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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August 19, 2022 02:00 ET (06:00 GMT)

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