TIDMKINO
RNS Number : 5398W
Kinovo PLC
19 August 2022
19 August 2022
Kinovo plc
("Kinovo" or the "Group")
Final results for the year ended 31 March 2022
Kinovo plc (AIM:KINO), the specialist property services Group
that delivers compliance and sustainability solutions, announces
its full year results for the twelve months ended 31 March
2022.
Financial highlights:
-- Revenue from continuing operations increased by 35% to
GBP53.3 million (2021: GBP39.4 million)
-- Adjusted EBITDA from continuing operations up 102% to GBP4.2 million (2021: GBP2.1 million)
-- Underlying operating profit from continuing operations
increased by 95% to GBP4.1 million (2021: GBP2.1 million)
-- Strong adjusted cash conversion from continuing operations of
223% with GBP9.4 million in cash generated
-- Cash balance at year end of GBP2.5 million (2021: GBP1.3 million)
-- Net debt significantly reduced by approximately GBP2.4
million to GBP0.34 million from GBP2.7 million in 2021
-- Adjusted earnings per share almost doubled from 2.76p in 2021 to 5.33p in 2022
Operating highlights:
-- Strong performance from the underlying business despite considerable macro-economic pressures
-- Streamlined operations focus on three core operations:
o Regulation: delivered 59% of revenues and grew by 30%
year-on-year
o Regeneration: grew by 61% during the year, now contributing to
20% of total revenue
o Renewables: accounts for 21% of total revenue, reporting 32%
growth
-- Investment in the business development team, contributed to
winning a considerable number of new contracts during the period,
diversifying the client base and increasing three-year visible
revenues by 34% year-on-year from GBP105.0 million to GBP140.4
million
-- Investment in the training and upskilling of employees led to
an improved operational performance
-- Full Microgeneration Certification Scheme (MCS) accreditation
including PAS2030 installer certification, enables access to
further government funding initiatives
-- ESGM strategic report sets out our future commitments and key
targets including being carbon neutral in relation to Scope 1 and 2
by March 2023
DCB (Kent) Limited ("DCB"):
-- Disposal of DCB to MCG Global Limited ("MCG") for deferred
consideration of up to GBP5 million
-- Agreed to provide working capital support to DCB, which was
limited to a set time period and forecast to be cash neutral
-- At time of disposal, there were in existence certain
pre-existing parent company guarantees from Kinovo in relation to
the ongoing projects within DCB, which were to be transferred to
MCG following the disposal and expire on completion of the
projects
-- DCB did not perform to Kinovo's expectations following the
disposal and working capital support totalling GBP3.7 million was
provided
-- In May 2022, DCB went into administration and Kinovo has had
to uphold certain parent company guarantees relating to the
construction projects in existence at the time of the disposal
-- Dialogue with DCB clients have been positive, outstanding DCB
projects are under control with costs to complete expected to be
approximately GBP4 million plus expenses, significantly lower than
previous external expectations, and will be fulfilled by our
current cashflow.
Post-period End:
-- 28% year-on-year increase in revenues from continuing
operations during Q1 from GBP10.9 million to GBP14.0 million
-- Adjusted EBITDA from continuing operations for Q1 grew by 24%
on the previous year from GBP668,000 to GBP827,000
-- Net debt at the end of July 2022 remains comparable to
year-end at GBP345,000 with a positive cash balance of GBP2.0
million
-- Our banking partner, HSBC UK Bank plc, remains supportive of
the Group; refinancing of HSBC GBP1.5 million term loan and current
overdraft facilities have been credit committee approved and formal
documentation is in the process of being completed
David Bullen, Chief Executive Officer of Kinovo, commented:
"While the last year has been challenging for Kinovo, we are
delighted with the performance of the underlying business. Revenues
increased by 35% and adjusted EBITDA more than doubled, a direct
result of the repositioning announced last year to focus on three
key areas: regulation, regeneration and renewables. This
streamlining of operations has allowed the underlying business to
prioritise what it does best and flourish. Coupled with the
significant investment in our people, upskilling of employees and
bringing in additional expertise, Kinovo is well positioned to
negotiate this difficult macro-economic environment.
A key challenge we faced this year was the fall-out from the
disposal of DCB. We are confident that Kinovo undertook all
necessary due diligence, with the deal being based on sound
financial projections that, since completion, have not performed to
our expectations. The outstanding DCB projects are now under
Kinovo's control and we are pleased that the cost to complete will
be significantly lower than previously speculated externally, at
around GBP4 million plus costs, which will be fulfilled by Kinovo's
current cashflow. This disposal was a key component of streamlining
operations, and we look forward to finalising the DCB projects and
focusing on the rest of the business, which is excelling.
We are pleased to have received continued support from our
banking partner HSBC, with our facilities in the process of being
completed.
Kinovo is in a strong position moving into FY23, with the
revenue and EBITDA growth achieved last year continuing into Q1. We
have complete confidence that the Group will continue to grow and
develop as we reap the rewards of the team's hard work and
investment during the last two years. I look forward to updating
the market on this progress in due course."
Enquiries
Kinovo plc
Sangita Shah, Chairman +44 (0)20 7796 4133
David Bullen, Chief Executive Officer (via Hudson Sandler)
Canaccord Genuity Limited (Nominated Adviser
and Sole Broker) +44 (0)20 7523 8000
Corporate Broking:
Andrew Potts
Bobbie Hilliam
Hudson Sandler (Financial PR) +44 (0)20 7796 4133
Dan de Belder
Harry Griffiths
This announcement contains inside information for the purposes
of article 7 of the Market Abuse Regulation (EU) 596/2014 as
amended by regulation 11 of the Market Abuse (Amendment) (EU Exit)
Regulations 2019/310. Upon the publication of this announcement,
this inside information is now considered to be in the public
domain.
Chair's statement
A future that shows promise and continued growth
Sangita Shah
Non-Executive Chair
Overview
From the perspective of underlying business results, I am
pleased to report the very strong performance amidst challenging
macro-economic conditions. We have faced labour availability
constraints resulting from Brexit, the continued impacts of the
Covid-19 pandemic, cost inflation and supply chain issues,
exacerbated by the war in Ukraine. Despite all of these
uncertainties, the three business divisions reported a combined
increase in revenue of 35% and triple digit adjusted EBITDA
growth.
However, whilst our underlying business has been a success, we
have encountered significant problems relating to the disposal of
DCB (Kent) Limited, our former construction division. This is a
regrettable situation. Whilst the Company, along with its legal
advisers, believe it conducted the necessary due diligence
regarding the disposal, we recorded a loss on the disposal of DCB
of GBP12.6 million. Additional details are set out in the Financial
Review and notes 30 and 32 of the financial statements.
Repositioning
In last year's Annual Report, Kinovo set out its strategic
repositioning to focus on three key pillars: Regulation,
Regeneration and Renewables. These pillars are centred around
compliance and regulatory work under long-term contracts, being the
foundation of our Company.
This streamlining of operations has allowed Kinovo to focus on
areas where we possess strength and experience while foreseeing
significant future growth opportunities.
Part of this repositioning has allowed us to focus time and
capital on these specific areas. By streamlining our operations, we
have been able to invest significantly in the bid team, as well as
training and marketing. The results of this are evident through the
underlying business performance last year, where we signed five
contracts with new clients and one renewal.
ESG
ESG and sustainability are vitally important to us and a key
tenet of our business ethos. We are authentically committed to our
people and communities. For example, Kinovo continues to run prison
outreach programmes, visiting prisons and participating in schemes
to assist ex-prisoners with their rehabilitation and finding work.
We also operate a successful apprenticeship programme that is now
in its 30th year, with apprentices making up 10% of our
workforce.
We also operate a number of important environmental initiatives.
This year we achieved PAS 2030 and MCS accreditations, which set
out the requirements and demonstrate the quality for retrofitting
domestic low-carbon technologies, and introduced a "Free of Charge"
electric vehicle charging installation scheme for retailers and
leisure operators. While still in its early stages, we are
developing and initiating a free EV charging installation model
that sees customers sign long-term deals with Kinovo; this will
extend beyond our usual client base of housing associations and
councils into hospitality and leisure companies. We also extended
our internal environmental credentials, increasingly making our
workplaces greener through use of EV chargers and solar panels, and
by installing a ground source heat pump at our Head Office.
People
Our people are the lifeblood of the company. They are, and
always will be, of utmost importance to us. We believe our employee
initiatives to be among the best in the property services sector
and on AIM. We pride ourselves on ranking highly in terms of
support around mental health and this year we provided training to
a number of employees to become mental health workplace responders.
We are also proud to have developed our employee bonus scheme, and
have run a series of highly effective training programmes and
continue to promote diversity and inclusion throughout the
Company.
Looking ahead
The considerable difficulties we encountered from the disposal
of our construction division sadly marred what was an excellent
performance within the underlying business. Having shown the
resilience and fortitude to overcome these difficulties, we very
much look forward to putting the DCB issue behind us and forging
forwards.
Sangita Shah
Non-Executive Chair
19 August 2022
Chief Executive Officer's review
Delivered a robust underlying performance
David Bullen
Chief Executive Officer
Overview
Kinovo delivered a strong financial performance in the current
year, with robust underlying growth. The performance of the Group's
continuing operations was all the more impressive given the many
external challenges affecting the business community in general,
including the effects of the Covid-19 pandemic, Russia's invasion
of Ukraine, labour availability, cost inflation and supply chain
pressures.
The performance was achieved as a result of the rebranding and
repositioning of the Group as reported in last year's Annual
Report, with our growth being driven by prioritising and focusing
on our core strengths. We are now fully focused on our three
strategic pillars ("3Rs"): Regulation, Regeneration and Renewables,
and have continued to invest in key personnel and processes while
simultaneously winning a considerable number of new contracts as
well as extending existing relationships. The significant progress
of the underlying business, despite the challenging environment, is
a testament to the hard work and commitment of our people.
During the period, revenue from continuing operations increased
by 35% to GBP53.3 million (2021: GBP39.4 million), with adjusted
EBITDA rising by 102% to GBP4.2 million (2021: GBP2.1 million). Net
debt fell to GBP0.3 million (2021: GBP2.7 million); a reduction of
GBP10.5 million since 2019.
Our Regulation pillar, which assures safety and regulatory
compliance in homes and workplaces, remains the foundation of our
business, contributing to 59% of our revenues and delivering 30%
growth during the year. Our Regeneration pillar benefits from
remedial works that are borne out of our regulatory compliance
focus and also concentrates on planned and reactive maintenance
spanning across all three divisions of mechanical, electrical and
building services. This pillar grew significantly by 61% during the
year and now contributes to 20% of our revenues. Our Renewables
pillar has made good progress, growing by 32% during the year and
accounting for 21% of our revenues. During the year, we obtained
our Microgeneration Certification Scheme accreditation and
subsequent PAS2030 certification enabling us access to government
funding initiatives as a fully certified installer of solar
photovoltaics, air source and ground source heat pumps. We have
rolled out a free electric vehicle charger installation pilot
scheme, securing customers under long-term contracts including an
initial free period. Our opportunities in renewables are expected
to continue to grow moving forwards.
Rebranding and repositioning
Following our rebranding and repositioning, Kinovo has provided
both a clear understanding of our purpose and a differentiated
proposition for our client base, prioritising our people, the
quality of our services, the focus on our future and an unstinting
commitment to make a positive difference to people's lives and the
communities within which we work.
Through our marketing team, this initiative has facilitated
deeper engagement and a closer connection with our stakeholders,
strengthening our network and relationships. By creating our first
Company and employee brochures, to recognising our frontline staff
and rewarding individuals who best demonstrate our core values with
employee of the month schemes and delivering our first ESGM
strategy report, the positive development and progress of Kinovo is
favourably recognised.
Business development
Complementing our rebranding and repositioning initiative, as a
key driver for our organic growth prospects, we invested to
strengthen the breadth and depth of our business development team,
which is responsible for sourcing and securing new business
opportunities. With the support of our new brand positioning and
materials, the business development team have significantly
leveraged the quality of our bids and streamlined our new business
to target our key focus areas.
The value of this investment has already been demonstrated with
a 34% increase on our three-year visible revenues over the year.
During the period, Kinovo won, renewed or extended a number of
contracts increasing our three-year visible revenues to GBP140.4
million from GBP105.0 million in the previous year. Examples of
these include the renewal of our British Gas contract for three
years, a new contract with London Borough of Wandsworth for up to
seven years, and a new contract for up to four years with Sanctuary
Housing. A particularly pleasing feature of our wins has been the
increasing diversity of new clients that we have gained in the
process, broadening the Group's penetration in the South East.
People
Prioritising our people is critical for Kinovo, both in terms of
their welfare and career development, and we have enacted a number
of initiatives to strengthen our dedication to this, ensuring our
employees have access to continued support on both a personal and
professional basis, are recognised and rewarded appropriately and
have the opportunity to achieve their full development
potential.
We have aligned all of our recruitment and appraisal processes
with our core values to support our cultural change as an
organisation. We have invested in specific training courses for
individuals across the Group and all our subsidiary heads and
senior managers have attended a bespoke Leadership and Management
Training course during the year. This course will be provided to
the next tiers of management and supervisors in the forthcoming
year.
We are proud of the progress of our apprenticeship scheme, which
now stands at 25 apprentices and represents 10% of our workforce.
This demonstrates our commitment to developing local people and
communities, underpinning our long-term vision for Kinovo.
Alongside our apprenticeship scheme, in line with the growth of the
Company, we are pleased to have facilitated a number of internal
promotions amongst our staff across the different levels of
seniority.
The challenges of wage inflation and labour availability in the
employment market, coupled with the increasing cost of living
crisis, are all well documented. In recognition of this, the
Company has been proactive in evaluating its internal position with
external benchmarking, which has resulted in an average pay
increase across the Group of over 6%, post-appraisals, effective 1
April 2022. Specifically, amongst those who received a pay
increase, the average increase equated to almost 9%.
During the year, we also focused on strengthening our wellbeing
responsibilities for our staff. The increasing recognition of
mental health in society, particularly following the pandemic,
needs to be observed and we are playing a leading role among the
property services sector in not just advocating awareness but
implementing specific initiatives. We enrolled ten members of staff
to complete certified level two training with St. John's Ambulance
Service as mental health workplace responders and are looking to
roll this scheme out further.
DCB (Kent) Limited ("DCB")
During the year, we announced the disposal of DCB, a non-core
construction division, as part of the streamlining of operations,
and in line with our stated focus on our 3Rs. This was a strategic
decision following my appointment in April 2019; it was always
intended that DCB would be separated from the core operations and
was catalysed following the decision by the founders Chris and
Caroline Webster, at the end of June 2021, to resign and stand down
from the business by the end of the 2021 calendar year.
As part of the disposal to MCG Global Limited ("MCG"), Kinovo
agreed to provide working capital support to DCB, which was both
time limited and forecasted to be cash neutral. In addition, at the
time of the disposal there were in existence certain pre-existing
parent company guarantees from Kinovo in relation to the ongoing
projects within DCB. These parent company guarantees were to be
transferred to MCG following the disposal and expire on completion
of the projects. The projects were expected to be completed during
2022, except one project which was expected to complete at the end
of 2023. Despite a very robust pipeline of opportunities,
disappointingly, DCB did not perform to Kinovo's expectations
following the disposal and Kinovo was required to provide working
capital support totalling GBP3.7 million. In May 2022, DCB went
into administration and Kinovo has had to uphold certain parent
company guarantees relating to nine construction projects in
existence at the time of the disposal, none of which were
transferred to MCG prior to the administration process. Kinovo has
therefore taken control of these projects and is working closely
with DCB's clients, making encouraging progress to provide positive
solutions to complete the outstanding projects in a timely manner.
Working with professional construction experts we have reached
agreement, in principle, on a number of projects. We believe the
total costs to complete for the nine projects will be approximately
GBP4.0 million and we will be able to
conclude these projects without the need for further external
funding.
We also advised that we received a Letter Before Action from
lawyers acting for MCG. The Company has taken legal advice,
considers any claim brought by MCG to be without merit and has
responded robustly whilst also considering our own counter
claim.
Outlook
We are extremely pleased with the performance of the underlying
business and look forward to developing this further during 2022.
The Board remains conscious of inflationary headwinds, supply
pressures and labour availability, and will maintain a disciplined
approach to cost management. Despite these challenges, our
performance in 2021/22, as well as the structured framework that we
now have in place, leaves us confident that 2022/23 will be another
year of strong underlying financial performance with quarter one
Adjusted EBITDA 24% ahead of prior year.
We are in constructive discussions with our banking partner,
HSBC UK Bank Plc, regarding the continuation of the current
borrowing facilities and refinance of the term loan facility due
for full repayment in September 2022. HSBC UK Bank Plc remain
supportive and the Group has received formal credit approval
confirming the renewal and refinance of these facilities. However,
documentation is yet to be completed at the date of signing these
financial statements.
David Bullen
Chief Executive Officer
19 August 2022
Financial review
Strong performance from continuing operations
Clive Lovett
Group Finance Director
Trading review
Continuing operations
Kinovo has continued to deliver resilient progress with strong
growth in revenues, earnings and cash generation from its
continuing operations, despite the market challenges of supply
chain inflation and material and labour availability.
Comparative revenues grew 35% to GBP53.3 million (2021: GBP39.4
million) for the year ended 31 March 2022, demonstrating robust
recovery from the prior year impacts of Covid-19.
Gross profit of GBP12.8 million (2021: GBP9.3 million) was
achieved at a margin of 23.9% (2021: 23.6%). Underlying
administrative expenses of GBP8.7 million were up GBP1.4 million
compared with the prior period (2021: GBP7.3 million) reflecting
the investment in new staff including business development, bonus
provisions and the effect of furlough grants in the prior year.
Adjusted EBITDA* (after the effect of a charge for lease
payments) increased by 102% to GBP4.2 million (2021: GBP2.1
million) with operating profit from continuing operations
delivering GBP3.1 million (2021: GBP67,000).
Underlying operating profit, excluding non-underlying items,
increased by 104% to GBP4.1 million (2021: GBP2.0 million).
Non-underlying items were GBP1.0 million (2021: GBP1.9 million)
including GBPnil exceptional restructuring costs (2021:
GBP334,000).
Profit before taxation for continuing operations was GBP2.8
million (2021: loss GBP371,000) and profit after tax was GBP2.3
million (2021: loss GBP252,000) reflecting the uplift in the
performance of the continuing operations.
Discontinued operations
The Group's non-core construction business, DCB (Kent) Limited
was disposed of during the year. Loss after tax for the
discontinued operations was GBP549,000 and the loss on disposal
amounted to GBP12.6 million for the year ended 31 March 2022.
Further details are set out below and in note 30 to the financial
statements.
Financial position and key indicators
Net debt (excluding lease liabilities) reduced GBP2.4 million
from GBP2.7 million to GBP339,000 reflecting improved working
capital efficiency and robust underlying operational cash
generation from the continuing operations despite the cash absorbed
by the discontinued operations during the year.
We focus on a range of KPIs to assess our performance. Our KPIs
are both financial and non-financial and ensure that the Group
targets its resources around its customers, operations and finance.
Collectively they form an integral part of the way that we manage
the business to deliver our strategic goals.
The key financial performance indicators for the year are set
out below and described in more detail on pages 16 to 18.
* The Board considers Adjusted EBITDA to be a key Alternative
Performance Measure ("APM") as it is the basis upon which the
underlying management information is prepared and the performance
of the business assessed by the Board. It is also the measure for
the covenants under our banking arrangements.
Year ended Year ended
31 March 31 March
2022 2021
GBP'000 GBP'000
------------------------------------------------------- ---------- ----------
Continuing operations
Income statement
Revenue 53,325 39,369
Gross profit 12,767 9,291
Gross margin 23.9% 23.6%
EBITDA 1 (excluding effect of lease payments) 4,600 2,763
Adjusted EBITDA 2 (including effect of lease payments) 4,237 2,096
Underlying operating profit 3 4,091 2,010
Underlying profit before taxation 4 3,822 1,572
Profit/(loss) after taxation 2,262 (252)
Basic earnings/(loss) per share 5 3.66p (0.42p)
Adjusted earnings per share 6 5.33p 2.76p
Cash flow
Net cash generated from operating activities 9,777 5,542
Adjusted net cash generated from operating activities
7 9,442 4,360
Adjusted operating cash conversion 8 (%) 223% 208%
------------------------------------------------------- ---------- ----------
Financial position
Cash and cash equivalents 2,504 1,293
Term and other loans (2,843) (3,966)
Net debt 9 (339) (2,673)
Trade receivables 4,977 5,564
Accrued income 5,247 8,634
Trade payables (12,552) (11,082)
Net (liabilities)/assets (143) 10,862
------------------------------------------------------- ---------- ----------
Discontinued operations
(Loss)/profit after taxation (549) 409
Loss on disposal (12,595) -
Net cash (absorbed)/generated by operating activities (6,117) 272
------------------------------------------------------- ---------- ----------
1. Earnings before interest, taxation, depreciation and
amortisation ("EBITDA") and excluding non-underlying items, as set
out in note 8 of the financial statements.
2. Adjusted EBITDA excludes non-underlying items and is stated
after the effect of a charge for lease payments, as set out
below.
3. Underlying operating profit is stated before charging
non-underlying items as set out in note 9 of the financial
statements.
4. Underlying profit before taxation is stated after finance
costs and before charging non-underlying items.
5. Basic earnings per share is the profit after tax divided by
the weighted average number of ordinary shares.
6. Adjusted earnings per share is the profit before deducting
non-underlying items after tax divided by the weighted average
number of ordinary shares.
7. Net cash generated from continuing operations before tax and
after lease payments and adding back GBPnil (2021: GBP334,000)
exceptional items in the period ended 31 March 2022. It is also
adjusted to reflect the payment of deferred HMRC payments to normal
terms.
8. Adjusted net cash generated from operating activities divided by Adjusted EBITDA.
9. Net debt includes term and other loans, and overdraft net of
cash, and excludes lease obligations.
EBITDA reconciliation
Internal financial reporting and reporting under the Group's
banking facilities is focused on Adjusted EBITDA of GBP4.2 million
(2021: GBP2.1 million) which is stated after the effect of a charge
for lease payments.
Set out below is the basis for the calculation of Adjusted
EBITDA.
2022 2021
GBP'000 GBP'000
-------------------------------------------------------- -------- --------
Continuing operations
Profit before tax 2,792 (371)
Add back non-underlying items:
Amortisation of customer relationships 940 1,582
Share based payment charge 90 27
Exceptional items - 334
-------------------------------------------------------- -------- --------
Underlying profit before tax 3,822 1,572
EBITDA adjustments:
Finance costs 269 438
Depreciation of property, plant and equipment 130 82
Depreciation of right-of-use assets 336 654
Amortisation of software costs 44 17
Profit on disposal of property, plant and equipment (1) -
-------------------------------------------------------- -------- --------
EBITDA 4,600 2,763
Adjustment for lease payments (363) (667)
-------------------------------------------------------- -------- --------
Adjusted EBITDA 4,237 2,096
-------------------------------------------------------- -------- --------
Non-underlying items
Non-underlying items are considered by the Board to be either
exceptional in size, one-off in nature or non-trading related items
and are represented by the following:
2022 2021
GBP'000 GBP'000
--------------------------------------- -------- --------
Amortisation of customer relationships 940 1,582
Share based payment charge 90 27
Restructuring costs - 334
--------------------------------------- -------- --------
Total 1,030 1,943
--------------------------------------- -------- --------
The share based payment charge reflects the impact attributed to
the new share schemes established in 2021. Additional information
on the schemes is set out in note 28. There is no charge in 2022
for legacy schemes which have completely vested or the options
which have been cancelled.
Restructuring costs in 2021 for continuing operations comprise
redundancy and notice period costs and other related restructuring
costs to align operational skill sets with the strategic
repositioning of the business.
Finance costs
Finance expenses were GBP269,000 (2021: GBP438,000) and are
represented by interest on bank borrowings and loans, other
interest costs and other finance costs, being the amortisation of
debt issue costs. There was no finance income in the year.
Tax
The Group tax position reflects an underlying charge of
GBP530,000 on continuing activities set off by tax credits of
GBP128,000 on discontinued activities and GBP1.1 million relating
to the loss of disposal of DCB (Kent) Limited. GBPnil tax was
received in the year by continuing operations (2021: GBP163,000)
due to recovery of tax paid in the prior year.
Overall the Group has no tax liability at 31 March 2022 with
approximately GBP1.6 million unused tax losses.
The net deferred tax asset at 31 March 2022 was GBP306,000
(2021: liability GBP699,000) comprising a deferred tax liability of
GBP225,000 (2021: GBP1.1 million), relating to the acquisition of
intangible assets, right-of-use assets and short-term timing
differences, and a deferred tax asset of GBP531,000 (2021:
GBP387,000), relating to unused tax losses, lease liabilities and
share-based payments.
Earnings per share
Basic earnings per share, from continuing operations, was 3.66
pence (2021: loss 0.42 pence), based on profit after tax of GBP2.3
million (2021: loss GBP252,000). The weighted average number of
shares in issue was adjusted for the SIP share awards in the year
as set out in note 24 of the financial statements.
Adjusted earnings per share, from continuing operations,
excluding non-underlying items, was 5.33 pence (2021: 2.76 pence).
Diluted adjusted earnings per share was 5.15 pence. There was no
earnings per share dilution in 2021 as the outstanding share
options granted were priced above the average share price for the
year.
Cash flow performance
Adjusted cash generated from continuing operations was GBP9.4
million (2021: GBP4.4 million) resulting in an adjusted operating
cash conversion of 221% (2021: 208%).
Adjusted operating cash conversion is calculated as cash
generated from continuing operations (after lease payments), after
adding back exceptional item payments of GBPnil (2021: GBP334,000)
and adjusted for the effects of deferred HMRC repayments of
GBP136,000 (2021: net deferred GBP686,000), divided by Adjusted
EBITDA of GBP4.2 million (2021: GBP2.1 million), as set out
below.
2022 2021
GBP'000 GBP'000
----------------------------------------------------------------- -------- --------
Statutory cash generated from operations (see note 25) 3,660 5,814
Adjustment for cash absorbed by/(generated from) discontinued
activities 6,117 (272)
----------------------------------------------------------------- -------- --------
Net cash generated from continuing operating activities 9,777 5,542
Less operating lease payments (471) (667)
Less corporation tax received - (163)
----------------------------------------------------------------- -------- --------
9,306 4,712
Add back exceptional restructuring costs - 334
Net adjustment for deferred HMRC payments 136 (686)
----------------------------------------------------------------- -------- --------
Adjusted net cash generated from continuing operating activities 9,442 4,360
----------------------------------------------------------------- -------- --------
Adjusted EBITDA (see above and note 8) 4,237 2,096
----------------------------------------------------------------- -------- --------
Adjusted cash conversion (adjusted operating cash/Adjusted
EBITDA) 223% 208%
----------------------------------------------------------------- -------- --------
Total HMRC VAT liabilities of GBP1.02 million were deferred at
31 March 2021 and were fully repaid by 31 January 2022. In March
2022, the Group agreed arrangements with HMRC to defer VAT payments
and at 31 March 2022 deferred VAT was GBP887,000. At the date of
approval of the financial statements, GBP770,000 had been repaid
and the remaining GBP117,000 will be fully repaid by 1 September
2022.
Cash conversion excluding the effect of a charge for lease
payments was 208% (2021: 181%).
The result reflects a combination of rigorous focus on reducing
the time from order to cash receipts by the management teams of the
continuing operations, changes to the purchasing card credit terms
and facility and timing of staff bonus payments.
The Group has a centralised treasury function and actively
manages cash flows on both a daily and longer-term basis. The Group
enjoys long-term client relationships with both its customers,
being local government organisations and other housing
associations, and its supply chain partners.
Cash absorbed by discontinued operations amounted to a total of
GBP6.1 million (2021: cash generated GBP272,000) including working
capital provided post disposal of the business on 12 January 2022
until 31 March 2022 of GBP2.5 million.
Net debt
Net debt reduced by GBP2.4 million in the period (2021: reduced
by GBP4.5 million). At 31 March 2022, net debt amounted to
GBP339,000 (2021: GBP2.7 million) as analysed in the table below
and note 21 for full details of borrowings.
2022 2021 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- --------
Borrowings
Term loans 2,534 3,533 3,333 5,000
Other loans 109 176 235 289
Mortgage loans 200 257 314 371
Overdraft - - 3,351 5,219
-------------------------- -------- -------- -------- --------
2,843 3,966 7,233 10,879
Cash and cash equivalents (2,504) (1,293) (19) (21)
-------------------------- -------- -------- -------- --------
Net debt 339 2,673 7,214 10,858
-------------------------- -------- -------- -------- --------
Discontinued operations
Following its rebranding and strategic review, Kinovo determined
that DCB (Kent) Limited ("DCB"), the Company's construction
business, was non-core and initiated a process to dispose of the
business.
On 12 January 2022, DCB was disposed of for an initial
consideration of GBP1 and deferred consideration of up to a maximum
of GBP5.0 million dependent upon various performance criteria.
Kinovo was committed to providing working capital support (which
also included provisions for recovery of any surplus working
capital) until 31 July 2022 and retained liability under various
parent company guarantees for the DCB construction projects,
subject to the acquirer, MCG Global Limited ("MCG"), endeavouring
to transfer the guarantees. The Directors expectation for the
working capital support was that it would be cash neutral.
Despite a very robust pipeline of opportunities,
disappointingly, DCB did not perform to Kinovo's expectations
following the disposal and Kinovo was required to provide working
capital support totalling GBP3.7 million.
On 16 May 2022, DCB filed for administration. Kinovo is the
largest creditor of DCB according to the preliminary report of the
joint administrators. As at the date of the financial statements
Kinovo has limited expectation of recovery of the amounts owed or
deferred consideration under the terms of the disposal of DCB.
DCB did not perform to Kinovo's expectations following the
disposal and working capital funding had been provided, up to the
date of administration of DCB, amounting to GBP3.7 million and no
parent company guarantees had been transferred to MCG. Under the
terms of the parent company guarantees, Kinovo is responsible for
the completion of the projects.
The activities of DCB have been presented as discontinued
operations until the effective transfer of control of the business
and the comparatives of the Consolidated Statement of Comprehensive
Income have been re-presented for the year ended 31 March 2021.
Loss after tax for the discontinued operations was GBP549,000
(2021: profit GBP409,000).
The loss on disposal of DCB amounted to GBP12.6 million
including GBP3.7 million write-off of working capital funding
provided between January 2022 and April 2022, disposal of GBP9.9
million net assets including GBP2.4 million residual intangible
fixed asset comprising goodwill and customer relationship and
capitalised inter-company other net assets of GBP5.5 million,
offset by tax losses.
The net cost to complete the construction projects is expected
to be approximately GBP4.0 million plus legal and professional fees
and is considered to be a non-adjusting post balance sheet event as
the administration of DCB was not envisaged at the balance sheet
date. Three of the projects also have performance bonds, which are
indemnified by Kinovo plc, totalling GBP2.10 million. Kinovo has
engaged with insurers, underwriters and clients and although these
bonds technically could be called at any time, since DCB entered
into administration, it is recognised by all parties that whilst
discussions are ongoing to identify solutions to enable the
projects to be completed that the bonds would not be called.
Full details of the discontinued trading operations and the loss
on disposal and the non-adjusting post balance sheet event relating
to the net costs to complete the DCB construction projects are set
out in notes 30 and 32.
The disposal of DCB has allowed the Group to harmonise its
operations and increase the focus on its three strategic workflow
pillars: Regulation, Regeneration and Renewables. These pillars are
centred on compliance-driven, regulatory-led specialist services
that offer long-term contracts, recurring revenue streams and
strong cash generation.
Banking arrangements
The Group's debt facilities at 31 March 2022, with HSBC UK Bank
Plc, comprised a GBP2.5 million term loan, GBP2.5 million overdraft
facility and GBP200,000 mortgage loan. The Group also has a
GBP109,000 legacy loan with Funding Circle. Net debt analysis is
set out above and full details of the borrowing facilities are set
out in note 21 of the financial statements.
The financial covenants on the HSBC UK Bank Plc term loan
facility are tested quarterly and they are: (i) achievement of
minimum levels of EBITDA; (ii) debt service cover; and (iii)
interest cover. All financial covenants for the year ended 31 March
2022 were achieved as were the financial covenants on the unaudited
results for the quarter to 30 June 2022.
The scheduled GBP500,000 quarterly term loan repayment was made
on 31 May 2022. The next quarterly repayment is due on 31 August
2022, which the Group expects to repay, with the balance on the
term loan of GBP1.5 million scheduled to be repaid by 30 September
2022.
The Group and HSBC UK Bank Plc are in constructive discussions
regarding the continuation of the current borrowing facilities and
refinance of the term loan facility due for full repayment in
September 2022. HSBC UK Bank Plc remain supportive and the Group
has received formal credit approval confirming the renewal and
refinance of these facilities. However, documentation is yet to be
completed at the date of signing these financial statements.
Dividends
A final dividend for the year ended 31 March 2022 was paid in
September 2021. No interim dividend was paid. Due to the loss after
tax on non-continuing activities, the loss on disposal of DCB and
the consequent financial position for Kinovo, the Board does not
recommend the payment of a final dividend for the year ended 31
March 2022. It remains the Board's priority to continue to reduce
the level of net debt and to resume the payment of a dividend as
soon as financial conditions allow.
Going concern
The financial position of the Group, its cash flows, the
commitments to the discontinued operations, liquidity position and
borrowing facilities are described above.
In assessing the Group's ability to continue as a going concern,
the Board reviews and approves the annual budget and longer-term
strategic plan, including forecasts of cash flows.
The Board also reviews the Group's sources of available funds
and the level of headroom available against its committed borrowing
facilities and associated covenants.
After taking into account the above factors, including the
expectation that the HSBC UK Bank Plc term loan facility will be
refinanced, and possible sensitivities in trading performance, the
Board has an expectation that Kinovo and the Group as a whole have
adequate resources to continue in operational existence for the
foreseeable future.
Although HSBC UK Bank Plc credit approval has been agreed
confirming the renewal and refinancing of facilities, as the
documentation has yet to be completed and the agreement with
clients on the DCB projects was outstanding at the date of signing
the financial statements, technically, a material uncertainty
remains, which may cast significant doubt on the group's ability to
continue as a going concern. Discussions are at an advanced stage
on each of these matters and the Board is confident that new
agreements will be executed. For this reason, the Board continues
to adopt the going concern basis in preparing the consolidated
financial statements. Accordingly, these accounts do not include
any adjustments to the carrying amount or classification of assets
and liabilities that would result if the Group were unable to
continue as a going concern. Further detail on going concern are
set out in note 2.1.
Clive Lovett
Group Finance Director
19 August 2022
Independent Auditor's Report to the members of Kinovo plc for
the financial year ended 31 March 2022
Qualified opinion
We have audited the financial statements of Kinovo Plc (the
'group') for the year ended 31 March 2022 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated
Statement of Financial Position, the Consolidated Statement of Cash
Flows, the Consolidated Statement of Changes in Equity and notes to
the financial statements, including significant accounting
policies. The financial reporting framework that has been applied
in their preparation is applicable law and UK adopted International
Accounting Standards.
In our opinion, except for the effects of the matter described
in the Basis for qualified opinion section of our report, the group
financial statements:
-- give a true and fair view of the state of the group's affairs
as at 31 March 2022 and of its loss for the year then ended;
-- have been properly prepared in accordance with UK adopted
International Accounting Standards; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for qualified opinion on the group financial
statements
DCB (Kent) Limited was disposed of during the year and is
consequently presented as a discontinued operation in the
Consolidated Statement of Comprehensive Income, to which it
contributed a loss of GBP13,144,000 during the year. This loss
comprises the loss for the period up to the date of disposal of
GBP549,000 and a loss on disposal of GBP12,595,000, disclosed
within note 30. Following its sale and subsequent administration
the accounting records and all other supporting documentation
needed to audit DCB (Kent) Limited's contribution to the group's
comprehensive income during the period were not available to us,
and we were unable to obtain sufficient appropriate audit evidence
in respect of this contribution using alternative means.
In addition, were any adjustment to these figures to be
required, the strategic report would also need to be amended.
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's Responsibilities for the audit of the group financial
statements section of our report. We are independent of the group
in accordance with the ethical requirements that are relevant to
our audit of the group financial statements in the UK, including
the FRC's Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
qualified opinion.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a
thorough understanding of the group's business, its environment and
risk profile. We conducted substantive audit procedures and
evaluated the group's internal control environment. The components
of the group are subject to individual statutory audit and were
audited to their own individual materiality by the group audit
team, with the exception of DCB (Kent) Limited for the reasons set
out above.
For all entities that are subject to a full scope audit, we
evaluated the controls in place at those components by performing
walkthroughs over the financial reporting systems identified as
part of our risk assessment. We also reviewed the accounts
production process and addressed critical accounting matters. We
then undertook substantive testing on significant classes of
transactions and material account balances.
Emphasis of matter
We draw attention to note 32 in the consolidated financial
statements, which describes the costs to complete in relation to
the contracts entered into by DCB (Kent) Limited that DCB (Kent)
Limited was unable to fulfil due to going into administration. Due
to the parent company guarantee put in place prior to the disposal
of DCB (Kent) Limited, the group is liable for completion of the
contracts and has estimated the costs based on the advice of the
external qualified surveyors, who have assessed the net costs to
complete for the 9 ongoing projects to be in the region of GBP4.0
million plus professional fees and expenses.
Whilst the group used an expert to determine this amount, this
is a material judgement which we considered needed to be
highlighted to the users of the financial statements. Our opinion
is not modified in this respect.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the group
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
The key audit matters were:
-- Revenue recognition and valuation of accrued Income
-- Carrying value of intangible fixed assets
-- DCB (Kent) Limited's contribution to the Consolidated Statement of Comprehensive Income
-- Disposal of DCB (Kent) Limited
-- Going concern
A description of each matter together with our audit approach is
set out below.
Audit Area and Description Audit Approach
--------------------------------------- -----------------------------------------------------------------
Revenue recognition and valuation We selected a sample of contracts where income
of accrued income had been recognised but not invoiced at the
The Group had carried out work year end and:
for customers during the year * Confirmed that the calculations were arithmetically
that had not been invoiced at correct;
the reporting date, which totalled
GBP5,247,000 (2021: GBP8,634,000),
as detailed in note 19. Income * agreed the calculations to invoices raised after the
has been recognised in respect year end; and
of work carried out prior to
the reporting date in accordance
with the Group's income recognition * agreed that the work was performed prior to the year
policy, and in line with the end.
income recognition principles
outlined in IFRS 15.
In addition, we reviewed the adequacy of the
disclosures under IFRS15, and performed revenue
cut-off testing to cover the risk of fraud.
--------------------------------------- -----------------------------------------------------------------
Carrying value of intangible We critically assessed the Directors' assertion
fixed assets that no impairment was required by reference
As a result of the acquisitions to trading performance and forecasts.
made during prior periods, intangible We considered the appropriateness of the amortisation
assets represent a significant policy for customer relationships and reviewed
part of the total assets of the customer contracts to ensure these are
the group. The intangible assets still in existence. We have recalculated the
arising on acquisition largely amortisation charge.
comprise goodwill of GBP4,192,000
(2021: GBP5,543,000) and customer
relationships of GBP385,000
(2021: GBP2,489,000), as detailed
in note 15.
--------------------------------------- -----------------------------------------------------------------
DCB (Kent) Limited's contribution As set out in the Basis for Qualified opinion
to the Consolidated Statement above, we have qualified our opinion in respect
of Comprehensive Income of the contribution of DCB (Kent) Limited
As stated in the Basis for qualified to the Consolidated Statement of Comprehensive
opinion paragraph above, we Income for the reasons set out in that paragraph.
have been unable to obtain sufficient
appropriate audit evidence in
respect of the accounting records
of DCB (Kent) Limited.
--------------------------------------- -----------------------------------------------------------------
Disposal of DCB (Kent) Limited We critically assessed the Directors' board
The accounting treatment of papers covering each of these judgement areas,
the disposal of DCB (Kent) Limited independently evaluating the Directors' assertions
included significant judgements in light of the available evidence.
over the timing of the disposal, We considered evidence which contradicted
whether the timing of the costs the Directors' assertions as part of this
to complete was an adjusting process, as well as evidence which corroborated
or non adjusting post balance them.
sheet event and the timing of We concluded that the Directors' judgements
write offs, as detailed in notes were on balance appropriate in light of the
4(e), 4(f) and 4(g) respectively. available evidence, and reviewed the appropriateness
of the Directors' financial statement disclosures
in respect of these matters.
--------------------------------------- -----------------------------------------------------------------
Going concern As noted in the material uncertainty related
As detailed in note 2.1, there to going concern paragraph beneath, there
are several significant judgements are events or conditions which indicate that
which have been required to a material uncertainty exists that may cast
be made in the Directors' assessment significant doubt on the group's ability to
of the going concern status continue as a going concern. The audit work
of the group and specifically we have conducted in this area is described
whether a material uncertainty in the paragraph referred to above.
exists in relation to going
concern.
--------------------------------------- -----------------------------------------------------------------
Our application of materiality
The scope and focus of our audit was influenced by our
assessment and application of materiality. We define materiality as
the magnitude of misstatement that could reasonably be expected to
influence the readers and the economic decisions of the users of
the financial statements. We use materiality to determine the scope
of our audit and the nature, timing and extent of our audit
procedures and to evaluate the effect of misstatements, both
individually and on the financial statements as a whole.
Due to the nature of the group, we considered income to be the
main focus for the readers of the financial statements, accordingly
this consideration influenced our judgement of materiality. Based
on our professional judgement, we determined materiality for the
group to be GBP669,330 based on one percent of revenue from both
continuing and discontinued operations during the period.
On the basis of our risk assessment, together with our
assessment of the overall control environment, our judgement was
that performance materiality (i.e. our tolerance for misstatement
in an individual account or balance) for the Group was 50% of
materiality, namely GBP334,665.
We agreed to report to the Audit Committee all audit differences
in excess of GBP33,470, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds. We
also reported to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
Material uncertainty related to going concern
We draw attention to note 2.1 to the financial statements, which
indicates that the group is dependent on the continued support of
its bank to continue in business and meet its liabilities as they
fall due. The Board is currently in constructive discussions
regarding the continuation of the current borrowing facilities and
refinance of the term loan facility due for full repayment in
September 2022. HSBC UK Bank Plc remain supportive and the group
has received written notification that the bank's credit team have
approved the renewal and refinance of these facilities. However,
documentation is yet to be completed at the date of signing these
financial statements.
Note 2.1 also details that following the administration of DCB
(Kent) Limited the group has ongoing obligations in relation to a
number of DCB (Kent) Limited projects, including GBP2.10 million of
performance bonds, across three clients, which have been
technically callable since DCB (Kent) Limited's administration on
16 May 2022. The Board is currently in discussions with the
insurers, underwriters and customers to formally agree an optimal
way forward for these projects, including cancelling or novating
the performance bonds to new agreements. Discussions are ongoing at
the date of signing these financial statements although one client
has indicated their willingness to cancel their performance bond
amounting to GBP0.95 million, leaving GBP1.15 million outstanding.
Whilst management believe that the borrowing facilities will be
able to be refinanced and the performance bonds will not be called,
there can be no certainty in this respect.
As stated in note 2.1, these events or conditions, along with
the other matters as set forth in note 2.1, indicate that a
material uncertainty exists that may cast significant doubt on the
group's ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
In auditing the financial statements, we have concluded that the
use of the going concern basis of accounting in the preparation of
the group's financial statements is appropriate. Our evaluation of
the directors' assessment of the group's ability to continue to
adopt the going concern basis of accounting included:
-- a critical assessment of the detailed cash flow projections
prepared by the directors, which are based on their current
expectations of trading prospects, extending the borrowing
facilities and the performance bonds not being called;
-- reviewing the terms of the committed borrowing facilities available to the group;
-- reviewing the Board's assessment of the group's obligations
resulting from the administration of DCB (Kent) Limited;
-- understanding the trading results for the first quarter of the 2023 year end; and
-- reviewing the appropriateness of the disclosures in Note 2.1.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report. Our opinion
on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
As described in the basis for qualified opinion section of our
report, our audit opinion is qualified because we were unable to
obtain sufficient appropriate audit evidence regarding the amounts
presented in discontinued operations relating to the disposal of
DCB (Kent) Limited. We have concluded that where the other
information refers to these amounts or to related amounts such as
the overall loss for the year, it may also be materially misstated
for the same reason.
Opinions on other matters prescribed by the Companies Act
2006
Except for the possible effects of the matter referred to in the
Basis for Qualified Opinion paragraph, in our opinion, based on the
work undertaken in the course of the audit:
-- the information given in the Strategic Report and the
Directors' Report for the financial year for which the group
financial statements are prepared is consistent with the financial
statements; and
-- the Strategic Report and the Directors' Report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
Except for possible effects of the matter referred to in the
basis of qualified opinion section of our report, in the light of
the knowledge and understanding of the group and its environment
obtained in the course of the audit, we have not identified
material misstatements in the Strategic Report or the Directors'
Report.
Arising solely from the limitation on the scope of our work
relating to the sale of DCB (Kent) Limited, referred to above:
-- we have not obtained all the information and explanations
that we considered necessary for the purpose of our audit; and
-- we were unable to determine whether adequate accounting records had been kept.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- certain disclosures of directors' remuneration specified by law are not made.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out on page 48 the directors are responsible for the
preparation of the group financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of group financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the group financial statements, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the group financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities is available on
the FRC's website at:
https://www.frc.org.uk/auditors/audit-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditors-responsibilities-for
This description forms part of our auditor's report.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
The objectives of our audit in respect of fraud, are; to
identify and assess the risks of material misstatement of the group
financial statements due to fraud; to obtain sufficient appropriate
audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing
appropriate responses to those assessed risks; and to respond
appropriately to instances of fraud or suspected fraud identified
during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both management and
those charged with governance of the parent company.
Our approach was as follows:
-- We obtained an understanding of the legal and regulatory
requirements applicable to the group and considered that the most
significant are the Companies Act 2006, the AIM rules, UK-adopted
International Accounting Standards and UK taxation legislation.
-- We obtained an understanding of how the group complies with
these requirements by discussions with management and those charged
with governance.
-- We assessed the risk of material misstatement of the
financial statements, including the risk of material misstatement
due to fraud and how it might occur, by holding discussions with
management and those charged with governance.
-- We inquired of management and those charged with governance
as to any known instances of non-compliance or suspected
non-compliance with laws and regulations, and reviewed board
minutes for any evidence.
-- Based on this understanding, we designed specific appropriate
audit procedures to identify instances of non-compliance with laws
and regulations. This included making enquiries of management and
those charged with governance and obtaining additional
corroborative evidence as required.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion.
Other matter
We have reported separately on the parent company financial
statements of Kinovo Plc for the year ended 31 March 2022. That
report includes details of the parent company key audit matters,
how we applied the concept of materiality in planning and
performing our audit and an overview of the scope of our audit.
That report includes an emphasis of matter and a material
uncertainty in relation to going concern.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken for no purpose other than to
draw to the attention of the company's members those matters which
we are required to include in an auditor's report addressed to
them. To the fullest extent permitted by law, we do not accept or
assume responsibility to any party other than the company and
company's members as a body, for our work, for this report, or for
the opinions we have formed.
Andrew Barford
(Senior Statutory Auditor)
for and on behalf of Moore Kingston Smith LLP, Statutory
Auditor
6th Floor
9 Appold Street
London
EC1A 2AP
19 August 2022
Consolidated statement of comprehensive income
for the financial year ended 31 March 2022
12 months to 31 March 12 months to 31 March
2022 2021
---------------------------------- ---------------------------------
Non- Non-
underlying underlying
items items
Underlying (note Underlying (note
items 9) Total items 9) Total
Continuing operations Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Revenue 5 53,325 - 53,325 39,369 - 39,369
Cost of sales (40,558) - (40,558) (30,078) - (30,078)
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Gross profit 12,767 - 12,767 9,291 - 9,291
Administrative expenses (8,676) (1,030) (9,706) (7,281) (1,943) (9,224)
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Operating profit 7 4,091 (1,030) 3,061 2,010 (1,943) 67
Finance cost 11 (269) - (269) (438) - (438)
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Profit /(loss) before
tax 3,822 (1,030) 2,792 1,572 (1,943) (371)
Income tax (expense)/credit 13 (530) 119
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Profit/(loss) for
the year attributable
to the equity holders
of the parent company
from continuing operations 2,262 (252)
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Discontinued operations
(Loss)/profit from
discontinued operations
(note 30) (549) (12,595) (13,144) 409 - 409
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Total comprehensive
(loss)/income for the
period attributable
to the equity holders
of the parent company (10,882) 157
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
Earnings/(loss) per
share
From continuing operations:
Basic (pence) 14 3.66 (0.42)
Diluted (pence) 14 3.61 (0.42)
From total operations:
Basic (pence) 14 (17.62) 0.26
Diluted (pence) 14 (17.62) 0.26
---------------------------- ----- ---------- ----------- --------- ---------- ----------- --------
The comparative figures for the Consolidated Statement of
Comprehensive Income and the related notes have been reanalysed
between continuing and discontinued operations to allow for
comparability with the year ended 31 March 2022 result.
Consolidated statement of financial position
as at 31 March 2022
2022 2021
Notes GBP'000 GBP'000
---------------------------------------------- ----- -------- --------
Assets
Non-current assets
Intangible assets 15 4,780 8,209
Property, plant and equipment 16 1,103 1,307
Right-of-use assets 17 786 1,688
---------------------------------------------- ----- -------- --------
Total non-current assets 6,669 11,204
---------------------------------------------- ----- -------- --------
Current assets
Inventories 18 2,454 2,467
Deferred tax asset 29 306 -
Trade and other receivables 19 10,625 16,726
Cash and cash equivalents 20 2,504 1,293
---------------------------------------------- ----- -------- --------
Total current assets 15,889 20,486
---------------------------------------------- ----- -------- --------
Total assets 22,558 31,690
---------------------------------------------- ----- -------- --------
Equity and liabilities attributable to equity
holders of the parent company
Issued capital and reserves
Share capital 24.1 6,213 6,121
Own shares 24.1 (850) (850)
Share premium 24.2 9,245 9,210
Share based payment reserve 28 74 30
Merger reserve 24.3 (248) (248)
Retained earnings (14,577) (3,401)
---------------------------------------------- ----- -------- --------
Total equity (143) 10,862
---------------------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 21 177 2,842
Lease liabilities 22 434 1,183
Deferred tax liabilities 29 - 699
---------------------------------------------- ----- -------- --------
Total non-current liabilities 611 4,724
---------------------------------------------- ----- -------- --------
Current liabilities
Borrowings 21 2,666 1,124
Lease liabilities 22 362 552
Trade and other payables 23 19,062 14,428
---------------------------------------------- ----- -------- --------
Total current liabilities 22,090 16,104
---------------------------------------------- ----- -------- --------
Total equity and liabilities 22,558 31,690
---------------------------------------------- ----- -------- --------
Approved by the Board on 19 August 2022,
Clive Lovett
Group Finance Director
Company registration number: 09095860
Consolidated statement of changes in equity
for the financial year ended 31 March 2022
Share
Issued based
share Share Own payment Merger Retained Total
capital premium shares reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- -------- -------- --------- ---------
At 1 April 2020 5,872 8,609 - 612 (248) (4,221) 10,624
Profit and total comprehensive
income for the year - - - - - 157 157
Issue of share capital
(note 24.1) (net of
issue costs) 249 601 (850) - - - -
Share based payment
charge - - - 30 - - 30
Deferred tax on share
options - - - - - 51 51
Transfer to retained
earnings for share
options cancelled - - - (612) - 612 -
Total transactions
with owners recognised
directly in equity 249 601 (850) (582) - 663 81
------------------------------- -------- -------- -------- -------- -------- --------- ---------
At 31 March 2021 6,121 9,210 (850) 30 (248) (3,401) 10,862
Loss and total comprehensive
income for the year - - - - - (10,882) (10,882)
Issue of share capital
(note 24.1) (net of
issue costs) 92 35 - (46) - - 81
Share based payment
charge - - - 90 - - 90
Deferred tax on share
options - - - - - - -
Dividend paid - - - - - (294) (294)
Total transactions
with owners recognised
directly in equity 92 35 - 44 - (294) (123)
------------------------------- -------- -------- -------- -------- -------- --------- ---------
At 31 March 2022 6,213 9,245 (850) 74 (248) (14,577) (143)
------------------------------- -------- -------- -------- -------- -------- --------- ---------
Consolidated statement of cash flows
for the financial year ended 31 March 2022
12 months 12 months
ended ended
31 March 31 March
2022 2021
Notes GBP'000 GBP'000
------------------------------------------------------ ----- --------- ---------
Net cash generated from operating activities 25 3,660 5,814
------------------------------------------------------ ----- --------- ---------
Cash flow from investing activities
Purchase of property, plant and equipment (253) (87)
Purchase of intangible assets (142) (115)
Proceeds on disposal of property, plant and equipment - 20
------------------------------------------------------ ----- --------- ---------
Net cash used in investing activities (395) (182)
------------------------------------------------------ ----- --------- ---------
Cash flow from financing activities
Proceeds from borrowings - 7,333
Issue of new share capital (net of share issue
costs) 24.1 81 850
Repurchase of own shares for JSOP 24.1 - (850)
Repayment of borrowings (1,123) (7,249)
Interest paid (275) (461)
Principal payments of leases (443) (630)
Dividends paid (294) -
------------------------------------------------------ ----- --------- ---------
Net cash used in financing activities (2,054) (1,007)
------------------------------------------------------ ----- --------- ---------
Net increase in cash and cash equivalents 1,211 4,625
Cash and cash equivalents at beginning of year 1,293 (3,332)
------------------------------------------------------ ----- --------- ---------
Cash and cash equivalents at end of year 2,504 1,293
------------------------------------------------------ ----- --------- ---------
The cash and cash equivalents for the year ended 31 March 2022
are represented by cash balances of GBP2,504,000 (2021:
GBP1,293,000).
Notes to the consolidated financial statements
for the financial year ended 31 March 2022
1. Basis of preparation
Kinovo plc and its subsidiaries (together the "Group") operate
in the gas heating, electrical and general building services
industries. The Company is a public company operating on the AIM
market of the London Stock Exchange ("AIM") and is incorporated and
domiciled in England and Wales (registered number 09095860). The
address of its registered office is 201 Temple Chambers, 3-7 Temple
Avenue, London EC4Y 0DT. The Company was incorporated on 20 June
2014.
The Group's financial statements have been prepared on a going
concern basis under the historical cost convention, and in
accordance with UK adopted International Accounting Standards, the
International Financial Reporting Interpretations Committee
("IFRIC") interpretations issued by the International Accounting
Standards Boards ("IASB") that are effective or issued and early
adopted as at the time of preparing these financial statements and
in accordance with the provisions of the Companies Act 2006.
The Group has adopted all of the new and revised standards and
interpretations issued by the IASB and the International Financial
Reporting Interpretations Committee ("IFRIC") of the IASB, as they
have been adopted by the United Kingdom, that are relevant to its
operations and effective for accounting periods beginning on 1
April 2021.
The preparation of financial statements requires management to
exercise its judgement in the process of applying accounting
policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements, are disclosed
in notes 2 and 4. The functional and presentational currency of the
Group is Pounds Sterling (GBP) rounded to the nearest thousand. The
principal accounting policies adopted by the Group are set out in
note 2.
2. Summary of significant accounting policies
2.1. Going concern
The Directors have adopted the going concern basis in preparing
these accounts after assessing the risks as set out below and the
Group's business activities, together with factors that are likely
to affect its future development and position, as set out in the
Group Chief Executive Officer's Review on pages 10 and 11.
During the year Kinovo plc disposed of its non-core construction
business, DCB (Kent) Limited. The terms of the disposal allowed for
up to GBP5.0 million deferred consideration and an expectation that
Parent Company Guarantees (PCG's) provided by Kinovo, on nine
construction projects represented by six clients, would be
transferred to the purchaser, or an associate.
On 16 May 2022 DCB entered into administration. The PCG's had
not been transferred and Kinovo consequently has ongoing
responsibilities to complete the projects.
Third party experts have been retained by Kinovo to assess the
cost to complete the projects and Kinovo has engaged with each of
the clients of the construction contracts to facilitate the optimum
solution for the parties to deliver the projects.
Discussions have significantly progressed and Heads of Terms are
being agreed for each of the projects to recommence the
construction works and complete the projects for the clients.
The Directors estimate that the net costs to complete the
projects will be approximately GBP4.0 million plus fees and
expenses, over a period for completion, ranging from a number of
months through to the end of 2023.
Three of the projects also have performance bonds, which are
indemnified by Kinovo plc, totalling GBP2.10 million. Kinovo has
engaged with insurers, underwriters and clients and although these
bonds technically could be called at any time, since DCB entered
into administration, it is recognised by all parties that whilst
discussions are ongoing to identify solutions to enable the
projects to be completed that the bonds would not be called.One
client has indicated their willingness to cancel their performance
bond amounting to GBP0.95 million, subject to contract, and it is
expected that the remaining performance bonds amounting to GBP1.15
million will either be cancelled or novated to new agreements
between the parties.
Kinovo has a term loan with HSBC UK Bank Plc which had an
outstanding balance of GBP2.53 million at 31 March 2022. Since the
year end a further GBP500,000 has been repaid and a further
instalment of GBP500,000 is due at the end of August 2022, which
Kinovo expects to pay, leaving an outstanding balance of GBP1.53
million which is due for repayment at the end of September
2022.
The Group and HSBC UK Bank Plc are in constructive discussions
regarding the continuation of the current borrowing facilities and
refinance of the term loan facility due for full repayment in
September 2022. HSBC UK Bank Plc remain supportive and the Group
has received formal credit approval confirming the renewal and
refinance of these facilities. However, documentation is yet to be
completed at the date of signing these financial statements.
The continuing business traded strongly in the year ended 31
March 2022 and is expected to grow further, developing existing
strong relationships with its' client base, mobilising the new
contracts it has won and securing new business opportunities
through the established business development team.
Kinovo continuing operations has traded ahead of expectations in
the quarter to 30 June 2022, 24% ahead of prior year Adjusted
EBITDA.
In assessing the Group's ability to continue as a going concern,
the Board reviews and approves the annual budget and longer-term
strategic plan, including forecasts of cash flows.
In building these budgets and forecasts, the Board has
considered the expected costs to complete the DCB construction
projects, the continuing potential impact of Covid-19 and the
market challenges of supply chain inflation and material and labour
availability on the trading of the Group.
Whilst these factors have already been felt strongly, the
business has demonstrated its resilience. The Group reduced its
level of net debt during the year ended 31 March 2022 by GBP2.4
million reflecting the cash generated by continuing operations,
despite the cash absorbed by the discontinued operations during the
year.
The Directors expect that a combination of the cash generated by
the continuing business together with the expected extension of
bank facilities will enable Kinovo to fund the costs to complete
the construction projects and continue to drive the growth of the
core operations.
No equity fund raise is envisaged.
After taking into account the above factors and possible
sensitivities in trading performance, the Board has reasonable
expectation that Kinovo plc and the Group as a whole have adequate
resources to continue in operational existence for the foreseeable
future.
Although HSBC UK Bank Plc credit approval has been agreed
confirming the renewal and refinancing of facilities, as the
documentation has yet to be completed and the agreement with
clients on the DCB projects was outstanding at the date of signing
the financial statements, technically, a material uncertainty
remains, which may cast significant doubt on the group's ability to
continue as a going concern. Discussions are at an advanced stage
on each of these matters and the Board is confident that new
agreements will be executed. For this reason, the Board continues
to adopt the going concern basis in preparing the consolidated
financial statements. Accordingly, these accounts do not include
any adjustments to the carrying amount or classification of assets
and liabilities that would result if the Group were unable to
continue as a going concern.
2.2. Basis of consolidation
The consolidated financial statements consolidate those of the
Company and its subsidiary undertakings drawn up to 31 March each
year. Subsidiaries are entities that are controlled by the Company.
The definition of control involves three elements: power over the
investee; exposure or rights to variable returns; and the ability
to use power over the investee to affect the amount of the
investors' returns. This should be read in conjunction with note
4.1(e). The Group generally obtains power through voting
rights.
The consolidated financial statements incorporate the financial
information of Kinovo plc and its subsidiaries. Subsidiary
companies are consolidated from the date that control is gained.
The subsidiaries of the Group are detailed in note 6 of the Company
financial statements on page 95. All intra-group transactions,
balances, income and expense are eliminated on consolidation.
2.3. Business combinations and goodwill
Business combinations are accounted for using the acquisition
method, with the exception of the acquisition of P&R
Installation Company Limited. The acquisition method involves the
recognition at fair value of all identifiable assets, liabilities
and contingent liabilities of the subsidiary at the acquisition
date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On
initial recognition, the assets and liabilities of the subsidiary
are included in the Consolidated Statement of Financial Position at
their fair values, which are also used as the bases of subsequent
measurement in accordance with the Group accounting policies.
The acquisition of P&R Installation Company Limited did not
meet the definition of a business combination as the company was
not a business and therefore falls outside the scope of IFRS 3
(Revised) "Business Combinations". As IFRS does not provide
specific guidance in relation to Group reorganisations it defers to
the next appropriate GAAP, being UK GAAP. The acquisition of
P&R Installation Company Limited by the Company has therefore
been accounted for in accordance with the principles of merger
accounting as set out in Section 19 of FRS 102. Costs relating to
acquisitions in the year are expensed and are included in
administrative expenses.
Goodwill arising on acquisitions is recognised for an
acquisition as an asset and initially measured at cost, being the
excess of the cost of the business combination over the Group's
interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised.
Where applicable, the consideration for an acquisition includes
any assets or liabilities resulting from a contingent consideration
arrangement, measured at fair value at the acquisition date.
Subsequent changes in such fair values are adjusted against the
cost of acquisition where they result in additional information,
obtained within one year from the acquisition date, about facts and
circumstances that existed at the acquisition date. All other
subsequent changes in fair value of contingent consideration
classified as an asset or liability are recognised in accordance
with IAS 39, either in profit or loss or as a change to other
comprehensive income. Changes in fair value of contingent
consideration classified as equity are not recognised.
2.4. Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable for the provision of the Group's services.
Revenue is recognised by the Group, net of value added tax, based
upon the following:
-- Mechanical services - Mechanical services are supplied under
a term contract or framework agreement with both local authority
and corporate customers that usually span three or more years.
These contracts will outline a number of services that the Group is
retained to provide to the customer ranging from boiler servicing
and meter connections to installing central heating solutions.
These services will be provided on request from the customer, and
work will be charged based on the customer rate card. Each service
is considered to have a single performance obligation, and
generally takes less than a day to complete. Revenue is only
recognised at the point that the service is complete. Invoicing
only occurs once the customer has agreed that the relevant service
has been received and completed. The invoice is subsequently
settled on average within 34 days of issue. Any costs incurred in
advance of the performance obligation being completed are
recognised as work in progress. Any work completed but not yet
agreed with the customer/invoiced is recognised as accrued
income.
-- Building services - Building services contracts typically
range between one and six years, and can range from ad-hoc
maintenance work to long-term construction contracts. Long-term
construction contracts are only held within the DCB (Kent) Limited
business, and with the disposal of this subsidiary during the year,
it is not anticipated to have any such contracts in the future:
-- Long-term construction contracts: During the course of a
project an independent surveyor will conduct a monthly valuation of
the work done and issue a certification of the stage of completion,
which is the trigger for an invoice to be generated and a stage
payment to be made as per the terms of the contract. Payment occurs
on average within 34 days of the invoice being issued. These
monthly valuations are seen to represent the performance
obligations that have been satisfied under the terms of the
contract, as they reflect the benefit that has been transferred to
the customer. The Group thus recognises the revenue in line with
the certified stage of completion. If there is a delay in receiving
the certification of work, revenue will be recognised based on
management's estimate of the value of the performance obligation
fulfilled. Any costs incurred in advance of the performance
obligation being completed are recognised as work in progress.
Revenue recognisable in relation to work completed is recognised as
accrued income until invoiced.
A twelve-year warranty is issued on any new build developments
completed. Any claims made within the first two years of the
warranty are the responsibility of the Group to rectify. The
subsequent ten years are then covered by a third-party warranty
provider. No warranty claims have previously been made against the
Group, and therefore no provision for potential warranty claims is
made within these financial statements.
-- Maintenance work: Maintenance work is supplied under a term
contract or framework agreement which sets out the range of
services the Group is retained to provide to the customer including
refurbishments, replacements of kitchens and bathrooms, window
installations and painting and decorating. These services will be
provided on request from the customer, and work will be charged
based on the customer rate card. Each service is considered to have
a single performance obligation, and generally take less than a day
to complete. Revenue is only recognised at the point that the
service is complete. Invoicing only occurs once the customer has
agreed that the relevant service has been received and completed.
The invoice is subsequently settled on average within 34 days of
issue. Any costs incurred in advance of the performance obligation
being completed are recognised as work in progress. Any work
completed but not yet agreed with the customer/invoiced is
recognised as accrued income.
-- Electrical services - Electrical services are supplied under
a term contract or framework agreement with both local authority
and corporate customers that usually spans three or more years.
These contracts will outline a number of services that the Group is
retained to provide to the customer including servicing,
maintenance, emergency call-outs and rewires. These services will
be provided on request from the customer, and work will be charged
based on the customer rate card. Each service is considered to have
a single performance obligation, and generally takes less than a
day to complete. Revenue is only recognised at the point that the
service is complete. Invoicing only occurs once the customer has
agreed that the relevant service has been received and completed.
The invoice is subsequently settled on average within 34 days of
issue. Any costs incurred in advance of the performance obligation
being completed are recognised as work in progress. Any work
completed but not yet agreed with the customer/invoiced is
recognised as accrued income.
It is considered by management that the above revenue
recognition policies are suitable for recognising revenue arising
from the Group's key market verticals. All revenue streams are
wholly attributable to the principal activity of the Group and
arise solely within the United Kingdom. Note 5 gives further detail
of any work in progress and accrued income balances recognised in
relation to contracts with customers.
2.5. Operating profit and non-underlying items
Operating profit comprises the Group's revenue for the provision
of services, less the costs of providing those services and
administrative overheads, including depreciation of the Group's
non-current assets.
Underlying operating profit before the deduction of exceptional
costs and other adjusting items is one of the key measures used by
the Board to monitor the Group's performance. Exceptional costs are
disclosed on the face of the Consolidated Statement of
Comprehensive Income as "non-underlying items".
These non-underlying items comprise costs that are considered by
the Board to not relate to the underlying financial performance of
the Group and are separately analysed so that the users of the
accounts can compare trading performance on a like-for-like basis.
Costs falling within this category will have one or more of the
following attributes:
-- one-off transactions not relating to current or future trading;
-- non-cash items such as amortisation and impairment of
financial assets and share based payment charges; and
-- exceptional in size such that they distort the understanding
of underlying trading activities.
2.6. Dividends
The Group has a policy of paying dividends to shareholders in
accordance with the amount recommended by the Directors. If the
Directors believe the dividends are justified by the profits of the
Group available for distribution, they also pay interim dividends.
Dividends are recognised when they become legally payable. In the
case of interim dividends, this is when dividends are paid. In the
case of final dividends, this is when the dividends are approved by
the shareholders at the Annual General Meeting.
2.7. Segmental reporting
The Board of Directors of Kinovo plc (which is considered to be
the Chief Operating Decision Maker) has identified the reportable
segments to be mechanical services, building services and
electrical service. Direct costs are allocated to the appropriate
segment as they arise and central overheads are apportioned on a
reasonable basis. Operating segments are presented in a manner
consistent with internal reporting, with inter-segment revenue and
expenditure eliminated on consolidation. The segmental reporting is
outlined in note 6.
2.8. Intangible assets
In accordance with IFRS 3, an intangible asset acquired in a
business combination is deemed to have a cost to the Group of its
fair value at the acquisition date. The fair value of the
intangible asset reflects market expectations about the probability
that future economic benefits embodied in the asset will flow to
the Group.
Software expenditure is capitalised as an intangible asset if
the asset created can be identified, if it is probable that the
asset created will generate future economic benefits and if the
development cost of the asset can be measured reliably.
Following initial recognition, the carrying amount of an
intangible asset is its cost less any accumulated amortisation and
any accumulated impairment losses. Amortisation expense is charged
to administrative expenses in the income statement on a straight
line basis over its useful life.
The identifiable intangible assets and associated periods of
amortisation are as follows:
-- Customer relationships - over the period expected to benefit,
typically seven years.
-- Software and development costs - over four years.
2.9. Impairment
For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash
flows: cash-generating units ("CGUs"). As a result, some assets are
tested individually for impairment, and some are tested at CGU
level. Goodwill is allocated to CGUs that are expected to benefit
from synergies of the related business combination and represent
the lowest level within the Group at which management monitors the
related cash flows.
Goodwill or CGUs that include goodwill and those intangible
assets not yet available for use are tested for impairment at least
annually. All other individual assets or CGUs are tested for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
An impairment loss is recognised in the Statement of
Comprehensive Income for the amount by which the asset or CGU's
carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal
discounted cash flow evaluation. Impairment losses recognised for
CGUs to which goodwill has been allocated are credited initially to
the carrying amount of goodwill. Any remaining impairment loss is
charged pro rata to the other assets in the CGU. With the exception
of goodwill, all assets are subsequently reassessed for indications
that an impairment loss previously recognised may no longer
exist.
2.10. Property, plant and equipment
Property, plant and equipment is stated at historical cost less
accumulated depreciation. Depreciation is calculated to write off
the cost of the assets, net of anticipated disposal proceeds, over
the expected useful lives of the assets concerned as follows:
- 2% on freehold building
* Freehold property cost.
- 5% on long leasehold improvements
* Long leasehold improvements cost.
- 25% reducing balance.
* Office and computer equipment
- 25% reducing balance.
* Fixtures and fittings
- 25% reducing balance.
* Motor vehicles
Freehold land is not depreciated.
Subsequent expenditure is included in the asset's carrying
amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits will flow to the Group
and the cost of the item can be measured reliably. All other
repairs and maintenance are charged to the Statement of
Comprehensive Income during the financial period in which they are
incurred.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in the Statement of
Comprehensive Income.
The residual values and economic lives of assets are reviewed by
the Directors on at least an annual basis and are amended as
appropriate.
2.11. Impairment of property, plant and equipment
At each Statement of Financial Position date, the Group reviews
the carrying amounts of its tangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to
which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a
revaluation decrease. For assets other than goodwill, where
conditions giving rise to impairment subsequently reverse, the
effect of the impairment charge is also reversed as a credit to the
Statement of Comprehensive Income, net of any depreciation or
amortisation that would have been charged since the impairment.
2.12. Inventories
Raw materials and consumables are measured at the lower of cost
and net realisable value. Net realisable value is based on
estimated selling price less additional costs to completion and
disposal.
Work in progress is measured at the lower of cost and net
realisable value. Cost comprises direct materials and direct labour
costs that have been incurred in advance of the performance
obligations on contracts being completed.
2.13. Financial instruments
Financial assets and financial liabilities are recognised in the
Consolidated Statement of Financial Position when the Group becomes
party to the contractual provisions of the instrument. Financial
assets are de-recognised when the contractual rights to the cash
flows from the financial asset expire or when the contractual
rights to those assets are transferred. Financial liabilities are
de-recognised when the obligation specified in the contract is
discharged, cancelled or expired.
(a) Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest method less provision for impairment.
Appropriate provisions for expected credit losses are recognised in
the Statement of Comprehensive Income when there is objective
evidence that the assets are impaired. Interest income is
recognised by applying the effective interest rate, except for
short-term trade and other receivables when the recognition of
interest would be immaterial.
The Group incurs costs in advance of new contracts commencing in
association with preparatory work to ensure the contract can be
delivered from day one. These costs are included within work in
progress and released over the life of the contract.
(b) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits
and other short-term highly liquid investments that have maturities
of three months or less from inception, are readily convertible to
a known amount of cash and are subject to an insignificant risk of
changes in value.
(c) Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recorded at
the proceeds received, net of direct issue costs.
(d) Trade and other payables
Trade payables are initially measured at their fair value and
are subsequently measured at their amortised cost using the
effective interest rate method; this method allocates interest
expense over the relevant period by applying the "effective
interest rate" to the carrying amount of the liability.
(e) Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
Statement of Comprehensive Income over the period of the borrowings
using the effective interest method.
2.14. Current and deferred tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the Statement of Comprehensive Income,
except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
(a) Current tax
Tax payable is based on taxable profit for the year. Taxable
profit differs from net profit reported in the Statement of
Comprehensive Income because it excludes items of income and
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the Statement of
Financial Position date. As the Group has made losses during the
period there is no tax payable for the year to 31 March 2022.
Details of the tax charge on ordinary operations and tax credit on
discontinued operations during the year and tax losses available in
future periods are outlined in note 13.
(b) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying value of assets and
liabilities in the financial information and the corresponding tax
bases used in the computation of taxable profit and is accounted
for using the balance sheet liability method. Deferred tax
assets/liabilities are recognised to the extent that it is probable
that taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is charged or credited to the Statement of
Comprehensive Income except when it relates to items credited or
charged directly in equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax is calculated at the tax rates and laws that are
expected to apply to the period when the asset is realised or the
liability is settled based upon tax rates that have been enacted or
substantively enacted by the reporting date.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
2.15. Leases
The Group leases various premises, vehicles and equipment.
Rental contracts are typically made for fixed periods of six months
to 20 years, but may have extension options. Contracts may contain
both lease and non-lease components. The Group allocates the
consideration in the contract to the lease and non-lease components
based on their relative stand-alone prices. However, for leases of
real estate for which the Group is a lessee, it has elected not to
separate the lease and non-lease components and instead accounts
for these as a single lease component.
Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease agreements
do not impose any covenants other than the security interests in
the leased assets that are held by the lessor. Leased assets may
not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date which the leased asset is
available for use by the Group.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less any lease incentives receivable;
-- variable lease payments that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price or a purchase option if the Group is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, which is
generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
To determine the incremental borrowing rate, the Group uses
recent third-party financing received by the individual lessee as a
starting point, adjusted to reflect changes in the financing
conditions since the third-party financing was received.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to the profit or loss over the lease
period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement date
less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
Right-of-use assets are depreciated over the shorter of the
asset's useful life and the lease term on a straight line basis. If
the Group is reasonably certain to exercise a purchase option, the
right-of-use asset is depreciated over the underlying asset's
useful life.
Payments associated with short-term leases of equipment and
vehicles and all leases of low-value assets are recognised on a
straight line basis as an expense in profit or loss. Short-term
leases are leases with a lease term of twelve months or less.
Low-value assets comprise small items of office equipment and
IT.
2.16. Employee benefits
The Group operates defined contribution pension schemes for
certain employees of the Group. The assets of the schemes are held
separately from those of the Group in an independently administered
fund. The pension costs charged to profit or loss are the
contributions payable to the scheme in respect of the accounting
period.
All Group companies are in compliance with their pension
obligations and have auto-enrolled, offering all employees the
opportunity to participate.
2.17. Share based payments
The Group issues equity-settled share based payment transactions
to certain employees. Equity-settled share-based payment
transactions are measured at fair value at the date of grant. The
calculation of fair value at the date of grant requires the use of
management's best estimate of volatility, risk free rate and
expected time to exercise the options. Details regarding the
determination of the fair value of equity-settled transactions are
set out in note 28.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight line
basis over the vesting period, based on the Group's estimate of the
number of equity instruments that will eventually vest. At each
reporting date, the Group revises its estimate of the number of
equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The impact of the revision of
the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to reserves.
Equity-settled share based payment transactions with parties
other than employees are measured at the fair value of the goods or
services received, except where that fair value cannot be estimated
reliably, in which case they are measured at the fair value of the
equity instruments granted, measured at the date the entity obtains
the goods or the counterparty renders the service.
For cash-settled share based payments, a liability is recognised
for the goods or services acquired, measured initially at the fair
value of the liability. At each reporting date until the liability
is settled, and at the date of settlement, the fair value of the
liability is re-measured, with any changes in fair value recognised
in profit or loss for the year.
2.18. New standards and interpretations
The Group has applied the following standards and amendments for
the first time for the annual reporting period commencing on 1
April 2021:
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
-- Covid-19 Related Rent Concessions (Amendment to IFRS 16)
-- Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)
The amendments listed above did not have any impact on the
amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
2.19. New standards and interpretations not yet adopted
The following new accounting standards and interpretations are
currently in issue but not effective for accounting periods
commencing on 1 April 2021 and therefore have not been early
adopted by the Group:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements to IFRS Standards 2018-2020
-- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
-- Reference to the Conceptual Framework (Amendments to IFRS 3)
-- IFRS 17 "Insurance Contracts"
-- Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
-- Amendments to IFRS 17
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
-- Definition of Accounting Estimate (Amendments to IAS 8)
-- Deferred Tax Related to Assets and Liabilities Arising from a
Single Transaction - Amendments to IAS 12 Income Taxes
-- Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
These standards are not expected to have a material impact on
the entity in the current or future reporting periods or on
foreseeable future transactions.
3. Financial risk management
3.1. Financial risk factors
The Group's activities expose it to a variety of financial
risks: market risk, credit risk and liquidity risk. The Group's
overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse
effects on the Group's financial performance.
Risk management is carried out by management under policies
approved by the Board of Directors. Management identifies and
evaluates financial risks and provides principles for overall risk
management, as well as policies covering specific areas, such as
interest rate risk, credit risk and investment of excess
liquidity.
3.2. Market risk
Market risk is the risk of loss that may arise from changes in
market factors such as interest rates, foreign exchange and
security prices.
(a) Interest rate risk
The Group has exposure to interest rate risk by virtue of its
borrowings with HSBC UK Bank Plc, which attract a variable rate of
interest at a mark-up to the base rate. Details of actual interest
rates can be found in note 21 to these consolidated financial
statements. No hedging arrangements are currently in place but the
Board keeps this under constant review.
3.3. Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Credit risk arises principally from the Group's cash
balances and trade receivables balances. The Group's customers are
primarily local authorities and housing associations with high
credit ratings.
The Group has a number of policies for managing the credit risk
of its new and existing customers, and has dedicated functions
focused on cash conversion, collection and management.
The Group gives careful consideration to which organisations it
uses for its banking services in order to minimise credit risk and
therefore only financial institutions with a minimum rating of B
are used. Currently the Group bank accounts are held primarily with
HSBC UK Bank Plc which has a Fitch rating of AA-.
3.4. Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. This risk relates
to the Group's prudent liquidity risk management and implies
maintaining sufficient cash reserves to meet the Group's working
capital requirements. Management monitors rolling forecasts of the
Group's liquidity and cash and cash equivalents on the basis of
expected cash flow.
As at 31 March 2022, the Group had cash and cash equivalents of
GBP2,504,000 (2021: GBP1,293,000).
The Group has a centralised treasury function and actively
manages cash flows on both a daily and longer-term basis.
3.5. Capital risk management
The Group manages its capital to ensure that it will be able to
continue as a going concern whilst maximising the return to
shareholders. The Group funds its expenditure on commitments from
existing cash and cash equivalent balances.
There are no externally imposed capital requirements.
Financing decisions are made by the Board of Directors based on
forecasts of the expected timing and level of capital and operating
expenditure required to meet the Group's commitments and
development plans.
The capital structure of the Group consists of cash and cash
equivalents and equity, comprising issued share capital and
retained profits.
4. Critical accounting estimates and judgements
The preparation of financial statements requires management to
make estimates and judgements that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of income and expenditure during year. The
estimates and associated judgements are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
The estimates and underlying judgements are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
In the process of applying the Group's accounting policies,
management has decided the following estimates and assumptions have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities recognised in the consolidated
financial statements.
4.1. Critical judgements in applying the Group's accounting
policies
(a) Valuation of accrued income
Work completed under either a framework agreement or term
contract for gas services, building services and electrical
services is recognised as accrued income until it has been billed
to the client. A level of judgement is involved in determining
whether the Group has met all of the required performance
obligations necessary in order to recognise the revenue. Accrued
income of GBP5.2 million was recognised within the Statement of
Financial Position at 31 March 2022 (2021: GBP8.6 million).
(b) Valuation of amounts due from long-term contracts
Work completed under long-term construction contracts is
recognised as amounts due from long-term contracts until billed to
the client, and similar to accrued income requires judgement on
whether the Group has met all its performance obligations to
recognise the revenue. The only long-term contracts held by the
Group were within DCB (Kent) Limited ("DCB"). Following the
disposal of DCB (Kent) Limited as set out in note 4.1 (e), no such
contracts are present any longer within the Group. Therefore
amounts due from long-term contracts of GBPnil were recognised
within the Statement of Financial Position at 31 March 2022 (2021:
GBP1.5 million).
(c) Share based payment charge
The Black Scholes model and the Monte Carlo simulation have been
used to calculate the appropriate charge for the share options
issued across the Group's share option plans in the current and
previous years. The use of these models to calculate a charge
involves using a number of judgements to establish the appropriate
inputs to be entered into the models, covering areas such as
exercise restrictions and behavioural considerations of scheme
members. Full details of judgements used within the calculation to
derive the charge are given within note 28. Underlying estimates
and a full sensitivity analysis have not been disclosed as
management does not feel that any reasonable change would
materially influence the interpretation of the charge.
(d) Recoverability of trade receivable balances
Provisions for trade debtors were previously considered to be an
area of key judgement for the Group, given the underlying
materiality of the associated trade receivable balances. However,
given that a large proportion of the customer base are local
councils with little risk of default and minimal historical levels
of write-off, bad debt provisions are no longer considered an area
of key judgement.
(e) Timing of the disposal of DCB (Kent) Limited
During the year the Group disposed of DCB (Kent) Limited
("DCB"), the full details of which are set out further in note 30.
The disposal was by sale of 100% of the share capital to a third
party; however, no completion accounts were required as part of the
transaction. Therefore, the sale and purchase agreement had no
explicit date of transfer for the business. As such, management has
reviewed a number of factors when identifying the effective
disposal date, and has determined that control was transferred as
at the 30 November 2021. The subsidiary was therefore no longer
consolidated within the results from that point onwards.
(f) Non-adjusting post balance sheet event
As part of the obligations under the terms of the sale of DCB
(Kent) Limited ("DCB") (see note 30 for details on the disposal),
the Group continued to provide parent company guarantees ("PCGs")
on certain construction projects of DCB (Kent) Limited which run
through to their practical completion. On administration of DCB
(Kent) Limited the outstanding obligations under the PCGs were
assumed by Kinovo plc. The total expected cost to complete the
projects has been determined as GBP4.0 million (plus professional
fees and expenses). Please see note 32 for further detail.
As at 31 March 2022 it was anticipated that existing contracts
could be completed at reasonable cost, and new business could be
secured to support the cash flow of the business. Kinovo continued
to provide working capital funding to support the business after
the year end. However, DCB was placed into administration on 16 May
2022.
The liability under the PCGs is considered to be a non-adjusting
post balance sheet event, and the costs to complete the
construction projects will be recognised in the Statement of
Comprehensive Income as and when they arise.
(g) Timing of DCB (Kent) Limited impairments
The Group has recognised GBP12.6 million of exceptional items in
the year in relation to losses arising on the disposal of DCB. As
management is no longer able to access the accounting records for
DCB due to the disposal of the company and its subsequent
administration, it is not possible to ascertain whether there is
any element of this exceptional cost that should be deemed a change
in accounting estimate or relate to other factors. Management
considers that the most appropriate treatment is to take the full
impact of the write-offs as an exceptional item within the current
year Statement of Comprehensive Income.
(h) Tax treatment of disposal
There is a tax credit of GBP1.1m included in the loss on
disposal of GBP12.6m on DCB as disclosed in note 30. Management
have engaged with third party tax specialists to identify the
appropriate tax treatment of the different aspects of the loss on
disposal and based on relevant judgements and interpretation of tax
legislation, it is managements expectation that GBP1.1 million of
tax credits will be recoverable from the losses. If a different
viewpoint and interpretation of tax legislation were applied, it
might be concluded that the credit would not be recoverable.
4.2. Key sources of estimation uncertainty
(a) Customer relationships
Customer relationship assets recognised on acquisition are
considered to have the following key areas of estimate:
-- Determining the useful economic life of customer
relationships and the corresponding rate of amortisation is
considered a critical estimate. Management is required to predict
the future time frame over which customer relationships will
continue to generate a positive contribution to Group cash flow.
This estimate is made on a case-by-case basis and will reflect
management's latest plans and long-term forecasts for the related
contracts. Amortisation of customer relationships has resulted in a
charge to the Statement of Comprehensive Income of GBP1.1 million
during the year (2021: GBP1.8 million), including the charge
allocated to discontinued operations.
-- The valuation of customer relationships requires the use of
estimates, as the valuation model utilises assessments of both
future cash flows and appropriate discount factors. The valuation
of customer relationship assets held within the Statement of
Financial Position was GBP0.4 million (2021: GBP2.5 million).
No acquisitions have been made in the current year. See note
15.1 for full details on the estimates applied by management in
valuing customer relationships arising on past acquisitions.
(b) Impairment of goodwill
Determining whether goodwill is impaired requires an estimate of
the value in use of the cash-generating units ("CGUs") to which
goodwill has been allocated. The value in use calculation involves
an estimate of the future cash flows of the CGUs and also the
selection of appropriate discount rates to calculate present
values. Future cash flows are estimated based on contract value and
duration, together with margin based on past performance. Change in
contract values and duration, together with margins achieved, could
result in variations to the carrying value of goodwill. In
addition, an adverse movement in the discount factor due to an
increased risk profile or a change in the cost of debt (increase in
interest rates) would also result in a variation to the carrying
value of goodwill. The primary sensitivity is the discount rate;
however, the Directors consider that there is no reason to believe
it is not appropriate. See note 15.2 for details on the key
estimates used within the impairment test for goodwill, along with
the Group's sensitivity analysis.
(c) Right-of-use assets
Management is required to make a number of estimates in
recognising right-of-use assets. These key estimates are considered
to be:
-- estimation of the lease term, which is done on a lease-by-lease basis;
-- determination of the appropriate rate to discount the lease
payments. This is set with reference to the Group's incremental
cost of borrowing. The incremental rate was 3.4% in the current
year (2021: 3.4%); and
-- assessment of whether a right-of-use asset is impaired. An
impairment is considered to be present where the net present value
of future cash benefit of utilising the asset within the business,
or if applicable potential sub-lease income if the asset is no
longer required, is less than the net present value of future lease
payments.
Management considers all facts and circumstances including its
past practice and business plans in making this estimate on a
lease-by-lease basis.
At 31 March 2022 the Group holds GBP0.8 million of right-of-use
assets (2021: GBP1.7 million). Management has reviewed the future
benefit and costs of the underlying assets and has not identified
the need to recognise any impairment.
5. Revenue
All results in the current and prior period derive from
continuing operations and all revenues arose in the UK.
There are five customers who individually contributed 21%, 12%,
10%, 8% and 7% respectively towards the revenue (2021: six
contributing 13%, 9%, 8%, 6%, 6% and 5%).
The Group has recognised the following assets within the
Statement of Financial Position related to contracts with
customers:
2022 2021
GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Current assets relating to contracts with customers:
Trade receivables 4,977 5,564
Work in progress 2,029 1,561
Accrued income 5,247 8,634
Amounts due from long-term contracts - 1,461
----------------------------------------------------- --------- ---------
12,253 17,220
----------------------------------------------------- --------- ---------
As set out in note 2.12, work in progress balances arise where
costs are incurred in advance of the performance obligations
required to recognise revenue having been met, and therefore the
costs are recognised as an asset.
Accrued income relates to performance obligations that have been
satisfied, but the invoice has not yet been raised to the
customer.
Amounts due from long-term contracts relate to performance
obligations met in regard to construction contracts, but the
invoice has yet to be raised to the customer.
There were no contracts liabilities required to be recognised as
at 31 March 2022 (31 March 2021: GBPnil).
As set out in note 2.4, the Group is party to long-term
construction contracts which may have performance obligations
spanning a number of years. The following shows unsatisfied
performance obligations resulting from these long-term construction
contracts:
2022 2021
GBP'000 GBP'000
-------------------------------------------------------- ---------- ---------
Aggregate amounts of the transaction price allocated
to long-term construction contracts that are partially
or fully unsatisfied as at 31 March 2022 - 44,600
-------------------------------------------------------- ---------- ---------
At 31 March 2021 it was expected that 46.0% of the transaction
price allocated to unsatisfied performance obligations would be
recognised as revenue during the 2022 financial year. The remaining
54.0% (GBP24.1 million) would have been recognised over the 2023/24
financial years. These balances all related to contracts held in
the DCB (Kent) Limited ("DCB") company which has now been
disposed.
Other services are provided under framework agreements and
therefore not considered to have any unsatisfied performance
obligations as at 31 March 2022.
The value of unsatisfied long-term construction contracts in
2021 of GBP44.6 million formed part of the overall balance of
visible revenues of GBP170.4 million. Page 1 details the full
definition of visible revenues.
6. Segmental reporting
The Board of Directors has determined an operating management
structure aligned around the three core activities of the Group,
with the following operating segments applicable:
-- Mechanical services: the Group offers a range of services
within the mechanical services segment which is inclusive but not
limited to: boiler servicing, meter connections and installing
central heating solutions.
-- Building services: the Group offers a range of services which
is inclusive but not limited to: refurbishment, replacements of
kitchens and bathrooms, window installations and painting and
decorating.
-- Electrical services: the Group offers a range of services
within the electrical services segment which is inclusive but not
limited to: servicing, maintenance, emergency call-outs and
rewires.
The Board adopts the operating profit before exceptional items
and amortisation of acquisition intangibles as the profit measure.
The following is an analysis of the Group's revenue and operating
profit before non-underlying items, for continuing operations, by
reportable segment:
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
-------------------- --------- ---------
Mechanical services 15,418 12,262
Building services 18,057 13,185
Electrical services 19,850 13,922
-------------------- --------- ---------
Total revenue 53,325 39,369
-------------------- --------- ---------
Reconciliation of operating profit before non-underlying items
to profit before taxation from continuing operations:
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
----------------------------------------------------------- --------- ---------
Operating profit before exceptional items and amortisation
of acquisition intangibles by segment
Mechanical services 1,981 1,406
Building services 1,576 270
Electrical services 1,903 1,723
Unallocated central costs (1,369) (1,389)
----------------------------------------------------------- --------- ---------
Total operating profit before non-underlying items 4,091 2,010
Amortisation of acquisition intangibles (940) (1,582)
Share based payment charge (90) (27)
Exceptional costs - (334)
----------------------------------------------------------- --------- ---------
Operating profit 3,061 67
Finance costs (269) (438)
----------------------------------------------------------- --------- ---------
Profit/(loss) before tax 2,792 (371)
----------------------------------------------------------- --------- ---------
Only the Group Consolidated Statement of Comprehensive Income is
regularly reviewed by the Chief Operating Decision Maker and
consequently no segment assets or liabilities are disclosed under
IFRS 8.
7. Operating profit
Operating profit for the continuing business is stated after
charging all costs including non-underlying items which are
detailed in note 9.
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
----------------------------------------------------------- --------- ---------
Inventory recognised as an expense in cost of sales 9,670 6,189
Staff costs(1) (note 10) 9,649 7,389
Depreciation 130 82
Depreciation of right of use assets 336 654
Amortisation of software costs 44 17
(Profit)/loss on disposal of property, plant and equipment (1) -
Auditor's remuneration 117 100
Tax compliance 2021 and 2022 9 9
Non-audit remuneration 2 2
----------------------------------------------------------- --------- ---------
1. The Group offset Government grants of GBP0.8 million in 2021
received through the Coronavirus Job Retention Scheme against staff
costs. No grants were received during the current year.
The depreciation and amortisation charges as stated in the table
above are included within administrative expenses in the
Consolidated Statement of Comprehensive Income.
8. EBITDA for continuing operations
Earnings before interest, taxation, depreciation and
amortisation ("EBITDA")
EBITDA is calculated as follows:
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
----------------------------------------------------------- --------- ---------
Underlying profit before tax from continuing operations 3,822 1,572
Finance costs 269 438
Depreciation of property, plant and equipment 130 82
Depreciation of right-of-use assets 336 654
Amortisation of software costs 44 17
(Profit)/loss on disposal of property, plant and equipment (1) -
----------------------------------------------------------- --------- ---------
EBITDA from continuing operations (before lease payment
charges) 4,600 2,763
Lease payment charge (363) (667)
----------------------------------------------------------- --------- ---------
Adjusted EBITDA from continuing operations (after lease
payment charges) 4,237 2,096
----------------------------------------------------------- --------- ---------
9. Non-underlying items
Operating profit includes the following items which are
considered by the Board to be either exceptional in size, one-off
in nature or non-trading related items as defined in note 2.5.
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
------------------------------------------- --------- ---------
Amortisation of customer relationships (a) 940 1,582
Share-based payment charge (b) 90 27
Exceptional items (c) - 334
------------------------------------------- --------- ---------
1,030 1,943
------------------------------------------- --------- ---------
(a) Amortisation and impairment of customer relationships
Amortisation of acquisition intangibles was GBP940,000 for the
year (2021: GBP1,582,000) and relates to amortisation of the
customer relationships identified by the Directors on the
acquisition of Purdy and Spokemead. In 2021 the charge related to
Purdy, Spokemead and R. Dunham.
(b) Share-based payment charge
A number of Group share option schemes are in place and new
options have been granted during the year as detailed in note 28.
The share-based payment charge has been separately identified as it
is a non-cash expense for the Group.
(c) Exceptional items
For the financial year ended 31 March 2021 the costs comprised
restructuring costs (mainly redundancy, notice period and other
related costs) to align operational skillsets with the strategic
repositioning of the business.
10. Employee expenses
The average number of employees (including Directors) employed
during the year was:
12 months 12 months
ended ended
31 March 31 March
2022 2021
No. No.
--------------- --------- ---------
Management 36 34
Administration 56 53
Engineers 127 116
--------------- --------- ---------
219 203
--------------- --------- ---------
The aggregate remuneration of the above employees (including
Directors) comprised:
12 months 12 months
ended ended
31 March 31 March
2022 2021
No. No.
---------------------- --------- ---------
Wages and salaries 8,623 6,524
Social security costs 815 758
Pension costs 211 107
---------------------- --------- ---------
9,649 7,389
---------------------- --------- ---------
Offset against the staff costs for the year ended 31 March 2021
were grants of GBP0.8 million received under the Coronavirus Job
Retention Scheme. No grants have been received in the current
year.
The remuneration of the Directors and other key management
personnel of the Group is shown in note 27 and the Remuneration
Committee Report.
11. Finance costs and finance income
The Group received no finance income in either the current or
prior period.
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Interest payable on bank borrowings and loans 161 310
Interest payable on lease liabilities 33 62
Other interest costs - 24
Other finance costs 75 42
---------------------------------------------- --------- ---------
269 438
---------------------------------------------- --------- ---------
12. Dividends
The Directors do not recommend a final dividend for the year
ended 31 March 2022. A final dividend of 0.5 pence per share for
the year ended 31 March 2021 was paid in September 2022.
No interim dividend was paid in the year or for the previous
year.
12 months ended 12 months ended
31 March 2022 31 March 2021
------------------- -------------------
Total Total
Per share paid Per share paid
p GBP'000 p GBP'000
----------------------------------------- --------- -------- --------- --------
Dividend paid during the year relating
to final dividend declared for previous
period 0.5 294 - -
Interim dividend paid during the year - - - -
----------------------------------------- --------- -------- --------- --------
0.5 294 - -
----------------------------------------- --------- -------- --------- --------
13. Income tax
13.1. Components of income tax (credit)/expense
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
------------------------------------------------------------- --------- ---------
Current income tax expense
Current income tax charge in relation to continuing
operations 901 12
Current income tax credit in relation to discontinued
operations (129) -
Utilisation of tax losses from disposal (772) -
------------------------------------------------------------- --------- ---------
Total current tax - 12
------------------------------------------------------------- --------- ---------
Deferred tax
Credit in connection with intangible assets acquired (243) (327)
Charge in relation to use of brought forward tax losses - 309
Credit for tax losses from disposal not utilised in
the year (306) -
Short-term timing differences (110) -
Charge for lease liabilities recognised on adoption
of IFRS 16 28 55
Credit for right-of-use asset recognised on adoption
of IFRS 16 (28) (60)
Credit for share-based payment charge (17) (6)
------------------------------------------------------------- --------- ---------
Total deferred tax (676) (29)
------------------------------------------------------------- --------- ---------
Total income tax charge/(credit) for continuing operations 530 (119)
Total tax (credit)/charge for discontinued operations (128) 102
Tax credit recognised on disposal of DCB (Kent) Limited (1,078) -
------------------------------------------------------------- --------- ---------
Income tax credit reported in the statement of comprehensive
income (676) (17)
------------------------------------------------------------- --------- ---------
13.2. Tax reconciliation
The tax assessed in each period differs from the standard rate
of corporation tax in the UK. The differences are explained
below.
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
(Loss)/profit on ordinary activities before taxation (11,558) 140
(Loss)/profit on ordinary activities before taxation
multiplied by standard rate of UK corporation tax of
19% (2021: 19%) (2,196) 27
Effects of:
Exceptional items not allowable for corporation tax 1,530 -
Non-deductible expenses 296 345
Utilisation of brought forward tax losses - (309)
Carry forward of tax losses not utilised in the year (306) (17)
Research and development claim - (63)
Other tax adjustments - -
------------------------------------------------------ --------- ---------
(676) (17)
------------------------------------------------------ --------- ---------
14. Earnings per share
14.1. Basic and diluted earnings per share
The calculation of basic and diluted earnings per share is based
on the result attributable to shareholders divided by the weighted
average number of ordinary shares in issue during the year.
Basic earnings per share amounts are calculated by dividing net
profit for the year or period attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the year. The Group has potentially
issuable shares all of which relate to the Group's share options
issued to Directors and employees.
Basic and diluted profit per share from continuing operations is
calculated as follows:
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
------------------------------------------------------------- ---------- ----------
Profit/(loss) used in calculating basic and diluted
earnings per share for continuing operations 2,262 (252)
(Loss)/profit used in calculating basic and diluted
earnings per share for total operations (10,882) 157
Number of shares
Weighted average number of shares for the purpose of
basic earnings per share 61,755,891 58,956,248
Weighted average number of shares for the purpose of
diluted earnings per share 62,637,298 58,956,248
Basic earnings/(loss) per share (pence) for continuing
operations 3.66 (0.42)
Diluted earnings/(loss) per share (pence) for continuing
operations 3.61 (0.42)
Basic (loss)/earnings per share (pence) for total operations (17.62) 0.26
Diluted (loss)/earnings per share (pence) for total
operations (17.62) 0.26
------------------------------------------------------------- ---------- ----------
Options over 5,059,190 ordinary shares remained outstanding as
at 31 March 2022 (2021: 5,409,754) as detailed in note 28.
There was no earnings per share dilution in 2021 as the
outstanding options granted were priced above the average share
price for the year.
Details of (loss)/profit per share for discontinued operations
are set out in note 30.
14.2. Adjusted earnings per share
Profit after tax is stated after deducting non-underlying items
totalling GBP1,030,000 (2021: GBP1,880,000) as set out in note 9
and the impact of these items on corporation tax. Non-underlying
items are either exceptional in size, one-off in nature or
non-trading related items. These are shown separately on the face
of the Consolidated Statement of Comprehensive Income.
The calculation of adjusted basic and adjusted diluted earnings
per share is based on the result attributable to shareholders,
adjusted for non-underlying items, divided by the weighted average
number of ordinary shares in issue during the year.
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
-------------------------------------------------------------- ---------- ----------
Profit /(loss) after tax 2,262 (252)
Add back:
Amortisation of customer relationships 940 1,582
Share-based payment charge 90 27
Exceptional costs - 334
Impact of above adjustments on corporation tax - (63)
-------------------------------------------------------------- ---------- ----------
Adjusted profit after tax 3,292 1,628
-------------------------------------------------------------- ---------- ----------
Number of shares
Weighted average number of shares for the purpose of
adjusted earnings per share 61,755,891 58,956,248
Weighted average number of shares for the purpose of
diluted adjusted earnings per share 62,637,298 58,956,248
Adjusted earnings per share (pence) for continuing operations 5.33 2.76
Diluted adjusted earnings per share (pence) for continuing
operations 5.25 2.76
-------------------------------------------------------------- ---------- ----------
15. Intangible assets
Software Customer
costs relationships Goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- ------------- -------- --------
Cost
At 1 April 2021 332 14,032 5,543 19,907
Additions in the year 142 - - 142
Disposals in the year (131) (2,324) (1,351) (3,806)
---------------------- -------- ------------- -------- --------
At 31 March 2022 343 11,708 4,192 16,243
---------------------- -------- ------------- -------- --------
Amortisation
At 1 April 2021 155 11,543 - 11,698
Charge for the year 44 1,095 - 1,139
Disposals in the year (59) (1,315) - (1,374)
---------------------- -------- ------------- -------- --------
At 31 March 2022 140 11,323 - 11,463
---------------------- -------- ------------- -------- --------
Net book value
At 31 March 2021 177 2,489 5,543 8,209
---------------------- -------- ------------- -------- --------
At 31 March 2022 203 385 4,192 4,780
---------------------- -------- ------------- -------- --------
15.1. Customer relationships
The customer relationships intangible assets arise on
acquisition of subsidiaries when accounted for as a business
combination and relate to the expected value to be derived from
contractual and non-contractual customer relationships. The value
placed on the contractual customer relationship is based on the
expected cash revenue inflows over the estimated remaining life of
each existing contract. The value placed on the non-contractual
customer relationships is based on the expected cash inflows based
on past revenue performance by virtue of the customer relationship,
but using an attrition rate depending on the length of the
relationship. Associated cash outflows have been based on
historically achieved margins and overhead run rates per GBP1 of
revenue. The net cash flows are discounted at a rate which the
Directors consider is commensurate with the risks associated with
capturing returns from the customer relationships.
The estimated life for customer relationships is based on the
average of the contracted remaining life of contracted
relationships and estimated life of the non-contractual
relationships.
Purdy Spokemead DCB R. Dunham Total
------------------------------------- ------------ ------------ ------------ ---------- -------------
Attrition rate where relationship
<5 years 80% n/a 100% n/a
Attrition rate where relationship
>5 years 50% n/a 100% n/a
Discount rate 13.30% 12.84% 12.84% 15.79%
Estimated life of relationship 1 to 8
at date of acquisition 7 years 7.5 years years 1.5 years
Remaining life of intangible 1.5 years 0.2 years 5 years -
Fair value of customer relationships
at date of acquisition GBP5,586,000 GBP5,922,000 GBP2,324,000 GBP200,000 GBP14,032,000
Current carrying value of customer
relationships GBP385,000 - - - GBP385,000
------------------------------------- ------------ ------------ ------------ ---------- -------------
15.2. Goodwill
Goodwill on consolidation arises on the excess of cost of
acquisition over the fair value of the net assets acquired on
purchase of the company. Each subsidiary is its own CGU for the
purposes of the goodwill calculation and impairment reviews and is
monitored on an ongoing basis by the Board.
The goodwill allocated to each subsidiary entity is presented
below:
Purdy Spokemead R. Dunham Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- --------- --------- --------
Allocation of goodwill 1,719 1,186 1,287 4,192
----------------------- -------- --------- --------- --------
The Group tests whether goodwill has suffered any impairment on
an annual basis. For the 2022 and 2021 reporting periods, the
recoverable amount of the cash-generating units ("CGUs") was
determined based on the value in use calculations which require the
use of key assumptions. The calculations use cash flow projections
based on the level of recurring revenue from secured contracts,
which have already been won and are expected to be won in the
future. Cash flows beyond five years are extrapolated using the
estimated growth rates stated below. These growth rates are
consistent with forecasts included in industry reports specific to
the industry in which the CGU operates.
The following table sets out the key assumptions for those CGUs
that have significant goodwill allocated to them. The same
assumptions have been used across the CGUs as they are all
considered to operate in markets with similar characteristics.
Key assumptions 2022 2021
------------------------------------------- ----- -----
Long-term growth rate (used after 5 years) 1.5% 1.5%
3 to 5-year growth rate 6.0% 3.0%
Pre-tax discount rate 15.6% 14.7%
------------------------------------------- ----- -----
15.3. Sensitivity review
Management has performed a range of sensitivity analysis around
movements in both the discount rates and future growth rates used
within the model and does not anticipate that any realistic changes
in the assumptions would cause the assets to be impaired.
16. Property, plant and equipment
At 31 March 2022
Office
Long Fixtures and
Freehold Freehold leasehold Motor and computer
land property improvements vehicles fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Cost
At 1 April 2021 300 555 198 237 93 1,203 2,586
Additions - 62 - 15 58 118 253
Disposals - - (198) (252) (96) (725) (1,271)
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2022 300 617 - - 55 596 1,568
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Depreciation
At 1 April 2021 - 123 118 132 86 820 1,279
Charge for the year - 25 15 22 10 119 191
Disposals - - (133) (154) (67) (651) (1,005)
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2022 - 148 - - 29 288 465
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Net book value
At 1 April 2021 300 432 80 105 7 383 1,307
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2022 300 469 - - 26 308 1,103
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2021
Office
Long Fixtures and
Freehold Freehold leasehold Motor and computer
land property improvements vehicles fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Cost
At 1 April 2020 300 523 198 291 91 1,163 2,566
Additions - 32 - - 2 53 87
Disposals - - - (54) - (13) (67)
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2021 300 555 198 237 93 1,203 2,586
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Depreciation
At 1 April 2020 - 100 95 172 53 728 1,148
Charge for the year - 23 23 8 33 92 179
Disposals - - - (48) - - (48)
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2021 - 123 118 132 86 820 1,279
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Net book value
At 1 April 2020 300 423 103 119 38 435 1,418
-------------------- -------- --------- ------------- --------- --------- ---------- --------
At 31 March 2021 300 432 80 105 7 383 1,307
-------------------- -------- --------- ------------- --------- --------- ---------- --------
Freehold land and building property was included at its net book
value of GBP784,000 at the date of acquisition, being the fair
value of the land and buildings at GBP815,000, less accumulated
depreciation of GBP31,000. The property was valued by an
independent valuer with a recognised and relevant professional
qualification and with recent experience in the location and
category of investment property being valued, Savills (UK) Limited,
as at 22 May 2015 on the existing use value basis in accordance
with the Appraisal and Valuation Manual of The Royal Institution of
Chartered Surveyors. The critical assumptions made relating to its
valuation are the market rent at GBP65,000 per annum and the yield
at 8.00%.
The bank loans detailed in note 21 are secured on the property,
plant and equipment of the Group. The bank facility does not impose
any restrictions of use on the assets.
17. Right-of-use assets
Office
and
Leasehold Motor computer
property vehicles equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- --------- ---------- --------
Cost
At 1 April 2021 1,251 1,119 164 2,534
Additions 261 300 3 564
Disposals (1,249) (427) (111) (1,787)
-------------------- --------- --------- ---------- --------
At 31 March 2022 263 992 56 1,311
-------------------- --------- --------- ---------- --------
Depreciation
At 1 April 2021 285 475 86 846
Charge for the year 77 333 35 445
Disposals (355) (340) (71) (766)
-------------------- --------- --------- ---------- --------
At 31 March 2022 7 468 50 525
-------------------- --------- --------- ---------- --------
Net book value
At 1 April 2021 966 644 78 1,688
-------------------- --------- --------- ---------- --------
At 31 March 2022 256 524 6 786
-------------------- --------- --------- ---------- --------
Office
and
Leasehold Motor computer
property vehicles equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- --------- ---------- --------
Cost
At 1 April 2020 1,320 1,275 201 2,796
Additions - 277 - 277
Disposals (69) (433) (37) (539)
-------------------- --------- --------- ---------- --------
At 31 March 2021 1,251 1,119 164 2,534
-------------------- --------- --------- ---------- --------
Depreciation
At 1 April 2020 202 449 66 717
Charge for the year 152 459 57 668
Disposals (69) (433) (37) (539)
-------------------- --------- --------- ---------- --------
At 31 March 2021 285 475 86 846
-------------------- --------- --------- ---------- --------
Net book value
At 1 April 2020 1,118 826 135 2,079
-------------------- --------- --------- ---------- --------
At 31 March 2021 966 644 78 1,688
-------------------- --------- --------- ---------- --------
18. Inventories
2022 2021
GBP'000 GBP'000
----------------- -------- --------
Raw materials 425 906
Work in progress 2,029 1,561
----------------- -------- --------
2,454 2,467
----------------- -------- --------
19. Trade and other receivables
2022 2021
GBP'000 GBP'000
------------------------------------- -------- --------
Current
Trade receivables 4,977 5,564
Other receivables 122 473
Prepayments 279 594
Accrued income 5,247 8,634
Amounts due from long-term contracts - 1,461
------------------------------------- -------- --------
10,625 16,726
------------------------------------- -------- --------
The ageing of trade receivables that are past due but not
impaired is shown below:
2022 2021
GBP'000 GBP'000
----------------------- -------- --------
Between 1 and 2 months 813 262
Between 2 and 3 months 74 65
More than 3 months 1 252
----------------------- -------- --------
888 579
----------------------- -------- --------
An allowance for expected credit loss of GBPnil (2021: GBPnil)
has been recognised in the above balance for trade receivables.
Management does not consider that there are any issues over
recoverability, due to the creditworthiness of the customer profile
and little historical issue of default.
The Group's exposure to credit risk is discussed in note 26 to
the consolidated financial statements, including how the Group
assesses the credit quality of potential new customers and its
policy for providing against overdue invoices.
The average credit period taken on invoiced sales of services as
at 31 March 2022 is 34 days (31 March 2021: 26 days). No interest
was charged on overdue receivables during the year.
The Directors believe that the carrying value of the trade and
other receivables is considered to represent its fair value. The
maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable shown above. The Group
does not hold any collateral as security. The bank loans detailed
in note 21 are secured on trade receivables of GBP4,977,000 (2021:
GBP5,564,000).
The Group's trade and other receivables are all denominated in
Pounds Sterling.
20. Cash and cash equivalents
Cash and cash equivalents comprise cash at bank. The Group's
cash and cash equivalents are held at floating interest rates and
are primarily held at HSBC UK Bank Plc which has an AA- credit
rating as assessed by Fitch Ratings. The Directors consider that
the carrying amount of cash and cash equivalents approximates to
their fair value.
2022 2021
GBP'000 GBP'000
----------------------------- -------- --------
Cash at HSBC UK Bank Plc 2,495 1,285
Other cash and bank balances 9 8
----------------------------- -------- --------
2,504 1,293
----------------------------- -------- --------
21. Borrowings
The maturity analysis of borrowings, inclusive of finance
charges, is included below. All of the loans are denominated in
Pounds Sterling.
2022 2021
GBP'000 GBP'000
----------------------------- -------- --------
Non-current borrowings
Bank and other borrowings:
Term loans - 2,533
Other loans 34 109
Mortgage loans 143 200
----------------------------- -------- --------
Total non-current borrowings 177 2,842
----------------------------- -------- --------
Current borrowings:
Bank and other borrowings:
Term loans 2,534 1,000
Other loans 75 67
Mortgage loan 57 57
----------------------------- -------- --------
Total current borrowings 2,666 1,124
----------------------------- -------- --------
Bank and other borrowings:
Term loans 2,534 3,533
Other loans 109 176
Mortgage loans 200 257
----------------------------- -------- --------
Total borrowings 2,843 3,966
----------------------------- -------- --------
The fair value of the borrowings outstanding as at 31 March 2022
is not materially different to its carrying value since interest
rates applicable on the loans are close to the current market
rates.
On 26 March 2021 the Group amended and restated the facility
agreement. This was required to facilitate early repayment of part
of the term loan aligned to changes to covenant tests. On 31 March
2021, the Group repaid GBP2.3 million of the term loan. GBP1.3
million related to the contractual repayment based on the adjusted
cash balances in the Group as at 31 March 2021 and GBP1.0 million
related to the accelerated repayment of the scheduled quarterly
repayments in May 2021 and August 2021 of GBP0.5 million each. The
first covenant test was amended to be as at 31 December 2021. As
part of the restated agreement, the Group agreed the transition
from LIBOR to an interest measure based on Sterling Overnight
Interbank Average Rate ("SONIA"), effective from 30 September
2021.
(a) Working capital facilities
At 31 March 2022 the Group had an unused GBP2.5 million working
capital facility with HSBC UK Bank Plc. The facility has an
interest rate of 2.5% above base rate and is repayable on demand.
All cash at bank balances are denominated in Pounds Sterling.
(b) Bank and other loans
Term loans
At 31 March 2022 the Group had a term loan in place with HSBC UK
Bank Plc with an original principal value of GBP7.3 million
repayable by quarterly instalments. As at 31 March 2022 GBP2.53
million of the loan remained outstanding. Interest is payable at
3.75% plus compounded reference rate based on SONIA.
Mortgage loan
A ten-year mortgage loan of GBP570,000 with HSBC UK Bank Plc was
drawn down in July 2015, with interest payable at 1.9% above base
rate. The mortgage is held over the freehold property of Purdy
known as Brooklyn Lodge, Mott Street, Chingford, London E4 7RW.
GBP200,000 remained unpaid at the end of the period.
Other loan
A five-year term loan, originally drawn down in September 2018
of GBP317,000 with Funding Circle, was assumed by the Group on the
acquisition of R. Dunham in November 2018 and is unsecured. The
loan is repayable by fixed monthly instalments of GBP7,024 and
interest is at a fixed rate of 11.9%. GBP109,000 remained unpaid at
the end of the period.
(c) Security
Bank loans are secured on related property, plant and equipment
and debtor books of the Group.
In respect of bank debt there is an Unlimited Composite Company
Guarantee given by Kinovo plc, Purdy, P&R, Spokemead and R.
Dunham to secure all liabilities of each borrower.
22. Lease liabilities
As at 31 March 2022 the following amounts are included in the
Statement of Financial Position in relation to non-cancellable
leases:
2022 2021
GBP'000 GBP'000
------------------ -------- --------
Lease liabilities
Current 362 552
Non-current 434 1,183
------------------ -------- --------
796 1,735
------------------ -------- --------
The maturity analysis of obligations under non-cancellable
leases is shown in the following table:
2022 2021
GBP'000 GBP'000
-------------------------------------------- -------- --------
No later than 1 year 362 552
Later than 1 year and no later than 5 years 434 837
After 5 years - 346
-------------------------------------------- -------- --------
796 1,735
-------------------------------------------- -------- --------
The interest expense recognised through the Consolidated
Statement of Comprehensive Income during the year in relation to
lease liabilities was GBP33,000 (2021: GBP62,000).
23. Trade and other payables
2022 2021
GBP'000 GBP'000
----------------------------------- -------- --------
Trade payables 12,552 11,082
Other payables 388 21
Other taxation and social security 3,167 2,450
Accruals 2,955 875
----------------------------------- -------- --------
19,062 14,428
----------------------------------- -------- --------
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs. They are
non-interest bearing.
The Directors consider that the carrying value of trade and
other payables approximates their fair value as the impact of
discounting is insignificant.
The Group has financial risk management policies in place to
ensure that all payables are paid within the credit time frame and
no interest has been charged by any suppliers as a result of late
payment of invoices.
Included within trade payables is a balance of GBP3,077,000
(2021: GBP2,555,000) on a purchasing card facility provided by HSBC
UK Bank Plc. The purchasing card is typically used to facilitate
administration and reporting of costs on maintenance contracts at a
granular level. Payment terms for Kinovo plc on the purchasing
cards are typically 60-90 days, which aligns with existing credit
terms with suppliers. Approved suppliers benefit from increased
volumes and receive funds upfront from HSBC UK Bank Plc. Based on
the nature of the transactions the Board considers it appropriate
to disclose the balance within trade creditors.
The average credit period taken on trade purchases (excluding
those settled on purchasing card) is 85 days (2021: 65 days). Trade
purchases include the purchase of materials and subcontractor
costs.
At 31 March 2022 deferred Covid-19 related HMRC liabilities
amounted to GBPnil (2021: GBP1,023,000).
24. Share capital and reserves
24.1. Ordinary shares
2022 2021
Ordinary shares of GBP0.10 each GBP'000 GBP'000
-------------------------------- ---------- ----------
At the beginning of the year 6,121 5,872
Issued in the year 92 249
-------------------------------- ---------- ----------
At the end of the year 6,213 6,121
-------------------------------- ---------- ----------
Number of shares
At the beginning of the year 61,214,703 58,721,845
Issued in the year 923,054 2,492,858
-------------------------------- ---------- ----------
At the end of the year 62,137,757 61,214,703
-------------------------------- ---------- ----------
Issued in the year
During the year the Company issued 923,025 shares to allocate to
members of the SIP scheme (please see note 28 for further details
on the SIP). 17.5 pence was paid for 461,527 of these shares, a
total consideration of GBP81,000. This was allocated as GBP46,000
of share capital, and GBP35,000 of share premium. The remaining
461,527 shares were a share-based payment for the members of the
scheme, and therefore 10 pence per share (a total consideration of
GBP46,000) was transferred to share capital from the share-based
payment reserve as payment for these.
During the year ended 31 March 2021, the Company issued a total
of 2,492,858 ordinary shares to RBC Cees Trustee (Nominees) Limited
for GBP850,000. These shares are to be held for future redemption
by members of the JSOP scheme subject to successful achievement of
vesting conditions. Within the Group accounts the share trust is
consolidated and the GBP850,000 value of shares is shown in equity
as the Group ownership of own share capital.
24.2. Share premium
2022 2021
GBP'000 GBP'000
---------------------------------------------- -------- --------
At the beginning of the year 9,210 8,609
Issued in the year (net of share issue costs) 35 601
---------------------------------------------- -------- --------
At the end of the year 9,245 9,210
---------------------------------------------- -------- --------
24.3. Merger reserve
2022 2021
GBP'000 GBP'000
----------------------- -------- --------
At the end of the year (248) (248)
----------------------- -------- --------
25. Note to the Consolidated Statement of Cash Flows
12 months 12 months
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
---------------------------------------------------- --------- ---------
Cash flow from operating activities
(Loss)/profit before income tax (11,558) 140
Adjustments for:
Net finance cost 275 461
Profit on disposal of property, plant and equipment (1) (2)
Depreciation 636 847
Amortisation of intangible assets 1,139 1,843
Loss on disposal of intangible assets 2,296 -
Share based payments 90 30
Movement in receivables 6,101 2,580
Movement in payables 4,670 (1,561)
Movement in inventories 12 1,313
Tax reclaimed - 163
---------------------------------------------------- --------- ---------
3,660 5,814
---------------------------------------------------- --------- ---------
26. Financial instruments
The Group's principal financial assets are cash and cash
equivalents and trade and other receivables. All financial assets
are classified as loans and receivables.
The Group's principal financial liabilities are financing
liabilities and trade and other payables. All financial liabilities
are held at amortised cost.
The Group is exposed to the risks that arise from its use of
financial instruments. This note describes the objectives, policies
and processes of the Group for managing those risks and the methods
used to measure them. Further quantitative information in respect
of these risks is presented throughout these consolidated financial
statements.
26.1. Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- cash and cash equivalents;
-- trade and other receivables;
-- trade and other payables;
-- borrowings; and
-- leases.
The Group held the following financial assets at each reporting
date:
2022 2021
GBP'000 GBP'000
------------------------------------- -------- --------
Loans and receivables:
Trade receivables 4,977 5,564
Accrued income 5,247 8,634
Amounts due from long-term contracts - 1,461
Other receivables 401 1,067
Cash and cash equivalents 2,504 1,293
------------------------------------- -------- --------
13,129 18,019
------------------------------------- -------- --------
The Group held the following financial liabilities at each
reporting date:
2022 2021
GBP'000 GBP'000
------------------------------------------------- -------- --------
Held at amortised cost:
Bank and other loans 2,843 3,966
Lease liabilities 796 1,735
Accruals 2,955 875
Trade payables 12,552 11,082
Other payables including tax and social security 3,555 2,471
------------------------------------------------- -------- --------
22,701 20,129
------------------------------------------------- -------- --------
26.2. Financial risk management
The Group's treasury function monitors and manages the financial
risks in relation to its operations. These risks include those
arising from interest rate risk, credit risk, liquidity risk and
capital risk. The Group seeks to minimise the effects of these
risks by using effective control measures. The Group's policies for
financial risk management are outlined below.
(a) Interest rate risk management
The Group finances its operations through a combination of
retained earnings and bank borrowings from major financial
institutions, with a minimum Fitch rating of B, at floating rates
of interest above the Bank of England base rate. Borrowings issued
at variable rates expose the Group to cash flow interest rate risk.
Borrowings issued at fixed rates expose the Group to fair value
interest rate risk.
The Group's treasury function reviews its risk management
strategy on a regular basis and gives careful consideration to
interest rates when considering its borrowing requirements and
where to hold its excess cash.
The Group currently has loans totalling GBP2.8 million (2021:
GBP4.0 million) at variable interest rates. The Group is exposed to
interest rate risk on some of its financial assets, being its cash
and cash equivalents. The interest rate receivable on these
balances at 31 March 2022 was at an average rate of less than 1%
(2021: less than 1%).
The Group's policy is to minimise interest charges through
active cash management. Interest charged on the Group's borrowings
is kept under constant review.
(b) Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Credit risk arises principally from the Group's trade and
other receivables and its cash balances. The Group has an
established credit policy under which each new customer is analysed
for creditworthiness before the Group's standard payment and
delivery terms and conditions are offered.
The maximum exposure the Group will bear with a single customer
is dependent upon that customer's credit rating, the level of
anticipated trading and the time period over which the relationship
is likely to run.
Social housing customers are typically local authorities or
housing associations and the nature of which means the credit risk
is minimal. Other trade receivables contain no specific
concentration of credit risk with amounts recognised representing a
large number of receivables from various customers.
(c) Trade and other receivables
The Group is exposed to the risk of default by its customers. At
31 March 2022, the Group had three customers with an outstanding
balance over GBP250,000 (31 March 2021: three). An allowance for
impairment is made where there is an identified loss event which,
based on previous experience, is evidence of a reduction in the
recoverability of the cash flows. No specific provision against
receivables has been recognised (2021: GBPnil) in the Statement of
Financial Position as outlined in note 19.
There are no other significant concentrations of credit risk at
the balance sheet date.
At 31 March 2022, the Group held no collateral as security
against any financial asset. The carrying amount of financial
assets recorded in the consolidated financial statements, net of
any allowances for losses, represents the Group's maximum exposure
to credit risk without taking account of the value of any
collateral obtained.
(d) Liquidity risk management
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group's
approach to managing liquidity risk management is to ensure it will
always have sufficient liquidity to meet the Group's working
capital requirements. Management monitors rolling forecasts of the
Group's liquidity and cash and cash equivalents on the basis of
expected cash flow.
The Directors manage liquidity risk by regularly reviewing cash
requirements by reference to short-term cash flow forecasts and
medium-term working capital projections prepared by management and
operate a centralised treasury function and actively manage cash
flows on both a daily and longer-term basis.
The Group had total available working capital facilities at an
interest rate of 2.5% over base rate amounting to GBP2,500,000 with
HSBC UK Bank Plc as at 31 March 2022. The Group maintains a good
relationship with its bank, which has a high credit rating. As at
31 March 2022, the Group had cash and cash equivalents of
GBP2,504,000 (2021: GBP1,293,000).
The table below shows the maturity profile of the Group's
non-derivative financial liabilities:
Within Over
1 year 1-2 years 2-5 years 5 years Total
2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- --------- --------- -------- --------
Non-derivative financial liabilities
HSBC mortgage 57 57 86 - 200
HSBC term loan 2,534 - - - 2,534
Funding Circle unsecured loan 75 34 - - 109
Trade payables 12,552 - - - 12,552
------------------------------------- -------- --------- --------- -------- --------
15,218 91 86 - 15,395
------------------------------------- -------- --------- --------- -------- --------
Within Over
1 year 1-2 years 2-5 years 5 years Total
2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- --------- --------- -------- --------
Non-derivative financial liabilities
HSBC mortgage 57 57 143 - 257
HSBC term loan 1,000 2,533 - - 3,533
Funding Circle unsecured loan 67 109 - - 176
Trade payables 11,082 - - - 11,082
------------------------------------- -------- --------- --------- -------- --------
12,206 2,699 143 - 15,048
------------------------------------- -------- --------- --------- -------- --------
(e) Capital management risk
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern so that it can
continue to provide returns for shareholders and benefits for other
stakeholders through the optimisation of debt and equity.
The capital structure of the Group consists of net debt as
disclosed below and equity as disclosed in the Consolidated
Statement of Changes in Equity.
2022 2021
GBP'000 GBP'000
---------------------------------- -------- --------
Net debt is comprised as follows:
Cash and cash equivalents 2,504 1,293
Bank borrowings and overdrafts (2,843) (3,966)
Lease liabilities (796) (1,735)
---------------------------------- -------- --------
(1,135) (4,408)
---------------------------------- -------- --------
The movement in the net debt position for the year can be
reconciled as follows:
Interest New lease
2021 Cash movements charges agreements Disposals 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------------- -------- ----------- --------- --------
Cash and cash equivalents 1,293 1,211 - - - 2,504
Bank borrowings and overdrafts (3,966) 1,123 - - - (2,843)
Lease liabilities (1,735) 471 33 (564) 999 (796)
------------------------------- -------- -------------- -------- ----------- --------- --------
(4,408) 2,805 33 (564) 999 (1,135)
------------------------------- -------- -------------- -------- ----------- --------- --------
27. Related party transactions
There were no related party transactions in the period.
27.1. Key management compensation
The Group's key management is considered to comprise the
Directors of Kinovo plc and the Chief Operating Officer. The
aggregate remuneration of the key management is as follows:
2022 2021
GBP'000 GBP'000
-------------------------------------- -------- --------
The aggregate remuneration comprised:
Aggregate emoluments 764 771
Share-based payments 36 6
-------------------------------------- -------- --------
Total remuneration 800 777
-------------------------------------- -------- --------
The remuneration of the highest paid Director during the year
was GBP262,000 (2021: GBP218,000). The remuneration of individual
Directors is disclosed in the Remuneration Committee Report.
There were no other transactions with Directors or key personnel
to disclose.
28. Share-based payments
As at 31 March 2022 the Group maintained four share-based
payment schemes for employee remuneration, a Share Incentive Plan
("SIP"), Company Share Option Plan ("CSOP"), Joint Share Ownership
Plan ("JSOP") and Enterprise Management Incentive ("EMI").
Share Incentive Plan ("SIP")
The SIP is an HMRC-approved plan open to all employees. The plan
was established on 1 August 2020. Employees were invited to buy
shares in the Company at a price of 17.5 pence, being the market
price immediately prior to the date of establishment of the plan.
The acquisition of the shares is funded through a salary sacrifice
scheme with monthly deductions taken through payroll over a
twelve-month accumulation period. At the end of the accumulation
period the SIP Trust used the contributions to acquire the shares
on behalf of the employees ("partnership shares"). A further
tranche was rolled out on 1 August 2021, operating on the same
basis as the original, but with a share purchase price of 34.0
pence. At 31 March 2022 employees had accumulated contributions of
GBP49,585.
Employees are also awarded a matching share for each partnership
share acquired. Once awarded these shares are held in trust, and
are subject to forfeiture, in accordance with the scheme rules, for
three years. The retention rate has been estimated as 82%.
The SIP is considered a hybrid financial instrument with
characteristics of both share and option awards and linked to a
twelve-month accumulation contract. The obligation of the Company
arose when the plan was established, at the beginning of the
accumulation period. The employee pays the market value for the
partnership shares and therefore no share-based payment charge is
recognised. The matching shares give rise to a share-based payment
charge based on the market value of the shares at the date the plan
was established adjusted for the risk of forfeiture.
Company Share Option Plan ("CSOP")
The CSOP is open to all employees at the discretion of the
Remuneration Committee. In the year ended 31 March 2021, the
Company issued four CSOP awards totalling 1,772,142 ordinary shares
at market prices ranging from 20.50 pence to 35.00 pence.
There were no CSOP awards in the year ended 31 March 2022.
The vesting period is for three years, during which the holder
must remain in the employment of the Group. There are no
performance conditions attached to the awards. No shares have
vested yet.
The CSOP and EMI schemes were valued using the Black Scholes
model. The use of this model to calculate a charge involves using a
number of estimates and judgements to establish the appropriate
inputs to be entered into the model, covering areas such as the use
of an appropriate interest rate and dividend rate, exercise
restrictions and behavioural considerations. A significant element
of judgement is therefore involved in the calculation of the
charge.
Joint Share Ownership Plan ("JSOP")
The JSOP is open to certain senior Executives at the discretion
of the Remuneration Committee. In the year ended 31 March 2021, the
Company issued two JSOP awards, 250,000 ordinary shares of 10 pence
each on 21 December 2020 at the market price of 26.0 pence and
2,242,858 ordinary shares of 10 pence each on 5 March 2021 at the
market price of 35.0 pence, to three senior Executives. There were
no JSOP awards in the year ended 31 March 2022.
Under the JSOP, shares in the Company are jointly purchased at
fair market value by the participating Executives and the trustees
of the JSOP trust, with such shares held in the JSOP trust.
Under IFRS, the awards are treated as a share-based payment
arrangement. The JSOP trust holds the shares of the JSOP until such
time as the JSOP shares are vested and the participating Executives
exercise their rights under the JSOP.
The JSOP trust is granted a non-interest-bearing loan by the
Company in order to fund the purchase of its interest in the JSOP
shares. The loan held by the trust is eliminated on consolidation
in the financial statements of the Group.
The Company funded portion of the share purchase price is deemed
to be held as own shares until such time as they are transferred to
the employee and is recorded as a reduction in equity.
The award on 21 December 2020 had no performance conditions. The
awards on 5 March 2021 vest based on certain non-market conditions
and specific fair market share price hurdles, as defined by the
plan.
Under the JSOP and subject to the vesting of the participants'
interest, participating Executives will, when the JSOP shares are
sold, be entitled to a share of the proceeds of sale equal to the
growth in market value of the JSOP shares versus the exercise
price, net of Executives' cash contribution at inception, as agreed
for each grant (the "Carry Charge").
The balance of the proceeds will remain to the benefit of the
JSOP trust and will be applied to the repayment of the loan
originally made by the Company to the JSOP trust. Any funds
remaining in the JSOP trust after settlement of the loan and any
expenses of the JSOP trust are for the benefit of the Company. No
shares have vested at 31 March 2022.
The JSOP awards are valued based on the component conditions
comprising each of the awards. Components of awards containing
non-market-based conditions and awards with no performance
conditions are valued using the Black Scholes model. Components of
awards with market-based performance conditions are determined by
the Monte Carlo simulation.
A number of estimates and judgements are required to establish
the appropriate inputs to be entered into the model, covering areas
such as the use of an appropriate interest rate and dividend rate,
exercise restrictions and behavioural considerations. A significant
element of judgement is therefore involved in the calculation of
the charge.
Having established the full value of the JSOP awards using the
Black Scholes model and Monte Carlo simulation outlined above, a
deduction is made in respect of the anticipated Carry Charge in
order that the expense recorded in the financial statements only
represents the participating Executives' net interest in the
awards.
Enterprise Management Incentive Scheme ("EMI")
The EMI options scheme was open to all employees at the
discretion of the Remuneration Committee. In the year ended 31
March 2022, no grants were awarded and the majority of the grants
have now been cancelled.
The vesting period is for three years, during which the holder
must remain in the employment of the Group subject to the
discretion of the Remuneration Committee. They can be exercised at
any time from the date of vesting to the day before the tenth
anniversary of their grant and are not subject to performance
conditions.
The net charge recognised for share-based payments in the year
was GBP90,000 (2021: GBP30,000) including discontinued operations
analysed as follows:
2022 2021
GBP'000 GBP'000
--------------- -------- --------
SIP 19 16
CSOP 24 10
JSOP 47 4
EMI/unapproved - -
--------------- -------- --------
90 30
--------------- -------- --------
In the year ended 31 March 2022, options were granted in respect
of the SIP only. During the prior year, options were granted for
the CSOP and JSOP schemes in addition to the SIP. All share-based
employee remuneration will be settled in equity. Options are
generally exercisable at a price equal to the market price of the
Kinovo plc shares on the day immediately prior to the date of the
grant. Options are forfeited if the employee leaves the Group
before the options vest except in specific circumstances allowed by
the terms of the schemes.
EMI/
SIP CSOP JSOP unapproved Total
----------------------------------- ---------- ---------- --------- ----------- ----------
Number
At 1 April 2020 - - - 750,000 750,000
Granted 644,754 1,772,142 2,492,858 - 4,909,754
Lapsed - - - (250,000) (250,000)
----------------------------------- ---------- ---------- --------- ----------- ----------
At 31 March 2021 644,754 1,772,142 2,492,858 500,000 5,409,754
Granted 610,185 - - - 610,185
Exercised (531,944) - - - (531,944)
Lapsed (83,805) (345,000) - - (428,805)
----------------------------------- ---------- ---------- --------- ----------- ----------
At 31 March 2022 639,190 1,427,142 2,492,858 500,000 5,059,190
----------------------------------- ---------- ---------- --------- ----------- ----------
Weighted average exercise price
(pence)
At 1 April 2021 - 24.3 34.1 95.0
Granted - - - -
Lapsed - 22.5 - -
----------------------------------- ---------- ---------- --------- -----------
At 31 March 2022 - 24.8 34.1 95.0
----------------------------------- ---------- ---------- --------- -----------
Assumptions used in estimating the
fair value
Exercise price (pence) 17.5-34.0 20.5-35.0 26.0-35.0 95.0
Expected dividend yield n/a 1.00% 1.00% 2.15%
Risk free rate n/a 0.50% 0.50% 4.00%
Expected volatility n/a 35.00% 35.00% 45.70%
Expected life 4 years 3 years 3 years 6.5 years
----------------------------------- ---------- ---------- --------- -----------
Expected volatility for the CSOP and JSOP awards is based upon
the historical volatility as adjusted for management expectations
over the life of the schemes. The expected life is based upon
scheme rules and reflects management's best estimates for the
effects of non-transferability, exercise restrictions and
behavioural considerations.
The risk free interest rate for the CSOP and JSOP awards is
based upon the expected yield of UK gilts over the expected life of
the awards.
The Company has applied an expected dividend yield of 1% for the
CSOP and JSOP awards as the Company anticipates making dividend
payments during the expected life of the awards.
During 2021 GBP612,000 was transferred from the share-based
payment reserve to retained earnings in relation to tranches where
all options have now been cancelled.
29. Deferred tax
The following are the significant deferred tax liabilities and
assets recognised by the Group and the movements thereon during the
current and prior reporting period.
Intangible Short-term
assets Unused timing Right-of-use Lease Share-based
acquired tax losses differences assets liabilities payments Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ----------- ------------ ------------ ------------ ----------- --------
At 1 April 2020 (947) 309 (145) (381) 385 - (779)
Credit/(charge) to
Statement of Comprehensive
Income or recognised
directly through
shareholders,
equity 327 (309) - 60 (55) 57 80
---------------------------- ---------- ----------- ------------ ------------ ------------ ----------- --------
At 31 March 2021 (620) - (145) (321) 330 57 (699)
Credit/(charge) to
Statement of Comprehensive
Income or recognised
directly through
shareholders,
equity 243 306 112 28 (28) 17 678
Disposal of DCB (Kent)
Limited 305 - 30 143 (151) - 327
---------------------------- ---------- ----------- ------------ ------------ ------------ ----------- --------
At 31 March 2022 (72) 306 (3) (150) 151 74 306
---------------------------- ---------- ----------- ------------ ------------ ------------ ----------- --------
2022 2021
GBP'000 GBP'000
----------------------------------- -------- --------
Deferred tax asset 531 387
Deferred tax liability (225) (1,086)
----------------------------------- -------- --------
Net deferred tax asset/(liability) 306 (699)
----------------------------------- -------- --------
30. Sale of business
On 12 January 2022, the Group disposed of 100% of the share
capital of DCB (Kent) Limited ("DCB"). As set out in note 4.1, the
effective date of transfer of control was as at 1 December 2021 and
is accounted for as disposed as at that date.
A total deferred consideration of up to GBP5 million was due on
the sale consisting of:
-- GBP1.9 million payable on successful completion of current projects;
-- GBP2.1 million payable on trade settlements of these current projects; and
-- GBP0.5 million payable on the results of the next two years
dependent on achievement of performance targets.
However, DCB went into administration on 16 May 2022. Management
therefore does not expect that any of this consideration will be
receivable, and as such has not recognised any anticipated proceeds
from the sale of the business.
Loss on disposal of DCB (Kent) Limited
2022
GBP'000
----------------------------------------------------------------- ---------
Consideration received or receivable:
Cash -
Cash fair value of contingent consideration -
----------------------------------------------------------------- ---------
Total disposal consideration -
Carrying amount of net assets disposed (9,930)
Other write-offs and provisions required as a result of disposal (3,743)
Tax credit from disposal 1,078
----------------------------------------------------------------- ---------
Total loss on disposal of DCB (Kent) Limited (12,595)
----------------------------------------------------------------- ---------
As part of the sale agreement, Kinovo plc and the purchaser
agreed a working capital mechanism with DCB (Kent) Limited to
facilitate completion of ongoing projects. From the date of sale up
to 31 March 2022, GBP2.5 million of working capital had been
provided by Kinovo plc to DCB (Kent) Limited. A further GBP1.2
million of funding was provided post year end prior to the company
entering administration. The full value of these facilities has
been written off in the loss on disposal for the year.
As part of the obligations under the terms of the sale, the
Group continued to provide parent company guarantees ("PCGs") on
DCB (Kent) Limited which run through to practical completion on
each of the construction projects that were in existence at the
time of the disposal. On administration of DCB (Kent) Limited the
obligations under the PCGs were assumed by Kinovo plc. Note 32
provides further details on how these have been treated within the
financial statements.
Financial performance and cash flow information from
discontinued operations
8 months 12 months
to to
30 November 31 March
2021 2021
GBP'000 GBP'000
------------------------------------------------------------- ------------ ---------
Revenue 13,432 20,817
Cost of sales (11,780) (17,210)
------------------------------------------------------------- ------------ ---------
Gross profit 1,652 3,607
Underlying administrative expenses (2,168) (2,793)
------------------------------------------------------------- ------------ ---------
Operating (loss)/profit before non-underlying items (516) 814
------------------------------------------------------------- ------------ ---------
Non-underlying administrative expenses:
Amortisation of customer relationships (155) (232)
Share-based payment charge - (3)
Loss on disposal (12,595) -
Restructuring costs - (45)
------------------------------------------------------------- ------------ ---------
Total non-underlying administrative expenses (12,750) (280)
------------------------------------------------------------- ------------ ---------
Operating (loss)/profit (13,266) 534
Finance costs (6) (23)
------------------------------------------------------------- ------------ ---------
(Loss)/profit before taxation (13,272) 511
Income tax credit/(expense) 128 (102)
------------------------------------------------------------- ------------ ---------
(Loss)/profit for the period (13,144) 409
------------------------------------------------------------- ------------ ---------
(Loss)/earnings per share from discontinued operations
Basic (pence) (21.28) 0.69
Diluted (pence) (21.28) 0.69
Cash flows from discontinued operations
Net cash (outflow)/inflow from operating activities (1,453) 272
Net cash outflow from investing activities (10) (40)
Net cash outflow from financing activities (16) (44)
------------------------------------------------------------- ------------ ---------
Net (reduction)/increase in cash generated by the subsidiary (1,479) 188
------------------------------------------------------------- ------------ ---------
31. Ultimate controlling party
The Directors consider that there is no ultimate controlling
party of Kinovo plc.
32. Events after the balance sheet date
As part of the obligations under the terms of the sale of DCB
(Kent) Limited ("DCB") see note 30 for details on the disposal),
the Group continued to provide parent company guarantees ("PCGs")
on certain construction projects of DCB (Kent) Limited which run
through to their practical completion. On administration of DCB
(Kent) Limited the outstanding obligations under the PCGs were
assumed by Kinovo plc.
As at 31 March 2022 it was anticipated that existing contracts
could be completed at reasonable cost, and new business could be
secured to support the cash flow of the business. Kinovo continued
to provide working capital funding to support the business after
the year end. However, DCB was placed into administration on 16 May
2022.
The liability under the PCGs is considered to be a non-adjusting
post balance sheet event, and the costs to complete will be
recognised in the Statement of Comprehensive Income as and when
they arise.
The total expected cost to complete the projects has been
determined as GBP4.0 million (plus professional fees and expenses).
The cost to complete is based on nine ongoing projects which are
guaranteed by the Group. External quantity surveyors have been
appointed who have engaged with the existing supply chain and
agreed subcontractor packages, attended sites and completed full
surveys, established any known defects, and prepared a full plan to
complete for each project. The combined value of this planned work
across all contracts has identified the gross cost to complete of
GBP18.8 million, which is offset by amounts recoverable on the
contracts of GBP14.8 million. A further GBP0.3 million of legal
fees are expected to be incurred in relation to the disposal.
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END
FR SFEESAEESELA
(END) Dow Jones Newswires
August 19, 2022 02:00 ET (06:00 GMT)
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