December 2019.
Dilapidations
An amount equivalent to the provision for dilapidation is
recognised as part of the asset of the related property. The timing
and amounts of future cash flows related to lease dilapidations are
subject to uncertainty. The provision recognised is based on
management's experience and understanding of the commercial retail
property market and third party surveyors' reports commissioned for
specific properties in order to best estimate the future outflow of
funds, requiring the exercise of judgement applied to existing
facts and circumstances, which can be subject to change. The
estimates used by management in the calculation of the provision
take into consideration the location, size and age of the
properties. The weighted average dilapidations provision at 26
December 2020 was GBP6.65 per square foot (psf) (2019: GBP8.68
psf). The reduction is due to an increase in surveys and landlord
negotiations in the Group's effort to exit all its dark store
liabilities. Estimates for future dilapidations costs are regularly
reviewed as and when new information is available. A GBP0.50 psf
increase in the dilapidations provision would lead to an increase
in the provision at 26 December 2020 of GBP0.7m (2019:
GBP0.9m).
The dilapidations provision has been discounted at a rate of
0.25% (2019: 1.26%) at 26 December 2020 based on ten-year UK gilt
yields. A 1% increase in the discount rate at 26 December 2020
would decrease the dilapidations provision by GBP0.7m (2019:
GBP0.8m). The inflation rate applied in the calculation of the
dilapidations provision was 1.8% (2019: 1.8%).
Onerous contract
The onerous contract represents amounts payable in respect of
the agreement reached between the Group and Unipart to terminate
the contract to operate the NDEC. Under the terms of the agreement
at 26 December 2020 GBP17.0m is payable over the period to 2026
(2019: GBP20.3m) and GBP3.3m has been paid during the year (2019:
GBP3.6m). The provision has been restated to present value by
applying an inflation rate of 0.1% (2019: discount rate of 1.2%). A
1% reduction in the inflation rate at 26 December 2020 would
decrease the provision by GBP0.5m (2019: a 1% increase in the
discount rate would decrease the provision by GBP0.6m).
15. Share Capital and Capital raise
On 8 December 2020 the Group completed a capital raise from
existing and new shareholders resulting in gross proceeds of
GBP52.6m. 526,270,512 ordinary shares of 1p each were issued for
10p each.
Year ended
26 December 2020
GBP000
----------------------- -----------------
Gross proceeds 52,627
Cost of share issue(1) (1,784)
----------------------- -----------------
Net proceeds 50,843
----------------------- -----------------
Accounted for as:
Share capital 5,263
Share premium 45,580
----------------------- -----------------
50,843
----------------------- -----------------
The number of shares in issue and the related share capital and
share premium are as follows.
Ordinary shares Ordinary shares Share premium
Number GBP000s GBP000s
-------------------- --------------- --------------- -------------
At 29 December 2019 170,207,142 1,702 -
Shares issued 526,270,512 5,263 45,580
At 26 December 2020 696,477,654 6,965 45,580
-------------------- --------------- --------------- -------------
1 GBP1,492,000 of the GBP1,784,000 costs had not been paid as at
26 December 2020.
16. Post balance sheet events
On 14 January 2021 the Group's ordinary shares of 1 pence each
were admitted to trading on AIM. Simultaneously, the admission of
the ordinary shares to trading on the Main Market of London Stock
Exchange plc and to the premium listing segment of the Official
List were cancelled. This follows the Group's announcement on 16
November 2020 and the General Meeting held on 4 December 2020.
During the year the Group recognised GBP1.2m of insurance
proceeds claimed under the business interruption policy due to the
impact of the COVID-19 pandemic (note 4). Since the year end the
Group has received a further GBP1.2m.
Since the year end a series of national lockdowns have come into
force across the UK nations and the Republic of Ireland. These have
not had a material impact on the Group's trading performance.
Since the year end the Group has continued to negotiate with
landlords and has surrendered or agreed to surrender 95% of leases
associated with dark stores.
On 7 April 2021 the Group announced that it has entered into an
unconditional agreement to sell Laois Hire Services Limited, the
Group's Irish large plant hire business, to Brigg's Equipment
Ireland Limited ("Briggs"), for a cash consideration of EUR11.2m.
Of this, EUR10.7m was received on completion with a further EUR0.5m
payable on finalisation of completion accounts later in 2021. The
proceeds will be used to invest in the core Tool Hire business in
line with the Group's strategy. As part of this transaction, the
Group has entered into a commercial agreement with Briggs for the
cross hire of equipment to ensure we continue to provide our Irish
customers with their large plant requirements. The sale has been
treated as a non-adjusting post balance sheet event.
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END
FR SEDFLAEFSEEL
(END) Dow Jones Newswires
April 29, 2021 02:00 ET (06:00 GMT)
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