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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hss Hire Group Plc | LSE:HSS | London | Ordinary Share | GB00BVFD4645 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.26 | -3.06% | 8.24 | 8.10 | 8.48 | 8.32 | 8.30 | 8.30 | 276,286 | 16:35:09 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Equip Rental & Leasing, Nec | 332.78M | 20.48M | 0.0290 | 2.86 | 58.51M |
From Apr 2023 to Apr 2024
TIDMHSS
RNS Number : 6209X
HSS Hire Group PLC
27 April 2023
HSS Hire Group Plc
Second consecutive year of double-digit revenue growth, supported by launch of marketplace business
HSS Hire Group plc ("HSS" or the "Group") today announces results for the 52 week period ended 31 December 2022
Financial Highlights FY22 FY21 Change Like-for-like(2) change Continuing operations(1) (52 weeks to 31 December 2022) (53 weeks to 1 January 2022) --------------------------- -------------------------------- ------------------------------ ------- ------------------------ Revenue GBP332.8m GBP303.3m 9.7% 10.7% --------------------------- -------------------------------- ------------------------------ ------- ------------------------ Adjusted EBITDA(3) GBP71.6m GBP69.8m 2.6% 5.0% Adjusted EBITA(4) GBP32.0m GBP31.7m 1.0% 6.4% Adjusted profit before tax(5) GBP21.0m GBP10.7m 95% 130% Adjusted basic EPS 2.41p 1.25p 93% 130% --------------------------- -------------------------------- ------------------------------ ------- ------------------------ ROCE(6) 22.8% 22.1% 0.7pp Net debt leverage(7) - non IFRS16 0.8x 0.9x 0.1x Net debt leverage(7) - IFRS16 1.3x 1.5x 0.2x --------------------------- -------------------------------- ------------------------------ ------- ------------------------ Other statutory extracts (Underlying(9) ) Operating profit GBP26.6m GBP26.5m 0.4% 6.9% Profit before tax GBP18.9m GBP8.0m 138% 198% Basic EPS 2.90p 1.05p 177% 260%
Strong revenue performance driven by capital-light Services business
o Like-for-like(2) revenues 11% ahead of FY21
o Services revenue like-for-like growth of 14% with contribution margin increasing 0.8pp
o Rental revenue like-for-like(2) growth of 9% with fleet utilisation of 57%
GBP10m increase in Adjusted profit before tax alongside improved returns
o Like-for-like(2) Adjusted EBITDA and Adjusted EBITA up 5% and 6% respectively
o Significant increase in Adjusted profit before tax and Adjusted basic EPS reflecting continued growth, operational gearing and lower interest cost
o Technology-led, lower-cost operating model enabling further improvement in ROCE to 22.8% (FY21: 22.1%)
Robust balance sheet with leverage at 0.8x(10)
o Net debt(10) GBP41.5m (FY21: GBP45.4m) reflecting improved profitability and working capital management
o Strong free cash flow generation of GBP28.4m despite increased capex investment
o Recommending final dividend(11) of 0.37p bringing the total dividend for the year to 0.54p
Strategy implementation ahead of schedule with ProService business well positioned for growth
o Nine customers successfully transitioned to our HSS Pro self-service platform with average growth of 45% post migration and positive feedback. Strong pipeline of customers lined up to use the platform.
o Further investment in data-driven central sales team; delivered 10% revenue growth in Q4 22 with improving trend
o Training business delivered 16% growth and record profit levels, reflective of clear customer demand
o Low-cost builders merchant network expanded to 63 locations (December 21: 55), and delivered 22% growth on a same store basis(12)
o Continued technology enhancements improved enquiry conversion to 74% (FY21: 71%) with over 20% of transactions through our online channel
o Excellent progress with our 2040 Net Zero action plan, recognised with increases in all independent rating assessments
Current trading and outlook
o Q1 23 revenue growth, EBITDA and EBITA in line with management expectations
o Expanded ProService offer to include building materials through our merchant partner network and equipment sales including small tools
o Capex investment forecast in 2023 is expected to be GBP34-GBP38m including cGBP5m to support further delivery of our technology roadmap
o Management remains confident that full year EBITA will be in line with market expectations
Steve Ashmore, Chief Executive Officer, said:
" HSS achieved a second consecutive year of double-digit revenue growth in 2022 with our technology-led strategy continuing to deliver strong results. The business has been restored to full health, supported by motivated and engaged colleagues who are fully embracing our innovative customer-offering.
We continue to deploy new technologies across both HSS ProService and HSS Operations with all these initiatives remaining on track or ahead of plan. In ProService, our digital self-serve portal - HSS Pro - is delivering stronger than anticipated results. Our growing pipeline of customers waiting to be onboarded to the portal reflects the significant need and demand that exists for our evolving marketplace proposition and differentiates HSS in the fragmented building services market. For HSS Operations, our technology has enabled enhancement to the service we offer while efficiently managing our well invested fleet.
Our systems are also working to support our ESG agenda, allowing both HSS and our customers to make data driven choices on carbon emissions.
We have started 2023 well, building on the previous year's momentum, and our focus remains firmly on sustaining our growth and upholding our position as the technology frontrunner in our sector."
Notes
1) Results for FY22 and FY21 are on a continuing operations basis (excluding Laois Hire Limited and All Seasons Hire Limited sold in April 2021 and September 2021 respectively)
2) Like-for-like performance excludes the impact of the following in FY21: additional week's trading and non-recurring COVID related benefits associated with a business interruption insurance claim and the Republic of Ireland wage subsidy scheme. EPS measures normalised for the capital raise in FY20.
3) Adjusted EBITDA is defined as operating profit before depreciation, amortisation, and exceptional items. For this purpose depreciation includes the net book value of hire stock losses and write offs, and the net book value of other fixed asset disposals less the proceeds on those disposals
4) Adjusted EBITA defined as Adjusted EBITDA less depreciation
5) Adjusted Profit before tax defined as profit before tax excluding amortisation of brand and customer lists and exceptional items
6) ROCE is calculated as Adjusted EBITA for the 52 weeks to 31 December 2022 divided by the average of total assets less current liabilities (excluding intangible assets, cash and debt items) over the same period
7) Net debt leverage is calculated as closing net debt divided by adjusted EBITDA for the 52 weeks to 31 December 2022 (prior year 53 weeks to 1 January 2022).
8) Net debt leverage non-IFRS16 is calculated as closing net debt excluding non-hire equipment leases divided by adjusted EBITDA less right of use depreciation and interest on non-hire equipment for the 52 weeks to 31 December 2022
9) Performance excluding exceptional items (principally related to the Group legal restructure and subsequent strategy refresh)
10) Non-IFRS16 basis
11) All dividends will be paid in cash and no scrip dividend, other dividend reinvestment plan or scheme or currency election will be offered to shareholders. Ex-dividend date of 8 June 2023
12) Merchant locations open for comparable period in both FY22 and FY21
-Ends-
Disclaimer:
This announcement has been prepared solely to provide additional information to shareholders and meets the relevant requirements of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. This announcement should not be relied on by any other party or for any other purpose.
This announcement contains forward-looking statements relating to the business, financial performance and results of HSS Hire Group plc and the industry in which HSS Hire Group plc operates. These statements may be identified by words such as "expect", "believe", "estimate", "plan", "target", or "forecast" and similar expressions, or by their context. These statements are made on the basis of current knowledge and assumptions and involve risks and uncertainties. Various factors could cause actual future results, performance or events to differ materially from those described in these statements and neither HSS Hire Group plc nor any other person accepts any responsibility for the accuracy of the opinions expressed in this presentation or the underlying assumptions. No obligation is assumed to update any forward-looking statements.
Notes to editors
HSS Hire Group plc provides tool and equipment hire and related services in the UK and Ireland through a nationwide network of Group companies and third-party suppliers. It offers a one-stop shop for all equipment through a combination of its complementary rental and re-hire business to a diverse, predominantly B2B customer base serving a range of end markets and activities. Over 90% of its revenues come from business customers. HSS is listed on the AIM Market of the London Stock Exchange. For more information please see www.hsshiregroup.com .
For further information, please contact:
Hot Features
Premium
HSS Hire Group plc Tel: 020 3757 9248 (on 27 April
2023)
Steve Ashmore, Chief Executive Thereafter, please email: Investors@hss.com
Officer
Paul Quested, Chief Financial
Officer
Phil Golding, Head of Group Finance
Teneo
Tom Davies Tel: 07557 491 860
Charles Armitstead Tel: 07703 330 269
Numis Securities (Nominated Tel: 020 7260 1000
Adviser and Broker)
Stuart Skinner
George Price
CHAIRMAN'S STATEMENT
Dear Shareholder
I am delighted to report another year of strong results for HSS and further strategic progress that is setting us apart in our industry.
The Group is now producing consistently strong results and we continue to be driven by our vision: to be the market-leading, digitally-led brand for equipment services.
Our results
The Group has delivered further revenue growth and enhanced returns on capital. These results, which are outlined in more detail by our CFO, Paul Quested, in the CFO's Financial Review, have enabled us to maintain a strong balance sheet and we have been pleased to reinstate the dividend for shareholders earlier this year. The proposed final dividend payment of 0.37p reflects the continued confidence the Board has in the management team and its execution of our strategy.
Our strategic progress
The Board and management team see a great opportunity to address the ongoing challenges faced by both customers and suppliers in what is a very fragmented, digitally-immature and undifferentiated equipment hire market. With this opportunity in mind, we have executed three strategic priorities this year.
Firstly, on 3 July 2022 we completed the legal restructuring around our two divisions, HSS ProService and HSS Operations. ProService is an asset-light, technology-driven business and its formal separation gives it complete focus on successful customer acquisition and enquiry conversion. HSS Operations is an asset-owning fulfilment business focusing on delivering service, efficiency and the highest standards of health and safety. HSS Operations is a key supplier to ProService.
The second significant development this year is with our Brenda technology platform. Brenda has come a long way since we started its development in 2019 and we continue to make enhancements to extend its reach, taking advantage of its modular, scalable codebase. This year we have made improvements to one of its key interfaces, HSS Pro, which is a self-serve platform designed for larger customers, giving them widespread access to our products and services while enhancing controls and visibility over their purchasing.
Another major element of our technology journey this year has been the development of our extended offering on hss.com, which was launched in early 2023. I am confident this will drive further growth in Services revenue through better conversion and wider product penetration. Our CEO, Steve Ashmore, talks more about the roll-out of HSS Pro and the upgrade of hss.com in his CEO's Statement.
The third significant area of progress I wanted to highlight is the expansion of our Central Sales team. This initiative was made possible by the 2021 launch of HSS ProPOS. This is the Brenda technology interface designed specifically for colleagues, allowing them to access the full range of products and services on a single, easy-to-use platform accessible via a variety of devices. We have been able to build a highly productive, flexible and adaptive, strongly motivated Central Sales team driven by data insight. We now have over 40 individuals working in this structured environment, managing a portfolio of over 5,000 customers and achieving revenue growth through enhanced customer insight and cross-selling. We have recently upgraded our CRM tool to Microsoft Dynamics to further improve performance.
As in previous years, during FY22 we have been unwilling to rest on our laurels, continuing to push forward with technology enhancements and new ways of working. On behalf of the Board, I would like to thank our colleagues for their ongoing commitment and hard work.
ESG
This year the team has made considerable progress with our ESG agenda. We worked closely with specialist consultant Sustainable Advantage in the first half of FY22 to create a new ESG roadmap, with clear goals and governance ultimately overseen by the Board. The culmination of that activity was the publication of our first ESG Impact Report in June which set out our ESG objectives, including our Net Zero 2040 ambition.
I was delighted that EcoVadis, one of the global leaders in ESG accreditation, awarded us its silver medal at the first time of asking. This 'advanced' rating puts us in the top 10% of companies in our sector, and reflects the hard work and dedication put in by our colleagues in recent years. The continued progress with health and safety has also been pleasing to see, with improvements on all three metrics: RIDDORs, Lost Time accident and All Injury frequency rates in FY22. These are impressive results given the low levels already delivered in earlier years.
Our Board
We continue to benefit from a stable and experienced Board, with no Director having served for fewer than five years. We remain custodians of the HSS brand, supporting senior management with their strategic decisions, reviewing the Company's risk profile and monitoring progress in areas such as our ESG roadmap and technology development programme. The Board continues to engage with all stakeholders to ensure HSS operates with transparency, integrity and in the interests of our colleagues and stakeholders.
Dividends
We have been pleased to reinstate a progressive dividend policy this year, which is designed to ensure sustainability through the economic cycle, taking into account underlying profit generation and balance sheet strength.
Having considered the Group's outlook and financial position, and all stakeholders' interests, the Board is recommending a final dividend of 0.37p, making 0.54p for the full year. Assuming the dividend is approved at the Annual General Meeting, it will be paid on 14 July 2023 to shareholders on the register on 9 June 2023.
Outlook
We have seen several years of consistent results for the Group, and this momentum has continued into 2022. I would like to thank my fellow Board members for their support and express my gratitude to our colleagues for their hard work and contribution to our achievements over the year.
Our strategic progress, delivered by our colleagues and underpinned by technology, continues to set the Group apart and, combined with the strength of our balance sheet, positions us well for future transformational growth.
Alan Peterson OBE
Chairman
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to report on a strong performance for HSS and would like to extend my thanks to all my colleagues for their exceptional dedication to the Group and continued high level of engagement over the last year.
After a good set of results and significant strategic progress in FY21, we set out some ambitious goals for FY22 to improve returns further and continue differentiating our proposition to meet the converging needs of customers and suppliers in the building services sector. I am pleased to say the teams delivered on our plan and we are now very well positioned to maintain this momentum in FY23, with several of our technology developments now reaching fruition.
Our year in summary
Strong financial performance
We entered the year with positive trading momentum which carried through to FY22. Like-for-like revenues were approximately 11% ahead of the prior year, driven by increasing conversion rates, builders merchant growth and excellent Services performance.
Improved conversion rates were driven by the use of HSS ProPOS, the colleague interface of our technology platform Brenda. HSS ProPOS allows all sales colleagues to fulfil enquiries there and then on behalf of customers across our entire range of products, from small drills to large earth-moving equipment and site accommodation. This technology is now accounting for c60% of contracts raised and, as we roll it out further, we expect conversion rates to continue to grow.
The ongoing expansion of our builders merchant network also supported revenue growth. We continue to be very pleased with the performance of this channel and consistently receive positive feedback from our builders merchant partners who continue to grow in number. During FY22 we opened a further eight carefully selected locations which are performing well. Although we are very happy with our current network, we continue to look for opportunities to strengthen it.
In Q2 2022, we began to expand our central sales team following an outstanding performance from a newly established group of Business Development Managers who had been supporting a portfolio of several hundred customers since June 2021. Armed with our HSS ProPOS technology and incentivised to cross-sell, this team delivered over 3x revenue growth on its portfolios and significantly expanded share of wallet with these customers over a period of just 12 months. Since then, we have grown this highly productive, data-driven team to over 40 colleagues and we plan to grow it further in FY23.
Incorporation of HSS ProService
We changed our organisational model in FY21 forming the ProService and the HSS Operations teams. Following this, in H1 FY22 a key focus was the legal separation of these two divisions, which we completed on 3 July 2022. This now gives complete focus for each division, with ProService targeting customer acquisition and technology development, and HSS Operations concentrating on service, operational efficiency and safety.
Following additional development work on HSS Pro and a significant increase in product content covering our extended range, in October 2022 we rolled this platform out to our first major customer, a top 20 UK contractor. This has been a great success and we now have a pipeline of customers lined up to adopt this technology. Our largest customer, Amey, is due to migrate onto this platform as part of our recent contract extension.
The second technology milestone involves our website. We have consistently achieved industry-leading levels of web traffic to hss.com and have seen over 20% of orders consistently raised online since the pandemic. In May 2022, we were delighted to be awarded the Catalogue of the Year 2022 at the HAE & EHA Hire Awards, recognising the quality of the digital catalogue on HSS.com. At HSS we never stand still; we constantly strive to Make It Better, and with our website we were keen to improve the way we present our extended range.
Until recently, the transactional capability on hss.com was limited to HSS-owned products, with reduced product content, availability and pricing for products in our extended rehire range. Following the re-platforming of hss.com on Brenda, customers can raise orders across our entire range from small drills to large earth-moving equipment and site accommodation on our website, quickly and easily. This transformation mirrors the one we made in 2021 when we launched HSS ProPOS to our colleagues, giving them the same step change in access to equipment. Back then, we saw significant improvements in conversion rate and revenue growth, something we now expect to be repeated over the next year as customers increase their adoption of our online channel.
ESG roadmap
Following the ESG benchmarking review we carried out in FY21, we put in place a new ESG roadmap including a set of clear objectives for FY22. In Q1 FY22 we set up our ESG committee, conducted a materiality assessment across all stakeholders and commissioned a third party, Sustainable Advantage, to undergo a net zero assessment for us. This allowed us to agree a new set of objectives, including a Net Zero 2040 target, which we published in April in our FY21 Annual Report, and then subsequently in June in our first ever ESG Impact Report. The report sets out in more detail our plans and initiatives to achieve those objectives.
Since the publication of the Impact Report, our ESG committee has overseen the delivery of a series of initiatives that puts us on target to deliver our objectives. Our achievements this year are detailed in the ESG section, but would like to highlight four significant achievements:
1 In FY21 we transferred our electricity supply to renewable sources and, despite volatility
in the energy markets, we committed to retaining these during FY22. In December we were also
able to take the final step of transferring our Irish electricity supply to renewable sources.
-----------------------------------------------------------------------------------------------
2 The roll-out of Satalia route optimisation technology to our HSS Operations teams has delivered
a 14% reduction in mileage per job (FY22 versus FY21) and has reduced our carbon emissions
by over 195,696kg. Transport mileage is the major contributor to our scope 1 and 2 emissions,
so this is a significant step on our journey to net zero.
-----------------------------------------------------------------------------------------------
3 There has been an across-the-board improvement in our safety statistics to record levels.
Our RIDDOR rate improved from 0.11 to 0.02, Lost time accident frequency improved from 0.46
to 0.40 and our All Accident frequency rate improved from 3.68 to 3.24. Whilst we are very
proud of these improvements, we continue to strive for a zero-accident environment, and this
will remain a key priority in FY23.
-----------------------------------------------------------------------------------------------
4 We undertook our colleague engagement survey in November and I am pleased to say we had a
record level of responses, with a 92% completion rate (compared with 81% last year) and our
engagement score remained at our all-time high of 76%, well above the industry average of
50%. I believe it is so important to keep our teams engaged and this will continue to be an
area we focus on.
-----------------------------------------------------------------------------------------------
Given the progress made on our roadmap, we were delighted that EcoVadis classified us in its 'Advanced' category following a comprehensive audit of our ESG credentials this year. This puts us in the top 10% of companies in our industry.
I am excited about our ESG roadmap and, as Chair of our ESG Forum, look forward to personally driving this agenda over the coming years.
Amey renewal
At the end of the year we were delighted to agree a contract extension that will see us working with our largest customer, Amey, for another two years. We have operated a managed service contract for Amey since 2016, inheriting its supply chain and consolidating its equipment requirements through a single HSS team. Amey values the one-stop shop solution we offer and the additional controls and visibility the HSS team provides. As part of the extension we have agreed to migrate the services onto HSS Pro to drive additional benefits for Amey and we are currently rolling this out.
Strategy
We continue to see significant opportunity in our market, and we remain focused on the three objectives outlined in last year's Annual Report:
1 CAPITALISING ON CONVERGING CUSTOMER AND SUPPLIER REQUIREMENTS ------------------------------------------------------------- 2 TAKING ADVANTAGE OF MARKET CONDITIONS ------------------------------------------------------------- 3 CONTINUING TO DIFFERENTIATE OUR OFFERING -------------------------------------------------------------
Capitalising on converging customer and supplier requirements
Significant challenges persist in the equipment rental market for customers and suppliers; both experience difficulties and high costs associated with transactions. Customers have broad requirements and consequently must access lots of suppliers, frequently struggling to control their expenditure. They have high administration costs, frequently experience invoicing issues, and often have limited buying power.
Similarly, suppliers, ranging from local specialist plant hirers to national generalist hirers, have lots of end markets to serve, many customers to target but most have a lack of reach. There are large acquisition costs associated with targeting the market and returns can be limited by underutilised resources.
We believe we can address these challenges through our technology-led business model. We provide one place for all buying needs and managing the order lifecycle, offering central visibility and control. Customers benefit from our buying power, and they receive one invoice which is accurate to their actions.
Suppliers have one place where they can access thousands of customers, benefiting from our brand recognition, website traffic and credit management controls. They receive a single monthly payment and drastically reduce their administration costs whilst enhancing their utilisation and returns.
Our network of suppliers drives excellent availability, making our solution more attractive to customers, which in turn drives further opportunity for suppliers. We believe that, by focusing on the needs of customers and suppliers, we can deliver significant growth.
Taking advantage of market conditions
The GBP5.7bn equipment rental market in the UK is highly fragmented with approximately 4,000 suppliers, the biggest of which represents only c10% of the market. Market consolidation is difficult, requiring large deployment of capital with no guarantees of share gain. The barriers to entry are small so consolidation of smaller players can often be followed by their re-emergence. There is also limited differentiation with most suppliers offering the same brands of equipment in particular categories, with similar delivery and collection service levels.
We believe our business model takes advantage of these market conditions, offering an alternative, low-capital way of bringing together fragmented supplier and customer bases through a single platform ensuring simple, fast, and frictionless user journeys. We are committed to scaling up our business to drive customer retention and supplier adoption and we see opportunities to replicate the model across other product verticals such as training and equipment sales.
Continuing to differentiate our offering
We are differentiated by our technology, our scale and our operating model.
Technology is the key to our operating model, enabling the rapid matching of customers' and suppliers' needs, addressing their challenges and driving down their costs. Our technology development roadmap focuses on three areas that enhance our differentiation:
Providing suppliers and customers with greater control and visibility by enhancing our self-serve 1 user interfaces ------------------------------------------------------------------------------------------------- 2 Adding product verticals beyond equipment hire to improve the one-stop shop proposition ------------------------------------------------------------------------------------------------- 3 Deploying our technology amongst our salesforce to make every customer touchpoint more effective -------------------------------------------------------------------------------------------------
The combined scale of our customer and supplier networks provides a significant barrier for technology-focused new entrants to our market. We will continue to broaden and deepen our supplier network to drive greater availability and customer retention, whilst reinforcing our advantage.
Our operating model is unique. The legal restructuring around HSS ProService and HSS Operations gives complete focus for each division, with ProService targeting customer acquisition, enquiry conversion and technology development, and HSS Operations concentrating on service, operational efficiency and safety.
Outlook
The Group has good momentum and a healthy balance sheet following several years of strong performance. We have an operating model and technology platform that set us apart from the competition and believe we can take significant market share by persistently seeking to address the long-established challenges faced by customers and suppliers in our market.
Our technology is well established and we have an exciting roadmap to evolve it further. Our team is highly engaged and motivated to deliver on our ambitions. We have the scale of both customer and supplier networks, with significant opportunity to increase share of wallet with customers and improve utilisation for suppliers.
Whilst the UK economy faces headwinds in 2023, we believe our team is in great shape and we have the right organisational structure to create clarity of direction for our colleagues. In a challenging market our one-stop shop proposition aimed at reducing customers' procurement costs will be particularly attractive, continuing to differentiate us from peers.
We continue to target Services revenue growth of 10ppts above the market and I remain excited about the prospects for the Group in FY23.
Once again, I would like to thank all my colleagues for their efforts during FY22.
Steve Ashmore
Chief Executive Officer
FINANCIAL REVIEW
STRONGER BALANCE SHEET, WELL POSITIONED FOR GROWTH
The Group has achieved another year of excellent financial results. Double digit like-for-like revenue growth combined with effective price and cost management, has enabled a step change in profit before tax.
GBPm FY22 FY21 FY22 versus FY21
------------------------------ --------- ----- ----- ----------------
Revenue Rental 206.2 191.2 7.9%
------------------------------
Services 126.6 112.1 12.9%
Group 332.8 303.3 9.7%
---------------------------------------- ----- ----- ----------------
Contribution(2) Rental 138.4 132.6 4.4%
------------------------------
Services 19.3 16.2 18.9%
Group 157.7 148.8 6.0%
---------------------------------------- ----- ----- ----------------
Adjusted EBITDA(3) 71.6 69.8 2.6%
Adjusted EBITA(3) 32.0 31.7 1.0%
Adjusted profit before tax(3) 21.0 10.7 95.4%
----------------------------------------- ----- ----- ----------------
1 Results are for continuing operations and on a reported basis (with FY21 having an extra week of trading).
2 Contribution is defined as revenue less cost of sales (excluding depreciation and exceptional items), distribution costs and directly attributable costs (for each segment).
3 These measures are not reported on a segmental basis because branch and selling costs, central costs and exceptional items (non-finance) are allocated centrally rather than to each reportable segment.
Overview
FY22 has been another positive year for the Group, delivering double-digit revenue growth and a significant increase in profit before tax, all against the backdrop of well-documented global inflationary pressures. As always this is testament to the hard work and commitment demonstrated by each and every colleague across the business.
Our revenue performance was underpinned by continued technology development with GBP5.6m invested in FY22, further embedding relationships with our builder merchant partners and efficient hire fleet investment, leveraging insight from our various tools which has enabled asset utilisation and ROCE to increase again. Despite significant inflationary pressures, effective price management and cost control has enabled EBITA margins to be maintained at an underlying level.
Following FY21's successful refinancing, our interest expense has materially reduced which has supported a step change in profit before tax of GBP10.5m and basic earnings per share more than doubling. Based on the Group's cash generation, net debt has reduced further with leverage now at 1.3x. Our strong balance sheet and continued positive trajectory supported another major milestone for the Group in FY22 with the reintroduction of a dividend. As part of a progressive dividend policy, the Board are recommending a final dividend.
We also successfully legally restructured the Group in FY22 into HSS ProService (focussed on customer acquisition and enquiry conversion) and HSS Operations (focussed on service, efficiency and returns). The final operational changes were made at the start of FY23, including rebasing our internal reporting around the new structures and, as such, will adapt our segmental reporting to reflect this going forward.
We have our technology, organisation and balance sheet in place and, through the flexible, low-cost, scalable model we are well positioned for growth.
Revenue
Group revenue grew by 9.7% to GBP332.8m (FY21: GBP303.3m), driven by growth in both our Rental and Services businesses as we continue to effectively execute our strategy.
Group revenue growth is one of our KPIs as, combined with estimates of market size and growth rates, it provides us with a measure of our market share.
Segmental performance
Rental and related revenues
Our Rental revenues grew as we continued to drive improved conversion through HSS Pro, expanded the builders merchant network to 63 (December 2021: 55) and increased hire fleet investment where customer demand and returns were strong. Revenues grew 7.9% to GBP206.2m (FY21: GBP191.2m) and accounted for 62% of revenue (FY21: 63%). Rental and related revenues is one of our KPIs.
Contribution, defined as revenue less cost of sales (excluding depreciation and exceptional items), distribution costs and directly attributable costs, of GBP138.4m (FY21: GBP132.6m) was up 4.4%.
Services
Services revenues increased by 12.9% to GBP126.6m (FY21: GBP112.1m), accounting for 38% (FY21: 37%) of Group revenue. Customers continue to value the one-stop shop that our Services division provides and our technology platforms, supported by a large network of supply chain partners, are making every transaction even easier and therefore enabled exceptional growth in the financial year.
Combined with effective margin management through our Brenda platform, contribution from Services increased 18.9% to GBP19.3m (FY21: GBP16.2m).
Costs
Our cost analysis set out below is on a reported basis and therefore includes exceptional costs.
Our cost of sales increased by 12.6% to GBP164.7m (2021: GBP146.3m) reflecting increased sales through our Services division and the impact of higher fuel costs.
Distribution costs increased by GBP8.4m to GBP30.3m (2021: GBP21.9m) mainly due to revenue growth, higher vehicle costs (including rising fuel and maintenance costs), along with higher salaries, mainly from the one off cost of living payments to colleagues.
Administrative expenses increased by GBP12.1m, principally due to exceptional items. On an underlying basis, costs increased by GBP1.4m mainly due to investment in the central sales team as part of the strategy and inflation including one off cost of living payments made to colleagues.
Adjusted EBITDA and Adjusted EBITA
Our Adjusted EBITDA for FY22 was 2.6% higher at GBP71.6m (FY21: GBP69.8m) driven by improved revenue through our lower-cost operating model. Adjusted EBITDA margins reduced to 21.5% (FY21: 23.0%) reflective of the increased mix of revenue through our Services division. Adjusted EBITDA and EBITDA margin are included in our KPIs.
Our Adjusted EBITA for FY22 was 1.0% higher at GBP32.0m (FY21: GBP31.7m), a combination of improved EBITDA, partly offset by increased depreciation. Adjusted EBITA margin decreased 0.8pp to 9.6% (FY21: 10.4%). Adjusting for non-recurring items in FY22 (cost of living payments) and FY21 (Covid-19 related one off benefits), underlying margins were flat. Adjusted EBITA and EBITA margin are included in our KPIs.
Other operating income
Total other operating income of GBP0.5m relates to sub-lease rental and service charge income related to non-trading properties. This compares with GBP1.7m in FY21 which included GBP1.2m of insurance proceeds following a successful claim under our business interruption policy.
Operating profit
Our operating profit decreased by GBP10.1m to GBP24.4m (FY21: operating profit GBP34.5m). This was mainly due to the exceptional items. Excluding such items, operating profit increased GBP0.1m.
Exceptional items
Exceptional costs totalled GBP2.4m. This included costs of GBP3.2m to complete the Group's legal restructuring around its two core divisions of ProService (sales acquisition) and HSS Operations (fulfilment) and the subsequent ProService strategy refresh including evaluating options to create increased shareholder value. These costs were partly offset by exceptional credits of GBP0.8m from the release of onerous contract and property provisions.
Finance costs
Net financial expense decreased significantly to GBP7.8m (FY21: GBP28.5m). The charge for FY21 included GBP9.7m of exceptional costs associated with the early prepayment of the Group's senior finance facility as part of the successful refinancing completed in November 2021. The new debt facility is lower in quantum and at significantly reduced interest rates. As such ongoing finance expenses are materially lower.
Taxation
The Group had a tax credit for the year of GBP3.9m (FY21: GBP1.2m).
Deferred tax assets have been recognised to the extent that management considers it probable that tax losses will be utilised in the short term. In FY22 a three-year (FY21: one-year) recognition window has been applied.
Reported and adjusted earnings per share
Our basic and diluted earnings per share, both on a reported and adjusted basis, significantly improved in FY22 driven by the improved performance of the business and the significantly reduced annual interest charge from the successful refinancing.
Prior period restatement
Following a review of the accounting treatment of hire equipment subsequently financed by hire purchase agreements, a reclassification i) from Right of Use assets to Property, Plant and Equipment and ii) lease liabilities to borrowings has taken place. There is no impact on the Group's income statement, reserves or net assets.
Capital expenditure
Additions to Intangible assets, Property, Plant and Equipment and Right of Use hire equipment in the year were GBP43.8m (FY21: GBP34.2m). Investment in technology to support the strategic growth of the business totalled GBP5.6m (FY21: GBP4.3m). Investment in hire fleet to support our Rental business was GBP32.7m (FY21: GBP27.1m) with decisions informed from our insight tools to maximise returns.
Return on capital employed
Our ROCE for FY22 was 22.8%, an increase of 0.7ppts over FY21. The expansion of our capital-light technology-led operating model underpinning this performance. ROCE is one of our KPIs.
Trade and other receivables
Gross trade debtors increased 5% over FY22 as revenue increased throughout the financial year. A strong focus on cash collections is core to the business and forms part of colleagues' objectives. Despite this focus on collections, macroeconomic uncertainty remains and, as such, we continue to provide at levels above the historic loss rate. The evolving situation is monitored on an ongoing basis.
Provisions
Provisions reduced GBP2.5m to GBP21.3m (FY21: GBP23.8m). The vast majority of this reduction relates to the ongoing annual payments related to the onerous contract associated with Unipart.
Cash generated from operations
Net cash generated from operating activities was GBP39.0m, a decrease of GBP5.6m compared to FY21. The benefit from improved profit before tax and lower interest costs offset by increased hire equipment investment to support the growth of our Rental division and working capital movements.
Leverage and net debt
Net debt reduced GBP10.3m to GBP94.3m (FY21: GBP104.6m) and at 31 December 2022 the Group had access to GBP84.0m (1 January 2022: GBP78.1m) of combined liquidity from available cash and undrawn borrowing facilities. With the improved adjusted EBITDA and lower net debt, leverage reduced to 1.3x (FY21: 1.5x). Leverage or Net Debt Ratio is one of our KPIs.
Use of alternative performance measures to assess and monitor performance
In addition to the statutory figures reported in accordance with IFRS, we use alternative performance measures (APMs) to assess the Group's ongoing performance. The main APMs we use are Adjusted EBITDA, Adjusted EBITA, Adjusted profit before tax, Adjusted earnings per share, leverage (or Net Debt Ratio) and ROCE, which are included in our KPIs.
We believe that Adjusted EBITDA, a widely used and reported metric amongst listed and private companies, presents a 'cleaner' view of the Group's operating profitability in each year by excluding exceptional costs, finance costs, tax charges and non-cash accounting elements such as depreciation and amortisation.
Additionally, analysts and investors assess our operating profitability using the Adjusted EBITA metric, which treats depreciation charges as an operating cost to reflect the capital-intensive nature of the sector in which we operate. This metric was used in FY22 to calculate annual bonuses payable to Executive Directors.
Adjusted profit before tax was modified during FY22 to include amounts relating to amortisation of software. Comparative figures have been restated to reflect this change.
Analysts and investors also assess our earnings per share using an adjusted earnings per share measure, calculated by dividing an adjusted profit after tax by the weighted average number of shares in issue over the period. This approach aims to show the implied underlying earnings of the Group. The Adjusted profit before tax figure comprises the reported profit before tax of the business, amortisation of customer relationships and brands related intangibles as well as exceptional costs added back. This amount is then reduced by an illustrative tax charge at the prevailing rate of corporation tax (currently 19%) to give an adjusted profit after tax.
In accordance with broader market practice, we comment on the amount of net debt in the business by reference to leverage (or Net Debt Ratio), which is the multiple of our Adjusted EBITDA that the net debt represents.
We use ROCE to assess the return (the Adjusted EBITA) that we generate on the average tangible fixed assets and average working capital employed in each year. We exclude all elements of net debt from this calculation.
Paul Quested
Chief Financial Officer
RISK management
Managing RISK and Uncertainty
Effective risk management underpins everything we do at HSS and is embedded within our culture as a business. We employ a comprehensive risk management process to identify, assess and mitigate risks to ensure we deliver on our strategic objectives.
Ownership
The Board has overall responsibility for the business strategy and managing the risk associated with its delivery, setting the risk appetite, tolerance and culture to achieve goals. The Audit Committee plays a key supporting role through monitoring the effectiveness of risk management and the control environment, reviewing and requesting deep dives on emerging risk areas and directing and reviewing independent assurance.
The Group's Executive Management Team (EMT) has overall responsibility for day-to-day risk management. Mark Shirley, HSS's Risk and Assurance Director, maintains the Group's risk register which is reviewed in detail by the EMT on a quarterly basis with changes to the risk landscape, assessment and mitigating actions agreed.
Identification And Assessment
Risks are identified through a variety of sources, both internal and external, to ensure that developing risk themes are considered. This process is focused on those risks which, if they occurred, would have a material financial or reputational impact on the Group.
Management identifies the controls in place for each risk and assesses the impact and likelihood of the risk occurring, taking into account the effect of these controls, with the result being the residual risk. This assessment is compared with the Group's risk appetite to determine whether further mitigating actions are required.
All risks have an overall EMT owner responsible for the day-to-day management. Health and safety and ESG are key areas in our industry and as such require collective ownership to continually improve. There is an established Executive Health and Safety Forum which is made up of the EMT, Operational Managing Directors and the Risk and Assurance Director. The forum meets bi-monthly (and more frequently if required) to review trends, incidents and issues. For ESG we have two committees, a CEO-led ESG Forum that is responsible for communication, engagement and evaluation of risks and opportunities, and an ESG committee that oversees improvement actions and monitors progress.
Monitoring
The Risk and Assurance Director reports and meets with the EMT monthly to review the findings of risk-based assurance activity. Risk-based assurance work is then reported to the Audit Committee on a quarterly basis for review.
How we manage risk
We adopt a three lines of defence model for managing risk, providing the Board and the EMT with assurance that risk is appropriately managed. This is achieved by dividing responsibilities as follows:
-- The first line of defence - functions that own and manage risk.
-- The second line of defence - functions that oversee or specialise in specific risk such as Health, Safety, Environment and Quality (HSEQ), performance reporting, and control risk self-assessment (CRSA) audits undertaken by regional management.
-- The third line of defence - functions that provide independent assurance, in the HSS case primarily internal audit.
Culture and values
The Board is cognisant that risk management processes alone are not enough to mitigate risk, and behaviour is a critical element in risk management. The wellbeing of our colleagues, the drive and skill sets they bring and the training and environment we provide are key to our success. These are underpinned in the HSS values, which are vital in us achieving our strategy as well as mitigating the risks associated with it.
Macroeconomic risk
Global inflationary pressures and associated interest rate increases have impacted macroeconomic risk in FY22. The conflict in Ukraine, pandemic recovery and Brexit have contributed to labour shortages, inflation and interest rate rises.
This risk in FY23 will be closely monitored for its effect on demand and colleague welfare so that we can take appropriate actions. In FY22 two separate payments were made to colleagues earning below GBP35,000 to help offset the effects of inflation.
ESG risk
As part of the Group's commitment to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), climate related risks and opportunities have been considered across multiple timeframes. These will be integrated into our standard risk processes in FY23.
fy22 risk management developments
The Group has continued to improve its approach to the management of risk and assurance throughout the year. The focus in FY22 was on enhancing and leveraging our reporting and technology, supporting the Group's strategic technology roadmap delivery, and working more collaboratively with outside specialists to better understand and manage risk.
-- Worked with specialist ESG partners to establish targets and an implementation plan, supporting governance process. As a consequence of this work, we achieved Silver medal status with EcoVadis, the globally recognised sustainability rating - ranking the Group in the 91st percentile for the industry.
-- Increased the amount of guidance, reference and training material accessible to colleagues through mobile technology (The Gateway), to ensure that help is always available to remote colleagues such as drivers.
-- Enhanced EMT review process of audit work and risks to improve the speed of response to emerging issues.
-- Started our path to ISO 27001 Information Security Management accreditation, completing our stage 1 audit.
-- Increased internal audit engagement in assessing and shaping controls for new processes and systems, conducting audits on new technology, and adding audits focused on merchants and virtual branches.
-- Developed succession plans for risk and assurance colleagues covering internal audit and HSEQ. Training was introduced on incident management across both teams to increase geographic coverage.
FY23 planned improvements to risk management
Significant progress has been made in the last year developing reporting tools and guidance, and reference material available on mobile devices. The focus in FY23 is on broadening the organisation's risk and assurance capacity and capability to increase coverage as well as ensuring flexibility to evolve with our changing business.
-- Achieve ISO 27001 Information Security Management accreditation and work with third parties to continually enhance cyber risk management.
-- Broaden the focus, flexibility and skill set of HSEQ, Internal Audit and Operational Management through training and knowledge sharing. This includes the roll-out of incident management and investigation training to operational management.
-- Improve the quality of branch standards and service CRSA audits performed by regional managers by aligning to Internal Audit specific location audits.
-- Introduce audits relating to the new central sales team, adapting approach to the changing needs of the business and allowing direct comparison with physical locations.
-- Establish monitoring of our approved SBTi's to support our journey to net zero.
-- Increase the size of our supply chain auditing team to ensure all suppliers are aligned with our expected standards and supporting the business strategic growth.
PRINCIPAL RISKS AND UNCERTAINITIES
Key risk Description and impact How we mitigate What we have done in FY22
1. Macro-economic The Group's sales and The Group is not The business brought
conditions profits, either volume or over-exposed to any one forward capital expenditure
price, are adversely area or segment. in Q1 to mitigate against
Risk Movement: impacted by any decline Ongoing monitoring and supply issues and
None in the macroeconomic modelling of performance, inflationary pressures.
Owner: environment. which is reviewed Price increases clearly
Steve Ashmore (Chief Global inflationary regularly by the EMT. communicated to customers.
Executive Officer) pressures and associated Lower and flexible cost Maintained tight cost
interest rate increases operating model, control measures.
impact on demand and mitigating against any Reverse stress test impact
therefore financial downturn in future of economic slowdown and
performance. demand. higher inflation.
Mitigating action plans
developed to respond to
uncertain macroeconomic
environment.
---------------------------- ---------------------------- ----------------------------
2. Competitor challenge A highly competitive and Differentiated technology Increase in technology
fragmented industry, with platforms, including investment leading to the
Risk Movement: the chance that increased fully integrated launch of HSS Pro
None competition could self-serve interfaces for (self-service platform)
Owner: result in excess customers, suppliers and and cash on HSS ProPOS
Steve Gaskell (Group capacity, therefore colleagues, providing (allowing cash customers to
Strategy Director) creating pricing pressure fast and efficient user transact through our Brenda
and adverse impacts on journeys. technology)
planned Through our continually in Q4 FY22. In addition, a
growth. expanding supply chain, significant amount of
the Group gives customers development has gone
a one-stop shop towards the
providing access to a re-platforming of hss.com
huge range of products onto Brenda, which we plan
and complementary to roll out in FY23,
services such as training extending the range
courses. of products online.
Our organisational Expansion of the builders
structure allows for merchant network, growing
strong focus on sales to 63 branches, increasing
acquisition. local presence
We have a low-cost in key markets.
operating model, The completion of the legal
providing national restructuring around HSS
coverage from 38 CDCs, 35 ProService and HSS
branches Operations, which
and 63 flexible builders we completed on 3 July
merchants. 2022, will provide complete
focus for each division;
ProService targeting
customer acquisition and
enquiry conversion and
Operations concentrating on
service, operational
efficiency and safety.
Expansion of our supply
chain to 700+ suppliers.
---------------------------- ---------------------------- ----------------------------
3. Strategy execution Failure to successfully A clearly defined and Our strategic aims were
implement the Group's communicated strategic supported by five
Risk Movement: strategic plans could plan is in place. underpinning projects
None lead to lower than Clear governance focused on: technology,
forecast structure, with defined sales
Owner: financial performance in accountabilities. Each acquisition, standout
Steve Gaskell (Group terms of both revenue strategic initiative is service, legal restructure
Strategy Director) growth and cost savings. sponsored and ESG.
by an EMT member. The legal restructure of
Implementation of individual businesses was
projects is monitored by completed in July, which
the EMT, including will drive greater
resource allocation. focus for our management
Regular updates, teams.
including initiative The standout service
specific deep dives, project was completed with
provided to the Board. the full roll-out of
Satalia software nationally
and the associated
improvement in vehicle
efficiency and carbon
savings.
Our ESG project achieved
all its initial milestones.
This initiative will
continue into FY23
and beyond with a clear set
of milestones.
Similarly, our technology
and sales acquisition
projects made significant
progress and continue
into FY23.
Created our strategic
project plan for FY23 with
clear milestone plans to
deliver.
---------------------------- ---------------------------- ----------------------------
4. Customer service The provision of the National reach and The risk description has
Group's expected service presence through CDCs, been widened to cover the
Risk Movement: levels depend on its branches, builders importance of managing
None ability to efficiently merchant partners and customer relationships
transport the hire fleet online. to ensure we are
Owner: across the network to Diverse range of rehire appropriately paid for
Tom Shorten (Chief ensure it is in the right suppliers provides services provided.
Commercial Officer) place, at the right ongoing flexibility to Expansion of the merchant
time and of the ensure continuity of model to 63 current
appropriate quality. supply locations.
Management of customer for customers. Refining of new routing and
relationships is Clear business continuity scheduling software. We
important to ensure plans to maintain supply. have reduced our mileage by
appropriate payment is Extensive and continued c12%, saving
received training to ensure on average one mile per
for the quality of testing and repair job.
service provided. quality standards are Central sales team
Any disruption in supply, maintained. expansion, increasing
quality or relationship Audits and reporting engagement with customers.
management can reduce covering quality,
revenue and drive contracts and complaints.
additional costs into the Business accreditations
business. are maintained, including
ISO 9001, providing
customers with confidence
in the quality of the
services provided.
---------------------------- ---------------------------- ----------------------------
5. Third party reliance A significant amount of Third party rehire Plans initiated to increase
Group revenue is derived suppliers are subject to supplier audit
Risk Movement: from the Services rigorous onboarding capabilities, matching the
None business which is processes. growth in the supply
dependent Each supplier is subject chain.
Owner: on the performance of to demanding service Refinement of supplier
Tom Shorten (Chief third party service level agreements with onboarding and audit
Commercial Officer) providers. performance monitored processes to cover ESG.
Other third parties, such on an ongoing basis.
as builders merchants, The wide and diverse
are an increasingly range of rehire suppliers
important part of the provides flexibility to
operating model. select those who meet
If any third parties required service levels.
become unable to provide Extensive commercial and
reliable equipment, risk assessment process
refuse to fulfil their undertaken before and
obligations after entering into
or violate laws or a relationship with a
regulations, there could builders merchant, or
be a negative impact on opening a new location.
the Group's operations
leading to an adverse
impact on profitability
and reputation.
---------------------------- ---------------------------- ----------------------------
6. IT infrastructure The Group requires an IT Third party specialists Cyber security enhancements
system that is are used to assess the such as multi-factor
Risk Movement: appropriately resourced appropriateness of IT authentication (MFA) for
None to support the business. controls, including the all remote access
An risk of malicious or and enhanced processes for
Owner: IT system malfunction may inadvertent security joiners, movers and leavers
Paul Quested (Chief affect the ability to attacks. implemented.
Financial Officer) manage operations and Firewalls, antivirus Enhanced patching policy
distribute hire equipment software, endpoint and process.
and service to customers, detection and clean up ISO 27001 stage 1 audit
affecting revenue and tools are used to protect completed, and Cyber
reputation. against Essentials certification
An internal or external malicious attempts to achieved.
security attack could penetrate the business IT
lead to a potential loss environment and remove
of confidential malware or similar
information agents.
and disruption to Procedures to update
transactions with supplier security
customers and suppliers. patches.
Regular disaster recovery
tests conducted and
appropriate back-up
servers to manage the
risk
of primary server
failure.
Cross-departmental Data
Governance Team to ensure
that business processes
are, and continue
to be, adequate.
Ongoing resilience and
penetration testing.
---------------------------- ---------------------------- ----------------------------
7. FINANCIAL To deliver its strategic Working capital A strong balance sheet,
goals the Group must have management with cash lower debt and underlying
Risk Movement: access to funding at a collection targets (which interest cost mitigated the
None reasonable cost. roll up into our net debt impact of higher
Some customers may be KPI). interest costs, with every
Owner: unwilling or unable to Extensive credit checking 1% increase in the base
Paul Quested fulfil the terms of their for account customers rate increasing the
(Chief Financial Officer) rental agreements. with strict credit interest charge by
Bad debts and credit control over a cGBP0.7m.
losses can arise due to diversified Invested in additional
service issues or fraud. customer base. resource to improve debt
Unauthorised, incorrect Credit insurance in place management.
or fraudulent payments to minimise exposure to Developed and embedded
may lead to financial larger customer default dispute management modules
loss or delays which risk. to ensure invoices are paid
could affect Investigation team when they fall
relationships with focused on minimising due.
suppliers and lead to a Group's exposure to
disruption in supply. fraud.
High inflation leads to Clearly defined
base interest rate authorisation matrix
increases and therefore governing payments and
adversely impacts cash amendments.
flow.
---------------------------- ---------------------------- ----------------------------
8. Inability to attract, The Group needs to ensure Market rates are A refreshed ED&I strategy
train and retain personnel the appropriate human regularly benchmarked to launched.
resources are in place to ensure competitive pay Refresh of employer brand
Risk Movement: support the existing and benefits packages. and recruitment practices,
None and future growth of the Training for colleagues including a new careers
business. is provided at all levels website and the
Owner: Failure to attract and to build capability and introduction of a one-click
Max Morgan retain the necessary improve compliance. application process to
(Group HR Director) high-performing Training is role related, attract diverse talent.
colleagues could and behaviour focused, Two payments made to
adversely impact via blended learning. colleagues to provide
financial performance. Colleague engagement support with rising prices
Global inflationary surveys are conducted, and interest rates.
pressures impact ability with actions taken as a
to retain colleagues. result of feedback.
Recruitment programmes
working with third
parties such as prisons
offering opportunities to
ex-offenders,
Initiatives such as Earn
as you Learn.
---------------------------- ---------------------------- ----------------------------
9. Legal and regulatory Failure to comply with Robust governance is Stepping up of ESG
requirements laws or regulation, maintained within the activities, including
leading to material Group, including a strong introduction of both a
Risk Movement: misstatement and financial structure, Committee and Forum which
Decreasing potential assurance provision from regularly meet.
legal, financial and internal and external Refresher training
Owner: reputational liabilities audit, and employment of completed by colleagues
Daniel Joll (General for non -- compliance. internal specialist relating to cyber security.
Counsel) expertise supported by Significant internal
suitably qualified and reorganisation project
experienced external completed to simplify the
practitioners. Group structure, liquidate
Training and awareness various subsidiaries and
programmes focusing on reduce administrative
anti-bribery, anti-modern burden and compliance
slavery, requirements.
anti-facilitation
of tax evasion and data
protection legislation.
Whistleblowing process in
place providing
colleagues with the
ability to raise
non-compliance
issues.
---------------------------- ---------------------------- ----------------------------
10. Safety The Group operates in Clear Health and Safety A review and refresh of
industries where safety policy with ongoing risk driver training was
Risk Movement: is paramount for management and monitoring undertaken with additional
None colleagues, customers and of accidents and reference material
the incidents. and reporting information
Owner: general public. Health and Safety made available to support
Steve Ashmore (Chief Failure to maintain high leadership forum chaired drivers to undertake their
Executive) safety standards could by the CEO and comprising role safely.
lead to the risk of senior managers with Increased safety
serious injury or death. responsibility for communication, including
setting direction and three dedicated safety
monitoring progress. weeks held to promote safe
Fully skilled HSEQ team working.
and internal Launched 'The Gateway', a
investigators providing one-stop health and safety
assurance and support. portal for reporting
Mandatory training incidents, training,
programmes for and guidance which can be
higher-risk activities. accessed remotely on mobile
The Group is ISO 45001 devices.
Health and Safety Combined with our
accredited. underlying mitigating
actions; these helped
reduce RIDDORs and Lost
Time
accidents by 80% and 10%
respectively.
---------------------------- ---------------------------- ----------------------------
11. Environmental, Social If the Group fails to set The Group has a An ESG Impact Report was
and Governance (ESG) and meet appropriate ESG comprehensive set of published in June,
goals, there may be an procedures in place to identifying clear targets,
Risk Movement: adverse reputational minimise adverse including net zero
Decreasing impact with stakeholders environmental by 2040. These are based on
and it could limit impact, including three key strategic
Owner: ability to trade with procurement of priorities: materially
Steve Gaskell (Group customers. This could electricity from reduce operational
Strategy Director) result renewable sources, third GHG emissions, provide
in revenue reduction, party monitoring customers with access to
deterring people from of utility consumption sustainable products and
joining the business and and waste management. proactive engagement
limiting attractiveness Procedures are in place with our supply chain.
to investors. to manage social and An ESG roadmap with robust
More detail on ESG is governance risks, many of SBTs set with a Director
contained within the Task which are covered in appointed to lead
Force on Climate-Related key risks 8, 9 and 10. programme.
Financial Disclosures The Group is ISO 14001 Evaluation of scope 1, 2
(TCFD). Environmental Management and 3 emissions within the
accredited. business.
An ESG Forum that is EcoVadis Silver medal was
responsible for granted in August,
communication, engagement classifying the business in
and evaluation of risks 'Advanced' status
and and at the 91st percentile
opportunities. in the industry.
An ESG Committee that All electricity supply is
oversees improvement now derived from renewable
actions and monitors sources.
progress.
Monthly Board updates on
ESG progress.
---------------------------- ---------------------------- ----------------------------
SUSTAINABILITY AT HSS
Our people
Our colleagues are the heart of our business, and key to setting us apart within our industry. Our aim is to ensure they are safe, valued, supported, developed, and rewarded for the hard work they do for our business and customers.
Innovative ways of working
O ur technology innovation has allowed us to create systems which make day-to-day working processes easier for our teams, and we continued this momentum into FY22. Our HSS ProPOS system has continued to grow and develop, and to further support our sales strategy we launched our new Customer Relationship Management (CRM) system in December, making sales administration and customer relationship management easier than ever.
To enhance our customer and colleague experience we created a new sales function based in our Manchester head office, spanning business development and customer improvement activities. With these teams co-located, we've been able to create a collaborative, competitive and rewarding working environment, keeping the teams engaged and allowing us to roll out sales development training so they can upskill together and create lasting careers with HSS.
Health and safety
Safety is at the forefront of our working practices, and it flows through our communications and operational activities at all levels, driven from the top down by our CEO, Steve Ashmore. We're proud that our RIDDOR rates have reduced and we finished FY22 with only one RIDDOR for the reporting period. This demonstrates our colleagues' commitment to keeping safety top of the agenda.
Colleague development
We take a blended approach to learning and development to ensure all our colleagues have opportunities to grow their skills, knowledge and careers. Whether it's apprenticeships, e-learning, video modules or classroom-based training, we strive to tailor our approach and offer colleagues the chance to progress and build a long-term career with HSS.
One of our key successes in FY22 has been our 'Earn As You Learn' programme, which upskills our drivers from 3.5 to 7 tonne vehicles. 11 colleagues have completed their training, with a further 25 expected to complete it early in FY23. This initiative has created a clear career path for drivers wanting to progress and has aided in retention in traditionally high-turnover driving roles.
Our biggest risk area within the Group is Operations, as often these roles involve handling equipment, loading and unloading vehicles and driving. To offer more support to these teams, we launched our 'Safety Starts with Me' campaign, implementing a range of actions such as new safety notice boards and signage, new PPE, and regular team huddles to discuss key safety topics and drive best practice.
We had 18 colleagues successfully complete our nine-month development programme. They took part in workshops focused on leading people, managing change, and personal effectiveness, equipping them with the skills to take the next steps in their careers with HSS. Four of the colleagues who completed the programme have since secured promotions or new roles within the Group.
Colleague engagement
Our annual colleague survey helps drive our engagement agenda for the year, informing Groupwide initiatives, as well as local level activities to ensure HSS is the best place to work. This year we had our highest ever completion rate, with 92% of our colleagues providing a response. Our overall engagement score remained high at 76%, a good result considering the change projects we have implemented over the past two years and the impact of macroeconomic conditions on living standards.
One of our key engagement initiatives this year was to address the pressures many of our colleagues were facing in relation to the rising cost of living. As well as communicating our benefits and financial wellbeing support, we made a one-off payment of GBP750 to colleagues earning under GBP35,000 per annum.
Throughout FY22, we have run our usual engagement campaigns, including our peer-to-peer recognition campaign 'Love Your Colleague' around Valentine's Day, and an educational campaign for Pride across our communications and social channels. To ensure we reached more of our operational colleagues, we introduced 'Wellbeing Wednesdays', one day each month where the management team would visit depots and join the local teams to discuss wellbeing topics, highlighting our benefits and support.
We continue to see success from our apprenticeship programmes, with colleagues enrolled from level 2 to level 7 in a broad range of disciplines. We also introduced two new programmes this year, for team leaders and operational management, which are helping to improve our internal management capabilities. We ended FY22 with 39 delegates in active programmes, and enrolment re-opened for FY23.
Equality, Diversity & Inclusion
At HSS we are committed to creating a diverse, inclusive workforce, where everyone is made to feel welcome and valued, and during FY22 we have made some tangible progress against our ED&I strategy.
We established a colleague council which meets quarterly, sharing ideas and insights from across the colleague population to help drive positive progress. We have also completely revised our ED&I training, adopting a top down approach with our Management and Executive teams completing the training first so they can lead on this topic within their own organisations. Once the management training is complete, we will then roll out our mandatory e-learning to all other colleagues in FY23.
Communities
As well as providing a supportive, engaging and progressive workplace for our colleagues, we are committed to giving back to the communities we operate within. This year we continued our partnership with the Lighthouse Club, a charity which supports the construction industry on health and wellbeing. As well as a corporate donation, our colleagues held a range of fundraising activities such as golf days, competitions and games to raise further funds throughout the year.
We supported two charities helping families and children impacted by the war in Ukraine. In addition, we supported a number of our customers with charitable outreach work throughout FY22, such as the Green Corridor initiative through Heathrow Airport. The initiative supports local people with special educational needs, creating opportunities for them to learn new skills. Throughout the year, we donated a range of equipment for their horticultural activities. We have also worked with our Onsite partners in central London, donating a percentage of their spend to the charity of their choice. For example, the Multiplex Onsite at 30 Grosvenor Square which supports Willow, a charity providing special days out for seriously ill 16 to 40-year-olds.
Our environment
In FY22, we produced our inaugural ESG Impact Report, which is available on-line, detailing progress and future plans as we navigate our ESG journey. We've committed to achieve net zero by 2040 and the report explains our materiality-based approach to our ESG strategy and disclosure.
This Annual Report outlines how we are driving practical and positive environmental and social changes as a business, in partnership with our key stakeholders, along with appropriate amendments to our already strong governance.
Our ESG impact report
The report is a blueprint for the future as we strive to deliver positive changes for our people, planet and performance. Amongst other things, the report sets out:
-- Our vision, values and purpose -- Our sustainability journey -- ESG commitments and targets -- Governance -- Carbon footprint -- Net Zero 2040 roadmap -- Supply chain and other stakeholder Engagement -- Equality, Diversity and Inclusion -- Health and safety -- Learning and development -- Community engagement
Innovation
At HSS, we pride ourselves in driving innovation within the hire industry and this has always been key to enabling us to implement positive change across our Group. When it comes to our ESG programme and hitting our ambitious 2040 net
zero goals, innovation is especially important. In line with this thinking, we are working hard to improve our ESG offering to our customers to help them meet their net zero targets, as well as our own.
One important example of this is our Innovation Roadshows, which ran between February and October 2022. We held a roadshow each month across the length and breadth of the UK, inviting our suppliers to collaborate and showcase their ranges and technology to our customers and sales teams. The purpose of these events was to highlight our eco-friendly product lines and the environmental improvements these can help our customers drive across their own sites and locations. Products showcased included hydrogen powered lighting towers, solar powered welfare units, solar-hybrid Hydrotreated Vegtable Oil (HVO) compatible generators, electric plant, electric powered access and electric grounds care equipment.
Given the success of the roadshows, we are planning to repeat these throughout FY23, making them even bigger and better in order to reach more customers.
HSS ProService has continued to focus on improving and streamlining our customer journey and, with increasing numbers of customers looking for more sustainable product lines and CO2 data, we will be launching enhancements to our Brenda system in early FY23 to help meet this requirement.
Science based targets (SBT)
In our 2022 ESG Impact Report, we set out our ambition to be net zero by 2040. To achieve this, we are taking several steps and a materiality-based approach to our ESG goals. To further demonstrate our commitment to accelerate the reduction of our
greenhouse gas (GHG) emissions, in October 2022 we signed up to the UN-backed Science Based Targets initiative (SBTi).
We have publicly set near and long-term Companywide emissions reduction targets and have made the decision to align with a 1.5degC rise in global temperatures compared with pre-industrial levels through the Business Ambition for 1.5degC campaign.
Our net zero by 2040 and 1.5degC temperature alignments are more ambitious than those mandated by the SBTi, demonstrating how seriously we are taking our ESG commitments. We believe these goals are crucial to futureproofing our business, the planet, and the people and communities we work with.
Customer sustainability metrics
In FY22, we experienced a dramatic rise in the number of end users, government bodies and customers requesting carbon data and other ESG-related information, something we expect to continue as more of these drive their own ESG strategies. To better support this demand, we kick-started a number of pilot projects in FY22, working in partnership with a number of key customers to understand their ESG requirements. Our aim is to take advantage of the lessons learned and understand how we
can provide customers with greater transparency in their selection and use of more eco-friendly products, and more sustainable solutions. The intention is to expand these initiatives throughout FY23 to support all our stakeholders on their own ESG journeys.
To externally assess where we are on our own ESG journey, we participated in the CDP and EcoVadis ESG surveys in FY22. We have made excellent progress, evidenced by an increase in our CDP rating. Furthermore, we have been awarded a Silver EcoVadis medal for the first time, placing HSS as a leader in our industry sector and in the 91st percentile overall, testament to our hard work and progress on our ESG strategy.
Our supply chain has a significant impact on our ESG performance and has been an increasing area of focus. In Q2 FY22, we sent out our first full ESG supplier surveys, aiming to benchmark where our suppliers are on their ESG journeys. The surveys covered the fundamental elements of ESG for their businesses, but also probed how they are thinking about the emissions of their businesses, product lines, and their future operations. In FY23, we intend to build on this baseline information and place more focus on our supply chain's emissions, innovation pipeline, governance practices and look to partner more closely with suppliers who share our ESG vision, helping us to collaboratively drive change in our industry.
Low carbon fleet
As we look to further reduce the emissions of our vehicle fleet, we continue to invest in hybrid and electric vehicles, encouraging our company car users to select these options as well. During FY22, as vehicle leases expired, we moved to 33% of our company car fleet being electric (EV) or Hybrid (PHEV), with a further 30% of vehicles with emissions less than 120g CO2. With 120 cars (30 EV, 66 PHEV) on order and mostly due for delivery in the first half of FY23, our fleet will soon comprise over 60% EV or PHEV.
One of the challenges we face is that the range of EVs currently available is insufficient given the mileage undertaken. Our 45 mobile fitters' vans are a good example, as these vehicles do a high mileage per day. After an in-depth study we are now replacing them with PHEVs that still have on average 55% lower CO2 emissions, whilst providing appropriate range to ensure we satisfy our customer service requirements.
Looking at our commercial vehicle fleet, we have focused on depots which average lower delivery distances from their respective locations, to ensure we balance our ESG goals and the limitations of the current vehicle technology against delivering the high level of service our customers expect. These locations with lower average delivery mileages are mainly in the South of England, and we have ordered 40 PHEV drop sides due to arrive in the first half of FY23.
We remain committed to taking advantage of the very latest in EV and PHEV technology as the ranges improve, and we are working alongside various innovative suppliers to find the best solutions. We have engaged with a new start up, BE-EV, which in December 2022 began testing a prototype van at our Central Distribution Centre in Bootle. The prototype is fitted with telematics
which provide invaluable data to help advance the technology further. We remain committed to exploring new and developing technologies as they come to market and offer practicable solutions to helping us reduce our carbon emissions without adversely affecting customer service or efficiency.
Technology in relation to our fleet is not solely restricted to vehicle operation. In the second half of FY21, HSS Operations introduced a leading-edge AI software called Satalia, which enables our daily routing of deliveries and collections to be as efficient as possible. Throughout FY22, we have continued to embed and improve the software and it has reduced our average journey in FY22 by over one mile. Whilst this may sound insignificant, throughout the full year period it equates to more than 525,103 miles and 195tCO2 in total per annum, a significant impact on our overall emissions.
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2022
Year ended 31 December 2022 Year ended 1 January 2022
------------------------ ---- ----------------------------------------- -----------------------------------------
Exceptional items Exceptional items
Underlying (note 4) Total Underlying (note 4) Total
Note GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Revenue 2 332,777 - 332,777 303,269 - 303,269
Cost of sales (164,647) - (164,647) (146,271) - (146,271)
Gross profit 168,130 - 168,130 156,998 - 156,998
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Distribution costs (30,325) - (30,325) (21,915) - (21,915)
Administrative expenses (109,554) (2,774) (112,328) (108,368) 7,933 (100,435)
Impairment loss on trade
receivables and
contract assets 11 (1,667) - (1,667) (1,835) - (1,835)
Other operating income 3 8 539 547 1,602 106 1,708
Operating profit 26,592 (2,235) 24,357 26,482 8,039 34,521
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Financial expense 5 (7,650) (176) (7,826) (18,510) (9,945) (28,455)
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Profit before tax 18,942 (2,411) 16,531 7,972 (1,906) 6,066
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Income tax credit 6 3,946 - 3,946 1,239 1,239
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Profit from continuing
operations 22,888 (2,411) 20,477 9,211 (1,906) 7,305
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Profit on disposal of
discontinued operations - - - - 41,242 41,242
Profit from discontinued
operations, net of tax - - - - 5,179 5,179
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Profit for the financial
period 22,888 (2,411) 20,477 9,211 44,515 53,726
------------------------ ---- ---------- ------------------ --------- ---------- ------------------ ---------
Alternative performance
measures GBP000s
Adjusted EBITDA 71,572 69,777
Adjusted EBITA 31,965 31,657
Adjusted profit before
tax 20,966 10,731
Earnings per share
(pence)
Adjusted basic earnings
per share 7 2.41 1.25
Adjusted diluted
earnings per share 7 2.34 1.22
Basic earnings per share 7 2.90 1.05
Diluted earnings per
share 7 2.83 1.02
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2022
Year ended
Year ended 1 January
31 December 2022 2022
GBP000s GBP000s
--------------------------------------------------------------------------------------- ----------------- ----------
Profit for the financial period 20,477 53,726
Items that may be reclassified to profit or loss:
Foreign currency translation differences arising on consolidation of foreign operations 332 (720)
Foreign currency disposal as part of business divestiture - (49)
--------------------------------------------------------------------------------------- ----------------- ----------
Other comprehensive gain/(loss) for the period, net of tax 332 (769)
--------------------------------------------------------------------------------------- ----------------- ----------
Total comprehensive profit for the period 20,809 52,957
--------------------------------------------------------------------------------------- ----------------- ----------
Attributable to owners of the Group 20,809 52,957
--------------------------------------------------------------------------------------- ----------------- ----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEARED 31 DECEMBER 2022
As restated(1)
Year ended Year ended
31 December 2022 1 January 2022
Note GBP000s GBP000s
------------------------------------- ---- ----------------- ---------------
ASSETS
Non-current assets
Intangible assets 8 147,867 147,648
Property, plant and equipment
Hire equipment 9 73,613 63,123
Non-hire equipment 9 14,162 15,605
Right of use assets
Hire equipment 10 2,736 1,860
Non-hire equipment 10 49,077 55,329
Deferred tax asset 16 7,515 2,404
------------------------------------- ---- ----------------- ---------------
294,970 285,969
------------------------------------- ---- ----------------- ---------------
Current assets
Inventories 3,779 2,682
Trade and other receivables 11 86,068 78,680
Cash and cash equivalents 47,709 42,269
------------------------------------- ---- ----------------- ---------------
137,556 123,631
------------------------------------- ---- ----------------- ---------------
Total assets 432,526 409,600
------------------------------------- ---- ----------------- ---------------
EQUITY
Share capital 17 7,050 7,050
Share premium 17 45,552 45,552
Foreign exchange translation reserve (422) (754)
Other reserves 97,780 97,780
Retained earnings 32,503 12,273
------------------------------------- ---- ----------------- ---------------
Total equity 182,463 161,901
------------------------------------- ---- ----------------- ---------------
LIABILITIES
Current liabilities
Trade and other payables 12 88,302 78,704
Lease liabilities 13 13,182 14,052
Borrowings 14 5,168 5,258
Provisions 15 4,258 4,713
Current tax liability 290 293
------------------------------------- ---- ----------------- ---------------
111,200 103,020
------------------------------------- ---- ----------------- ---------------
Non-current liabilities
Lease liabilities 13 43,110 47,413
Borrowings 14 78,591 78,008
Provisions 15 17,045 19,110
Deferred tax liabilities 16 117 148
------------------------------------- ---- ----------------- ---------------
138,863 144,679
------------------------------------- ---- ----------------- ---------------
Total liabilities 250,063 247,699
------------------------------------- ---- ----------------- ---------------
Total equity and liabilities 432,526 409,600
------------------------------------- ---- ----------------- ---------------
1 The Group has identified the need to make a correction to the balance sheets at 1 January 2022 and 26 December 2020 where hire equipment purchased under financing agreements had been reclassed to Property, Plant and Equipment from Right of Use assets. This reclassification includes the corresponding adjustment between lease liabilities and borrowings .
The Financial Statements were approved and authorised for issue by the Board of Directors on 26 April 2023 and were signed on its behalf by:
Paul Quested
Director
26 April 2023
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2022
Foreign
Share Share Warrant Merger exchange translation Retained Total
capital premium reserve reserve reserve earnings equity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
At 27 December 2020 6,965 45,580 2,694 97,780 15 (45,444) 107,590
Profit for the period - - - - - 53,726 53,726
Foreign currency translation
differences arising on
consolidation of foreign
operations - - - - (720) - (720)
Foreign currency disposal as part
of business divestiture - - - - (49) - (49)
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
Total comprehensive (loss)/profit
for the period - - - (769) 53,726 52,957
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
Transactions with owners recorded
directly in equity:
Warrants exercised 85 - (2,694) - - 2,694 85
2020 share issue cost - (28) - - - - (28)
Share-based payment charge - - - - - 1,374 1,374
Share-based payment transfer to
reserves - - - - - (77) (77)
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
At 1 January 2022 7,050 45,552 - 97,780 (754) 12,273 161,901
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
Profits for the period - - - - - 20,477 20,477
Foreign currency translation
differences arising on
consolidation of foreign
operations - - - - 332 - 332
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
Total comprehensive profit for the
period - - - - 332 20,477 20,809
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
Transactions with owners recorded
directly in equity:
Dividends paid - - - - - (1,198) (1,198)
Share-based payment charge - - - - - 951 951
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
As at 31 December 2022 7,050 45,552 - 97,780 (422) 32,503 182,463
---------------------------------- -------- -------- -------- -------- --------------------- --------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2022
As restated(1)
Year ended Year ended
31 December 2022 1 January 2022
Note GBP000s GBP000s
---------------------------------------------------------------------------- ---- ----------------- ---------------
Profit for the financial period 20,477 53,726
Adjustments for:
- Tax 6 (3,946) (1,156)
- Profit on disposal of discontinued operations - (41,242)
- Amortisation 5,314 5,310
- Depreciation 35,494 36,128
- Accelerated depreciation relating to hire stock customer losses and hire
stock write-offs 3,951 3,761
- Impairment of property, plant and equipment and right of use assets - 497
- Loss on disposal of property, plant and equipment and right of use assets 486 2
- Lease disposals 13 (324) (6,222)
- Loss on disposal of intangibles 59 311
- Capital element of receipts from net investment in sublease 255 -
- Share-based payment charge 951 1,374
- Foreign exchange loss/(gain) on operating activities 35 (506)
- Finance expense 5 7,826 28,527
Changes in working capital (excluding the effects of disposals and exchange
differences on
consolidation):
- Inventories (1,097) 252
- Trade and other receivables (6,616) (6,999)
- Trade and other payables 9,472 23,671
- Provisions 268 (8,401)
---------------------------------------------------------------------------- ---- ----------------- ---------------
Net cash flows from operating activities before purchase of hire equipment 72,605 89,033
Purchase of hire equipment 9 (24,538) (17,468) ---------------------------------------------------------------------------- ---- ----------------- --------------- Cash generated from operating activities 48,067 71,565 Interest paid (6,836) (26,628) Income tax paid (2,220) (779) ---------------------------------------------------------------------------- ---- ----------------- --------------- Net cash generated from operating activities 39,011 44,158 ---------------------------------------------------------------------------- ---- ----------------- --------------- Cash flows from investing activities Proceeds on disposal of business, net of cash disposed of - 62,813 Proceeds on disposal of assets as part of business divestiture - 526 Purchases of non-hire property, plant, equipment and software 8, 9 (10,571) (6,651) ---------------------------------------------------------------------------- ---- ----------------- --------------- Net cash (used in)/generated from investing activities (10,571) 56,688 ---------------------------------------------------------------------------- ---- ----------------- --------------- Cash flows from financing activities Dividends paid (1,181) - Facility arrangement fees (35) (1,946) Proceeds from capital raise net of share issue costs paid - (1,471) Proceeds from borrowings (third parties) - 70,000 Repayment of borrowings - (199,182) Capital element of lease liability payments (15,140) (17,829) Capital element of hire purchase arrangement payments (6,644) (5,722) ---------------------------------------------------------------------------- ---- ----------------- --------------- Net cash paid from financing activities (23,000) (156,250) ---------------------------------------------------------------------------- ---- ----------------- --------------- Net increase/(decrease) in cash 5,440 (55,304) Cash at the start of the year 42,269 97,573 Cash at the end of the year 47,709 42,269 ---------------------------------------------------------------------------- ---- ----------------- ---------------
1 The Group has identified the need to make a correction to the balance sheets at 1 January 2022 and 26 December 2020 where hire equipment purchased under financing agreements had been reclassed to Property, Plant and Equipment from Right of Use assets. This reclassification includes the corresponding adjustment between lease liabilities and borrowings .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2022
1. Basis of preparation
The Group's financial information has been prepared in accordance with International Financial Reporting Standards as adopted by the UK (IFRS) and on a basis consistent with those policies set out in our audited financial statements for the year ended 31 December 2022 (which will be available at www.hsshiregroup.com/ investor-relations/financial-results). These policies are consistent with those shown in the audited financial statements for the year ended 1 January 2022. The financial statements were approved by the Board on 26 April 2023.
The financial information for the year ended 31 December 2022 and the year ended 1 January 2022 does not constitute the company's statutory accounts for those years. Statutory accounts for the year ended 1 January 2022 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2022 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The auditors' reports on the accounts for the years ended 31 December 2022 and 1 January 2022 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006, nor did they draw attention to any matters by way of emphasis.
The Annual Report and Accounts for the year ended 31 December 2022 will be posted to shareholders in early May 2023.
Going concern
At 31 December 2022, the Group's financing arrangements consisted of a fully drawn senior finance facility of GBP70.0m, an undrawn revolving credit facility ("RCF") of GBP19.0m and undrawn overdraft facilities of GBP6.0m. Cash at the balance sheet date was GBP47.7m providing liquidity headroom of GBP72.7m (2021: GBP65.5m). Both the senior finance facility and RCF are subject to a net debt leverage and interest cover financial covenant tests each quarter. At the financial year-end the Group had 57% and 134% headroom against these covenants respectively (2021: 44% and 49%).
The Directors have prepared a going concern assessment up to 27 April 2024, which confirms that the Group is capable of continuing to operate within its existing facilities and can meet its covenant tests during that period. With regard to the assessment of going concern, Directors have reviewed the Group's cash flow forecasts, taking into account strategic initiatives and sensitivity analysis based on the possible changes in trading performance in an uncertain market environment. The Group's base case for the 12 months to 27 April 2024 assumes a step change in growth through the effective execution of the Board approved strategic initiatives.
The Board has considered various downside scenarios including a 'reasonable worst case' driven by macroeconomic downturn reducing demand and leading to volume decline, strategic initiatives delivering lower than forecast growth and an increase in debtor days. This reasonable worst case scenario has been modelled without mitigating actions and the Group is forecast to maintain headroom against its working capital requirements and financial covenants within the assessment period.
Whilst the Directors consider that there is a degree of subjectivity involved in their assumptions, taking into account the adequacy of the Group's debt facilities, its ability to deploy mitigating actions where appropriate and the principal risks and uncertainties and, after making appropriate enquiries, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements included within this Annual Report.
Prior period restatement
The Group has identified the need to make a correction to the balance sheets at 1 January 2022 and 26 December 2020 where hire equipment subsequently financed by hire purchase agreements has been reclassed to Property, Plant and Equipment from Right of Use assets. This reclassification includes the corresponding adjustment between lease liabilities and borrowings. There is no impact on income statement, net assets or reserves as a result of this restatement.
To correct the presentation of these balances in the prior year, the Group has restated the balance sheet and associated note disclosures as at 1 January 2022.
The impact on the 1 January 2022 balance sheet is set out below:
1 January 2022 Adjustments 1 January 2022 (Restated)
GBP000s GBP000s GBP000s
----------------------------------------------- -------------- ----------- -------------------------
Non-current assets:
----------------------------------------------- -------------- ----------- -------------------------
Property, plant and equipment - Hire equipment 44,332 18,791 63,123
Right of use assets - Hire equipment 20,651 (18,791) 1,860
----------------------------------------------- -------------- ----------- -------------------------
Current liabilities:
----------------------------------------------- -------------- ----------- -------------------------
Lease liabilities 19,310 (5,258) 14,052
Borrowings - 5,258 5,258
----------------------------------------------- -------------- ----------- -------------------------
Non-current liabilities:
----------------------------------------------- -------------- ----------- -------------------------
Lease liabilities 57,255 (9,842) 47,413
Borrowings 68,166 9,842 78,008
----------------------------------------------- -------------- ----------- -------------------------
2. Segment reporting
The Group's operations are segmented into the following reportable segments:
-- Rental and related revenue; and
-- Services.
Rental and related revenue comprises the rental income earned from owned tools and equipment, including powered access, power generation together with directly related revenue such as resale (fuel and other consumables), transport and other ancillary revenues.
Services comprise the Group's HSS OneCall rehire business and HSS Training. HSS OneCall provides customers with a single point of contact for the hire of products that are not typically held within HSS's fleet and are obtained from approved third party partners; HSS Training provides customers with specialist safety training across a wide range of products and sectors.
Contribution is defined as segment operating profit before branch and selling costs, central costs, depreciation, amortisation and exceptional items.
All segment revenue, operating profit, assets and liabilities are attributable to the principal activity of the Group, being the provision of tool and equipment hire and related services in, and to customers in, the United Kingdom and the Republic of Ireland. No single customer represented more than 10% of Group revenue in the year (2021: no customer was more than 10%).
Year ended 31 December 2022
-------------------------------------- ----------------------------------------------------------
Rental (and related revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
-------------------------------------- ---------------------------- -------- -------- --------
Total revenue from external customers 206,175 126,602 - 332,777
-------------------------------------- ---------------------------- -------- -------- --------
Contribution 138,439 19,271 - 157,710
Branch and selling costs (53,612) (53,612)
Central costs (32,526) (32,526)
-------------------------------------- ---------------------------- -------- -------- --------
Adjusted EBITDA 71,572
Less: Exceptional items (2,235) (2,235)
Less: Depreciation and amortisation (22,998) (359) (21,623) (44,980)
Operating profit 24,357
Net finance expenses (7,826)
Profit before tax 16,531
Income tax 3,946
Profit for the financial period 20,477
-------------------------------------- ---------------------------- -------- -------- --------
Year ended 31 December 2022
---------------------------------- ---------------------------------------------------
Rental (and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- ------------------- -------- --------- ---------
Additions to non-current assets
Property, plant and equipment 30,436 49 5,461 35,935
Right of use assets 2,220 521 7,672 10,413
Intangibles 3,052 35 2,505 5,592
---------------------------------- ------------------- -------- --------- ---------
Non-current assets net book value
Property, plant and equipment 73,613 138 14,024 87,775
Right of use assets 2,736 614 48,463 51,813
Intangibles 145,430 67 2,370 147,867
Deferred tax assets 7,515 7,515
Current assets 137,556 137,556
Current liabilities (111,200) (111,200)
Non-current liabilities (138,863) (138,863)
---------------------------------- ------------------- -------- --------- ---------
182,463
---------------------------------- ------------------- -------- --------- ---------
Year ended 1 January 2022
------------------------------------------------- -------------------------------------------------
Rental (and related
revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
------------------------------------------------- ------------------- -------- -------- --------
Total revenue from external customers 191,158 112,111 - 303,269
------------------------------------------------- ------------------- -------- -------- --------
Contribution 132,583 16,209 - 148,792
Branch and selling costs (49,229) (49,229)
Central costs (29,786) (29,786)
Adjusted EBITDA 69,777
Less: Exceptional items 8,039 8,039
Less: Depreciation and amortisation (22,350) (826) (20,119) (43,295)
Operating profit 34,521
Net finance expenses (28,455)
------------------------------------------------- ------------------- -------- -------- --------
Profit before tax from continuing operations 6,066
Income tax charge 1,239
Profit after tax from continuing operations 7,305
Profit on disposal of discontinued operations 41,242
Profit for the year from discontinued operations 5,179
Profit for the financial period 53,726
------------------------------------------------- ------------------- -------- -------- --------
As restated(1)
Year ended 1 January 2022
---------------------------------- ------------------------------------------------------------
Rental (and related revenue) Services Central Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- ---------------------------- -------- --------- ---------
Additions to non-current assets
Property, plant and equipment 25,815 16 2,750 28,581
Right of use assets 1,301 56 6,826 8,183
Intangibles 2,928 39 1,361 4,328
---------------------------------- ---------------------------- -------- --------- ---------
Non-current assets net book value
Property, plant and equipment 63,123 129 15,476 78,728
Right of use assets 1,860 384 54,945 57,189
Intangibles 143,553 836 3,259 147,648
Deferred tax assets 2,404 2,404
Current assets 123,631 123,631
Current liabilities (103,020) (103,020)
Non-current liabilities (144,679) (144,679)
161,901
---------------------------------- ---------------------------- -------- --------- ---------
3. Other operating income
Year ended Year ended
31 December 2022 1 January 2022
GBP000s GBP000s
-------------------------------------------------------- ----------------- ---------------
COVID 19 Government grant income: Job retention schemes - 232
Insurance proceeds (net of fees) - 1,203
Sub-lease rental and service charge income 547 273
-------------------------------------------------------- ----------------- ---------------
547 1,708
-------------------------------------------------------- ----------------- ---------------
During the year, the Group received sub-let rental income of GBP0.5m (2021: GBP0.3m) on vacant properties.
During the prior year, the Group recognised GBP0.2m as a result of earlier participation in the Republic of Ireland's job retention scheme. The income was received during 2020 with recognition deferred pending confirmation of eligibility in 2021.
4. Exceptional items
Items of income or expense have been shown as exceptional either because of their size or nature or because they are outside the normal course of business. As a result, during the year ended 31 December 2022 the Group has recognised exceptional items as follows:
Included in
other Included in Year ended
Included in administrative operating finance 31 December
expenses income expense 2022
GBP000s GBP000s GBP000s GBP000s
-------------------------------------- ------------------------------ ------------ ------------------ ------------
Onerous property costs 112 (539) 26 (401)
Costs relating to restructure 3,182 - - 3,182
Onerous contract (520) - 150 (370)
------------------------------------------------------ -------------- ------------ ------------- -----------------
Total 2,774 (539) 176 2,411
------------------------------------------------------ -------------- ------------ ------------- -----------------
During the year ended 1 January 2022, the Group recognised exceptional costs analysed as follows:
Included in Included in other Included in finance Year ended
administrative expenses operating income expense 1 January 2022
GBP000s GBP000s GBP000s GBP000s
-------------------------- ------------------------- ------------------------- ------------------- ---------------
Onerous property
(credits)/costs (7,982) (106) 223 (7,865)
Costs expensed on
refinancing - - 9,730 9,730
Costs relating to
restructure 556 - - 556
Onerous contract (257) - (8) (265)
Capital raise and AIM
listing (250) - - (250)
-------------------------- ------------------------- ------------------------- ------------------- ---------------
Exceptional items -
continuing operations (7,933) (106) 9,945 1,906
Profit arising on business
divestiture -
discontinued operations (41,242) - - (41,242)
-------------------------- ------------------------- ------------------------- ------------------- ---------------
Total (49,175) (106) 9,945 (39,336)
-------------------------- ------------------------- ------------------------- ------------------- ---------------
Exceptional items incurred in 2022 and 2021
Costs related to onerous properties: branch and office closures
In October 2020 the Group announced a decision to permanently close 134 stores as part of an acceleration of strategy. Since that date the Group has been working to agree exits from these and pre-existing dark stores. An exceptional credit of GBP0.4m has been recognised in 2022 (2021: GBP7.9m). In the current year this relates primarily to sublet rental income received where properties have been sublet; amounts from sublet rental income have been included in other operating income. In the prior year this credit mainly related to the release of lease liabilities, onerous property cost and dilapidations provisions on surrender of properties following the branch closures.
Costs related to restructure
Following the changes made to our operating network in Q4 2020 and the roll-out of HSS ProPOS in Q1 2021, the Group completed the legal separation of HSS ProService in July 2022. Following this legal separation, a detailed strategy refresh was undertaken working with third party advisors to develop the growth plans for HSS ProService and evaluate opportunities to create greater shareholder value. Fees incurred relating to the restructure and strategy refresh in the year ended 31 December 2022 amount to GBP3.2m (2021: GBP0.6m).
Onerous contract
The Group maintains a provision to cover the expected outflows related to its onerous contract with Unipart for the NDEC operation which ceased in early 2018. The liability at the balance sheet date is GBP9.8m (2021: GBP13.5m). The discount rate used to calculate the present value of the provision is the five-year UK gilt rate of 3.62% (2021: 0.81%). Application of the new discount rate at the balance sheet date resulted in a credit to the income statement of GBP0.5m (2021: GBP0.3m), recognised as exceptional in line with the original provision. An interest charge (discount unwind) of GBP0.15m (2021: GBP0.01m) was recognised through exceptional finance costs.
Exceptional items incurred in 2021 only
Capital raise and AIM listing
In 2020 the Group successfully completed a capital raise to strengthen its balance sheet and moved its listing to AIM in January 2021. An over-accrual of legal costs of GBP0.3m was released in 2021. Costs that related specifically to the capital raise were deducted from the net proceeds and included in the share premium account.
Costs expensed on refinancing
In October 2021, following the sale of All Seasons Hire Limited (see business divestitures below) the Group repaid GBP50.0m of the senior finance facility in place at that time. The early repayment resulted in a prepayment penalty of GBP1.9m. In November 2021 the Group completed a refinancing exercise. A new senior finance facility of GBP70.0m was agreed at a significantly reduced interest rate. The early repayment of the previous facility resulted in a prepayment penalty of GBP4.5m. Repayments of the senior finance facility led to accelerated amortisation of debt issue costs of GBP3.3m.
Business divestiture
To enable the Group to strengthen its balance sheet and focus on its strategic priority to Transform the Tool Hire business, the Group made two strategic divestments during 2021:
Laois Hire Services Limited
Laois Hire Services Limited, the Irish large plant hire business, was sold to Briggs Equipment Ireland Limited on 7 April 2021. Proceeds of the disposal, net of transaction costs, were GBP10.0m, generating a profit on disposal of GBP3.2m.
All Seasons Hire Limited
All Seasons Hire Limited, a cooling and heating provider, was sold to Cross Rental Services Limited with the transaction completing on 29 September 2021. Proceeds of the disposal, net of transaction costs, were GBP54.3m, generating a profit on disposal of GBP38.0m.
As part of these transactions, the Group entered into commercial agreements to cross-hire equipment to ensure the broadest possible distribution of, and customer access to, each party's existing fleet.
5. Finance expense
Year ended Year ended
31 December 2022 1 January 2022
GBP000s GBP000s
--------------------------------------------- ----------------- ---------------
Senior finance facility 3,041 12,653
Senior finance facility prepayment penalties - 6,430
Debt issue costs 473 1,896
Lease and hire purchase arrangements 3,908 3,950
Interest unwind on discounted provisions 150 15
Revolving credit facility - 58
Interest on financial instruments - -
Bank loans and overdrafts 254 153
Accelerated amortisation of debt issue costs - 3,300
--------------------------------------------- ----------------- ---------------
7,826 28,455
--------------------------------------------- ----------------- ---------------
6. Income tax charge
(a) Analysis of tax credit in the year
Year ended Year ended
31 December 2022 1 January 2022
GBP000s GBP000s
Current tax charge
UK corporation tax on the result for the year 1,495 1,151
Adjustments in respect of prior years (299) (80)
---------------------------------------------- ----------------- ---------------
Total current tax charge 1,196 1,071
Deferred tax credit for the year
Deferred tax credit for the year (5,493) (2,319)
Deferred tax impact of change in tax rate (40) (117)
Adjustments in respect of prior years 391 126
---------------------------------------------- ----------------- ---------------
Total deferred tax credit (5,142) (2,310)
Income tax credit (3,946) (1,239)
---------------------------------------------- ----------------- ---------------
(b) Factors affecting the income tax credit in the year
The tax assessed on the profit for the year differs from the standard UK corporation rate of tax. The differences are explained below:
Year ended 1 January
Year ended 31 December 2022 2022
GBP000s GBP000s
------------------------------------------------------------------- --------------------------- --------------------
Profit before tax 16,531 6,066
------------------------------------------------------------------- --------------------------- --------------------
Profit before tax multiplied by the effective standard rate of
corporation tax of 19% (2021:
19%) 3,141 1,153
Effects of:
Unprovided deferred tax movements on short-term temporary
differences and capital allowance
timing differences (2,530) (2,958)
Adjustments in respect of prior years 92 46
Expenses not deductible for tax purposes 1,096 2,437
Recognition of brought forward tax losses (5,367) (2,000)
Utilisation of unrecognised tax losses brought forward (449) -
Foreign tax suffered 111 200
Impact of change in tax rate (40) (117)
------------------------------------------------------------------- --------------------------- --------------------
Income tax credit (3,946) (1,239)
------------------------------------------------------------------- --------------------------- --------------------
The charge of GBP1.1m (2021: GBP2.4m) arising in respect of expenses not deductible is mainly attributable to costs associated with share options awarded to some employees, the Group exiting property leases and removing dormant entities from the Group structure. This amount has decreased in the current year due to the lower level of properties exited during the year. The credit of GBP5.4m (2021: GBP2.0m) arises from the recognition of a deferred tax asset in respect of prior period losses not previously recognised. Based upon forecasts, the Group considers the recognition criteria in IAS 12 have been met.
(c) Factors that may affect future tax charge
The standard rate of UK corporation tax will increase to 25% from 1 April 2023. The increased rate has been used to calculate the above deferred tax disclosures except where it is known the temporary differences will unwind before the new rate applies, in which case the existing rate of 19% has been used.
At 31 December 2022 the Group had an unrecognised deferred tax asset relating to losses of GBP13.1m (2021 (restated): GBP21m). The gross balance at 31 December 2022 was GBP52.3m (2021 (restated): GBP84.0m).
At 31 December 2022 the Group also had an unrecognised deferred tax asset relating to temporary differences on plant and equipment, intangible assets and provisions of GBP9.8m (2021: GBP15.2m). The gross balance at 31 December 2022 was GBP39.4m (2021 (restated): GBP60.0m).
The gross balances as at 1 January 2022 on unrecognised temporary differences temporary differences on plant and equipment, intangible assets and provisions have been restated to decrease by GBP20.0m due to input errors in the preparation of the FY21 financial statements.
These potential deferred tax assets have not been recognised on the basis that it is not sufficiently certain when taxable profits that can be utilised to absorb the reversal of the temporary difference will occur.
7. Earnings per share
Basic earnings per share calculated on a continuing operations basis:
Profit after tax from Weighted average number of Earnings per share from
continuing operations shares continuing operations
GBP000s 000s pence
---------------------------- ---------------------------- ---------------------------- ----------------------------
Year ended 31 December 2022 20,477 704,988 2.90
Year ended 1 January 2022 7,305 696,821 1.05
---------------------------- ---------------------------- ---------------------------- ----------------------------
Basic earnings per share is calculated by dividing the result attributable to equity holders by the weighted average number of ordinary shares in issue for that year.
Diluted earnings per share calculated on a continuing operations basis:
Profit after tax from Diluted weighted average Earnings per share from
continuing operations number of shares continuing operations
GBP000s 000s pence
---------------------------- ---------------------------- ---------------------------- ----------------------------
Year ended 31 December 2022 20,477 723,950 2.83
Year ended 1 January 2022 7,305 714,816 1.02
---------------------------- ---------------------------- ---------------------------- ----------------------------
Diluted earnings per share is calculated using the profit for the year divided by the weighted average number of shares outstanding assuming the conversion of potentially dilutive equity derivatives outstanding, being market value options, nil-cost share options (LTIP shares) and restricted stock grants.
All of the Group's potentially dilutive equity derivative securities were dilutive for the purpose of diluted earnings per share in both 2022 and 2021.
The following is a reconciliation between the basic earnings per share and the adjusted basic earnings per share on a continuing operations basis:
Year ended 1 January
Year ended 31 December 2022 2022
pence pence
---------------------------------------------------------------- --------------------------- --------------------
Basic earnings per share 2.90 1.05
Add back:
Exceptional items per share(1) 0.34 0.27
Amortisation of customer relationships and brands per share (2) 0.29 0.40
Tax credit per share (0.56) (0.18)
Charge:
Tax charge at prevailing rate (0.56) (0.29)
---------------------------------------------------------------- --------------------------- --------------------
Adjusted basic earnings per share 2.41 1.25
---------------------------------------------------------------- --------------------------- --------------------
1 Exceptional items per share is calculated as total exceptional items divided by the weighted average number of shares in issue through the year.
2 Amortisation of customer relationships and brands per share is calculated as the amortisation charge on customer relationships and brands divided by the weighted average number of shares in issue through the year.
The following is a reconciliation between the diluted earnings per share and the adjusted diluted earnings per share on a continuing operations basis:
Year ended 31 December 2022 Year ended 1 January 2022
pence pence
------------------------------------------------------------ ---------------------------- --------------------------
Diluted earnings per share 2.83 1.02
Add back:
Adjustment to basic earnings per share for the impact of
dilutive securities
Exceptional items per share (1) 0.33 0.27
Amortisation of customer relationships and brands per
share(2) 0.28 0.39
Tax credit per share (0.55) (0.17)
Charge:
Tax credit at prevailing rate (0.55) (0.29)
------------------------------------------------------------ ---------------------------- --------------------------
Adjusted diluted earnings per share 2.34 1.22
------------------------------------------------------------ ---------------------------- --------------------------
1 Exceptional items per share is calculated as total finance and non-finance exceptional items divided by the diluted weighted average number of shares in issue through the year.
2 Amortisation of customer relationships and brands per share is calculated as the amortisation charge on customer relationships and brands divided by the diluted weighted average number of shares in issue through the year.
The weighted average number of shares for the purposes of calculating the adjusted diluted earnings per share is as follows:
Year ended 31 December 2022 Year ended 1 January 2022
Weighted average number of shares Weighted average number of shares
000s 000s
----------------------- ----------------------------------- -----------------------------------
Basic 704,988 696,821
LTIP share options 3,843 8,296
Restricted stock grant 15,036 8,988
CSOP options 83 711
----------------------- ----------------------------------- -----------------------------------
Diluted 723,950 714,816
----------------------- ----------------------------------- -----------------------------------
8. Intangible assets
Goodwill Customer relationships Brands Software Total
GBP000s GBP000s GBP000s GBP000s GBP000s
-------------------- -------- ---------------------- -------- -------- --------
Cost
At 2 January 2022 115,855 25,400 22,590 31,856 195,701
Additions - - - 5,592 5,592
Disposals(1) - - (5) (4,684) (4,689)
-------------------- -------- ---------------------- -------- -------- --------
At 31 December 2022 115,855 25,400 22,585 32,764 196,604
-------------------- -------- ---------------------- -------- -------- --------
Amortisation
At 2 January 2022 - 23,301 298 24,454 48,053
Charge for the year - 1,990 34 3,290 5,314
Disposals(1) - - (5) (4,625) (4,630)
-------------------- -------- ---------------------- -------- -------- --------
At 31 December 2022 - 25,291 327 23,119 48,737
-------------------- -------- ---------------------- -------- -------- --------
Net book value
-------------------- -------- ---------------------- -------- -------- --------
At 31 December 2022 115,855 109 22,258 9,645 147,867
-------------------- -------- ---------------------- -------- -------- --------
1 As part of the internal legal restructuring an asset verification exercise was conducted. As a result, intangible assets, with a gross book value of GBP4.6m and accumulated depreciation of GBP4.6m, have been disposed during the year.
Goodwill Customer relationships Brands Software Total
GBP000s GBP000s GBP000s GBP000s GBP000s
----------------------------- -------- ---------------------- -------- -------- --------
Cost
At 27 December 2020 124,877 26,744 23,222 27,580 202,423
Additions - - - 4,328 4,328
Disposals - - - (52) (52)
Business disposal (9,018) (1,344) (632) - (10,994)
Foreign exchange differences (4) - - - (4)
----------------------------- -------- ---------------------- -------- -------- --------
At 1 January 2022 115,855 25,400 22,590 31,856 195,701
----------------------------- -------- ---------------------- -------- -------- --------
Amortisation
At 27 December 2020 - 21,348 622 21,955 43,925
Charge for the year - 2,675 84 2,551 5,310
Disposals - - - (52) (52)
Business disposal - (722) (408) - (1,130)
----------------------------- -------- ---------------------- -------- -------- --------
At 1 January 2022 - 23,301 298 24,454 48,053
----------------------------- -------- ---------------------- -------- -------- --------
Net book value
----------------------------- -------- ---------------------- -------- -------- --------
At 1 January 2022 115,855 2,099 22,292 7,402 147,648
----------------------------- -------- ---------------------- -------- -------- --------
Analysis of goodwill, indefinite life brands, other brands and customer relationships by cash generating unit:
Other
Goodwill Indefinite life brands brands Customer relationships Total
GBP000s GBP000s GBP000s GBP000s GBP000s
-------------------- -------- ---------------------- -------- ---------------------- --------
Allocated to
HSS Core - UK 102,292 21,900 - - 124,192
HSS Core - Ireland 7,510 - - - 7,510
HSS Power 6,053 - 358 109 6,520
-------------------- -------- ---------------------- -------- ---------------------- --------
At 31 December 2022 115,855 21,900 358 109 138,222
-------------------- -------- ---------------------- -------- ---------------------- --------
Indefinite Other
Goodwill life brands brands Customer relationships Total
GBP000s GBP000s GBP000s GBP000s GBP000s
------------------ -------- ------------ -------- ---------------------- --------
Allocated to
HSS Core 109,802 21,900 - 1,900 133,602
HSS Power 6,053 - 392 199 6,644
------------------ -------- ------------ -------- ---------------------- --------
At 1 January 2022 115,855 21,900 392 2,099 140,246
------------------ -------- ------------ -------- ---------------------- --------
The remaining life of intangible assets other than goodwill and indefinite life brands is between nil and 12 years (2021: nil and 13 years). For the purpose of calculating Adjusted EBITDA and Adjusted EBITA, amortisation, is calculated as the total of the amortisation charge for the year and the loss on disposal of intangible assets. For the purpose of calculating Adjusted profit before tax, amortisation of customer relationships and brands is calculated as the total amortisation charge for the year and the loss on disposal of customer relationships and brands.
The Group tests property, plant and equipment, right of use assets, goodwill and brands for impairment annually and considers at each reporting date whether there are indicators that impairment may have occurred. In identifying indicators of impairment management considers current market capitalisation, asset obsolescence or closure, adverse trading performance and any other relevant wider economic or operational factors.
The Group has three (2021: two) cash generating units (CGUs): HSS Core UK, HSS Core Ireland and HSS Power.
During the year, the Group completed a restructure which included the legal creation of HSS Hire Ireland Limited in the Republic of Ireland. Following this restructure, the HSS Core CGU was subdivided into HSS Core UK and HSS Core Ireland and in line with IAS 36, the goodwill allocated based on each CGU's value in use (VIU).
The recoverable amounts of the goodwill and indefinite life brands, which are allocated to CGUs, are estimated from VIU calculations which model pre-tax cash flows for the next five years (2021: five years) together with a terminal value using a long-term growth rate. The key assumptions underpinning the recoverable amounts of the CGUs tested for impairment are those regarding the discount rate, forecast inflation rate, forecast revenue, EBITDA and capital expenditure including cash flows required to maintain the Group's right of use assets.
The key variables applied to the VIU calculations were determined as follows:
-- Cash flows were derived based on the budget for 2023 and model of the business for the following two years (to the end of 2025).
-- Operational activity then had a long-term growth rate applied to it while capital expenditure was specifically adjusted to reflect expectations of spend in the following years, giving a model of five years in total after which a terminal value was calculated. The long-term growth factor used was 2.0% for each of the CGUs (2021: 2.0%).
-- A pre-tax discount rate of 12.2% (2021: 9.44%), calculated by reference to a weighted average cost of capital (WACC) based on an industry peer group of quoted companies and including a 2.0% premium reflective of the Group's market capitalisation.
An impairment may be identified if changes to any of the factors mentioned above become significant, including under-performance of the Group against forecast, negative changes in the UK tool hire market or a deterioration in the UK economy, which would cause the Directors to reconsider their assumptions and revise their cash flow projections.
Based on the VIU modelling and impairment testing, the Directors do not consider an impairment charge to be required in respect of any of the property, plant and equipment, goodwill or indefinite life brand assets carried in the balance sheet at 31 December 2022 for any of the CGUs. The Directors carried out sensitivity analysis on various inputs to the models, including growth rates and discount rates, which did not result in an impairment charge for any CGU. Given the level of headroom in VIU these calculations show, the Directors did not envisage reasonably possible changes, either individually or in combination, to the key assumptions that would be sufficient to cause an impairment charge at the balance sheet date. The Directors also noted that the market capitalisation of the Group at the balance sheet date was below the consolidated net asset position - which is an indicator that an impairment may exist. On consideration of various factors, including the concentrated shareholder base and recent shareholder and investor activity, they concluded that an impairment was not required in this regard.
In respect of HSS Core UK (the larger CGU) at 31 December 2022, the headroom between VIU and carrying value of the related assets was GBP229.5m. The Directors' sensitivity analysis, with regard to HSS Core UK, shows that an increase in the discount rate to 22.2% or a reduction in the long-term growth rate to a decline of 14.5% would eliminate the headroom shown. Furthermore, the Directors' sensitivity analysis shows that no impairment would be required to the HSS Core UK CGU until the actual EBITDA was 26.6% lower than forecast. In addition, the Directors have assessed the combined impact of the long-term growth rate falling to zero and an increase in the discount rate of 1% to 13.2%. This shows that the headroom drops to GBP139.1m for HSS Core UK.
In respect of HSS Power (the smallest CGU) at 31 December 2022, the headroom between VIU and carrying value of the related assets was GBP8.4m (2021: GBP30.9m). The Directors' sensitivity analysis, with regard to HSS Power, shows that an increase in the discount rate to 16.1% (2021: 24.1%) or a reduction in the long-term growth rate to a decline of 3.4% (2021: decline of 30.3%) would eliminate the headroom shown. Furthermore, the Directors' sensitivity analysis shows that no impairment would be required to the Power CGU until the actual EBITDA was 10.0% (2021: 29.8%) lower than forecast. In addition, the Directors have assessed the combined impact of the long-term growth rate falling to zero (2021: zero) and an increase in the discount rate of 1% to 13.2% (2021: 10.44%). This shows that the headroom drops to GBP2.4m (2021: GBP18.6m) for HSS Power.
In respect of HSS Core Ireland at 31 December 2022, the headroom between VIU and carrying value of the related assets was GBP16.4m. The Directors' sensitivity analysis, with regard to HSS Core Ireland, shows that an increase in the discount rate to 21.8% or a reduction in the long-term growth rate to a decline of 13.8% would eliminate the headroom shown. Furthermore, the Directors' sensitivity analysis shows that no impairment would be required to the HSS Core Ireland CGU until the actual EBITDA was 18.3% lower than forecast. In addition, the Directors have assessed the combined impact of the long-term growth rate falling to zero and an increase in the discount rate of 1% to 13.2%. This shows that the headroom drops to GBP9.8m for HSS Core Ireland.
9. Property, plant and equipment
Land & Plant &
buildings machinery Materials & equipment held for hire Total
GBP000s GBP000s GBP000s GBP000s
------------------------------------- ---------- ---------- ----------------------------------- --------
Cost
At 2 January 2022 37,303 43,163 160,131 240,597
Transferred from right of use assets - - 283 283
Additions 4,919 592 30,435 35,946
Disposals (1) (4,606) (14,561) (16,686) (35,853)
Re-measurement (2,497) - - (2,497)
Foreign exchange differences 28 2 243 273
Transfer (102) - 102 -
------------------------------------- ---------- ---------- ----------------------------------- --------
At 31 December 2022 35,045 29,196 174,508 238,749
------------------------------------- ---------- ---------- ----------------------------------- --------
Accumulated depreciation
At 2 January 2022 25,453 39,408 97,008 161,869
Transferred from right of use assets - - 261 261
Charge for the year 2,433 1,501 16,654 20,588
Disposals (1) (3,927) (14,621) (13,189) (31,737)
Foreign exchange differences (2) (5) - (7)
Transfers - (161) 161 -
------------------------------------- ---------- ---------- ----------------------------------- --------
At 31 December 2022 23,957 26,122 100,895 150,974
------------------------------------- ---------- ---------- ----------------------------------- --------
Net book value
------------------------------------- ---------- ---------- ----------------------------------- --------
At 31 December 2022 11,088 3,074 73,613 87,775
------------------------------------- ---------- ---------- ----------------------------------- --------
1 As part of the internal legal restructuring an asset verification exercise was conducted. As a result, land and buildings and plant and machinery assets, with a net book value of GBP0.5m (GBP18.0m gross book value less GBP17.5m accumulated depreciation), have been disposed during the year.
Land & Plant &
buildings machinery Materials & equipment held for hire Total
GBP000s GBP000s GBP000s GBP000s
----------------------------------------------- ---------- ---------- ----------------------------------- --------
Cost
----------------------------------------------- ---------- ---------- ----------------------------------- --------
At 27 December 2020 - as previously reported 58,419 55,315 149,534 263,268
Restatement(1) - - 28,550 28,550
----------------------------------------------- ---------- ---------- ----------------------------------- -------- At 27 December 2020 - as restated 58,419 55,315 178,084 291,818 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Transferred from right of use assets - as previously reported - - 8,742 8,742 Restatement(1) - - (8,519) (8,519) ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Transferred from right of use assets - as restated - - 223 223 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Additions - as previously reported 2,011 755 18,558 21,324 Restatement(1) - - 7,257 7,257 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Additions - as restated 2,011 755 25,815 28,581 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Disposals - as previously reported (22,394) (11,193) (16,515) (50,102) Restatement(1) - - (831) (831) ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Disposals - as restated (22,394) (11,193) (17,346) (50,933) Business disposal (702) (1,683) (26,064) (28,449) Foreign exchange differences (31) (31) (581) (643) ----------------------------------------------- ---------- ---------- ----------------------------------- -------- At 1 January 2022 37,303 43,163 160,131 240,597 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Accumulated depreciation ----------------------------------------------- ---------- ---------- ----------------------------------- -------- At 27 December 2020 - as previously reported 45,208 50,580 99,105 194,893 Restatement(1) - - 9,417 9,417 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- At 27 December 2020 - as restated 45,208 50,580 108,522 204,310 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Transferred from right of use assets - as previously reported - - 5,200 5,200 Restatement(1) - - (4,990) (4,990) ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Transferred from right of use assets - as restated - - 210 210 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Charge for the year - as previously reported 2,543 1,710 12,482 16,735 Restatement(1) - - 3,641 3,641 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Charge for the year - as restated 2,543 1,710 16,123 20,376 Impairment 264 - - 264 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Disposals - as previously reported (22,325) (11,171) (13,145) (46,641) Restatement(1) - - (402) (402) ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Disposals - as restated (22,325) (11,171) (13,547) (47,043) Business disposal (231) (1,485) (14,148) (15,864) Foreign exchange differences (6) (56) (322) (384) Transfers - (170) 170 - ----------------------------------------------- ---------- ---------- ----------------------------------- -------- At 1 January 2022 25,453 39,408 97,008 161,869 ----------------------------------------------- ---------- ---------- ----------------------------------- -------- Net book value ----------------------------------------------- ---------- ---------- ----------------------------------- -------- At 1 January 2022 11,850 3,755 63,123 78,728 ----------------------------------------------- ---------- ---------- ----------------------------------- --------
The transferred from right of use category represents the acquisition of right of use assets at expiry of the lease in cases where the title is transferred to the Group.
10. Right of use assets
Property Vehicles Equipment for internal use Equipment held for hire Total
GBP000s GBP000s GBP000s GBP000s GBP000s
----------------------------------- -------- -------- -------------------------- ----------------------- --------
Cost
At 2 January 2022 56,847 26,283 520 2,328 85,978
Additions 2,290 5,903 - 2,220 10,413
Transferred to property, plant and
equipment - - - (293) (293)
Disposals (2,273) (548) - (649) (3,470)
Foreign exchange differences 31 (25) - - 6
----------------------------------- -------- -------- -------------------------- ----------------------- --------
At 31 December 2022 56,895 31,613 520 3,606 92,634
----------------------------------- -------- -------- -------------------------- ----------------------- --------
Accumulated depreciation
At 2 January 2022 15,104 12,773 444 468 28,789
Transferred to property, plant and
equipment - - - (271) (271)
Charge for the period 7,458 6,522 58 868 14,419
Disposals (2,022) (386) - (195) (2,603)
----------------------------------- -------- -------- -------------------------- ----------------------- --------
At 31 December 2022 20,540 18,909 502 870 40,821
----------------------------------- -------- -------- -------------------------- ----------------------- --------
Net book value
----------------------------------- -------- -------- -------------------------- ----------------------- --------
At 31 December 2022 36,355 12,704 18 2,736 51,813
----------------------------------- -------- -------- -------------------------- ----------------------- --------
Property Vehicles Equipment for internal use Equipment held for hire Total
GBP000s GBP000s GBP000s GBP000s GBP000s
----------------------------------- -------- -------- -------------------------- ----------------------- --------
Cost
----------------------------------- -------- -------- -------------------------- ----------------------- --------
At 27 December 2020 - as previously
reported 61,253 23,681 562 21,998 107,494
Restatement(1) - - - (20,497) (20,497)
----------------------------------- -------- -------- -------------------------- ----------------------- --------
At 27 December 2020 - as restated 61,253 23,681 562 1,501 86,997 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Additions - as previously reported 1,882 5,000 - 8,558 15,440 Restatement(1) - - - (7,257) (7,257) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Additions - as restated 1,882 5,000 - 1,301 8,183 Re-measurements 3,407 128 (12) - 3,523 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Transfers to property, plant and equipment - as previously reported - - - (4,462) (4,462) Restatement(1) - - - 4,297 4,297 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Transfers to property, plant and equipment - as restated - - - (165) (165) Business disposal (1,304) (1,662) (30) - (2,996) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Disposals - as previously reported (8,755) (859) - (755) (10,369) Restatement(1) - - - 446 446 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Disposals - as restated (8,755) (859) - (309) (9,923) Amount re-recognised on disposal of sublease 544 - - - 544 Foreign exchange differences (180) (5) - - (185) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- At 1 January 2022 56,847 26,283 520 2,328 85,978 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Accumulated depreciation ----------------------------------- -------- -------- -------------------------- ----------------------- -------- At 27 December 2020 - as previously reported 15,403 6,854 327 1,422 24,006 Restatement(1) - - - (1,364) (1,364) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- At 27 December 2020 - as restated 15,403 6,854 327 58 22,642 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Transfers to property, plant and equipment - as previously reported - - - (920) (920) Restatement(1) - - - 768 768 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Transfers to property, plant and equipment - as restated - - - (152) (152) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Charge for the period - as previously reported 7,840 7,099 147 4,307 19,393 Restatement(1) - - - (3,641) (3,641) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Charge for the period - as restated 7,840 7,099 147 666 15,752 Impairments 233 - - - 233 Business disposal (397) (538) (30) - (965) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Disposals - as previously reported (7,975) (642) - (121) (8,738) Restatement(1) - - - 17 17 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Disposals - as restated (7,975) (642) - (104) (8,721) ----------------------------------- -------- -------- -------------------------- ----------------------- -------- At 1 January 2022 15,104 12,773 444 468 28,789 ----------------------------------- -------- -------- -------------------------- ----------------------- -------- Net book value ----------------------------------- -------- -------- -------------------------- ----------------------- -------- At 1 January 2022 41,743 13,510 76 1,860 57,189 ----------------------------------- -------- -------- -------------------------- ----------------------- --------
The transferred to property, plant and equipment category represents the acquisition of right of use assets at expiry of the lease in cases where the title is transferred to the Group.
11. Trade and other receivables
31 December 2022 1 January 2022
------------- -------------------------------------------------- ---------------------------------------------------
Provision Provision Provision
for for Net of for Provision for Net of
Gross impairment credit notes provision Gross impairment credit notes provision
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
------------- -------- ------------ ------------ ------------ -------- ------------ ------------- ------------
Trade
receivables 77,308 (3,343) (5,554) 68,411 73,873 (3,884) (3,225) 66,764
Accrued
income 10,543 (106) - 10,437 4,165 (47) - 4,118
------------- -------- ------------ ------------ ------------ -------- ------------ ------------- ------------
Total trade
receivables
and contract
assets 87,851 (3,449) (5,554) 78,848 78,038 (3,931) (3,225) 70,882
Net
investment
in sublease 712 - - 712 961 - - 961
Other debtors 3,493 - - 3,493 1,282 - - 1,282
Prepayments 3,015 - - 3,015 5,555 - - 5,555
------------- -------- ------------ ------------ ------------ -------- ------------ ------------- ------------
Total trade
and other
receivables 95,071 (3,449) (5,554) 86,068 85,836 (3,931) (3,225) 78,680
------------- -------- ------------ ------------ ------------ -------- ------------ ------------- ------------
Included in other debtors is GBP1.0m (2021: GBPnil) relating to tax receivables.
The following table details the movements in the provisions for impairment of trade receivables and contract assets and credit notes:
31 December 2022 1 January 2022
31 December 2022 Provision for 1 January 2022 Provision for
Provision for impairment credit notes Provision for impairment credit notes
GBP000s GBP000s GBP000s GBP000s
------------------------------ ------------------------- ---------------- ------------------------- --------------
Balance at the beginning of
the period (3,931) (3,225) (3,023) (2,458)
Increase in provision (1,667) (6,278) (1,835) (3,746)
Utilisation 2,149 3,949 910 2,752
Business disposal - - 17 227
------------------------------ ------------------------- ---------------- ------------------------- --------------
Balance at the end of the period (3,449) (5,554) (3,931) (3,225) ------------------------------ ------------------------- ---------------- ------------------------- --------------
The bad debt provision based on expected credit losses and applied to trade receivables, all of which are current assets, is as follows:
0-60 days 61-365 days 1-2 years
31 December 2022 Current past due past due past due Total
-------------------------------------- ------- --------- ----------- --------- ------
Trade receivables and contract assets 71,292 7,747 7,262 1,550 87,851
Expected loss rate 0.9% 2.8% 20.9% 69.4% 3.9%
Provision for impairment charge 638 218 1,517 1,076 3,449
-------------------------------------- ------- --------- ----------- --------- ------
0-60 days 61-365 days 1-2 years
1 January 2022 Current past due past due past due Total
-------------------------------------- ------- --------- ----------- --------- ------
Trade receivables and contract assets 44,209 22,847 9,376 1,606 78,038
Expected loss rate 1.0% 2.4% 19.7% 68.7% 5.0%
Provision for impairment charge 435 544 1,848 1,104 3,931
-------------------------------------- ------- --------- ----------- --------- ------
Contract assets consist of accrued income.
The bad debt provision is estimated using the simplified approach to expected credit loss methodology and is based upon past default experience and the Directors' assessment of the current economic environment for each of the Group's ageing categories.
The Directors have given specific consideration to the macroeconomic uncertainty leading to pressures on businesses facing staff and material shortages and, more latterly, increased inflation. At the balance sheet date, similar to 2021, the Group considers that historical losses are not a reliable predictor of future failures and has exercised judgement in increasing the expected loss rates across all categories of debt. In so doing the Group has applied an adjusted risk factor of 1.25x (2021: 1.50x) to reflect the increased risk of future insolvency. In so doing the provision has been increased by GBP0.7m (2021: GBP1.2m) from that which would have been required based on loss experience over the past two years. As in the prior year, historical loss rates have been increased where debtors have been identified as high risk with a reduction applied to customer debt covered by credit insurance.
The total amount expensed was GBP3.1m (2021: GBP2.8m). Unless the counterparty is in liquidation, these amounts are still subject to enforcement actions.
In line with the requirements of IFRS 15, provisions are made for credit notes expected to be raised after year end for income recognised during the year.
The combined provisions for bad debt and credit notes amount to 10.2% of trade receivables and contract assets at 31 December 2022 (2021: 9.2%). A 0.5% increase in the combined provision rate would give rise to an increased provision of GBP0.4m (2021: GBP0.4m).
12. Trade and other payables
Year ended
Year ended 31 December 2022 1 January 2022
GBP000s GBP000s
-------------------------------------- --------------------------- ---------------
Current
Trade payables 41,693 43,062
Other taxes and social security costs 4,718 5,175
Other creditors 2,010 1,308
Accrued interest on borrowings 534 271
Accruals 38,689 28,494
Deferred income 658 394
-------------------------------------- --------------------------- ---------------
88,302 78,704
-------------------------------------- --------------------------- ---------------
13. Lease liabilities
As restated(1)
31 December 2022 1 January 2022
GBP000s GBP000s
------------------ ----------------- ---------------
Current
Lease liabilities 13,182 14,052
------------------ ----------------- ---------------
Non-current
Lease liabilities 43,110 47,413
------------------ ----------------- ---------------
56,292 61,465
------------------ ----------------- ---------------
The interest rates on the Group's lease liabilities are as follows:
As restated(1)
31 December 2022 1 January 2022
--------------- ---------- -------------------------------------- ----------------- ---------------
Equipment for hire Fixed 11.1 to 19.1% 11.1 to 19.1%
-------------------- ----- -------------------------------------- ----------------- ---------------
Other Fixed 3.5 to 6.0% 3.5 to 6.0%
-------------------- ----- -------------------------------------- ----------------- ---------------
The weighted average interest rates on the Group's borrowings are as follows:
As restated(1)
31 December 2022 1 January 2022
------------------ ----------------- ---------------
Lease liabilities 6.1% 5.7%
------------------ ----------------- ---------------
The lease liability movements are detailed below:
Property Vehicles Equipment for hire and internal use Total
GBP000s GBP000s GBP000s GBP000s
------------------------------ -------- -------- ----------------------------------- --------
Lease liability movement
At 2 January 2022 44,879 14,247 2,339 61,465
Additions 2,290 5,903 2,090 10,283
Discount unwind 2,460 444 3 2,907
Payments (including interest) (10,144) (7,023) (880) (18,047)
Disposals (217) (107) - (324)
Foreign exchange differences - 8 - 8
------------------------------ -------- -------- ----------------------------------- --------
At 31 December 2022 39,268 13,472 3,552 56,292
------------------------------ -------- -------- ----------------------------------- --------
As restated(1) As restated(1)
Property Vehicles Equipment for hire and internal use Total
GBP000s GBP000s GBP000s GBP000s
------------------------------ -------- -------- ------------------------------------ --------------
Lease liability movement
At 27 December 2020 57,181 16,861 1,771 75,813
Additions 1,981 5,029 1,418 8,428
Re-measurements 3,407 128 (13) 3,522
Discount unwind 2,805 535 5 3,345
Payments (including interest) (13,209) (7,012) (842) (21,063)
Disposals (6,006) (216) - (6,222)
Business disposal (1,063) (1,048) - (2,111)
Foreign exchange differences (217) (30) - (247)
------------------------------ -------- -------- ------------------------------------ --------------
At 1 January 2022 44,879 14,247 2,339 61,465
------------------------------ -------- -------- ------------------------------------ --------------
The Group's leases have the following maturity profile:
As restated(1)
31 December 2022 1 January 2022
GBP000s GBP000s
--------------------------- ----------------- ---------------
Less than one year 16,227 17,415
Two to five years 36,798 38,566
More than five years 15,133 19,353
--------------------------- ----------------- ---------------
68,158 75,334
--------------------------- ----------------- ---------------
Less interest cash flows: (11,866) (13,869)
--------------------------- ----------------- ---------------
Total principal cash flows 56,292 61,465
--------------------------- ----------------- ---------------
The maturity profile, excluding interest cash flows, of the Group's leases is as follows:
As restated(1)
31 December 2022 1 January 2022
GBP000s GBP000s
--------------------- ----------------- ---------------
Less than one year 13,182 14,052
Two to five years 30,690 31,575
More than five years 12,420 15,838
--------------------- ----------------- ---------------
56,292 61,465
--------------------- ----------------- ---------------
14. Borrowings
As restated(1)
31 December 2022 1 January 2022
GBP000s GBP000s
--------------------------- ----------------- ---------------
Current
Hire purchase arrangements 5,168 5,258
--------------------------- ----------------- ---------------
Non-current
--------------------------- ----------------- ---------------
Hire purchase arrangements 9,978 9,842
Senior finance facility 68,613 68,166
--------------------------- ----------------- ---------------
78,591 78,008
--------------------------- ----------------- ---------------
The senior finance facility is stated net of transaction fees of GBP1.4m (2021: GBP1.8m) which are being amortised over the loan period.
The nominal value of the Group's loans at each reporting date is as follows:
31 December 2022 1 January 2022
GBP000s GBP000s
--------------------------- ---------------- --------------
Hire purchase arrangements 15,146 15,100
Senior finance facility 70,000 70,000
Revolving credit facility - -
--------------------------- ---------------- --------------
85,146 85,100
--------------------------- ---------------- --------------
The senior finance facility and revolving credit facility are secured over the assets of Hampshire TopCo Limited and Hero Acquisitions Limited and all of its subsidiaries. These subsidiaries comprise all of the trading activities of the Group. The GBP25.0m revolving credit facility includes a GBP6.0m overdraft facility and in 2021 also included a GBP1.8m guarantee arrangement to secure the Group's card-acquiring services provided by a third party, which concluded during 2022.
The Group had undrawn committed borrowing facilities of GBP36.3m at 31 December 2022 (2021: GBP35.8m), including GBP11.3m (2021: GBP12.6m) of finance lines to fund hire fleet capital expenditure not yet utilised. Including net cash balances, the Group had access to GBP84.0m of combined liquidity from available cash and undrawn committed borrowing facilities at 31 December 2022 (2021: GBP78.1m).
The interest rates on the Group's borrowings are as follows:
31 December 2022 1 January 2022
--------------------------- ---------------- ------------------------------------- ---------------- --------------
Hire purchase arrangements Floating percentage above NatWest base
rate 2.3 to 2.9% 2.4 to 3.3%
Senior finance facility Floating percentage above SONIA 3.0% 3.0%
Revolving credit facility Floating percentage above SONIA 3.0% 3.0%
--------------------------- ---------------- ------------------------------------- ---------------- --------------
The weighted average interest rates on the Group's borrowings are as follows:
31 December 2022 1 January 2022
--------------------------- ---------------- --------------
Hire purchase arrangements 6.0% 2.7%
Senior finance facility 6.4% 3.0%
Revolving credit facility 6.4% 3.0%
--------------------------- ---------------- --------------
Amounts under the revolving credit facility are typically drawn for a one to three month borrowing period, with the interest set for each borrowing period based upon SONIA and a fixed margin.
The Group's borrowings have the following maturity profile:
As restated(1)
31 December 2022 1 January 2022
-------------------------------------- ----------------------------------- ----------------------------------
Hire purchase Hire purchase
arrangements Borrowings arrangements Borrowings
GBP000s GBP000s GBP000s GBP000s
-------------------------------------- ----------------------- ---------- ------------------------ ------------
Less than one year 5,718 2,235 5,600 2,235
Two to five years 10,670 74,245 10,190 76,498
-------------------------------------- ----------------------- ---------- ------------------------ ------------
16,388 76,480 15,790 78,733
Less interest cash flows:
Hire purchase arrangements (1,242) - (690) -
Senior finance facility - (6,480) - (8,733)
-------------------------------------- ----------------------- ---------- ------------------------ ------------
Total principal cash flows 15,146 70,000 15,100 70,000
-------------------------------------- ----------------------- ---------- ------------------------ ------------
15. Provisions
Onerous property Onerous
costs Dilapidations contracts Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- ---------------- ------------- ---------- --------
At 2 January 2022 186 10,174 13,463 23,823
Additions - 4,430 - 4,430
Utilised during the period (7) (58) (3,289) (3,354)
Unwind of provision 1 113 - 114
Impact of change in discount rate (6) (2,822) (368) (3,196)
Releases (57) (467) - (524)
Foreign exchange - 10 - 10
---------------------------------- ---------------- ------------- ---------- --------
At 31 December 2022 117 11,380 9,806 21,303
---------------------------------- ---------------- ------------- ---------- --------
Of which:
Current 47 1,232 2,979 4,258
Non-current 70 10,148 6,827 17,045
---------------------------------- ---------------- ------------- ---------- --------
117 11,380 9,806 21,303
---------------------------------- ---------------- ------------- ---------- --------
Onerous property Onerous
costs Dilapidations contracts Total
GBP000s GBP000s GBP000s GBP000s
---------------------------------- ---------------- ------------- ---------- --------
At 27 December 2020 3,959 12,677 17,018 33,654
Additions 86 1,471 - 1,557
Utilised during the period (212) (2,538) (3,290) (6,040)
Unwind of provision (1) 24 (8) 15
Impact of change in discount rate (31) (457) (257) (745)
Releases (3,615) (643) - (4,258)
Business disposal - (361) - (361)
Foreign exchange - 1 - 1
---------------------------------- ---------------- ------------- ---------- --------
At 1 January 2022 186 10,174 13,463 23,823
---------------------------------- ---------------- ------------- ---------- --------
Of which:
Current 70 1,453 3,190 4,713
Non-current 116 8,721 10,273 19,110
---------------------------------- ---------------- ------------- ---------- --------
186 10,174 13,463 23,823
---------------------------------- ---------------- ------------- ---------- --------
Onerous property costs
The provision for onerous property costs represents the current value of contractual liabilities for future rates payments and other unavoidable costs (excluding lease costs) on leasehold properties the Group no longer uses. The additions of GBPnil (2021: GBP0.1m) and the release of the provision of GBP0.1m (2021: GBP3.6m) have been treated as exceptional and are included in the property cost credit of GBP0.1m (2021: GBP3.0m). The releases are the result of early surrenders being agreed with landlords - the associated liabilities are generally limited to the date of surrender but provided to the date of the first exercisable break clause to align with recognition of associated lease liabilities.
The liabilities, assessed on a property-by-property basis, are expected to arise over a period of up to four years (2021: five years) with the weighted average age of the onerous property costs being 2.73 years (2021: 3.30 years). The onerous property cost provision has been discounted at a rate of 3.62% (2021: 0.81%). Sensitivity analysis has not been conducted due to the immaterial nature of the remaining provision.
Dilapidations
An amount equal to the provision for dilapidation is recognised as part of the asset of the related property. The timing and amounts of future cash flows related to lease dilapidations are subject to uncertainty. The provision recognised is based on management's experience and understanding of the commercial retail property market and third party surveyors' reports commissioned for specific properties in order to best estimate the future outflow of funds, requiring the exercise of judgement applied to existing facts and circumstances, which can be subject to change. The estimates used by management in the calculation of the provision take into consideration the location, size and age of the properties. The weighted average dilapidations provision at 31 December 2022 was GBP8.83 per square foot (psf) (2021: GBP7.53 psf). The increase is mainly due to a revision of the GBP per square foot estimates in line with actual expenditure on the exit of properties. Estimates for future dilapidations costs are regularly reviewed as and when new information is available. Given the large portfolio of properties, the Directors do not believe it is useful or practical to provide sensitivities on a range of reasonably possibly outcomes on a site by site basis. Instead consideration is given to the impact of a sizeable shift in the average rate. A GBP1.00 psf increase in the dilapidations provision would lead to an increase in the provision at 31 December 2022 of GBP1.1m (2021: GBP1.5m).
The dilapidations provisions have been discounted depending on the remaining lease term and the rate is based on the 5 or 10 year UK gilt yields of 3.62% and 3.70% respectively (2021 0.81% and 0.97% respectively). A 1% increase in both the discount rates at 31 December 2022 would decrease the dilapidations provision by GBP0.6m (2021: GBP0.6m). The inflation rate applied in the calculation of the dilapidations provision was 5% for year 1 and thereafter 2.5% (2021: 3% average was used). The Directors have noted the significant pressure on inflation towards the end of 2021 and especially in 2022 but the expectation is that inflation has now peaked and that it would gradually come down in 2023 with levels returning to around 2% again from 2024 onwards.
The aggregate movement in additions, releases and change in discount rate of GBP1.1m has generated GBP1.1m of asset additions, remeasurements and disposals.
Onerous contract
The onerous contract represents amounts payable in respect of the agreement reached in 2017 between the Group and Unipart to terminate the contract to operate the NDEC. Under the terms of that agreement, at 31 December 2022 GBP9.8m is payable over the period to 2026 (2021: GBP13.5m) and GBP3.3m has been paid during the year (2021: GBP3.3m). The provision has been remeasured to present value by applying a discount rate of 3.62% (2021: 0.81%). A 1% increase in the discount rate at 31 December 2022 would decrease the provision by GBP0.2m (2021: GBP0.3m).
16. D eferred tax
Deferred tax is provided in full on taxable temporary differences under the liability method using applicable tax rates.
Property, plant and equipment
Tax losses and other items Acquired intangible assets Total
Deferred tax asset/(liability) GBP000s GBP000s GBP000s GBP000s
---------------------------------- ---------- -------------------------------- -------------------------- --------
At 2 January 2022 2,000 404 (148) 2,256
Credit/(charge) to the income
statement 5,367 (256) 31 5,142
At 31 December 2022 7,367 148 (117) 7,398
---------------------------------- ---------- -------------------------------- -------------------------- --------
Property, plant and equipment and
Tax losses other items Acquired intangible assets Total
Deferred tax asset/(liability) GBP000s GBP000s GBP000s GBP000s
--------------------------------- ---------- --------------------------------- -------------------------- --------
At 27 December 2020 - 66 (326) (260)
Credit to the income statement -
continuing operations 2,000 289 21 2,310
Charge to the income statement -
discontinuing operations - - (12) (12)
Eliminated on disposal of
business - 49 169 218
At 1 January 2022 2,000 404 (148) 2,256
--------------------------------- ---------- --------------------------------- -------------------------- --------
Deferred tax assets have been recognised to the extent that management considers it probable that tax losses will be utilised in the short term. Due to trading losses in prior years, the Directors expect to phase in the recognition of taxable losses expected to be utilised in the medium and long term as they can better assess the probability of their utilisation. The level of losses to be utilised is measured by reference to the Board approved budget and 3-year plan. In the year ended 31 December 2022 a three-year (2021: one-year) recognition window has been applied. If this window were to be decreased to a period of one year, in line with the recognition window in the prior year, the deferred tax asset would decrease by GBP5.2m from GBP7.5m to GBP2.3m.
A deferred tax liability of GBP0.1m has been recognised on the net book value of acquired intangibles. This amount has not been offset against deferred tax assets elsewhere in the Group due to there being no legal right of offset in the relevant tax jurisdictions.
At 31 December 2022 GBP0.1m (2021: GBP0.1m) of the deferred tax liability is expected to crystallise after more than one year.
At 31 December 2022 the Group had an unrecognised deferred tax asset relating to losses of GBP13.1m (2021 (restated): GBP21.0m). The gross balance at 31 December 2022 was GBP52.3m (2021 (restated): GBP84.0m).
At 31 December 2022 the Group also had an unrecognised deferred tax asset relating to temporary differences on plant and equipment, intangible assets and provisions of GBP9.8m (2021: GBP15.2m). The gross balance at 31 December 2022 was GBP39.4m (2021 (restated): GBP60.0m).
The gross balances as at 1 January 2022 on unrecognised temporary differences for losses and temporary differences on plant and equipment, intangible assets and provisions have been restated to decrease by GBP10.0m and GBP20.0m respectively due to input errors in the preparation of the FY21 financial statements.
Additionally, the unrecognised deferred tax assets for losses as at 01 Jan 2022 were restated to increase these by GBP3.1m to correct the substantively enacted rate that was used from 19% to 25%.
These potential deferred tax assets have not been recognised on the basis that it is not sufficiently certain when taxable profits that can be utilised to absorb the reversal of the temporary difference will occur.
17. Share capital
The number of shares in issue and the related share capital and share premium are as follows:
Ordinary shares Ordinary shares Share premium
Number GBP000s GBP000s
--------------------------------------- --------------- --------------- -------------
At 2 January 2022 and 31 December 2022 704,987,954 7,050 45,552
--------------------------------------- --------------- --------------- -------------
Ordinary shares Ordinary shares Share premium
Number GBP000s GBP000s
---------------------- --------------- --------------- -------------
At 27 December 2020 696,477,654 6,965 45,580
2020 share issue cost - - (28)
Shares issued 8,510,300 85 -
---------------------- --------------- --------------- -------------
At 1 January 2022 704,987,954 7,050 45,552
---------------------- --------------- --------------- -------------
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