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FLTA Filta Group Holdings Plc

170.00
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Share Name Share Symbol Market Type Share ISIN Share Description
Filta Group Holdings Plc LSE:FLTA London Ordinary Share GB00BDB7J920 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 170.00 165.00 175.00 0.00 00:00:00
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Filta Group Holdings PLC Final Results (1243W)

15/04/2019 7:00am

UK Regulatory


Filta (LSE:FLTA)
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TIDMFLTA

RNS Number : 1243W

Filta Group Holdings PLC

15 April 2019

Filta Group Holdings plc

("Filta", the "Company" or the "Group")

Full year audited results for the financial year ended 31 December 2018

Financial Highlights

-- Revenue (from Continuing Operations) up 23% to GBP14.2m (2017: GBP11.5m) increased in all divisions:

o Fryer Management revenue up 11% to GBP9.3m (2017: GBP8.4m)

o FiltaSeal revenue up 24% to GBP1.6m (2017: GBP1.3m)

o FiltaGMG revenue GBP1.7m (2017, 4 months: GBP0.4m)

o Franchise Development revenue GBP1.5m (2017: GBP1.3m)

   --         Gross margin improved to 49.8% from 49.2%. 
   --         Adjusted EBITDA* from Continuing operations up 25% to GBP2.6m (2017: GBP2.1m). 

-- Operating profit GBP1.8m (2017: GBP1.7m) after non-cash charges of GBP0.7m - depreciation and amortisation of GBP0.4m (2017: GBP0.2m) and share based payments of GBP0.3m (2017: GBP0.1m).

-- Deferred revenue balance up GBP0.7m (including GBP0.2m FX gain) to GBP3.7m of which GBP0.9m to be released in 2019.

   --         Net cash of GBP2.1m at 31 December 2018. 

-- Proposed final dividend of 0.92 pence per share, which together with the interim dividend of 0.72 pence, makes a total dividend for the year of 1.64 pence per share, an 26% increase over prior year.

*Adjusted for non-recurring items being acquisition related costs, share based payments as well as finance costs, taxes, depreciation and amortization.

Operational Highlights

-- Net increase in Franchise Owner base to 199 and a 14% increase in the number of MFUs (mobile filtration units) from 394 to 450.

-- Two Franchise Owners achieved over $2m (GBP1.6m) in revenue and six (2017 - four) Franchise Owners recorded revenue over $1m (GBP0.8m).

-- Significant growth in fryer management services driven by organic growth and new franchise development which, in turn, enlarges the platform for increasing Fryer Management Services.

-- Robust revenue growth in Company-Owned Operations due to strong performances from, particularly, FiltaSeal whose revenues were up 24% and, a strong first full year from FiltaGMG.

-- Buy-in of German master licence with 6 existing franchisees already grown to 12 franchisees and 15 MFUs providing a strong platform for further expansion into mainland Europe

-- Acquisition of Watbio Holdings Limited, a provider of grease and drain management solutions, which adds over GBP10m revenues to FiltaGMG business

Jason Sayers, CEO, commented:

"2018 was an active year for the Group as we continued to experience strong organic growth whilst completing two strategically significant acquisitions. The buy-in of the German master franchise gave us an immediate foothold in the German market, where we are experiencing good initial results applying the US franchise model, provides a base for expansion into mainland Europe. Late in the year we completed the acquisition of Watbio Holdings Limited, which fits squarely with our strategy of increasing high margin repeat revenue business and moves Filta into a market-leading position in the FOG (fats, oils and greases) market.

"We are focused on the integration of Watbio in the first half of 2019 and we anticipate an increase in its existing GBP10m revenue base and profitability as we grow its client base and we realise the benefits of already identified synergies.

"Whilst we anticipate a slowdown in new franchise sales as our territory coverage gets closer to maturity in the US, our European operation has picked up the mantle and we are encouraged both by the strength of the new business pipeline and the opportunities that will come from a broader geographic base.

"We also see a strong path for growth in FiltaSeal and our other company-operated offerings and, with the implementation of a new scheduling system, anticipate improved efficiencies and gross margin."

15(th) April 2019

Enquiries:

   Filta Group Holdings plc                                      Tel: +1 407 996 5550 

Jason Sayers, Chief Executive Officer

Brian Hogan, Chief Financial Officer

   Cenkos Securities plc (NOMAD and Broker)      Tel: 020 7397 8900 

Stephen Keys

Harry Hargreaves

This announcement contains inside information.

CHAIRMAN'S STATEMENT

Introduction

2018 saw two significant developments for the Group, being the buy-in, in January, of our master franchise in Germany, which provided us with the base to expand our franchise activities into mainland Europe, and the acquisition, in December, of Watbio, one of the leading operators in the Fats, Oils and Grease ("FOG") market, which in combination with FiltaGMG has established Filta as a major force in that market.

I am pleased to report that, alongside these developments, we enjoyed another year of growth across all of our core businesses, with the addition of 25 new franchises, including eight in mainland Europe, 56 additional MFUs, an increase of 23% in the number of seals fitted and an increase of 12% in the number of FiltaGMG jobs performed, prior to any acquisition effect of Watbio.

We have continued to invest in business systems, infrastructure and personnel both to take advantage of market opportunities and to ensure the highest level of support to our growing and diverse customer base.

Results

Reported profit before tax for the year ended 31 December 2018 was GBP1.7m (2017: GBP1.6m) on revenue up by 23% at GBP14.2m (2017: GBP11.5m) and net attributable profit was GBP1.3m (2017: GBP0.8m). Gross profit for the year was up by GBP1.4m at GBP7.1m, with a slightly improved gross margin of 49.8% (2017: GBP5.7m and 49.2%). The EBITDA, adjusted to exclude acquisition-related costs and share-based payments, was GBP2.6m (2017: GBP2.1m), an increase of 25%.

The Group also increased its deferred revenue balance by a net amount of GBP0.7m, including a GBP0.2m positive impact from a stronger US dollar, to a year-end balance of GBP3.7m.

Operating costs were up by GBP1.3m, supporting the increased size of the business and level of activity, but also reflecting the acquisition-related costs of GBP0.2m (2017: GBP0.1m) being legal and other costs related primarily to the acquisitions of the German master franchise and Watbio Holdings Limited, a GBP0.3m charge in relation to awards made under the Company's Share Schemes, specifically the US Stock Appreciation Rights (2017: GBP0.1m) and a greatly increased depreciation and amortisation charge, primarily related to intangible assets, of GBP0.4m (2017: GBP0.2m).

Divisional Performances

The GBP0.5m increase in adjusted EBITDA reflects strong performances in all areas of our business and was achieved from both higher turnover and improved gross profit margins.

FiltaFry, our franchised fryer management business, has continued to expand its number of territories as demonstrated by a net increase in our Franchise Owner base to 199 whilst realising a 14% increase in the number of MFUs (mobile filtration units) from 394 to 450. FiltaFry remains the core of our business and it provides the platform for further growth across the Group. Revenues and gross profits from Fryer Management Services grew 11% and 10% respectively to GBP9.3m and GBP4.1m. We are particularly encouraged by our European and Canadian operations, where our franchise counts have grown to twelve and three respectively.

The Company-owned activities, which are UK-based, have also had a good year. FiltaSeal, whose revenues for the year were GBP1.6m, has enjoyed growth of some 24% and started the new year with a strong order book. FiltaGMG contributed GBP1.7m in revenue but, more importantly, it grew 41% against the prior year on an annualised basis. Watbio was under our ownership for only ten days of the year and its contribution was, therefore, not significant.

Strategic Developments

As stated above, we bought in the German master franchise at the beginning of the year and, at the end of the year, acquired Watbio. Both acquisitions align with existing platforms and continue to support our strategy of focusing Filta on businesses with high margins and low working capital requirements.

FiltaFry GmbH was acquired for a total consideration of EUR250,000, satisfied as to EUR175,000 in cash and EUR25,000 by the issue of 10,971 new Ordinary Shares. Further consideration of EUR25,000 was paid by the issue of 9,225 Filta shares on 30 January 2019, with a final payment of EUR25,000 remaining to be satisfied by the issue of Filta shares on 30 January 2020. FiltaFry GmbH is being developed along the same lines as our North American business with the aim being to establish a strong foothold in Germany before extending into other European countries. We have been delighted at the momentum that has already been built up with six new franchises in Germany, one in Austria and one in Spain, giving us a total franchise count in Europe of twelve already.

The acquisition of Watbio for a total consideration of up to GBP6.4m represents a significant step in building our FOG business, which we consider, due to the nature and timing of the service, to be more suitable to direct ownership than to a franchise structure. The consideration for Watbio has been satisfied by the payment of GBP5.3m in cash and as to GBP0.8m by the issue to the vendors of 400,000 Filta shares. Additional cash consideration of up to GBP0.3m million is contingent on certain debtor collections before 31 May 2019. The cash element of the consideration was funded by a placing of 1,500,000 new Filta shares to raise GBP3.0m (gross) and a fixed term bank loan of GBP4.0m.

We envisage continuing to pursue an Infill strategy to acquire and develop additional service offerings, which, typically, will require only modest capital investment, will be complementary to our existing activities and will contribute to earnings as well as improving return on capital.

Dividends

We have a stated policy to distribute one third of annual earnings by way of dividends to shareholders in respect of each year.

The Board is therefore proposing a final dividend of 0.92 pence per share, which together with the interim dividend of 0.72 pence paid on 28 September 2018 makes a total dividend of 1.64 pence per share in respect of the year and represents an increase of 26% over prior year. The proposed final dividend, if approved by shareholders, will be paid on 14 June 2019 to shareholders on the register at the close of business on 31 May 2019.

Current trading and outlook

We saw growth in all our core businesses in 2018 and this has continued into 2019. We have secured four new franchisees, allocated six further territories and added ten MFUs in the year to date, all of which will contribute to additional revenues from Fryer Management Services through the year. Our FiltaSeal activity in the first quarter was 11% up on the same period last year and FiltaGMG has continued to gain new clients, thus increasing the repeat revenue base.

With the additional business to be derived from the acquisition of Watbio and the encouraging activity that we are seeing from our new European operations your Board is confident of achieving further growth through the remainder of the year.

Management, staff and Franchise Owners

The Board much appreciates the considerable efforts of our management and staff. I welcome to the Group those who have joined us during the year, and I thank all our employees for their continuing hard work and commitment to the Group.

I also take this opportunity to recognise our Franchise Owners, whose own performance and client commitment are critical to our success and reputation.

Finally, our Business Model and Strategy is set out below. It was approved by the Board on 12 April 2019.

Tim Worlledge

Chairman

12 April 2019

OPERATIONS REVIEW

Introduction

I am very pleased to report that the Group delivered a strong performance with an operating profit of GBP1.8 m, adjusted EBITDA of GBP2.6m, an increase of 25% over the previous year, and profit before tax of GBP1.7m. We have also increased our deferred revenue balance and therefore go into 2019 with higher revenue visibility than at the start of 2018.

Fryer Management Services delivered a 11% increase in revenue, driven by both organic growth and new franchises which, in turn, provide the platform for increased Fryer Management Services revenue in the future.

Filta's plan has been to expand organically and through acquisitions of high margin, repeat revenue businesses in the grease management market. In line with this, our Company owned operations experienced robust organic revenue growth. FiltaSeal revenues were GBP1.6m, up 24%, and FiltaGMG completed its first full year with revenue of GBP1.7m an annualised growth of 41%. Additionally, the business took a significant step forward at the end of the year with the acquisition of Watbio Limited which brings additional revenue of over GBP10m.

Franchise Development

Our strategy is to recruit quality franchise owners who have the ambition and business ability to expand their franchises, thereby enlarging the platform for Filta's own Fryer Management repeat revenues to increase year after year.

Development in North America remained relatively strong in 2018 and, although the UK continued to be weak, mainland Europe gathered momentum with sales in Germany, Austria and Spain.

With the increasing coverage in North America, we will see a reduction in the number of available territories for sale which will result in a decrease in the number of new franchise sales in North America. However, we expect Franchise Development in mainland Europe to strengthen during the next few years.

As our franchise base grows, we are experiencing an increased demand and opportunity for franchise resales with nine Filta franchise owners selling their businesses during 2018, generating fees of GBP0.1m. We expect resale transactions to grow in number and value in the coming years, which will not only generate increasing fees but will also provide opportunities to strengthen the franchise network.

Fryer Management Services

Fryer Management Services contributed GBP9.3m of revenues in the year (2017: GBP8.4m). Our franchise network is both the showpiece and the cornerstone of our business - our franchisees connect us to our markets and our performance reflects their performance. We are committed to providing the franchisees with the necessary support to give them the best chance of success.

One of our strategic objectives is to encourage multi-MFU franchisees, which helps to allay financial risk and also provides owners with higher investment returns. In 2018, our two highest grossing franchise owners achieved over $2m (GBP1.6m) in revenue and six (2017: four) franchise owners recorded over $1m (GBP0.8m) of revenue.

Network revenue, defined as the total revenue of our U.S. based franchisees for all services provided to customers, represents the best indicator of the Filta brands growing strength in the market. Our U.S. franchise network generated $42m (GBP33m) of revenues in 2018 (2017: $36m/GBP28m).

In supporting our franchise owners, we endeavour to lower as many barriers as possible for them with programmes such as:

-- Inside Sales - our Inside Sales Team, which is our "growth engine", has daily contact with franchise owners and helps them win new customers and upsell new products to existing customers. The team excelled again in 2018.

-- Tech recruitment - with 450 trucks on the road at year-end and growing quickly, hiring and keeping good technicians is the lifeblood of our franchisees' businesses. To help them in managing this resource, Filta has a full-time recruiter to assist in the recruitment and retention of technicians.

-- National Accounts - we continue to grow our national account customer base with new contracts being signed and greater penetration being driven within existing contracts.

   --      Coaching - ongoing assigned coaching for franchise owners at key stages of their growth. 

Europe

We spent 2018 putting the building blocks in place for the franchise support model in Germany before replicating the US model by expanding the business into adjacent countries with multi-MFU franchise owners in the years to come.

In fact, we quickly expanded into Austria and, towards the end of the year, started our first pilot franchise owner in Spain. The plan is to prove the model in Spain before expanding further in Europe.

Company Owned Operations (UK)

FiltaSeal

Revenue from FiltaSeal was GBP1.6m (2017: GBP1.3m), reflecting a 23% increase in the number of seals fitted. The increase was driven by higher volumes from our existing customers alongside several new key account wins. The fundamentals of the business remain strong and this, along with FiltaSeal's compelling market proposition, should support further growth opportunities.

FiltaGMG

Revenue from FiltaGMG was GBP1.7m (2017: GBP0.4m in 4months). With a solid customer base and experienced team, Grease Management Limited was integrated into our existing FiltaDrain business to create FiltaGMG in 2017, sharing the existing call-centre resources and implementing new operational systems. The integration was relatively straightforward, and the results fully justified our enthusiasm for expansion into this market.

The aim was to grow this activity through organic growth and further in-fill acquisitions and, in December, we acquired one of the largest operators in this market, Watbio Limited.

Watbio Acquisition and Integration

The majority of Watbio's revenue is derived from the same services as those being offered by FiltaGMG and, similarly, they are mostly in the nature of repeat business. With revenues of over GBP10m, an experienced team and a high-quality customer base, the acquisition of Watbio at the end of the year was a significant step for the Group.

The additional revenue will change the geographic split of the revenue towards the UK in 2019 but keep the key attributes of being high margin and repeat by nature.

We are well on the way to having the two businesses fully integrated and expect, by mid-year, to be realising some of the efficiency benefits with the full-year impact of these being seen in 2020.

People

Good people are key to any business and we continue to build a great team at Filta, many of whom have worked for the Group for well over 10 years. They have been a key component to our success in that period both through their hard work and dedication to the brand and by the strong relationships that they have developed with customers and franchise owners alike.

In North America, the management team remains stable with Tom Dunn, Chief Executive Officer North America, continuing to run the day to day business, enabling us to continue executing on our plans.

In the UK, Edward Palin, former Watbio Managing Director, was recently appointed as Managing Director of Filta's UK operations, strengthening the experience and skills needed for our expansion in the coming years.

Jos van Aalst, Managing Director of Filta's mainland Europe business, proved a great addition last year and continues to drive growth in Europe.

Lloyd Martin recently joined the Filta Board as a non-executive director and brings with him more than 35 years of experience in the water industry. Lloyd recently retired from his role as Chief Executive of British Water, the leading association supporting the UK water industry.

One of the benefits of taking Filta public was that it enabled us to offer all employees share options in the business (SARs in the US), thereby helping to align all goals and giving everybody the opportunity to share in the long-term success of the business. All employees, including the recently acquired Watbio staff, have been offered share options.

Market Conditions

The strength of the US economy has led to very low unemployment and, whilst this helps in service sales, it has the potential to reduce the number of people looking to buy franchises. However, we have experienced a steady level of enquiries from potential franchise owners, with many superior quality candidates coming forward, through the course of the year.

In mainland Europe, we have experienced a good level of interest from potential franchisees, as is evidenced by the fact that we added eight in the year, and service revenue from existing franchises continues to grow. We are excited by the prospect of further progress, both in Germany and Austria as well as in Spain and other territories, in the years ahead.

The market for each of Filta's services has been largely unaffected by economic swings in our operating territories and we believe that with the ever-increasing health, safety and food hygiene requirements the demand for our services is unlikely to diminish.

Current Trading & Outlook

2018 was an active year for the Group as we continued to experience strong organic growth whilst undertaking two acquisitions. The acquisition of FiltaFry Deutschland GmbH ushered us into the German market and, more broadly, the mainland Europe franchise market where we are experiencing good initial results with the US franchise model. The acquisition, late in the year, of Watbio Holdings Limited was also a significant move for us. Importantly, both transactions fit squarely with our strategy of increasing high margin recurring revenue business and will support further growth in the years ahead.

We are focused on the successful integration of Watbio in the first half of 2019 and we anticipate an acceleration in revenue and profitability as it builds its client base and we begin to realise identified and significant synergy benefits.

Whilst we anticipate a slowdown in new franchise sales in the US, our European operation has picked up the mantle and we are encouraged both by the strength of the new business pipeline and the market opportunity that will come from the broader geographic base.

Additionally, we are experiencing strong growth in FiltaSeal and our other company operated offerings and, with the implementation of a new scheduling system, anticipate improved efficiencies and gross margin.

Jason Sayers

Chief Executive Officer

12 April 2019

FINANCIAL REVIEW

Summary

-- Group revenue from continuing operations increased 23% to GBP14.2m (2017: GBP11.5m)

-- Revenue grew across each service offering with a Group gross margin of 49.8% (2017: 49.2%)

-- Profit from continuing operations increased 69% to GBP1.3m (2017: GBP0.8m)

-- Adjusted EBITDA from continuing operations was up 25%

-- Deferred income balance grew by GBP0.7m to GBP3.7m

-- Basic earnings per share from continuing operations of 4.86p (2017: 2.90p) up 68%

Revenue

Group revenue from continuing operations grew by 23% to GBP14.2m (2017: GBP11.5m).

Revenue, from our continuing operations in North America, was GBP9.2m, 65% of Group revenue (2017: GBP8.3m, 72%); the U.K. delivered GBP4.8m of revenue, 33% (2017: GBP3.2m, 28%); and, in its first year, Europe had revenue of GBP0.3m, 2% of Group revenue (2017: Nil).

The 23% increase in revenue was a result of robust growth across each of our core service offerings of Franchise Development, Fryer Management, FiltaSeal and FiltaGMG, whilst we had a very modest GBP0.2m contribution from our most recent acquisition Watbio Holdings Limited.

Fryer Management Services continues to be the key driver of the business, contributing GBP9.3m of revenue (2017: GBP8.4m) on higher royalty, national account and waste oil revenues whilst FiltaSeal experienced a 24% increase in revenue growing to more than GBP1.6m (2017: GBP1.3m). We continue to be encouraged by the opportunity that FiltaGMG provides and in our first full year of ownership following its acquisition in August 2017 revenues were GBP1.7m. The Franchise Development activities also performed solidly, growing 11% strengthened by the rollout in Europe, while maintaining a strong pipeline entering the new year.

Gross Profit

Gross profit increased by GBP1.4m or 25% to GBP7.1m (2017: GBP5.7m) primarily on higher volume. Strong revenue growth contributed GBP1.3m whilst an increase in gross profit margins to 49.8% (2017: 49.2%) added an additional GBP0.1m. These results further support the strength of the Group's position in the markets it serves which enabled a 23% revenue gain whilst also delivering improved gross margins.

Adjusted EBITDA

Adjusted EBITDA increased 25% to GBP2.6m (2017: GBP2.1m) whilst the Adjusted EBITDA margin increased to 18.6% (2017: 18.3%) despite higher spend on people and infrastructure to support a 29% annual growth rate in revenue over the last three years. Spending increases were concentrated in two primary areas; payroll costs represented 1/3(rd) of the increase and were evenly distributed between legacy and acquired businesses; and facility related spend grew on additional facilities associated exclusively with our acquisitions. Despite higher spending in the current year, the adjusted overhead base as a percentage of revenue remains in line with prior year.

Adjusted EBITDA reconciliation

 
 Adjusted EBITDA has been arrived 
  at as follows: 
                                            2018        2017 
                                             GBP         GBP 
 Profit before tax                     1,741,838   1,607,727 
 Acquisition, legal and IPO related 
  costs                                  158,598     120,280 
 Share-based payments                    302,506      87,082 
 Depreciation and amortisation           399,055     209,912 
 Finance costs, net                       40,439      90,952 
------------------------------------  ----------  ---------- 
 Adjusted EBITDA                       2,642,436   2,115,953 
 

Alternative Performance Measures

In addition to performance measures (IFRS) directly observable in the financial statements, additional performance measures (Adjusted EBITDA, Network Revenue and EBITDA to Cash Conversion) are used internally by management to assess performance. Management believes that these measures provide useful information as they are used to evaluate performance of business units, to analyse trends in cash-based operating expenses, to establish operational goals and allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, exceptional costs and share based franchisees for all services provided to customers and is a meaningful measure of our growth in the markets we serve. EBITDA to cash conversion is an important metric for management as it measures both the efficiency of the Group to convert profits into cash and the effectiveness of our cash management activities. It is calculated by dividing EBITDA by net cash flow from operations (measured by earnings before interest, taxes, depreciation and amortisation divided by net cash flow from operations per the consolidated statement of cash flows).

Deferred Income

Group revenue for the year ended 31 December 2018 includes GBP0.8m (2017: GBP0.6m) which was released from brought forward deferred income during the year. We generated a further GBP1.5m of deferred revenue, of which GBP0.2m originated from the Watbio acquisition; GBP0.2m relates to opening package fees for franchises that will start in 2019, and will therefore be recognised in that year; and GBP1.1m relates to territory fees on both new and existing franchises and will be recognised over the life of the franchise agreement. The deferred revenue balance grew by GBP0.7m to GBP3.7m and was favourably impacted by the foreign exchange effect of a strengthening dollar which had a GBP0.2m effect on the year-end balance.

Discontinued Operations

Following an agreement to sell certain assets of the Group subsidiary, Filta Refrigeration Limited, the transaction was completed on 4 January 2018, and the Group exited its refrigeration business. The results of Filta Refrigeration are therefore disclosed as a discontinued operation and will not make any measurable contribution to the Group's future earnings. In 2018, Filta Refrigeration contributed a net profit of GBP0.02m (2017: GBP0.03m).

The tax impact of discontinued operations is GBPNil (2017: GBPNil).

Acquisitions

On 31January 2018, we acquired FiltaFry Deutschland GmbH, the entity that held the master franchise license for Germany, for a total consideration of EUR0.25 (GBP0.2m). Consideration will be satisfied by the payment of EUR0.2m in cash and EUR0.1m through the issue of new ordinary shares in Filta to the vendor. This business contributed GBP0.2m to group revenue, GBP0.003m to the group's adjusted EBITDA and GBP0.2m to the group's deferred revenue at 31 December 2018.

On 22 December 2018, we acquired Watbio Holdings Limited, a provider of grease and drain management solutions to commercial kitchens across the UK, for a total consideration of GBP6.4m. Consideration was satisfied as to GBP0.8 million by the issue of 400,000 new Ordinary Shares in Filta to the vendors and by the payment of up to GBP5.6m in cash, of which GBP0.3m remains contingent on the collection of certain debtor balances by 31 May 2019. The business contributed GBP0.2m to Group revenue, GBP0.02m to the Group's adjusted EBITDA and GBP0.2m to the Group's deferred revenue at 31 December.

Taxation

We manage all taxes, both direct and indirect, to ensure that we pay the appropriate amount of tax in each country while ensuring that we respect the applicable tax legislation and utilise, where appropriate, any legislative reliefs available. This tax strategy is reviewed, regularly monitored and endorsed by the Board. The blended effective tax rate was 24.2% and the total tax charge was GBP0.4m (2017: GBP0.8m).

Earnings per share

The basic and diluted earnings per share for the year, from continuing operations, were 4.86p and 4.82p (2017: 2.90p and 2.87p) whilst the basic and diluted earnings per share, from continuing and discontinued operations, were 4.93p and 4.89p (2017: 3.03p and 2.99p) respectively.

Cash flows and cash balance

The Group generated cash flow from operations of GBP2.0m (2017: GBP1.8m) reducing to GBP0.8m (2017: GBP1.3m) after the payment of taxes. These were increased in the current year by the transition in the US of corporate tax liability previously being paid in arrears to now being estimated and paid in advance. This effectively resulted in the payment of both 2017 and 2018 US tax liabilities in 2018. The main cash outflows related to the acquisition of FiltaFry Deutschland GmbH of GBP0.2m (2017: GBPNil), cash taxes GBP1.2m (2017: GBP0.5) and dividends GBP0.4m (2017: GBP0.2).

At the year end the Group had cash balances of GBP6.8m (2017: GBP4.0m) and outstanding borrowings of GBP4.7m (2017: GBP1.1m), including a term loan of GBP4m drawn down to provide part of the consideration paid for the Watbio acquisition.

Brian Hogan

Chief Financial Officer

12 April 2019

BUSINESS MODEL & STRATEGY

Filta operates principally in the North America, the UK, and mainland Europe, providing a range of commercial kitchen-related services through franchise networks and Company-owned operations.

Region 1 - North America (USA & Canada)

Corporate HQ in Orlando, Florida, USA

   --   Principally a franchise network business 

o Franchisees mostly multi-MFU operators

o Exclusive rights to defined area

   --   All services provided through Filta Franchise Network 

o Fryer management is principal service

o Ancillary services include FiltaBio waste oil collection, FiltaGold new oil supply, FiltaCool humidity control and FiltaDrain kitchen drain solution

   --   Revenues generated mainly from franchise sales, franchise services and oil resales 
   --   Business growth drivers: 

o New Franchise Sales & Resales

o Existing Franchise Owners expanding

o National Accounts

o New services and products offered through Franchise Network

Region 2 - UK

Corporate HQ in Rugby, England

   --   Franchise network business and Company-owned operations 
   --   Franchise network business: 

o Franchisees mostly single MFU operators

o Services are solely fryer management under FiltaFry brand

   --   Company-owned Operations: 

o FiltaSeal, replacement of refrigeration seals

o FiltaGMG, incorporating Watbio, kitchen drain solution

   --   Revenues derived principally from FiltaFry, FiltaSeal and FiltaGMG. 
   --   Business growth drivers: 

o Expanding existing Company-owned services organically and by infill acquisitions

o Development of additional related services

o Increased focus on national accounts

Region 3 - Mainland Europe

Corporate HQ in Debbeshoek, the Netherlands

   --   Principally a franchise network business 

o Franchisees both single and multi-MFU operators

o Exclusive rights to defined area

   --   All services provided through Filta Franchise Network 

o Fryer management is principal service

o Ancillary services include FiltaBio waste oil collection, FiltaGold new oil supply

   --   Revenues generated mainly from franchise sales, franchise services, oil resales 
   --   Business growth drivers: 

o New Franchise Sales

o Existing Franchise Owners expanding

-- Adapted North America model in Germany and have started expanding into surrounding countries.

Services

One customer - multi-services

   --   FiltaFry - Fryer Management 
   --   FiltaSeal - First Time Seal Replacement 
   --   FiltaGMG - Fats Oil and Grease ("FOG") Drain and Pump Management 

Fryer Management - The FiltaFry Service

FiltaFry, our unique Fryer Management service, is the cornerstone of the Group's activities and service offering in North America, the UK and mainland Europe. It provides an effective, hygienic and economic service for commercial kitchens, cleaning fryers, reducing cooking oil costs and disposing of waste cooking oil.

-- FiltaFry provides a total fryer management service, including the on-site micro-filtration, removal and replacement of cooking oil.

   --      6,000+ restaurant and food service customers receive FiltaFry services on a weekly basis. 

-- Fryer Management also includes supplemental services such as FiltaCool and FiltaDrain provided by our Franchise Owners to customers.

-- Franchisees operate a total of 450 MFUs of which 392 are in North America, 43 in the UK and 15 in mainland Europe

FiltaSeal

FiltaSeal service is sold in the UK and is a patented system for replacing damaged or perished refrigerator and freezer door seals on-site in a cost and time effective manner. Specifically, the system allows engineers, using patented on-Board equipment and materials to replace a seal in one visit, producing cost and time savings for its clients, who would otherwise experience ordering and fitting delays following an initial engineer's visit. The benefit of this service, apart from avoiding the disruption that multiple engineer visits causes, is the energy cost saving and avoidance of longer-running food hygiene risks.

FiltaGMG

FiltaGMG is a UK-wide provider of drain-related services including live bacteria drain dosing, the installation and servicing of Grease Recovery Units, and wastewater pump servicing. The majority of FiltaGMG's revenue is recurring in nature, with work typically being carried out quarterly under scheduled maintenance programmes.

The Franchise Model

Our Fryer Management service is provided through a network of Franchise Owners, who operate under 10-year franchise licences in North America and under 5-year franchise licences in the UK and mainland Europe.

Filta, as the franchisor, owns the intellectual property ("IP") comprised in the equipment and systems and, through its Franchise Model, allows its Franchise Owners to make use of that IP and of the FiltaFry name in providing the Fryer Management Service to its customers.

There are two key components to the creation of a successful franchise:

   --      The quality of the franchisee and 

-- The provision by the franchisor of constant advice and support to the franchisee as he first establishes and then develops the business

Filta takes a great deal of time and care in selecting its franchisees, who undergo an extensive interviewing and assessment process before being awarded a franchise. Care is taken to establish that the applicant has the necessary funds, drive and enthusiasm to run and build the business.

Typically, in North America, franchisees are likely to develop into multi-MFU operations, while, in the UK, they more often remain as single MFU operators. Mainland Europe is being developed as a multi-MFU operator model.

As the franchisees grow their businesses, both by increasing their customer base and by adding extra units, they receive extensive support from Filta. Filta believes that this high level of support is critical to the success of its Franchise Owners.

Filta considers that its role is to bring down barriers, identify opportunities, pass on experience and, above all, help to set up all the normal business practices and systems that are needed in young businesses.

Business Model

There are three key components of revenue generation in the Group and each of these is important, not just to revenues, but in providing the platform for growth in the future.

1 - Franchise Development

   --      New Franchise Owners and territories 
   --      Territory Fee and Opening Package Fee paid by franchisee 
   --      10 year Franchise Agreements (5 year in UK and mainland Europe) with annual royalties 

-- Key objective is continuing improvement of our Franchise Owner quality to provide a platform for growth as they add units, take on new territories and enhance our brand and reputation

2 - Fryer Management Services

   --      All services are provided by or through Franchise Owners 
   --      Franchisees pay a fixed royalty per MFU 
   --      All products are provided by Filta, generating additional margin 

-- Franchise Owners' customer growth drives additional Filta revenues at little or no resource cost to Filta, providing increasing revenue visibility (2018 - repeat revenues at 94%)

-- Key objective is growth of franchisees' revenue, driving predictable Group revenues at increasing marginal profit

3 - Company Owned Operations (UK Only)

   --      FiltaSeal provides an essential service to customers with a high level of visibility 
   --      FiltaGMG provides services under contract to commercial kitchens 

-- Key objective is to build repeat revenues, providing high revenue-visibility maintenance contract customers

Repeat Revenues Underpinned by Growing Royalty Income

A significant base of the Group's total revenues (80%) are earned by way of royalties and other income from an existing customer base which requires continuing and regular service. It provides strong cash flow and, together with a large deferred revenue position, provides good revenue visibility into future years. Repeat revenue includes those revenues earned from existing customers, which are recurring in nature, and consist of our Fryer Management revenue, FiltaSeal revenue and non-installation related FiltaGMG revenue.

Blue Chip Client Base

The Group has a broad client base in North America, the UK and Germany with clients ranging from small single outlet enterprises to many blue-chip clients with multi outlets and national coverage including major supermarket groups, national pub chains and restaurant chains. The high quality and breadth of the client base helps mitigate the risks of exposure to any single business or organisation.

Strategy

Our objective is to deliver sustainable, predictable and profitable growth founded upon the following strategic operational pillars:

   1.   Recruit the best staff and Franchise Owners possible 
   2.   Drive and support the growth of the Franchise Owners 
   3.   Grow key and national accounts 
   4.   Increase our range of products and services 
   5.   Attract and develop the best people 
   6.   Increase the use of technology to improve our offering 

Growth Opportunities

North America

Fryer Management Services are the cornerstone of our business and we continue to seek to grow this activity both by securing new franchisees and by increasing the numbers of customers serviced by our franchisees through higher penetration of the NCA (National and Centralised Accounts) market. This, in turn, drives royalty and other repeat revenue growth.

UK

Continue to support our Fryer Management franchisees and continue to grow the Company Owned Operations, FiltaSeal and FiltaGMG, through gaining key accounts.

Mainland Europe

With the recent expansion into Germany, we spent 2018 perfecting the same model that we have developed in North America. Growth in mainland Europe will come from both the sale of new franchises and by helping our acquired franchisees to expand.

New Markets

Now we have proven the model in Germany, the plan is to expand further within mainland Europe in the coming years using the resource base in Filta's offices in the Netherlands.

Key Performance Indicators ("KPIs")

We focus intently on a number of KPIs that measure and help us drive our success;

   --      Sale of new franchises 
   --      Sale of new territories to existing franchise base 
   --      The number of MFUs in the field 
   --      National Account penetration 
   --      Number of seals fitted 
   --      Adjusted EBITDA 
   --      Cash flow 
   --      Deferred revenue 

The strategic report was approved by the Board on 12 April 2019.

Brian Hogan

Chief Financial Officer

12 April 2019

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has carried out an assessment of the principal risks facing the business, which are seen to be as follows:

 
 Risk                       How we manage the risk              Trend on            Comment 
                                                                 year: 
 Failure to attract         In the USA, which represents        Stable              Strong pipeline 
  new franchisees            approximately 70% of                2017: Stable        across our 
  or to grow the             the franchised operations,                              operating territories. 
  number of MFUs             we have an increasing 
  in line with               number of franchisees 
  the strategic              who are multi-MFU operators, 
  targets may                a trend which we are 
  prevent the                endeavouring to develop. 
  Group from achieving       Thus, an increasing 
  its operating              number of new MFUs are 
  targets                    being taken up by existing 
                             franchisees. 
                           ----------------------------------  ------------------  ------------------------ 
 The failure                We now have 199 franchisees,        Stable              The composition 
  of a major franchisee      and this is increasing              2017: Stable        of our franchise 
  may lead to                each year, with no franchisee                           base continues 
  a loss of revenue          accounting for more                                     to diversify. 
  and/or a bad               than 1% of the Group's 
  debt                       revenues, thus mitigating 
                             our business risk. 
                           ----------------------------------  ------------------  ------------------------ 
 Brand or reputational      We provide detailed                 Stable              Management 
  damage may be              initial training for                2017: Stable        focuses on 
  caused by the              all new franchisees                                     positive brand 
  actions of either          and their operators.                                    awareness through 
  franchisees                There are also refresher                                training and 
  or the company's           training programmes                                     strongly monitors 
  own employees              to ensure that all franchisees                          its results. 
                             are fully cognisant 
                             of all procedures to 
                             be followed. 
                           ----------------------------------  ------------------  ------------------------ 
 Undue influence            There is a majority                 Stable              The risk has 
  by a major shareholder     of the Board who are                2017: Stable        not changed 
  on the Company             not associated with                                     during the 
  and its Board              the founding shareholder                                year. The Board 
  may lead to                group and whose obligations                             has added a 
  decisions or               to act in the best interests                            new independent 
  actions which              of shareholders as a                                    director post 
  are not in the             whole are unfettered.                                   year end which 
  best interests                                                                     further strengthens 
  of the business                                                                    independent 
                                                                                     oversight. 
                           ----------------------------------  ------------------  ------------------------ 
 An incident                We provide regular and              Stable              The risk has 
  involving an               comprehensive training              2017: Stable        not changed 
  employee or                to employees and franchisees                            during the 
  franchisee in              in the operation of                                     year. The risk 
  the operation              MFUs and other equipment                                is monitored 
  of an MFU may              supplied or used in                                     both internally 
  result in a                the Group's business                                    and through 
  fatal or serious           and the procedures are                                  third party 
  injury                     reviewed regularly to                                   inspections. 
                             ensure the highest safety 
                             levels. 
                           ----------------------------------  ------------------  ------------------------ 
 A failure of               The Group has employed              Increasing          With two acquisitions 
  the information            both its CRM and Accounting         2017: Decreasing    during the 
  or accounting              software for a number                                   year we are 
  systems employed           of years and both have                                  operating on 
  by the Group               a strong reputation                                     a number of 
  or a cyber-attack          and have proved to be                                   different platforms. 
  or data security           highly reliable. We                                     This places 
  breach may cause           also have dedicated                                     additional 
  a loss of vital            IT personnel who are                                    burdens on 
  information                tasked with ensuring                                    systems and 
  or render the              the security and availability                           people. We 
  Group unable               of the systems. Finally,                                are currently 
  to maintain                in the new year we have                                 working on 
  adequate accounting        engaged our current                                     migrating all 
  records                    accounting system provider                              Group companies 
                             to partner with us on                                   to our chosen 
                             an overall review of                                    operating and 
                             our current accounting                                  accounting 
                             platform focused on                                     platforms which 
                             setup, processes and                                    should be complete 
                             controls.                                               by 30 June. 
                           ----------------------------------  ------------------  ------------------------ 
 The loss of                We have widely spread               Stable              We have done 
  key people may             knowledge of the Group's            2017: Stable        considerable 
  compromise the             operational systems                                     work this year 
  Group's or any             and procedures, thereby                                 to improve 
  part of the                ensuring that there                                     our processes 
  Group's ability            is not over-dependence                                  for talent 
  to operate effectively.    on any single person.                                   management, 
                             We also have continuous                                 retention and 
                             monitoring systems for                                  succession 
                             the identification and                                  planning. 
                             progress with new business 
                             opportunities, ensuring 
                             that there is a broad 
                             knowledge of such opportunities. 
                           ----------------------------------  ------------------  ------------------------ 
 Failure to comply          We have undergone a                 Stable              We have assigned 
  with new GDPR              detailed assessment                 2017: New           dedicated resources 
  requirements               of the readiness of                                     and are working 
                             the business and an                                     with an external 
                             action plan was developed                               consultant 
                             to ensure compliance.                                   to ensure we 
                                                                                     are in compliance. 
                           ----------------------------------  ------------------  ------------------------ 
 Acquisition                All potential acquisitions          New Risk            Filta's management 
  and integration            are rigorously assessed                                 team is developing 
  of new businesses          and evaluated, both                                     a strong track 
                             internally and by external                              record of success 
                             advisors, to ensure                                     in integrating 
                             any potential acquisition                               acquisitions 
                             meets the Group's strategic                             and this builds 
                             and financial criteria.                                 with each acquisition. 
                             This process is underpinned 
                             by extensive integration 
                             procedures and the close 
                             monitoring of performance 
                             post acquisition by 
                             both local and Group 
                             management. 
                           ----------------------------------  ------------------  ------------------------ 
 A significant              The Group's activities              Stable              The risk is 
  fall in the                are such that, the US               2017: Stable        monitored on 
  value of the               Dollar costs are covered                                a regular basis 
  US Dollar (which           by US Dollar revenues                                   against both 
  has accounted              and, similarly, sterling                                in-house and 
  for approximately          costs are covered by                                    external mitigation 
  75% of the Group's         sterling revenues. Furthermore,                         options. Following 
  operating profits)         any third-party debt                                    the recent 
  against GBP                is able to be serviced                                  acquisitions 
  sterling may               by earnings in the currency                             less than 50% 
  have an adverse            of the debt and secured                                 of the revenues 
  impact on the              by appropriately denominated                            will be in 
  Group                      assets.                                                 US dollars 
                           ----------------------------------  ------------------  ------------------------ 
 Competition                We have established                 Stable              We have not 
  from new entrants          a market-leading position           2017: Stable        witnessed any 
  to the market              amongst the third-party                                 significant 
  may create margin          providers of our services                               change in our 
  pressure or                and we continually seek                                 competitive 
  loss of customers          to improve our service                                  landscape. 
                             offering to ensure that 
                             we have the best option 
                             available. 
                           ----------------------------------  ------------------  ------------------------ 
 Change in consumer         The demand for fried                Stable              This risk is 
  tastes or habits,          food has always been                2017: Stable        monitored through 
  as a result,               and continues to be                                     ongoing discussions 
  for example,               enormous. We consider                                   with franchisees 
  of pressures               that the services that                                  and periodic 
  from health                we provide help to mitigate                             reviews of 
  watchdogs, may             the health risks of                                     the markets 
  result in less             eating fried foods.                                     we operate 
  demand for fryers.                                                                 in. 
                           ----------------------------------  ------------------  ------------------------ 
 Improved fryer             Whilst the technologies             Decreasing          The Group is 
  technology may             may improve, there will             2017: Stable        continually 
  reduce/resolve             always be deterioration                                 reviewing changes 
  deterioration              of the oil and, therefore,                              in technology 
  of the oil and             a need for filtering                                    and, working 
  therefore require          and replacement. The                                    closely with 
  less frequent              Board believes that                                     our long term 
  filtering and              any improvements in                                     supplier, recently 
  replacement.               technology will simply                                  introduced 
                             drive standards to a                                    a 4th generation 
                             higher required level.                                  Mobile Filtration 
                                                                                     Unit to the 
                                                                                     market. 
                           ----------------------------------  ------------------  ------------------------ 
 Franchisees                We devote a great deal              Stable              Our franchise 
  may seek to                of resource to protecting           2017: Stable        base continues 
  impose commercial          and assisting our franchisees,                          to grow and 
  leverage on                thereby building a strong                               diversify which 
  the Group, resulting       bond of trust. We believe                               helps us ameliorate 
  in reduced margins         that, for as long as                                    any potential 
  and profitability          we provide the best                                     risk. 
                             option and the opportunity 
                             for franchisees to achieve 
                             success, there would 
                             be little reason for 
                             them to seek commercial 
                             advantage. 
                           ----------------------------------  ------------------  ------------------------ 
 Economic Risk              Many years of exposure              New Risk            Relationships 
  arising from               to fluctuating markets                                  are developed 
  political uncertainty      have given us experience                                and maintained 
                             of operating and                                        with all our 
                             developing our business                                 key customers 
                             successfully during                                     and suppliers 
                             periods of economic                                     to ensure we 
                             and political volatility.                               stay apprised 
                             We continually monitor                                  of uncertainties 
                             and analyse economic                                    in the market 
                             and demand indicators                                   and how those 
                             to ensure that our supply                               uncertainties 
                             chain remains flexible                                  are impacting 
                             and our portfolio of                                    their business. 
                             service offerings remains                               Additionally, 
                             relevant. This analysis                                 the Group has 
                             provides a key input                                    a commercially 
                             to our business planning                                astute management 
                             and go to market strategies.                            team and Board 
                             The Group's                                             who maintain 
                             international footprint                                 ongoing discussion 
                             and a diversifying portfolio                            on economic 
                             also provide a mitigating                               risks to the 
                             balance in our exposure                                 business. 
                             to both EU and non-EU 
                             markets. 
                           ----------------------------------  ------------------  ------------------------ 
 

INDEPENT AUDITOR'S REPORT

Opinion

We have audited the financial statements of Filta Group Holding plc (the "parent company") and its subsidiaries (the "group") for the year ended 31 December 2018, which comprise:

   --      the group statement of comprehensive income for the year ended 31 December 2018; 
   --      the group and parent company statements of financial position as at 31 December 2018; 
   --      the group and parent company statements of cash flows for the year then ended; 
   --      the Group and parent company statements of changes in equity for the year then ended; and 

-- the notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion:

-- the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2018 and of the group's profit for the year then ended;

-- the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

-- the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006; and

-- the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

-- The directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

-- The directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Overview of our audit approach

Materiality

In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified.

Based on our professional judgement, we determined overall materiality for the group financial statements as a whole to be GBP130,000 based on a percentage of adjusted EBITDA.

We use a different level of materiality ('performance materiality') to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment.

Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors' remuneration.

We agreed with the Audit Committee to report to it all identified errors in excess of GBP7,000. Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds.

Overview of the scope of our audit

The finance functions of the parent company and its UK subsidiaries are based in the US and UK, respectively. A member firm of Crowe Global in the US (the 'component auditor') undertook a full scope audit of Filta Group Inc., under our direction. Filta Group Inc., accounts for approximately 65% of the group's revenue

We were involved in the audit of Filta Group Inc., from the planning stage through to completion. This involved a combination of conference call meetings, detailed working paper review and meetings and discussions with the audit committee. We reviewed a complete set of working papers for Filta Group Inc. and challenged the findings of the component auditor and discussed matters with management. Our audit of the group's UK operations was performed at the UK headquarters in Rugby. The consolidation and annual report are prepared by management in the US and we audited these through regular conference call meetings with management, the use of a file sharing platform and challenging management's assumptions and conclusions throughout the audit.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

 
 Key audit matter                      How the scope of our audit addressed 
                                        the key audit matter 
====================================  ================================================================= 
 Acquisition of Watbio                  Our audit procedures consisted of 
  Holdings Limited                       the following: 
  During the year, the group 
  acquired Watbio Holdings                *    Obtaining and assessing management's acquisition 
  Limited for total consideration              accounting paper in relation to the acquisition. 
  of GBP6.4m. Intangible 
  assets of GBP6.6m were 
  identified as part of                   *    Obtaining the share purchase agreement to understand 
  the acquisition excluding                    the terms of the transaction and we agreeing the 
  goodwill of GBP0.9m, a                       consideration paid. 
  deferred tax liability 
  of GBP1.1m was recognised 
  in respect of the intangibles.          *    Performing audit work on the acquisition balance 
  Accounting for business                      sheet to ensure that assets and liabilities were 
  combinations is complex                      appropriately recognised. 
  and requires management 
  to assess the fair value 
  of the assets and liabilities           *    Challenging the assumptions used to calculate the 
  acquired including any                       fair value intangible assets, being the discount rate 
  identified intangible                        and customer attrition rate. 
  assets. 
  We identified the acquisition 
  as a risk because of the                *    Assessing the appropriateness of the related 
  size of the acquisition                      disclosures in the financial statements. 
  and the judgement and 
  assumptions applied by 
  management in assessing 
  the fair value of the 
  assets and liabilities 
  acquired including any 
  identified intangible 
  assets. 
  There is a risk that inappropriate 
  assumptions could result 
  in material errors in 
  the acquisition accounting. 
====================================  ================================================================= 
 Revenue recognition                         Our audit procedures consisted of 
  Revenue is recognised                       the following: 
  in accordance with the 
  accounting policy set                        *    Reviewing the Group's assessment of the impact of 
  out in the financial statements.                  IFRS 15 on the revenue streams in the business and 
  This includes the transition                      the accounting policies. 
  to IFRS 15 - Revenue from 
  contracts with customers. 
  The accounting policy                        *    Agreeing the performance obligations identified by 
  contains a number of judgements                   management to a sample of contracts to ensure the 
  in respect of franchise                           adopted accounting policy was appropriate. This was 
  sales where a portion                             considered at the transition date as well as at 31 
  of the revenue generated                          December 2018. 
  is deferred and recognised 
  over the term of the franchise 
  agreement.                                   *    Testing of a sample of transactions throughout the 
                                                    year to determine whether the company's accounting 
                                                    policy on revenue recognition had been correctly 
                                                    applied, covering royalty income, franchising and 
                                                    other revenue. 
 
 
                                               *    Assessing the appropriateness of the related 
                                                    disclosures in the financial statements. 
====================================  ================================================================= 
 

Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion based on the work undertaken in the course of our audit

-- the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-- the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

-- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

-- the parent company financial statements are not in agreement with the accounting records and returns; or

   --      certain disclosures of directors' remuneration specified by law are not made; or 
   --      we have not received all the information and explanations we require for our audit. 

Responsibilities of the directors for the financial statements

As explained more fully in the directors' responsibilities statement the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Leo Malkin (Senior Statutory Auditor)

for and on behalf of

Crowe U.K. LLP

Statutory Auditor

London

12 April 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
                                                Notes          2018          2017 
                                                                GBP           GBP 
 Continuing operations 
 Revenue                                          5      14,213,204    11,547,299 
 Cost of sales                                          (7,130,656)   (5,870,449) 
                                                       ------------  ------------ 
 Gross profit                                             7,082,548     5,676,850 
 Other income                                                24,507        38,377 
 Distribution costs                                       (151,209)     (124,690) 
 Administrative costs                                   (5,173,569)   (3,891,858) 
                                                       ------------  ------------ 
 Operating profit                                         1,782,277     1,698,679 
 Analysed as: 
 Adjusted EBITDA                                          2,642,436     2,115,953 
 Acquisition related costs                        6       (158,598)     (120,280) 
 Depreciation and amortisation                  17,18     (399,055)     (209,912) 
 Share based payments                            32       (302,506)      (87,082) 
---------------------------------------------  ------  ------------  ------------ 
                                                          1,782,277     1,698,679 
---------------------------------------------  ------  ------------  ------------ 
 
 Finance income                                               1,545             - 
 Finance costs                                    9        (41,984)      (90,952) 
                                                       ------------  ------------ 
 Profit before tax                                        1,741,838     1,607,727 
 Income tax expense                              10       (421,667)     (824,268) 
 
 Profit from continuing operations                        1,320,171       783,459 
 
 Discontinued operations 
 Profit from discontinued operations             12          18,556        32,858 
 Net profit attributable to owners                        1,338,727       816,317 
 Other comprehensive income 
 
 Items that may be reclassified subsequently 
  to profit or loss 
 Exchange differences on translation 
  of foreign operations                                    (29,388)      (94,174) 
 Total other comprehensive income 
  for the year                                             (29,388)      (94,174) 
 
 Profit and total comprehensive income 
  for the year                                            1,309,339       722,143 
                                                       ============  ============ 
  Earnings per share 
 From continuing operations 
 
        *    Basic (pence)                       13            4.86          2.90 
 
        *    Diluted (pence)                     13            4.82          2.87 
 From continuing and discontinued 
  operations 
 
        *    Basic (pence)                       13            4.93          3.03 
 
        *    Diluted (pence)                     13            4.89          2.99 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 
 
                                       Notes         2018         2017 
                                                      GBP          GBP 
 Non-current assets 
 Property, plant and equipment          18      1,493,180    1,216,388 
 Deferred tax assets                    11        754,728      652,131 
 Intangible assets                      17      7,186,432      484,821 
 Goodwill                               17      1,639,523      631,380 
 Deposits                                           2,491        2,343 
 Contract acquisition costs             20        342,557      157,197 
 Trade receivables                      19        324,865      302,163 
                                              -----------  ----------- 
                                               11,743,776    3,446,423 
                                              -----------  ----------- 
 
 Current assets 
 Trade and other receivables            19      4,821,194    2,311,192 
 Contract acquisition costs             20         51,718       37,671 
 Inventories                            21      1,386,383      437,716 
 Cash and cash equivalents              22      6,789,968    4,031,174 
                                              -----------  ----------- 
                                               13,049,263    6,817,753 
                                              -----------  ----------- 
 
 Assets classified as held for sale     12              -       74,372 
 
 Total assets                                  24,793,039   10,338,548 
                                              ===========  =========== 
 
 Current liabilities 
 Trade and other payables               23      6,510,302    2,142,906 
 Borrowings                             24        840,641      107,786 
 Deferred income                        25        868,788      532,682 
                                              -----------  ----------- 
                                                8,219,731    2,783,374 
                                              -----------  ----------- 
 
 Non-current liabilities 
 Deferred tax liability                         1,291,318       95,185 
 Borrowings                             24      3,909,311      931,765 
 Deferred income                        25      2,791,131    2,404,645 
                                              -----------  ----------- 
                                                7,991,760    3,431,595 
 Non-current liabilities classified 
  as held for sale                      12              -       66,425 
                                              -----------  ----------- 
 Total liabilities                             16,211,491    6,281,394 
                                              -----------  ----------- 
 
 Equity 
 Share capital                          28      2,891,863    2,713,266 
 Share premium                          28      3,372,351      131,400 
 Retained profits                               2,711,352    1,862,967 
 Translation reserve                            (383,965)    (354,577) 
 Other reserves                         29       (10,053)    (295,902) 
                                              -----------  ----------- 
 Total equity                                   8,581,548    4,057,154 
                                              -----------  ----------- 
 Total equity and liabilities                  24,793,039   10,338,548 
                                              ===========  =========== 
 

The financial statements were approved and authorised for issue by the Board on 12 April 2019 and were signed on its behalf by:

________________________

Brian Hogan, Chief Financial Officer

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                                                                   Foreign 
                                 Share           Share      Other      Merger     Exchange      Retained         Total 
                               Capital         Premium   Reserves     Reserve      Reserve      Earnings        Equity 
                                   GBP             GBP        GBP         GBP          GBP           GBP           GBP 
 
 Balance at 1 January 
  2017                       2,695,266       3,480,191     49,400   (339,687)    (260,403)   (2,256,539)     3,368,228 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Profit for the 
  year                               -               -          -           -       -            816,317       816,317 
 Foreign exchange 
  translation differences            -               -          -           -     (94,174)             -      (94,174) 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Total comprehensive 
  income                             -               -          -           -     (94,174)       816,317       722,143 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Dividends paid 
  (note 16)                          -               -          -           -       -          (226,402)     (226,402) 
 Issue of share 
  capital (note 
  28)                           18,000         131,400          -           -        -                 -       149,400 
 Transfer between 
  reserves                           -               -   (49,400)           -       -             49,400             - 
 Share premium 
  reduction (note 
  28)                                -     (3,480,191)          -        -           -         3,480,191             - 
 Share based payments 
  (note 29/32)                       -               -     43,786        -           -                 -        43,786 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Balance at 31 
  December 2017              2,713,266         131,400     43,786   (339,687)    (354,577)     1,862,967     4,057,155 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 
 
 Balance at 1 January 
  2018                       2,713,266         131,400     43,786   (339,687)    (354,577)     1,862,967     4,057,155 
 Adjustment on 
  initial application 
  of IFRS 9 net 
  of tax (note 4)                    -               -          -           -            -     (118,474)     (118,474) 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 At 1 January 2018 
  restated                   2,713,266         131,400     43,786   (339,687)    (354,577)     1,744,493     3,938,681 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Profit for the 
  year                                                                                         1,338,727     1,338,727 
 Foreign exchange 
  translation differences            -               -          -        -        (29,388)             -      (29,388) 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Total comprehensive 
  income                             -               -          -       -         (29,388)     1,338,727     1,309,339 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Dividends paid 
  (note 16)                          -               -          -       -                -     (371,868)     (371,868) 
 Issue of share 
  capital (note 
  28)                          178,597       3,393,557          -        -               -             -     3,572,154 
 Share issue expenses                -       (152,606)          -       -                -             -     (152,606) 
 Equity consideration 
  due                                -               -    250,000       -                -             -       250,000 
 Share based payments 
  (note 29/32)                       -               -     35,848        -               -             -        35,848 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 Balance at 31 
  December 2018              2,891,863       3,372,351    329,634   (339,687)    (383,965)     2,711,352     8,581,548 
--------------------------  ----------  --------------  ---------  ----------  -----------  ------------  ------------ 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

 
 
                                         Notes          2018          2017 
                                                         GBP           GBP 
 Operating activities 
 Profit before taxation for 
  the year                                         1,760,393     1,640,585 
 Adjustments for non-cash operating 
  transactions: 
 Finance costs                             9          41,984        90,952 
 Depreciation                             18         186,582       109,911 
 Amortisation                             17         212,474       100,001 
 Loss on disposal of tangible 
  fixed assets                                         7,051         9,992 
 Share based payment charge               32         302,506        87,082 
                                                ------------  ------------ 
                                                   2,510,990     2,038,523 
                                                ------------  ------------ 
 
 Movements in working capital: 
 Increase in trade and other 
  receivables                                      (279,474)     (396,073) 
 Increase in contract acquisition 
  costs                                            (199,407)     (130,791) 
 (Decrease)/increase in trade 
  and other payables                               (225,003)       210,973 
 Increase in inventories                           (508,421)     (106,743) 
 Increase in deferred revenue                        722,592       225,969 
                                                ------------  ------------ 
 Cash flow from operations                         2,021,277     1,841,858 
                                                ------------  ------------ 
 Taxes paid                                      (1,216,177)     (510,187) 
                                                ------------  ------------ 
 Net cash flow from operations                       805,100     1,331,671 
                                                ------------  ------------ 
 
 
 Investing activities 
 Purchase of property, plant 
  and equipment                           18       (316,084)     (112,941) 
 Proceeds from disposals of 
  property, plant and equipment           12          49,288        24,836 
 Purchase of subsidiary undertakings, 
  net of cash acquired                    15     (3,738,358)   (1,137,901) 
 Purchase of other intangible 
  assets                                  17       (104,913)      (55,480) 
 Net cash used in investing 
  activities                                     (4,110,067)   (1,281,486) 
                                                ------------  ------------ 
 
   Financing activities 
 Repayment of borrowings                           (252,935)      (47,058) 
 Net proceeds from borrowings                      3,790,737             - 
 Net proceeds from issue of 
  share capital                                    2,870,000       149,400 
 Dividends paid to shareholders           16       (371,868)     (226,402) 
 Interest paid                             9        (41,984)      (90,952) 
 
 Net cash from/(used in) financing 
  activities                                       5,993,950     (215,012) 
                                                ------------  ------------ 
 
 Net change in cash and cash 
  equivalents                                      2,688,983     (164,827) 
 Cash and cash equivalents, 
  beginning of the year                   22       4,031,174     4,392,350 
 Exchange differences on cash 
  and cash equivalents                                69,811     (196,349) 
                                                ------------  ------------ 
 Cash and cash equivalents, 
  end of year                             22       6,789,968     4,031,174 
                                                ------------  ------------ 
 

PARENT COMPANY STATEMENT OF FINANCIAL POSITION

 
 
                                 Notes         2018        2017 
                                                GBP         GBP 
 Assets 
 
 Non-current assets 
 Investments in subsidiaries      14      8,951,424   2,293,426 
 Amount due from subsidiaries     19      1,506,905   1,704,716 
 Deferred tax asset                               -           - 
                                        -----------  ---------- 
                                         10,458,329   3,998,142 
                                        -----------  ---------- 
 Current assets 
 Trade and other receivables                123,984      25,802 
 Amount due from subsidiaries     19        467,093     438,496 
 Cash and cash equivalents        22      3,616,685   1,162,035 
                                        -----------  ---------- 
                                          4,207,762   1,626,333 
                                        -----------  ---------- 
 Total assets                            14,666,091   5,624,475 
                                        ===========  ========== 
 
 Current liabilities 
 Trade and other payables         23      2,265,128      44,908 
 Borrowings                       24        758,147           - 
 Amount due to subsidiaries                  36,311      16,745 
                                        -----------  ---------- 
                                          3,059,586      61,653 
                                        -----------  ---------- 
 
 Non-current liabilities 
 Borrowings                       24      3,032,590           - 
                                        -----------  ---------- 
                                          3,032,590           - 
 
 Total liabilities                        6,092,176      61,653 
                                        -----------  ---------- 
 
 Equity 
 Share capital                    28      2,891,863   2,713,266 
 Share premium                    28      3,372,351     131,400 
 Other reserves                   29        329,633      43,785 
 Retained earnings                        1,980,068   2,674,371 
 Total equity                             8,573,915   5,562,822 
 
 Total equity and liabilities            14,666,091   5,624,475 
                                        ===========  ========== 
 

No statement of comprehensive income is presented by the company as permitted by section 408 of the Companies Act. The loss dealt within the financial statements of the parent Company for the year ended 31 December 2018 is GBP322,435 (2017: GBP324,658).

The financial statements were approved and authorised for issue by the Board on 12 April 2019 and were signed on its behalf by:

____________________

Brian Hogan, Chief Financial Officer

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

 
     Share     Share     Other   Retained    Total 
   Capital   Premium   reserve   Earnings   Equity 
       GBP       GBP       GBP        GBP      GBP 
 
 
 Balance at 1 January 
  2017                      2,695,266     3,480,191     49,400   (304,160)   5,920,697 
 
 Loss for the year                  -             -          -   (324,658)   (324,558) 
-------------------------  ----------  ------------  ---------  ----------  ---------- 
 Total comprehensive 
  income                                                         (324,658)   (324,658) 
-------------------------  ----------  ------------  ---------  ----------  ---------- 
 Dividends paid (note 
  16)                               -             -          -   (226,402)   (226,402) 
 Issue of share capital 
  (note 28)                    18,000       131,400          -           -     149,400 
 Transfer between 
  reserves                          -             -   (49,400)      49,400           - 
 Share premium reduction 
  (note 28)                         -   (3,480,191)              3,480,191           - 
 Share based payments 
  (note 29)                         -             -     43,785           -      43,785 
 Balance at 31 December 
  2017                      2,713,266       131,400     43,785   2,674,371   5,562,822 
-------------------------  ----------  ------------  ---------  ----------  ---------- 
 
 
 
 Balance at 1 January 
  2018                     2,713,266     131,400    43,785   2,674,371   5,562,822 
 
 Loss for the year                 -           -         -   (322,435)   (322,435) 
------------------------  ----------  ----------  --------  ----------  ---------- 
 Total comprehensive 
  income                                                     (322,435)   (322,435) 
------------------------  ----------  ----------  --------  ----------  ---------- 
 Dividends paid (note 
  16)                              -           -         -   (371,868)   (371,868) 
 Issue of share capital 
  (note 28)                  178,597   3,240,951         -           -   3,419,548 
 Share based payments 
  (note 29)                        -           -    35,848           -      35,848 
 Purchase consideration            -           -   250,000           -     250,000 
------------------------  ----------  ----------  --------  ----------  ---------- 
 Balance at 31 December 
  2018                     2,891,863   3,372,351   329,633   1,980,068   8,573,915 
------------------------  ----------  ----------  --------  ----------  ---------- 
 
 

PARENT COMPANY STATEMENT OF CASH FLOWS

 
                                                  2018               2017 
                                                   GBP                GBP 
 Operating activities 
 Loss before tax                             (322,435)          (324,658) 
 
 Movements in working capital: 
 Decrease/(increase) in trade 
  and other receivables                       (17,222)                  6 
 Increase in trade and other 
  payables                                     470,146             14,282 
 Share based payment charge                          -             87,082 
                                         -------------  ----------------- 
 Net cash used in operations                   130,489          (223,288) 
                                         -------------  ----------------- 
 
 
 Investing activities 
 Increase/(decrease) in advances 
  to subsidiaries                              188,679        (1,468,539) 
 Purchase of subsidiary undertakings,      (3,850,000)                  - 
  net of cash acquired 
                                         -------------  ----------------- 
 Net cash used in investing 
  activities                               (3,661,321)        (1,468,539) 
                                         -------------  ----------------- 
 
 
 Financing activities 
 Proceeds from issue of share 
  capital, net of costs                      2,870,000            149,300 
 Proceeds from borrowings,                   3,790,737                  - 
  net of costs 
 Increase in investment in 
  subsidiary                                 (303,387)          (117,210) 
 Dividends paid to shareholders              (371,868)          (226,402) 
                                         -------------  ----------------- 
 Net cash from/(used in) 
  financing activities                       5,985,482          (194,312) 
                                         -------------  ----------------- 
 
 
 Net change in cash and cash 
  equivalents                                2,454,650        (1,886,139) 
 Cash and cash equivalents, 
  beginning of the year                      1,162,035          3,048,174 
                                         -------------  ----------------- 
 Cash and cash equivalents, 
  end of year                                3,616,685          1,162,035 
                                         -------------  ----------------- 
 

NOTES TO THE FINANCIAL STATEMENTS

   1.       GENERAL INFORMATION 

Filta Group Holdings plc was incorporated in England and Wales on 31 March 2016. Its registered office is at The Locks, Hillmorton, Rugby, Warwickshire, England, CV21 4PP.

The Company is listed on the AIM market of the London Stock Exchange. The Company acts as the holding company of a group of subsidiaries that are involved in the franchising of on-site environmental kitchen solutions to restaurants, catering establishments and institutional kitchens. The services include microfiltration of cooking oil, fryer cleaning, temperature calibration, waste oil disposal and specially designed filters for refrigeration units and coolers. The Filta Group sells franchises and operates in the UK, the United States and Canada. Additionally, the Company operates two direct sale businesses including refrigeration seal replacement and the installation, repair and maintenance of drain dosing and grease recovery units. Further details of the Company's subsidiaries are provided in Note 14.

   2.       BASIS OF PREPARATION 

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union including interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The consolidated financial statements have been prepared under the historical cost convention except for financial instruments that have been measured at fair value through profit and loss. The presentational and functional currency of the Company is Pounds Sterling. The functional currency of the subsidiaries is determined by the primary economic environment in which they operate.

Group reconstruction in prior year

Filta Group Holdings plc entered into an agreement to acquire the entire issued share capital of each of The Filta Group Limited and The Filta Group, Inc. on 26 October 2016 from Cookband Limited for Nil consideration. The reorganisation was affected by way of share for share exchanges whereby each of The Filta Group Limited and The Filta Group, Inc. became wholly-owned subsidiaries (the "Subsidiaries") of Filta Group Holdings plc as it is currently constituted.

The directors consider the substance of the acquisition of the Subsidiaries by Filta Group Holdings plc is that of a combination of entities under common control and therefore it fell outside the scope of IFRS 3 (revised 2008).

In accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors, in developing an appropriate accounting policy, the Directors have considered the pronouncements of other standard setting bodies and specifically looked to accounting principles generally accepted in the United Kingdom ("UK GAAP") for guidance (FRS 102) which does not conflict with IFRS and reflects the economic substance of the transaction.

Under UK GAAP, the assets and liabilities of both entities are recorded at book value, not fair value. Intangible assets and contingent liabilities are recognised only to the extent that they were recognised by the legal acquirer in accordance within applicable IFRS. No goodwill is recognised, any expenses of the combination are written off immediately to the income statement and comparative amounts, if applicable, are restated as if the combination had taken place at the beginning of the earliest accounting period presented.

Therefore, although the Group reconstruction completed in October 2016, and Filta Group Holdings plc was incorporated on 31 March 2016, the consolidated financial statements are presented as if the Group structure has always been in place, including the activity from incorporation of the Group's principal subsidiaries. All entities had the same management as well as controlling shareholders.

The Directors decided that it is appropriate to reflect the combination using merger accounting principles as a group reconstruction under FRS 102 in order to give a true and fair view. No fair value adjustments were made as a result of the combination.

Basis of consolidation

The consolidated financial statements comprise the financial information of the Company and its subsidiaries (the "Group") made up to the end of the reporting period.

The consolidated financial statements present the results of the Company and its subsidiaries and joint arrangements as if they formed a single entity. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement. Where necessary, adjustments are made to the financial statements of subsidiaries to align with the Group accounting policies.

Where a subsidiary undertaking is sold, the profit or loss on disposal is calculated as the difference between the aggregate of the fair value of the consideration received and the carrying amount of the assets and liabilities of the subsidiary on the date of disposal less any transaction costs relating to the disposal. Cash received on disposal of businesses is shown within investing activities in the Consolidated cash flow statement, net of cash and cash equivalents disposed of and transaction costs.

All intercompany transactions and balances between Group entities, including unrealised profits arising from them, are eliminated upon consolidation.

Going concern

The Directors have at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the financial statements.

Parent Company

The parent company has taken advantage of s.408 of the Companies Act 2016 not to publish

the parent company profit and loss account.

   3.       SUMMARY OF PRINCIPAL ACCOUNTING POLICIES 

The principal accounting policies of Filta Group Holdings plc and its subsidiaries are set out below. These policies have been consistently applied unless otherwise stated.

   3.1     Foreign currencies 

Functional and presentation currency

The consolidated financial statements are presented in Pounds Sterling, which is also the functional currency of the parent company.

Foreign currency transactions and balances

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and form the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss.

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

Foreign operations

In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than Pounds Sterling are translated into Pounds Sterling upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period.

On consolidation, assets and liabilities have been translated into Pounds Sterling at the closing rate at the reporting date. Income and expenses have been translated into Pounds Sterling at the average rate, as an approximation of rates on the dates of the transactions over the reporting period. Exchange difference are charged/credited to other comprehensive income and recognised in the currency translation reserve in equity.

   3.2      Segment reporting 

The results of operating segments are reported in a manner consistent with internal reporting.

The Group has four operating segments. In identifying these operating segments, management follows the Group's service lines representing its main products and services. Further details of segment reporting are provided in Note 5.

   3.3      Revenue 

For the year ended 31 December 2018 the Group used the five-step model as prescribed under IFRS 15 on the Group's revenue transactions. This included the identification of the contract, identification of the performance obligations under same, determination of the transaction price, allocation of the transaction price to performance obligations and recognition of revenue. The point of recognition arises when the Group satisfies a performance obligation by transferring control of a promised good or service to the customer, which could occur over time or at a point in time.

Revenue represents the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Revenue from goods and services provided to customers not invoiced as at the balance sheet date is recognised as accrued income within trade and other receivables.

The Filta Group executes franchise agreements for each franchise area which set out the terms of the arrangement with the franchisee.

These agreements require the franchisee to pay an initial, non-refundable franchise fee and royalties based upon the number of filtration machines operating in each franchise area.

The franchise fee consists of two distinct components:

   --   the opening package; and 
   --   the territory fee 

The revenue associated with the opening package is recognised when substantially all initial services required by the franchise agreement are performed, which is generally upon the completion of training of the franchisee. Therefore, there is no deferral of this revenue unless the training period spans the year-end.

The territory fee represents the exclusive right to operate in a designated territory for a stated length of time. The territory fee is deferred over the length of the franchise agreement and released to the combined statements of comprehensive income on a straight-line basis.

In circumstances where franchise territories are resold, on an arm's length basis, between our franchisee and a third party, it is our policy to continue to recognise the deferred revenue over the life of the original franchise agreement. Should there be an additional opening package, or territory sale, as part of the resale, these components will follow the aforementioned revenue recognition process under the new franchise agreement policy.

Royalty income is recognised as earned with an appropriate provision for estimated uncollectible amounts, which is included in operating expenses.

Supplies and other revenues are recognised when the product or service is delivered or shipped to customers. Provision for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period in which the related sales are recorded.

There has been no significant change to the Group's accounting policy for revenue as a result of the adoption of IFRS 15 from 1 January 2018.

   3.4     Contract acquisition costs 

The incremental costs to directly obtain a contract with a customer are capitalised and recognised within contract assets where management expects to recover those costs. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognised as an expense in the period where incurred. Contract assets are subsequently amortised over the period consistent with the Group's transfer of the related goods or services to the customer.

The costs capitalised include sales commission paid to employees and broker fees paid to third parties where payment is identified as relating directly to the sale of a territory license and initially recognised upon the signing of a customer contract. The costs are amortised over the contract life.

The Group was not impacted by the adoption of IFRS 15 on 1 January 2018 as the previous accounting policies also recognised an asset in relation to sales commissions costs and broker fees paid to third parties.

Management is required to determine the recoverability of contract related assets at each reporting date. An impairment exists if the carrying amount of any asset exceeds the amount of consideration the Group expects to receive in exchange for providing the associated goods and services, less the remaining costs that relate directly to providing those goods and services under the relevant contract. An impairment is recognised immediately where such losses are forecast.

The movement in the contract asset balance in the period therefore represents additional payments made, subsequent amortisation and any required impairment.

   3.5     Investments in subsidiaries 

Investments in subsidiaries are valued at cost less provision for any impairment, and an impairment review is carried out annually by the directors.

   3.6      Property, plant and equipment 

All items of property, plant and equipment are initially recorded at cost. All repair and maintenance expenses are recognised in profit or loss when incurred.

After initial recognition, property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment loss.

All items of property, plant and equipment are depreciated to write off the cost of the assets over their estimated useful lives as follows:

Annual rate

   Freehold property                  2% 
   Plant and machinery      10-15% 
   Motor vehicles                               25% 
   Fixtures and fittings               20% 

The estimated useful life and depreciation method are reviewed, and adjusted as appropriate, at each reporting date. Fully depreciated assets are retained in the financial statements until they are no longer in use.

   3.7     Business combinations and goodwill 

Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree. Acquisition costs are expenses and included in Administrative expenses. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition are recognised at their fair value at the acquisition date.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of any contingent consideration deemed to be an asset or liability will be recognised in accordance with IFRS 9, either in profit or loss or in other comprehensive income.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of cost of the business combination over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. It is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units (or groups of cash generating units) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

   3.8    Intangible assets 

Intangible assets identified in a business combination are capitalised at fair value as at the date of the acquisition and their costs are amortised over a straight-line basis over their expected useful lives. Software and development expenditure is capitalised as an intangible asset if the asset created can be identified, if it is probable that the asset created will generate future economic benefits and if the development cost of the asset can be measured reliably. Amortisation expense is charged to administrative expenses in the income statement on a straight-line basis over its useful life.

The expected useful lives of the assets are as follows:

   Customer relationships    - 5 to 10 years 
   Customer contracts               - 5 to 10 years 
   Supply contracts            - 15 years 
   Reacquired Rights        - 6.75 years 

Software development - 3 years

Those costs associated with maintaining computer software programmes are recognised as an expense as incurred.

   3.9     Impairment of tangible and intangible assets 

At each reporting end date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

   3.10   Inventories 

Inventories are stated at the lower of cost and net realisable value. Cost is based on the first in, first out principal and comprise direct materials and, where applicable, direct labour costs and overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. A provision is made, where necessary, in all inventory categories for obsolete, slow moving and defective items.

   3.11   Financial instruments 

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant financial instrument. Upon adoption of IFRS 9 on 1 January 2018 the accounting policy for financial instruments is as follows:

Financial assets

(i) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities. For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(ii) Trade and other receivables

Trade receivables are recognised initially at the invoice amount and subsequently measured at amortised cost, less provision for impairment.

Under IFRS 9, effective from 1 January 2018, the Group elected to use the simplified approach to measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and contract assets that result from transactions that are within the scope of IFRS 15, irrespective of whether they contain a significant financing component or not.

IFRS 9 requires the Group to consider forward looking information and the probability of default when calculating expected credit losses. The measurement of expected credit losses reflects an unbiased and probability weighted amount that is determined by evaluating the range of possible outcomes as well as incorporating the time value of money. The Group considers reasonable and supportable customer-specific and market information about past events, current conditions and forecasts of future economic conditions when measuring expected credit losses.

The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows of the asset, discounted, where material, at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Income Statement within 'administrative costs'. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 'administrative costs' in the Income Statement.

Financial liabilities

(i) Trade and other payables

Trade payables are not interest-bearing and are initially measured at fair value. Subsequent to initial recognition these liabilities are measured at amortised cost. The Group has contract liabilities in the form of deferred income which arises from consideration received in advance of the satisfaction of performance obligations.

(ii) Borrowings

Interest-bearing loans and overdrafts are initially measured at fair value, net of direct issue costs. These financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised over the period of the relevant liabilities.

   3.12   Equity 

Equity comprises the following:

   --   "Share capital" represents the nominal value of equity shares. 

-- "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

-- "Other reserves" represent the equity element in the form of share options and warrants, see notes 29 and 32 for additional information on these instruments.

   --   "Retained earnings" represents retained profits and accumulated losses. 
   --   "Merger reserve" arises on business combination (Note 2). 

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.

   3.13   Share-based payments 

(I) Equity-settled share-based payments

Equity-settled share-based payments are measured at the fair value of the awards based on the market value of the shares at the grant date. Fair value excludes the effect of non-market-based vesting conditions. The fair value is charged to the consolidated statement of income and credited to retained earnings on a straight-line basis over the period the estimated awards are expected to vest.

At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated statement of income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to retained earnings.

(II) Cash-settled share-based payments

For cash-settled share-based payments, a liability is initially recognised at fair value based on the estimated number of awards that are expected to vest, adjusting for market and non-market-based performance conditions. Subsequently, at each reporting period until the liability is settled, it is remeasured to fair value with any changes in fair value recognised in the consolidated statement of income.

   3.14   Taxation 

The income tax expense for the year comprises current and deferred tax.

Current tax

The charge for current taxation is the tax currently payable based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax

Deferred tax is provided using the liability method on differences between the carrying amounts of assets and liabilities in the consolidated balance sheet and the tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction which is not a business combination and at the time of the transaction affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on tax rates that have been enacted or substantively enacted by the reporting end date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax arising from a business combination is included in the resulting goodwill or excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the business combination costs.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

   3.15   Leases 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessees. All other leases are classified as operating leases.

Rentals payable under operating leases, less any lease incentives received, are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

   3.16   Adjusted EBITDA 

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, exceptional items and share based payment expense. The separate reporting of these items helps provide a better picture of the Group's underlying performance. Items which may be included within this category include:

   --   Costs associated with acquisitions; and 
   --   Other particularly significant or unusual items. 

Adjusted EBITDA is presented separately in the statement of comprehensive income as the Directors believe that it needs to be considered separately to gain an understanding of the underlying profitability of the trading businesses.

   3.17   Critical accounting judgments and key sources of estimation uncertainty 

Revenue recognition (Judgement)

Under IFRS 15, revenue recognition is based on the principle that revenue is recognised when control of a good or service transfers to a customer. Revenue is measured based on the consideration specified in a contract with a customer and is recognised when a customer obtains control of the services. The Group's franchise contracts are defined as having two distinct performance obligations, the Opening Package and the Territory Fee.

A degree of judgement arises with respect to the recognition of revenue on initial franchise fees, giving rise to estimation uncertainty. Management reviews on a regular basis the allocation within an initial franchise fee between the opening package and the territory fee. Whereas the opening package fee is recognised, as explained in note 3.3, generally upon the completion of the training of the franchisee, the portion related to the territory fee is deferred and recognised over the life of the franchise agreement. The total amount currently in deferred income in this respect amounts to GBP3,659,919 (2017: GBP2,937,327). The revenue recognised in respect of the opening package and the apportioned territory fee in the current year was GBP1,374,324 (2017: GBP1,348,193).

Recoverability of trade receivables (Judgement)

The Group provides credit to customers and as a result there is an associated risk that the customer may not be able to pay outstanding balances.

Under IFRS 9 the Group uses an allowance matrix to measure Expected Credit Loss (ECL) of trade receivables from customers. Loss rates are calculated based on the probability of a receivable progressing through successive chains of non-payment to write-off. The rates are calculated at a business unit level which reflects the risks associated with geographic region, age mix of customer relationship and type of product purchased.

Business combinations (Judgement and estimates)

Where the Group undertakes business combinations, the cost of acquisition is allocated to identifiable net assets and contingent liabilities acquired and assumed by reference to their estimated fair values at the time of acquisition. The remaining amount is recorded as goodwill. The valuation of identifiable net assets involves an element of judgement related to projected results. Fair values that are stated as provisional are not finalised at the reporting date and final fair values may be determined that are materially different from the provisional values stated.

In undertaking this assessment, the Group has performed a valuation of the intangible fixed assets acquired, on the multi-period excess earnings method, for customer relationships and customer contracts. For supply contracts, the royalty relief model has been used. In performing this assessment, it has obtained a third-party assessment of the fair values of these intangibles, based on the expected cashflows arising from the existing customer relationships at the time of acquisition, discounted for depletion in contract revenue.

The multi-period excess earnings methodology is based on expected income streams of the cash generating unit, the significant assumptions used in the model were the discount rate (12%) and the attrition rates (2.5%-5%). If the attrition rates were increased by 10% the intangible asset value would decrease by GBP93,000. If the discount rate was increased by one percentage point the intangible asset would be GBP195,000 lower.

The key assumptions in the royalty relief calculation is the royalty rate (2.5%), if this was reduced by one percentage point then the asset would be GBP289,000 lower.

Given the proximity to the year-end no amortisation charge has been recognised on the intangible assets identified. The expected amortisation charge for the year ended 31 December 2019 relating to the customer relationships and contracts is GBP583,000 and GBP48,000 for the supply contract.

Impairment (Judgement and estimates)

The Group is required to review assets for objective evidence of impairment. It does this on the basis of a review of the budget and rolling forecasts, which by their nature are based on a series of assumptions and estimates. The Group has performed impairment tests on those cash generating units which contain goodwill, and on any assets where there are indicators of impairment. The key assumptions associated with these reviews are detailed in Note 17.

Taxation (Judgement and estimates)

The Group is subject to income tax in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions for which the ultimate tax determination is uncertain. The Group recognises liabilities based on estimates of whether additional taxes will be due. Once it has been concluded that a liability needs to be recognised, the liability is measured based on the tax laws that have been enacted or substantially enacted at the end of the reporting period. The amount shown for current taxation includes an estimate for tax uncertainties and is based on the Directors' best probability weighted estimate of the probable outflow of economic resources that will be required to settle the liability. Where the final tax outcome of these matters is different from the amounts that were initially estimated, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. The Group estimates the most probable amount of future taxable profits, using assumptions consistent with those employed in impairment calculations, and taking into consideration applicable tax legislation in the relevant jurisdiction. These calculations also require the use of estimates.

   4.     ADOPTION OF NEW AND REVISED STANDARDS EFFECTIVE DURING 2018 

Financial instruments

The Group adopted IFRS 9 'Financial Instruments' at 1 January 2018 and applied the new rules in accordance with the transitional provisions. Comparatives for 2017 have not been restated. The Group has assessed the impact of adopting IFRS 9 and the only adjustment is an increase in the provision for losses against trade debtors which was reflected as an adjustment to retained earnings at 1 January 2018 as shown below.

2018

1 January

 
 Retained earnings 
 Provision for losses against trade debtors    (157,834) 
 Income tax                                       39,360 
                                              ---------- 
 Total impact at 1 January 2018                (118,474) 
                                              ---------- 
 
 Non-current assets 
 Deferred income tax assets                       39,360 
 
 Current assets 
 Trade and other receivables                   (157,834) 
                                              ---------- 
 Total impact at 1 January 2018                (118,474) 
                                              ---------- 
 

The adjustment arises from adoption of the expected credit loss model for impairments under IFRS 9. The adoption of this model requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses, as is the case under IAS 39. Although there is a transition impact from adoption of the new model there was no material impact on profit before tax for 2018.

The following table shows the original classification and measurement categories of financial assets and liabilities under IAS 39 and the new classification and measurement categories under IFRS 9 as at 1 January 2018. The effect of adopting IFRS 9 on the carrying amounts of financial assets and liabilities relates solely to the new impairment requirements as shown in the previous table, all other carrying values remained the same.

 
                 Classification-measurement    Classification-measurement       Carrying       Carrying 
                                  under IAS                    under IFRS   amount under   amount under     Difference 
                                         39                             9         IAS 39         IFRS 9            GBP 
                                                                                     GBP            GBP 
 Financial 
  assets 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
                Loans and                     Financial 
 Cash &          receivables                   assets at 
  cash           - amortised                   amortised 
  equivalents    cost                          cost                            4,031,174      4,031,174              - 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
                Loans and                     Financial 
 Trade &         receivables                   assets at 
  other          - amortised                   amortised 
  receivables    cost                          cost                            2,451,072      2,293,238      (157,834) 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
 Financial 
  liabilities 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
                                              Other financial 
 Trade &        Other liabilities              liabilities 
  other          - amortised                   - amortised 
  payables       cost                          cost                            1,337,984      1,337,984              - 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
                                              Other financial 
                Other liabilities              liabilities 
                 - amortised                   - amortised 
 Bank loans      cost                          cost                              928,236        928,236              - 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
                                              Other financial 
 Finance        Other liabilities              liabilities 
  lease          - amortised                   - amortised 
  liabilities    cost                          cost                              177,740        177,740              - 
               ----------------------------  ----------------------------  -------------  -------------  ------------- 
 

Revenue recognition

The Group has adopted IFRS 15 from 1 January 2018, using the modified retrospective approach and has not restated comparatives for 2017. The Group used the five-step model to develop an impact assessment framework to assess the impact of IFRS 15 on the Group's revenue transactions. The results of our IFRS 15 assessment framework and contract reviews indicated that the impact of applying IFRS 15 on our consolidated financial statements was not material for the Group and there was no adjustment to retained earnings or material impact on the timing of revenue recognition on application of the new rules at 1 January 2018.

A number of other new pronouncements are also effective from 1 January 2018 but they do not have a material impact on the consolidated financial statements. Additional disclosure has been given where relevant.

New standards and interpretations not applied.

New accounting standards and interpretations have been published that are not mandatory for the year ended 31 December 2018. The Group has elected not to early-adopt these new standards and interpretations. The Group's assessment of the impact of these new standards is set out below.

The Group will apply IFRS 16 on 1 January 2019 using the modified retrospective approach. Under this approach, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings on 1 January 2019, with no restatement of comparative information.

The Group has assessed the impact of adopting IFRS 16 with reference to its existing lease portfolio. The most significant part of the portfolio are property and vehicle leases, together with a number of low value equipment leases. The lease liability has been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at transition. The right-of-use asset is measured at an amount equal to the lease liability plus any lease payments made at or before the commencement date and any initial direct costs incurred by the lessee. Transition recognition exemptions relating to short-term and low value leases have been applied as well as practical expedients taken, where available, to simplify the transition process.

It is estimated that on transition the Group will recognise a right-of-use asset and corresponding lease liability of approximately GBP0.5m. The impact on the income statement in 2019 is expected to be negligible with the operating lease expense recognised under the existing standard (IAS 17) being replaced by depreciation and finance costs. There will be no impact on the Group's cash and cash equivalents.

   5.         SEGMENT ANALYSIS 

Operating segments have been identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker (which takes the form of the Board of Directors), in order to allocate resources to the segment and to assess its performance.

The Directors consider that the Group currently has four reportable segments: the marketing and execution related to Franchise Development; provision of services and supplies to the fryer management sector; servicing the refrigerator seal replacement market; and the provision of design, installation and services provided to the grease management market. The Group also has three geographic segments: UK, North America and Europe.

Revenue and non-current assets by origin of geographical segment for all entities in the Group is as follows:

 
 Revenue 
                                      2018         2017 
                                       GBP          GBP 
 North America                   9,204,340    8,349,325 
 U.K.                            4,752,287    3,197,973 
 Europe                            256,577            - 
 Total continuing operations    14,213,204   11,547,298 
 Discontinued operations            13,915    1,937,440 
                               -----------  ----------- 
 Total                          14,227,119   13,484,739 
 
 
   Non-current assets 
                                      2018         2017 
                                       GBP          GBP 
 North America                   2,005,116    1,673,329 
 U.K.                            9,277,362    1,544,785 
 Europe                            461,298            - 
                               -----------  ----------- 
 Total                          11,743,776    3,218,114 
                               -----------  ----------- 
 

Product and services revenue analysis

 
 Revenue 
                                      2018         2017 
                                       GBP          GBP 
 Franchise Development           1,487,927    1,348,193 
 Fryer Management                9,337,232    8,434,262 
 FiltaSeal                       1,646,062    1,327,835 
 FiltaGMG                        1,741,983      437,008 
                               -----------  ----------- 
 Total continuing operations    14,213,204   11,547,299 
 
 Discontinued operations            13,915    1,937,440 
                               -----------  ----------- 
 Total                          14,227,119   13,484,739 
                               -----------  ----------- 
 

Management measures revenues by reference to the Group's core services and products and related services, which underpin such income. No customer has accounted for more than 10% of total revenue during the periods presented. Assets and liabilities are not fully allocated to the individual categories as such information is not provided to the chief operating decision maker.

Operating segment performance for the year ended 31 December 2018:

 
                                   Franchise 
                                 Development                        Fryer Management                            FiltaSeal                                  FiltaGMG                                  Total 
                                        GBPm                                    GBPm                                 GBPm                                      GBPm                                   GBPm 
 Sales to 
  external 
  customers                              1.5                                     9.4                                  1.6                                       1.7                                   14.2 
 Adjusted 
  EBITDA                                 0.4                                     1.7                                  0.2                                       0.4                                    2.7 
                 ---------------------------  --------------------------------------  -----------------------------------  ----------------------------------------  ------------------------------------- 
 Acquisition 
  and 
  legal costs                          (0.0)                                   (0.0)                                (0.0)                                     (0.1)                                  (0.2) 
 Share based 
  payments                             (0.0)                                   (0.3)                                (0.0)                                     (0.0)                                  (0.3) 
 Depreciation 
  and 
  amortisation                         (0.1)                                   (0.3)                                (0.0)                                     (0.0)                                  (0.4) 
 Operating 
  profit                                 0.3                                     1.1                                  0.2                                       0.2                                    1.8 
                 ---------------------------  --------------------------------------  -----------------------------------  ----------------------------------------  ------------------------------------- 
 Net finance 
  costs                                (0.0)                                   (0.0)                                (0.0)                                     (0.0)                                  (0.0) 
 Profit before 
  taxation                               0.3                                     1.1                                  0.2                                       0.2                                    1.8 
                 ---------------------------  --------------------------------------  -----------------------------------  ----------------------------------------  ------------------------------------- 
 Taxation                                                                                                                                                                                            (0.4) 
 Profit from 
  discontinued 
  operations                                                                                                                                                                                           0.0 
 Other 
  comprehensive 
  income                                                                                                                                                                                             (0.0) 
 Profit and 
  total 
  comprehensive 
  income                                                                                                                                                                                               1.3 
                                                                                                                                                                     ------------------------------------- 
 

Operating segment performance for the year ended 31 December 2017:

 
                                 Franchise 
                               Development                      Fryer Management                  FiltaSeal                       FiltaGMG                            Total 
                                      GBPm                                  GBPm                       GBPm                           GBPm                             GBPm 
 Sales to 
  external 
  customers                            1.3                                   8.4                        1.3                            0.4                             11.5 
 Adjusted 
  EBITDA                               0.3                                   1.5                        0.2                            0.1                              2.1 
                 -------------------------  ------------------------------------  -------------------------  -----------------------------  ------------------------------- 
 Acquisition 
  and 
  legal costs                        (0.0)                                 (0.1)                      (0.0)                          (0.0)                            (0.1) 
 Share based 
  payments                           (0.0)                                 (0.1)                      (0.0)                          (0.0)                            (0.1) 
 Depreciation 
  and 
  amortisation                       (0.0)                                 (0.2)                      (0.0)                          (0.0)                            (0.2) 
 Operating 
  profit                               0.2                                   1.2                        0.2                            0.1                              1.7 
                 -------------------------  ------------------------------------  -------------------------  -----------------------------  ------------------------------- 
 Net finance 
  costs                              (0.0)                                 (0.1)                      (0.0)                          (0.0)                            (0.1) 
 Profit before 
  taxation                             0.2                                   1.1                        0.2                            0.1                              1.6 
                 -------------------------  ------------------------------------  -------------------------  -----------------------------  ------------------------------- 
 Taxation                                                                                                                                                             (0.8) 
 Profit from 
  discontinued 
  operations                                                                                                                                                            0.0 
 Other 
  comprehensive 
  income                                                                                                                                                              (0.1) 
 Profit and 
  total 
  comprehensive 
  income                                                                                                                                                                0.7 
                                                                                                                                            ------------------------------- 
 
 
 6. Operating profit and adjusted EBITDA 
 
         The following have been included in arriving at operating 
          profit and adjusted EBITDA: 
                                                                     2018            2017 
                                                                      GBP             GBP 
 
         Depreciation of property, plant and equipment (note 
          18)                                                     186,582         109,911 
         Amortisation of intangible assets (note 17)              212,474         100,001 
        Loss on disposal of plant and equipment                   (4,920)           9,992 
        Staff costs, including directors (Note 7)               3,525,043       2,993,670 
        Share based payment                                       302,506          87,082 
        Cost of acquisition                                       149,260          34,000 
        Foreign exchange losses                                     (757)        (22,238) 
 
        Profit before tax is stated after charging: 
         Auditors remuneration: 
        Fees payable to the Company's Auditor and their 
         associates for the audit of the Company's annual 
         accounts                                                  49,700          40,000 
 
        Fees payable to the Company's Auditor and their 
         associates for other services: 
        The audit of the Company's subsidiaries pursuant 
         to legislation                                            42,232          21,920 
        Tax and other services                                     30,148           8,643 
                                                               ----------  -------------- 
        Total auditors remuneration                               122,080          70,563 
                                                               ----------  -------------- 
 
        Inventory expensed                                      7,130,656       5,870,449 
        Operating lease rental expense                             19,570          24,399 
 
 

Exceptional items consist of the following:

 
                                  2018      2017 
                                   GBP       GBP 
     Acquisition related       149,260    65,402 
     Legal and professional      9,338    54,878 
                               158,598   120,280 
                              --------  -------- 
 
 

Acquisition related costs are attributable to the FiltaFry Deutschland GmbH and Watbio Holdings Limited acquisitions while the legal and professional costs relate primarily to the disposal of Filta Refrigeration assets.

 
 7. STAFF COSTS 
                                                                   2018        2017 
                                                                    GBP         GBP 
 
         Gross salaries                                       2,819,674   2,602,507 
         Social security costs                                  237,994     195,084 
         Pension contributions                                   15,635       9,062 
         Share based payment charge                             302,506      87,082 
         Other staff benefits                                   149,234      99,935 
                                                             ----------  ---------- 
                                                              3,525,043   2,993,670 
                                                             ----------  ---------- 
 
       The average number of employees of the Group during 
        the year was as follows: 
                                                                   2018        2017 
                                                                    No.         No. 
          Directors                                                   7           7 
           Staff 
          Administration                                             13          10 
          Customer Services/Network Support                          14          11 
          Business Development/Marketing                              6           6 
          Sales                                                       6           7 
          Other                                                      22          26 
                                                             ----------  ---------- 
                                                                     68          67 
                                                             ----------  ---------- 
 
 
   8.      REMUNERATION OF KEY MANAGEMENT PERSONNEL 
 
                                                                2018      2017 
                                                                 GBP       GBP 
         Remuneration for qualifying services                712,604   723,667 
                                                            --------  -------- 
                                                             712,604   723,667 
                                                            --------  -------- 
          Details of directors' remuneration are provided 
           in the Remuneration Report. 
 
 
 9. FINANCE COSTS 
                                                                              2018          2017 
                                                                               GBP           GBP 
         Bank and other loans                                               33,606        78,452 
        Hire purchase and finance lease charges                              8,378        12,500 
                                                                     -------------  ------------ 
  10. INCOME TAX EXPENSE                                                    41,984        90,952 
                                                                          2018            2017 
                                                                           GBP             GBP 
         Corporation Tax 
         Charge for the year                                           464,025         775,151 
 
         Deferred tax 
                 Origination and reversal of temporary differences    (42,358)       (215,878) 
          Tax charge related to change in U.S. tax rate                      -         264,995 
                                                                     ---------      ---------- 
         Total tax charge                                              421,667         824,268 
                                                                     ---------      ---------- 
 
 

Reconciliation of corporation taxation:

 
 
                                                                     2018        2017 
                                                                      GBP         GBP 
         Profit before tax on continuing operations             1,741,838   1,607,727 
                                                               ----------  ---------- 
         Tax at domestic rates applicable                         334,287     310,934 
         Expenses disallowed for tax                                6,695      19,690 
         Loss relief                                             (13,415)    (42,959) 
         Overseas taxes                                           136,458     487,486 
         Total current tax                                        464,025     775,151 
         Deferred tax 
         Origination and reversal of temporary differences       (42,358)      49,117 
                                                               ----------  ---------- 
         Total tax expense                                        421,667     824,268 
                                                               ----------  ---------- 
 
 

The Filta Group's effective tax rate for the year ended 31 December 2018 was 24.2% (2017: 51.3%). The effective rate is an amalgamation of mainly UK, US and Canadian rates for the periods reported. The change from prior year has been particularly affected by the 2017 non-recurring/non-cash tax charge related to the revaluation of U.S. deferred tax assets due to the U.S. rate reduction. For the prior year the effective tax rate excluding the tax charge on the U.S. rate reduction was 35.1%.

The Filta Group has tax losses of approximately GBP667,480 (2017: GBP667,480) to carry forward against future profits. The UK tax losses have no expiry date and a deferred tax asset of GBP128,460 (2017: GBP124,249) has been recognised in respect of them.

The U.S. subsidiary has no available tax losses.

   11.     DEFERRED TAX ASSETS / LIABILITIES 
 
        The movement in the Group's deferred tax 
         asset during the year is as follows: 
                                                        2018        2017 
                                                         GBP         GBP 
        At start of year                             652,131     755,965 
        Adjustment on initial application of IFRS 
         9                                            39,360 
        Acquired with subsidiaries                     5,468 
        Addition for the year                         25,226     210,735 
        Charge related to reduction in U.S. tax 
         rate                                              -   (264,995) 
        Foreign exchange differences                  32,543    (49,574) 
                                                    --------  ---------- 
        At end of year                               754,728     652,131 
                                                    --------  ---------- 
 
 

The deferred tax balances relate to temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial information as summarised below.

 
                        2018      2017 
                         GBP       GBP 
 Tax losses          128,460   124,249 
 Deferred revenue    546,777   524,658 
 Other                79,491     3,224 
                    --------  -------- 
 At end of year      754,728   652,131 
                    --------  -------- 
 

The movement in the Group's deferred tax liability during the year is as follows:

 
 
                                                       2018      2017 
                                                        GBP       GBP 
        At start of year                             95,185         - 
        Acquired with subsidiaries                        -    29,215 
        Intangible assets acquired in business 
         combination                              1,203,206    71,113 
        Credit for the year                         (7,073)   (5,143) 
        At end of year                            1,291,318    95,185 
                                                 ----------  -------- 
 
 
   12.     Discontinued operations 

In December 2017, the Group agreed terms to sell certain assets of its Filta Refrigeration business to Scotia Cooling Solutions Ltd ('Scotia'). The deal completed on 4 January 2018.

Consideration for the disposal is a combination of GBP0.1m cash and Scotia agreed to take on all employees and to novate and/or refinance certain Filta Refrigeration vehicles.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

 
                                                2018          2017 
                                                 GBP           GBP 
 Revenues                                     13,915     1,937,101 
 Expenses                                   (17,918)   (1,868,489) 
                                           ---------  ------------ 
 Profit before tax                           (4,003)        68,612 
 Income tax expense                           22,559      (35,754) 
                                           ---------  ------------ 
 Net profit attributable to discontinued 
  operations                                  18,556        32,858 
                                           ---------  ------------ 
 

Following the sale on 4 January 2018, there were no assets or liabilities of the operation classified as a disposal group held for sale and presented separately on the balance sheet during the period.

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

 
                                            2018      2017 
                                             GBP       GBP 
 Property, plant and equipment                  -   25,114 
 Inventories                                    -   49,258 
                                             ----  ------- 
 Total classified as held for sale              -   74,372 
 Total liabilities associated with assets 
 held for sale (borrowings)                     -   66,425 
                                             ----  ------- 
 Net assets of disposal group                   -    7,947 
 
 
 
   13.     EARNINGS PER SHARE 

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the company by the weighted average number of shares in issue during the year, excluding ordinary shares purchased by the company and held as treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to take account of all dilutive potential ordinary shares and adjusting the profit attributable, if applicable, to account for any tax consequences that might arise from conversion of those shares.

 
                                                                                         2018                 2017 
 
       Earnings attributable to equity holders of 
        the company                                                                 1,338,727              816,317 
                                                                             ----------------          ----------- 
 
       Weighted average number of shares                                           27,204,089           26,971,892 
       Effect of dilutive share options and awards                                    224,199              288,081 
                                                                             ----------------          ----------- 
       Weighted average number of shares for dilutive 
        earnings                                                                   27,428,288           27,259,973 
 
       Earnings per share from continuing operations 
       Basic                                                                             4.86                 2.90 
       Diluted                                                                           4.82                 2.87 
 
       Earnings per share from continuing and discontinued 
        operations 
       Basic                                                                             4.93                 3.03 
       Diluted                                                                           4.89                 2.99 
 
 14. INVESTMENT IN SUBSIDIARIES 
 
                                                                                         2018                 2017 
                                                                                          GBP                  GBP 
 
     Cost at the beginning of the year                                              2,293,426            2,176,216 
     Additions                                                                      6,657,998              117,210 
                                                                             ----------------          ----------- 
     Cost at end of year                                                            8,951,424            2,293,426 
                                                                             ----------------          ----------- 
           The subsidiaries of Filta Group Holdings plc, all of which 
            are included in the consolidated Annual Financial Statements, 
            are as follows: 
                            Class               2018           2017           Nature of business 
            Company                              ownership     ownership 
                                                 interest      interest 
          The Filta Group                                                               Environmental 
           Limited           Ordinary                   100%   100%                          Services 
          The Filta Group                                                             Environmental 
           Incorporated              Ordinary           100%           100%           Services 
          Filta 
           Refrigeration 
           Limited                   Ordinary           100%           100%           Discontinued 
          FiltaFry 
           Limited                   Ordinary           100%           100%           Dormant 
          Bio Depot 
           Limited                   Ordinary           100%           100%           Dormant 
          Filta Seal 
           Limited                   Ordinary           100%           100%           Dormant 
          Filta 
           Environmental                                                              Environmental 
           Canada Limited            Ordinary           100%           100%           Services 
          Filta Europe               Ordinary           100%           -              Environmental Services 
           B.V. 
          FiltaFry                   Ordinary           100%           -              Environmental Services 
           Deutschland 
           GmbH 
          Watbio Holdings            Ordinary           100%           -              Environmental Services 
           Limited 
          Watbio Limited             Ordinary           100%           -              Environmental Services 
          Watling Hope               Ordinary           100%           -              Environmental Services 
           Installations 
           Limited 
          Environmental              Ordinary           100%           -              Environmental Services 
           Biotech 
           Limited 
          M&M Asset                  Ordinary           100%           -              Environmental 
           Maintenance                                                                 Services 
 
 

The registered office of all subsidiaries is The Locks, Hillmorton, Rugby, Warwickshire, CV21 4PP, apart from the following:

 
 Company                        Registered Office address 
 The Filta Group Incorporated   7075 Kingspointe Parkway, Suite 
                                 1, Orlando, Florida 32819 United 
                                 States 
                               ---------------------------------- 
 Filta Environmental Canada     27(th) floor, P.O. Box 49123, 
  Limited                        595 Burrard Street, Vancouver, 
                                 British Columbia, V7X 1J2 Canada 
                               ---------------------------------- 
 Filta Europe B.V.              Debbeshoek 14B, 7071XK Ulft, 
                                 Netherlands 
                               ---------------------------------- 
 FiltaFry Deutschland GmbH      Pliniusstraße 8, 48488 
                                 Emsbüren, Germany 
                               ---------------------------------- 
 
   15.     BUSINESS COMBINATIONS 

A key strategy of the Group is to create and sustain market leading positions through acquisitions in markets it currently operates in, together with extending the Group's footprint in new geographic markets. In line with this strategy, the acquisitions completed during the year were as follows:

FiltaFry Deutschland GmbH

On 30 January 2018, the Group acquired 100 per cent of the voting equity interests of FiltaFry Deutschland GmbH, the company which held the master franchise license for Germany. The acquisition aligns Germany with the same franchise business model as is used in North America and the UK as well as providing a platform for further expansion in Europe.

Details of the fair values of the identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 
                                          Book value   Adjustment     Fair value 
                                                 GBP          GBP            GBP 
 Reacquired license rights (intangible 
  asset)                                     114,591      126,356      240,947 
 Property, plant and equipment                 7,289            -        7,289 
 Inventory                                     2,909            -        2,909 
 Trade and other receivables                  10,880            -       10,880 
 Cash                                          3,265            -        3,265 
 Trade and other payables                   (16,656)            -     (16,656) 
 Loans and borrowings                       (48,201)                  (48,201) 
 Deferred tax liability                            -     (72,284)     (72,284) 
                                         -----------  -----------  ----------- 
 Total fair value                             74,077       54,072      128,149 
                                         -----------  -----------  ----------- 
  Consideration consists of:                                               GBP 
 Cash                                                                  153,367 
 Shares                                                                 21,910 
 Contingent                                                             43,818 
                                                                   ----------- 
 Total Consideration                                                   219,095 
                                                                   ----------- 
 Goodwill                                                               90,946 
                                                                   ----------- 
 

The fair values include recognition of an intangible asset related to the reacquired rights to the international master licence agreement in Germany that will be amortised on a straight line basis over a 6.75-year period.

Regarding the acquired Trade and other receivables in the transaction of GBP10,880, the amount estimated to be potentially uncollectible at the acquisition date was GBPNil. At 31 December 2018, GBP10,880 of this balance had been collected.

Deferred tax has been calculated on the value of the intangible assets acquired at a corporation tax rate of 30% and a corresponding amount recognised as goodwill. The amount recognised as goodwill will not be deductible for tax purposes.

Acquisition costs relating to this transaction totalled GBP49,080 and are disclosed within the statement of comprehensive income.

Since the acquisition date, FiltaFry Deutschland GmbH has contributed GBP235,981 to Group revenues and a loss of GBP4,112 to Group income. If the acquisition had occurred on 1 January 2018, Group revenue would have increased by GBP257,435 and Group income for the period would have decreased by GBP4,486.

The net cash sum expended on the acquisition is as follows:

 
                                                 2018 
                                                  GBP 
 Cash paid as consideration on acquisition    153,367 
 Less cash acquired on acquisition            (3,265) 
                                             -------- 
 Net cash movement                            150,102 
                                             -------- 
 

Watbio Holdings Limited

On 21 December 2018, the Group acquired 100 per cent of the voting equity interests of Watbio Holdings Limited, a provider of grease and drain management solutions to commercial kitchens across the UK. The acquisition supports the Group's strategy of growing its share of the fats, oils and grease market following on the acquisition of Grease Management Limited in 2017.

Details of the provisional fair values of the identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 
                                        Book value    Adjustment      Fair value 
                                               GBP           GBP             GBP 
 Customer contracts (intangible 
  asset)                                         -     2,217,194     2,217,194 
 Customer relationships (intangible 
  asset)                                         -     3,617,527     3,617,527 
 Supply contract (intangible 
  asset)                                         -       724,481       724,481 
 Property, plant and equipment              86,686             -        86,686 
 Inventory                                 437,367             -       437,367 
 Trade and other receivables             2,255,031             -     2,255,031 
 Cash                                      261,744             -       261,744 
 Trade and other payables              (2,114,579)             -   (2,114,579) 
  Loans and borrowings                   (907,518)                   (907,518) 
 Deferred tax liability                          -   (1,140,871)   (1,140,871) 
                                      ------------  ------------  ------------ 
 Total provisional fair value               18,731     5,418,331     5,437,062 
                                      ------------  ------------  ------------ 
 
 
 Consideration consists of:                                                GBP 
 Cash                                                                3,850,000 
 Shares                                                                550,000 
 Contingent                                                          1,954,611 
                                                                  ------------ 
 Total Consideration                                                 6,354,611 
                                                                  ------------ 
 Goodwill                                                              917,549 
                                                                  ------------ 
 

The provisional fair values include recognition of intangible assets related to customer contracts and customer relationships that will be amortised over a 10-year period, and a supply contract, amortised over a 15-year period, all on a straight-line basis. The fair values are provisional as the year end has fallen within the measurement period. Any new information about facts or circumstances that existed at the acquisition date will be retrospectively adjusted.

Regarding the acquired trade receivables in the transaction of GBP1,738,685 the amount estimated to be potentially uncollectible at the acquisition date was GBP118,336. At 31 December 2018, GBPNil of this balance has been collected.

Deferred tax has been calculated on the value of the intangible assets acquired at a corporation tax rate of 17.4%, which is the effective tax rate over the amortisation period, and a corresponding amount recognised as goodwill. The amount recognised as goodwill will not be deductible for tax purposes.

Acquisition costs relating to this transaction totalled GBP100,179 and are disclosed within the statement of comprehensive income.

Since the acquisition date, Watbio Holdings Limited has contributed GBP192,641 to Group revenues and a profit of GBP16,846 to Group income. If the acquisition had occurred on 1 January 2018, Group revenue would have increased by GBP9,800,000 and Group income for the period would have increased by GBP600,000.

The net cash sum expended on the acquisition is as follows:

 
                                                   2018 
                                                    GBP 
 Cash paid as consideration on acquisition    3,850,000 
 Less cash acquired on acquisition            (261,744) 
                                             ---------- 
 Net cash movement                            3,588,256 
                                             ---------- 
 
 
  16. DIVIDS 
                                                                 2018        2017 
                                                                  GBP         GBP 
         Distributions to equity holders in the year: 
         Final dividend for the year ended 31 December        176,434           - 
          2017 of 0.65p per share 
         Interim dividend for the year ended 31 December      195,434           - 
          2018 of 0.72p per share 
         First interim dividend, in lieu of 2016, for the 
          year ended 31 December 2017 of 0.19p per share            -      51,210 
         Second interim dividend for the year ended 31 
          December 2017 of 0.65p per share                          -     175,192 
                                                            ---------  ---------- 
                                                              371,868     226,402 
                                                            ---------  ---------- 
         Proposed final dividend for the year ended 31        267,286           - 
          December 2018 of 0.92p per share 
                                                            ---------  ---------- 
 
 

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

   17.     INTANGIBLE ASSETS 
 
 
                         Computer                 Customer           Customer         Supply 
                          Software     Goodwill   Relationships      Contracts      Contract          Total 
                              GBP           GBP             GBP              GBP         GBP            GBP 
         Cost 
         Balance at 1 
          January 
          2018             412,117      631,380         346,210           28,071           -      1,417,778 
         Additions         104,913            -               -                -           -        104,913 
         Business 
          combinations           -    1,008,495       3,617,527        2,458,142     724,481      7,808,645 
         Foreign 
          exchange          25,752        (352)               -            3,276           -         28,676 
                        ----------  -----------  --------------  ---------------  ----------  ------------- 
         Balance at 31 
          December 
          2018             542,782    1,639,523       3,963,737        2,489,489     724,481      9,360,012 
 
         Amortisation 
         and 
         impairment 
         Balance at 1 
          January 
          2018             274,506            -          25,110            1,961           -     301,577 
         Amortisation      104,451            -          69,243           38,780           -     212,474 
         Foreign 
          exchange          20,006            -               -                -                  20,006 
                        ----------  -----------  --------------  ---------------  ----------  ---------- 
         Balance at 31 
          December 
          2018             398,963            -          94,353           40,741           -     534,057 
                        ----------  -----------  --------------  ---------------  ----------  ---------- 
 
         Net book 
          value at 
          31 December 
          2018             143,819    1,639,523       3,869,384        2,448,748     724,481   8,825,955 
                        ==========  ===========  ==============  ===============  ==========  ========== 
 
 
 
 
 
                         Computer                 Customer           Customer         Supply 
                          Software     Goodwill   Relationships      Contracts      Contract          Total 
                              GBP           GBP             GBP              GBP         GBP            GBP 
         Cost 
         Balance at 1 
          January 
          2017             391,350            -               -                -           -        391,350 
         Additions          55,480            -               -                -           -         55,480 
         Business 
          combinations                  631,380         346,210           28,071           -      1,005,661 
         Foreign 
          exchange        (34,713)            -               -                -           -       (34,713) 
                        ----------  -----------  --------------  ---------------  ----------  ------------- 
         Balance at 31 
          December 
          2017             412,117      631,380         346,210           28,071           -      1,417,778 
 
         Amortisation 
         and 
         impairment 
         Balance at 1 
          January 
          2017             224,726            -               -                -           -     224,726 
         Amortisation       72,930            -          25,110            1,961           -     100,001 
         Foreign 
          exchange        (23,150)            -               -                -                (23,150) 
                        ----------  -----------  --------------  ---------------  ----------  ---------- 
         Balance at 31 
          December 
          2017             274,506            -          25,110            1,961           -     301,577 
                        ----------  -----------  --------------  ---------------  ----------  ---------- 
 
         Net book 
          value at 
          31 December 
          2017             137,611      631,380         321,100           26,110           -   1,116,201 
                        ==========  ===========  ==============  ===============  ==========  ========== 
 
 
 

Intangible assets are valued separately for each acquisition and the primary method of valuation used is the discounted cash flow method. The majority of acquired intangibles are amortised using an amortisation profile based on the projected cash flows underlying the acquisition date valuation of the intangible asset. The Group keeps the expected pattern of consumption under review.

Impairment tests for goodwill and intangibles

The Group is obliged to test goodwill and other intangibles with finite lives for impairment, at least annually, or at any time if there are indications that these assets might be impaired.

In order to perform this test, management is required to compare the carrying value of the relevant cash generating unit ('CGU') including the goodwill with its recoverable amount. The CGU's to which the goodwill has been attributed and its carrying value are summarised below.

 
                               2018      2017 
                                GBP       GBP 
 Franchise development       90,946         - 
                         ----------  -------- 
 FiltaGMG                 1,548,577   631,380 
                         ----------  -------- 
 Total                    1,639,523   631,380 
                         ----------  -------- 
 

The recoverable amount of a CGU is primarily determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on annual financial budgets which are approved by the Board. Income and costs within the budget are derived on a detailed, 'bottom up' basis - all income streams and cost lines are considered and appropriate growth, or decline, rates are assumed for each, all of which are then reviewed, challenged and stress tested, firstly by senior management and ultimately by the Board. Income and cost growth forecasts are risk adjusted to reflect specific risks facing each CGU and take into account the markets in which they operate. Cash flows beyond the budgeted period are extrapolated using the estimated growth rate stated below in to perpetuity. The growth rate does not exceed the long-term average growth rate for the markets in which the CGU's operate. Further, other than as included in the financial budgets, it is assumed that there are no material adverse changes in legislation that would affect the forecast cash flows.

The pre-tax discount rate used within the recoverable amount calculations was 9.38% (2017: 9.70%) and is based upon the weighted average cost of capital reflecting specific principal risks and uncertainties. The discount rate takes into account, amongst other things, the risk free rate of

return, the market risk premium and beta factor reflecting the average Beta for the Group.

The same discount rate has been used for each CGU as the principal risks and uncertainties associated with the Group, as highlighted above, would also impact each CGU in a similar manner. The Board acknowledge that there are additional factors that could impact the risk profile of each CGU. These additional factors were considered by way of sensitivity analysis performed as part of the annual impairment tests. The level of impairment recognised is predominantly dependent upon judgments used in arriving at future growth rates and the discount rate applied to cash flow projections. Key drivers to future growth rates are dependent on the Group's ability to maintain and grow income streams whilst effectively managing operating costs. The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in the cash flow projections. Where the value-in-use calculations suggest an impairment, the Board would consider alternative use values prior to realising any impairment, being the fair value less costs to dispose.

A sensitivity analysis has been performed and the Board have concluded that no reasonably foreseeable change in the key assumptions would result in an impairment of the goodwill. In particular, a 1% increase in the discount rate or a 1% decrease in the terminal value growth rate would not result in material impairment.

   18.     PROPERTY, PLANT AND EQUIPMENT 

Details of the Group's property, plant and equipment and their carrying amounts are as follows:

 
                                                Fixture and   Plant and 
                                                   Fittings   Machinery      Motor       Total 
                                     Freehold   & Equipment               Vehicles 
                                     Property 
                                          GBP           GBP         GBP        GBP         GBP 
         Cost 
         At 1 January 2018          1,519,590       111,450    198,056    246,549    2,075,645 
         Additions                     11,675        37,300    36,103     231,007      316,085 
        Business combinations           2,511        28,477      63,196          -      94,184 
        Foreign exchange               84,676         2,759       2,368        391      90,194 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         At 31 December 2018        1,618,452       179,986    299,723    477,947    2,576,108 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         Depreciation 
         At 1 January 2018            623,664        97,208    104,958     33,427     859,257 
         Depreciation charge           49,303        15,206    33,810      88,262     186,581 
         Foreign exchange              31,993         2,656     2,103       338       37,090 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         At 31 December 2018          704,960       115,070    140,871    122,027    1,082,928 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         Net Book Values 
         At 31 December 2018          913,492        64,916    158,852    355,920    1,493,180 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         Cost 
         At 1 January 2017          1,640,785        93,095    183,632    214,643    2,132,155 
         Additions                      4,496        16,394    13,285      78,766      112,941 
        Business combination            2,815         5,349       5,567    121,709     135,440 
        Reclass to assets held 
         for sale                           -             -           -   (84,825)    (84,825) 
        Disposals                           -             -       (820)   (83,150)    (83,970) 
        Foreign exchange            (128,506)       (3,388)     (3,608)      (594)   (136,096) 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         At 31 December 2017        1,519,590       111,450    198,056    246,549    2,075,645 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         Depreciation 
         At 1 January 2017            641,013        88,529    99,166     112,795     941,504 
         Depreciation charge           39,202        12,096     9,175      49,437     109,911 
         Reclass to assets held 
          for sale                          -             -       -       (59,711)   (59,711) 
         Disposals                          -             -     (367)     (68,759)   (69,127) 
         Foreign exchange            (56,551)       (3,417)    (3,016)     (335)     (63,320) 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         At 31 December 2017          623,664        97,208    104,958     33,427     859,257 
                                   ----------  ------------  ----------  ---------  ---------- 
 
         Net Book Values 
         At 31 December 2017          895,926        14,242    93,098     213,122    1,216,388 
                                   ----------  ------------  ----------  ---------  ---------- 
 
 
 

Certain of the property, plant and equipment listed above are held as security against bank facilities referred to in note 24.

The net book value of vehicles held under finance lease was GBP0.2m.

   19.     TRADE AND OTHER RECEIVABLES 

Trade and other receivables consist of the following:

 
 
         Total                                     2018        2017 
                                                    GBP         GBP 
 
         Trade receivables, gross             4,238,420   2,084,362 
         Impairment allowance                 (184,022)    (56,255) 
                                             ----------  ---------- 
         Trade receivables, net               4,054,398   2,028,107 
 
         Prepayments and other receivables      572,491     200,809 
         Franchise payment plans                519,170     384,439 
                                             ----------  ---------- 
                                              5,146,059   2,613,355 
                                             ----------  ---------- 
          Current                                  2018        2017 
                                                    GBP         GBP 
 
         Trade receivables                    4,054,398   1,984,569 
         Prepayments and other receivables      572,491     200,809 
         Franchise payment plans                194,305     125,814 
                                             ----------  ---------- 
                                              4,821,194   2,311,192 
                                             ----------  ---------- 
 
 
         Non-current                   2018      2017 
                                        GBP       GBP 
 
         Trade receivables                -    43,538 
         Franchise payment plans    324,865   258,625 
                                   --------  -------- 
                                    324,865   302,163 
                                   --------  -------- 
 

Trade and other receivables include amounts that the Filta Group has agreed may be settled over extended repayment terms. The amount due from related parties in the parent company of GBP2.0m consist of GBP1.5m of loans to subsidiaries to fund debt repayment and acquisitions and is repayable after more than twelve months while the balance of GBP0.5m is comprised of GBP0.1m of management service charges and GBP0.4m of funding of normal working capital requirements. The loans to subsidiaries bear interest at commercial rates. All amounts are eliminated on the Group Consolidated Statement of Financial Position.

The Group applies a simplified approach to measure the loss allowance for trade receivables classified at amortised cost, using the lifetime expected loss provision. The expected credit loss on trade receivables is estimated using a provision matrix by reference to past default experience and credit rating, adjusted as appropriate for current observable data. The following table details the risk profile of trade receivables based on the Group's provision matrix.

 
                                                      Trade receivables - days past 
                                                                   due 
                                   ------------------------------------------------------------------ 
                              Not 
                             past                              31 -             60 - 
 31 December 2018             due             < 30               60               90             > 90            Total 
-----------------  --------------  ---------------  ---------------  ---------------  ---------------  --------------- 
 Gross carrying 
  amount                1,563,235        1,937,492          229,229          362,412          146,052        4,238,420 
 Weighted average 
  expected credit 
  loss 
  rate                       1.0%             1.7%             8.8%            10.7%            52.2%             4.3% 
 Loss allowance            15,882           33,049           20,090           38,691           76,310          184,022 
-----------------  --------------  ---------------  ---------------  ---------------  ---------------  --------------- 
 

Movement in the allowance for doubtful debt:

 
                                            2018            2017 
                                             GBP             GBP 
 At beginning of year                     56,255          10,302 
 Adjustment on initial 
  application of IFRS 
  9 (note 4)                             157,834               - 
 Acquired with subsidiaries              118,336               - 
 Impairment loss recognised                7,620          53,224 
 Utilised                              (156,023)         (7,271) 
 At end of year                          184,022          56,255 
                                  --------------  -------------- 
 
   20.     CONTRACT ACQUISITION COSTS 

The Group capitalises incremental costs to obtain contracts with customers where it is expected these costs will be recoverable. Incremental costs to obtain contracts with customers are considered those which would not have been incurred if the contract had not been obtained. For the Group, these costs relate primarily to third party broker fees. The Group has elected to use the practical expedient as allowable by IFRS 15 whereby such costs will be expensed as incurred where the expected amortisation period is one year or less. Where the amortisation period is greater than one year, these costs are amortised over the contract term on a systematic basis consistent with the transfer of the underlying goods and services within the contract to which these costs relate, which will generally be on a ratable basis. Impairment of capitalised contract costs was GBPnil in 2018.

The amount of capitalised contract cost expected to be recovered after more than one year is GBP0.3m (2017: GBP0.2m).

   21.     INVENTORIES 
 
                                                            2018       2017 
                                                             GBP        GBP 
         Finished goods                                1,386,383    486,974 
         Inventory included in assets held for sale            -   (49,258) 
                                                      ----------  --------- 
         Total                                         1,386,383    437,716 
                                                      ----------  --------- 
 

Inventories primarily consists of filtration machines and filters and are stated at the lower of cost (on a first-in, first-out basis) and net realisable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realisable value.

   22.      CASH AND CASH EQUIVALENTS 
 
         Group                            2018        2017 
                                           GBP         GBP 
                                    ----------  ---------- 
         Cash at bank and in hand    6,789,968   4,031,174 
                                    ----------  ---------- 
 
         Company 
                                    ----------  ---------- 
         Cash at bank and in hand    3,616,685   1,162,035 
                                    ----------  ---------- 
 
   23.      TRADE AND OTHER PAYABLES 
 
                                                         2018         2017 
                    Group                                 GBP          GBP 
 
                    Trade payables                        2,877,737      846,564 
                    Taxes and social security               413,782      804,922 
                    Accruals and other payables           3,218,783      491,420 
                                                         ----------   ---------- 
                                                          6,510,302    2,142,906 
                                                         ----------   ---------- 
 
           Company 
                    Trade payables                    37,674   44,908 
                    Taxes and social security              -        - 
                    Accruals and other payables    2,227,454 
                                                  ----------  ------- 
                                                   2,265,128   44,908 
                                                  ----------  ------- 
           Analysis of trade and other payables 
         These are classified as short term and are expected to be settled 
          within 12 months from the reporting date. 
          The Company Accruals and other payables balance of GBP1.7m represents 
          the balance due on completion of the Watbio Holdings acquisition. 
          24. LOANS AND OTHER BORROWINGS         Group                                                  2018        2017 
                                                                           GBP         GBP 
                   Total 
                   Bank loans, net of GBP209,263 of debt issuance 
                    costs                                            4,531,925     928,236 
                   Hire purchase and finance leases                    168,448     111,315 
                   Related party loans                                  49,579           - 
                                                                    ----------  ---------- 
                                                                     4,749,952   1,039,551 
                                                                    ----------  ---------- 
 
 
                                                             2018      2017 
                                                              GBP       GBP 
         Current 
         Bank loans, net of GBP41,852 of debt issuance 
          costs                                           791,467    64,102 
         Hire purchase and finance leases                  49,174    43,684 
                                                          840,641   107,786 
                                                         --------  -------- 
 
 
                                                                2018      2017 
                                                                 GBP       GBP 
         Non-current 
         Bank loans, net of GBP167,410 of debt issuance 
          costs                                            3,740,458   864,134 
         Hire purchase and finance leases                    119,274    67,631 
         Related party loans                                  49,579         - 
                                                          ----------  -------- 
                                                           3,909,311   931,765 
                                                          ----------  -------- 
 
 
         Company                                                2018     2017 
                                                                 GBP      GBP 
         Total 
         Bank loans, net of GBP209,263 of debt issuance    3,790,737        - 
          costs 
                                                           3,790,737        - 
                                                         -----------    ----- 
 
 
         Current 
         Bank loans, net of GBP41,852 of debt issuance         758,147         - 
          costs 
                                                               758,147         - 
                                                          ------------    ------ 
 
 
 
         Non-current 
         Bank loans, net of GBP167,410 of debt issuance 
          costs                                           3,032,590  - 
                                                          3,032,590  - 
 

The bank loans are comprised of a GBP4,000,000 term loan (GBP3,790,737 net of debt issuance costs), which carries a variable interest rate of Libor plus 3% and is repayable in equal instalments of GBP200,000 per quarter; and a $940,523 US Dollar denominated mortgage loan (GBP741,188), which carries an interest rate of 4.6% and matures in 2024.

   25.       DEFERRED INCOME 

Deferred income relates to certain performance obligations of franchise sales that are deferred over the life of the franchise agreement. The deferral period is 10 years in North America and 5 years in the UK and mainland Europe.

Movements in Deferred income are as follows:

 
                  1 Jan 2018  Acquisition  Utilisation    Foreign     31 Dec 
                                                         Exchange       2018 
                         GBP          GBP          GBP        GBP        GBP 
Deferred income    2,937,327    1,364,388    (815,992)    174,196  3,659,919 
 
Current                                                              868,788 
Non-current                                                        2,791,131 
Total                                                              3,659,919 
 
   26.     OPERATING LEASE COMMITMENTS 

The amounts of future minimum lease payments under non-cancellable operating leases are as follows:

 
                                                   2018     2017 
                                                    GBP      GBP 
                 Minimum lease payments due: 
        Within 1 year                           274,467   10,687 
        1 to 5 years                            296,145    2,360 
        Total                                   570,612   13,047 
 

The increase over prior year is due primarily to leases acquired in the Watbio Holdings acquisition.

   27.     RECONCILIATION OF MOVEMENTS IN NET DEBT 
 
                  1 January          Cash flows            Acquisition                      Non-cash changes                      31 December 
                     2018                                                                                                             2018 
                                                                                    Foreign               Fair value 
                                                                                    exchange                changes 
                                                                                    movements 
                            GBP                 GBP                      GBP                   GBP                      GBP                     GBP 
Long term 
 borrowings             928,236           (204,791)                3,840,316                17,744                                        4,581,505 
Short term 
 borrowings                   -                   -                        -                     -                        -                       - 
Lease 
 liabilities            111,315              57,133                        -                                                                168,448 
Total                 1,039,551           (147,658)                3,840,316                17,744                        -               4,749,953 
 
 
                  1 January          Cash flows            Acquisition                      Non-cash changes                      31 December 
                     2017                                                                                                             2017 
                                                                                    Foreign               Fair value 
                                                                                    exchange                changes 
                                                                                    movements 
                            GBP                 GBP                      GBP                   GBP                      GBP                     GBP 
Long term 
 borrowings           1,037,022            (36,585)                                       (72,200)                                          928,236 
Short term 
 borrowings                   -                   -                        -                     -                        -                       - 
Lease 
 liabilities             84,296            (10,473)                   37,492                                                                111,315 
Total                 1,121,318            (47,058)                   37,492              (72,200)                        -               1,039,551 
 
   28.     SHARE CAPITAL 

The share capital of Filta Group Holdings plc consists of fully paid ordinary shares with a nominal value of 10 pence. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote.

 
                                           2018                             2017 
                                         Number         GBP           Number GBP 
         Allotted and fully paid 
         Total shares in issue at 
          1 January                  27,132,660   2,713,266           26,952,660   2,695,266 
         Issue of ordinary shares     1,785,970     178,597              180,000      18,000 
         Share buyback                        -           -                    -           - 
         Issued under share option            -           -                    -           - 
          scheme 
                                                 ---------- 
         Total shares in issue at 
          31 December                28,918,630   2,891,863           27,132,660   2,713,266 
                                                 ----------                       ---------- 
 
 

The Company completed a reduction of capital, whereby the entire amount standing to the credit of the Company's share premium account was cancelled to create distributable reserves (the "Reduction of Capital"). The Reduction of Capital was formally approved by the High Court of Justice, Chancery Division, and the High Court order was filed with the Registrar of Companies on 18 January 2017. The purpose of the Reduction in Capital was to create distributable reserves to support the Board's dividend policy.

On 22 November 2017, pursuant to a share option agreement with Cenkos Securities plc ("Option Holder"), 180,000 shares of 10 pence each were exercised, and issued, to the Option Holder at a price of 83 pence each, giving rise to a share premium of GBP131,400.

On 31 January 2018, pursuant to a share purchase agreement between the Company and FiltaFry Deutschland GmbH, 10,970 shares of 10 pence each were issued to Chesskin Beheer B.V. at a price of 200 pence each, giving rise to a share premium of GBP20,843.

On 19 December 2018, the Company announced that it had raised gross proceeds of GBP3m from the issue of 1,500,000 Placing Shares at a placing price of 200 pence each, giving rise to a share premium of GBP2.85m.

On 24 December 2018, pursuant to a share purchase agreement between the Company and Watbio Holdings Limited, 275,000 shares of 10 pence each were issued to the sellers at a price of 200 pence, giving rise to a share premium of GBP522,500, to partially satisfy share consideration due as part of the total consideration paid for the business.

   29.     OTHER RESERVES 
 
        Group                                  2018        2017 
                                                GBP         GBP 
        Merger reserve                    (339,687)   (339,687) 
        Purchase consideration reserve      250,000           - 
        Share based payment reserve          79,634      43,786 
                                         ----------  ---------- 
                                           (10,053)   (295,901) 
                                         ----------  ---------- 
        Company 
 
        Purchase consideration reserve      250,000           - 
        Share based payment reserve          79,634      43,786 
                                         ----------  ---------- 
                                            329,634      43,786 
                                         ----------  ---------- 
 

Merger reserve

The directors consider the substance of the acquisition of the Subsidiaries by Filta Group Holdings plc is that of a combination of entities under common control and therefore it fell outside the scope of IFRS 3 (revised 2008).

Purchase consideration reserve

On 21 December 2018, the Company completed the acquisition of 100% of share capital of Watbio Holdings Limited. At 31 December 2018, consideration shares of GBP250,000 were due to the sellers and are expected to be issued and allotted in the first quarter of 2019.

Share based payment reserve

The Company established the Filta Group Holdings Enterprise Management Incentive Scheme in 2017 to award U.K. employees with equity settled share options. The options were granted on 5 May 2017 and vest equally over a three-year period beginning on 5 May 2019. The total charge recognised for share-based payments in respect of employee services received for the year ended 31 December 2018 was GBP79,634 (2017: GBP43,785).

   30.     FINANCIAL INSTRUMENTS 

Risk Management objectives and policies

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Filta Group's competitiveness and flexibility. Further details regarding these policies are set out below.

Management reviews its monthly reports through which it assesses the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

Market risk management

Management do not consider the company exposed to interest rate or inflation risks significant enough to have a material effect on the profitability of the company.

Foreign currency sensitivity

The Filta Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than Pounds Sterling. The currency giving rise to this risk is primarily the US Dollar. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level.

A majority of the Filta Group's financial assets and liabilities are held in Dollars and movements in the exchange rate against Sterling has an impact on both the results for the year and equity. The Filta Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue streams) and cash outflows in foreign currencies.

The following table demonstrates the sensitivity to a reasonably possible change in sterling against the US Dollar and Canadian Dollar with all other variables held constant.

 
                        Change in                Effect on               Effect 
                             rate            profit before            on equity 
                                                       tax                  GBP 
                                                       GBP 
         USD                 +10%                (176,751)              120,672 
                                   ----------------------- 
         USD                 -10%                  216,029            (147,488) 
                                   ----------------------- 
         CAD                 +10%                  (4,514)               17,100 
                                   ----------------------- 
         CAD                 -10%                    5,517             (20,900) 
                                   ----------------------- 
 

Interest rate sensitivity

The interest rate sensitivity has been determined based on the exposure at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the full year. All financial liabilities, other than financing liabilities, are interest free.

The following table analyses interest bearing loans and borrowings by fixed and floating mix.

 
                                    2018                   2017 
                                     GBP                    GBP 
 Floating GBP 
  LIBOR                        3,790,737                      - 
 Floating Base                         -                201,375 
 Fixed                           959,215                838,176 
 Total                         4,749,952              1,039,551 
 

As the Group has no significant interest-bearing assets, the Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's interest rate risk arises from its borrowings, chiefly its floating GBP LIBOR term debt. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

An increase or decrease of 100 basis points in each of the applicable rates would impact reported after-tax profit by GBP0.04m (2017: GBP0.002m) and equity by GBP0.04m (2017: GBP0.002m).

Credit risk management:

The Filta Group's exposure to credit risk, or the risk of counterparties defaulting, arises mainly from trade and other receivables. The Filta Group manages its exposure to credit risk by the application of credit approvals, credit limits and monitoring procedures on an ongoing basis. For other financial assets (including cash and bank balances), the Filta Group minimises credit risk by dealing exclusively with high credit rating counterparties.

As the Filta Group does not hold any collateral, the maximum exposure to credit risk is represented by the carrying amount of the financial assets as at the end of each reporting period.

Liquidity risk management:

The Filta Group currently holds cash balances to provide funding for normal trading activity. The Filta Group also has access to both short-term and long-term borrowings to finance capital expenditure requirements. Trade and other payables are monitored as part of normal management routine.

Categories of financial instruments:

The table below sets out the Group's classification of each of its financial assets and liabilities at 31 December 2018 All amounts are stated at their carrying value.

 
                                                                   2018        2017 
                                                                    GBP         GBP 
       Financial Assets 
        Loans and receivables: 
       Cash and cash equivalents                              6,789,968   4,031,174 
       Trade and other receivables (excluding prepayments)    4,585,002   2,451,072 
       Deposits                                                   2,491       2,343 
                                                             ----------  ---------- 
                                                             11,377,461   6,484,589 
       Financial Liabilities 
       Trade and other payables (excluding taxes)             6,096,520   1,337,984 
       Borrowings                                             4,749,952   1,105,976 
                                                             10,846,472   2,443,960 
 

The table below summarises the maturity profile (representing undiscounted contractual cash flows) of the Group's financial liabilities:

 
                              Less 
At 31 December                than          3 to        1 to            Over 
 2018                     3 months     12 months     5 years         5 years        Total 
                               GBP           GBP         GBP             GBP          GBP 
Trade and other 
 payables                6,026,750        17,308      52,462               -    6,096,520 
Expected future 
 interest payments          49,362       140,825     401,551               -      591,738 
Borrowings                  13,749       826,892   3,909,311               -    4,749,952 
Total                    6,089,861       985,025   4,363,324               -   11,438,210 
 
 
                               Less 
 At 31 December                than        3 to       1 to      Over 
  2017                     3 months   12 months    5 years   5 years      Total 
                                GBP         GBP        GBP       GBP        GBP 
 Trade and other 
  payables                1,290,679      16,038     31,267         -  1,337,984 
 Expected future 
  interest payments           8,762      43,229    162,694    42,356    257,041 
 Borrowings                  21,828     109,140    809,815   165,193  1,105,976 
 Total                    1,321,269     168,407  1,003,776   207,549  2,701,001 
 
   31.     RETIREMENT BENEFIT SCHEMES 

Defined contribution scheme

Since October 2016 the Group has operated a defined contribution retirement benefit scheme for all eligible employees in its U.K. subsidiary. The assets of the scheme are held separately from those of the group in funds under the control of the trustee. The subsidiary was required to contribute 1% of payroll costs, increased to 2% in April 2018, to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of GBP15,635 (2017: GBP9,062) represents contributions payable to the scheme by the Group at specified rates. Any contributions unpaid at the balance sheet date are included as an accrual at that date. The Group has no further payment obligations once the contributions have been paid.

   32.      SHARE OPTION SCHEME 

The Company maintains an EMI Share Option Scheme to incentivise executives and employees of Filta Group Holdings and its subsidiaries. For U.K. employees, Options have been awarded over a total of 442,500 ordinary shares, equivalent to 1.5% of the Company's current issued share capital. The options vest, subject to the satisfaction of certain conditions, over a period of 4 years from the date of grant. All options issued will meet the vesting conditions between 2019 and 2021 and are exercisable at any time after vesting and within 10 years from the grant date.

Additionally, all qualifying U.S. employees have been awarded share acquisition rights (SARs). The SARs are conditional bonuses whose value will be calculated by reference to the amount by which the price of the Company's ordinary shares has risen above the base price at the date of exercise, thus providing holders of SARs the same reward value as if the SARs were share options. The qualifying conditions and timing of vesting are identical to those within the share option scheme for UK employees. All SARs are settled in cash when exercised. A total of 360,000 SARs has been awarded.

In the ordinary course of business, an option will normally only be exercisable to the extent it has fully vested, and any applicable non-market performance conditions have been satisfied or waived. Options shall lapse to the extent unexercised on the tenth anniversary of the date of grant or such earlier date as specified by the Board at the date of grant.

As at 31 December 2018, a total of 540,000 (2017: 562,500) were outstanding, having a range of exercise prices from 0.97p to 1.74p (2017: 0.97p to 1.74p) and a weighted average exercise price of 1.01p (2017:1.03p). These outstanding awards have a weighted average contractual life of 8.33 years (2017: 9.13 years).

Movement in the number of share options outstanding during the year, including grant dates and grant price were as follows:

 
                                  Share       Share       Total 
                                  options   acquisition 
                                              rights 
                                --------- 
Outstanding at 1 January 
 2018                             232,500       330,000   562,500 
                                --------- 
Total granted during the                -             -         - 
 year 
                                --------- 
Forfeited during the year 
 (0.97p)                          (7,500)             -   (7,500) 
Forfeited during the year 
 (1.74p)                         (15,000)             -  (15,000) 
                                --------- 
Total forfeited during the 
 year                            (22,500)             -  (22,500) 
                                --------- 
Outstanding at 31 December 
 2018 (0.97p)                     180,000       330,000   510,000 
Outstanding at 31 December 
 2018 (1.74p)                      30,000                  30,000 
                                --------- 
Total Outstanding 31 December 
 2018                             210,000       330,000   540,000 
                                --------- 
Exercisable at 31 December              -             -         - 
 2018 
                                --------- 
 

During the year the Company recognised total expense of GBP302,506 (2017: GBP87,082) related to the fair value of the share-based payment arrangements. This included GBP35,849 (2014: GBP43,785) related to equity-settled share options and GBP266,657 (2017: GBP43,297) from cash-settled SARs. The SARs liability at 31 December 2018 was GBP309,954 (2017: GBP43,297).

These amounts were determined using the Black Scholes model, with the following assumptions for each type of award granted:

 
Stock Options 
Weighted average share price   108.0p 
Exercise price                  97.0p 
Risk free rate                  0.59% 
Dividend yield                   0.9% 
Volatility                     54.99% 
 
 
Share Appreciation Rights 
Weighted average share price   156.9p 
Exercise price                  97.0p 
Risk free rate                  1.83% 
Dividend yield                   0.0% 
Volatility                     53.41% 
 
   33.     RELATED PARTY TRANSACTIONS 

Remuneration of Directors and other transactions

The remuneration, interests and related party transactions with the directors of Filta Group Holdings plc and its subsidiaries (the "Directors") who are considered to be the key management personnel of the entity, are disclosed in Note 8.

Franchise rights

In 2012, The Filta Group, Inc. granted franchise rights for a prescribed territory to Roxanna Holdings Inc. Roxanna Holdings Inc., a company owned by Jason Sayers and Victor Clewes, directors of The Filta Group, Inc.

The rights were then assigned to EKS North Atlantic LLC, which is 50% owned by Roxanna Holdings and 50% by an unrelated 3rd party. During 2018, the related franchise operator purchased GBPNil of equipment and supplies from the company (2017: GBPNil).

On 16 January 2017 the franchise rights were sold by the related party entity to a non-related third party.

Notes payable to related party

On 31 January 2018, Filtafry Deutschland GmbH entered into notes totaling GBP48,201, bearing interest at 2.5%, with related parties. The notes mature on 31 January 2023 and include the right to repay early without penalty. These amounts are classified within borrowings.

Interest accrued on the notes amounted to GBP1,378 at 31 December 2018.

   34.     EVENTS AFTER THE REPORTING DATE 

There have been no material events subsequent to 31 December 2018, up to the reporting date, which would require adjustment to or disclosure in this report.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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