TIDMSUR
RNS Number : 9085Y
Sureserve Group PLC
18 May 2021
18 May 2021
Sureserve Group plc
("Sureserve" or the "Group")
Unaudited Interim Results for the six months ended 31 March 2021
(H1 FY21)
WELL POSITIONED FOR GROWTH
Sureserve, the compliance and energy services Group, is pleased
to announce its interim results for the six-month period ended 31
March 2021.
Robert Legget, Interim Chairman of Sureserve, commented:
" Our half year performance provides a solid base from which our
highly experienced team can grow the business. Although the
immediate future still remains uncertain due to the pandemic,
Sureserve has a substantial order book providing good levels of
visibility of earnings, an established business model of recurrent
revenues from our public sector client base and a strong balance
sheet to support both organic and inorganic growth opportunities.
We therefore are cautiously optimistic about the future. "
Financial overview
-- Revenue up 4.6% to GBP114.6m (H1 2020: GBP109.6m)
-- EBITA*(1) up 22.1% to GBP4.8m (H1 2020: GBP3.9m)
-- Profit before tax up 71.5% to GBP4.4m (H1 2020: GBP2.6m)
-- Profit before tax before amortisation of acquisition
intangibles up 30.6% to GBP4.4m (H1 2020: GBP3.4m)
-- Earnings per Share (EPS) from continuing operations up 71.2% to 2.2p (H1 2020: 1.3p)
-- EPS excluding amortisation of acquisition intangibles and
share based payments up 25.7% to 2.3p (H1 2020: 1.8p)
-- Net cash / (debt) excluding lease liabilities increased to
GBP9.7m (31 March 2020: (GBP3.5m))
-- Order book of GBP371.6m (31 March 2020: GBP323.7m) providing
visibility of earnings with circa 99% covered in FY21
*(1) EBITA is defined as operating profit before amortisation of
acquisition intangibles. EBITA excludes the profit from
Discontinued Operations.
Operational overview
-- Compliance delivered another strong performance, with demand
for services remaining high, with Energy successfully navigating
the challenging Covid-19 dynamic.
-- Both divisions continued their reputation for delivery of
quality services and market-leading positions in the
highly-regulated public sector gas testing and energy management
sectors
-- Excellent record of contract wins worth GBP112.1m during the
period strengthening our position across the UK
Outlook
-- Strategically positioned to deliver clear growth in our market-leading Gas businesses
-- Energy Services well placed to be at the forefront of the energy transition in the UK
-- 99% of FY21 expected revenue covered by the order book, worth
GBP371.6m, providing visibility of non-volatile revenue streams
-- The Group is well-positioned for further organic growth in a fragmented and regional market
-- Acquisitive growth opportunities, building on recent Vinshire
acquisition and integration, will be evaluated as appropriate
-- Despite the ongoing situation related to Covid-19, we expect
continued strong trading throughout FY21 and beyond
Enquiries
Sureserve Group
Robert Legget, Interim Chairman c/o Camarco
Peter Smith, Interim Chief Operating Officer and Chief Financial
Officer 07590 929 431
Camarco (Financial Public Relations)
Ginny Pulbrook 020 3757 4992
Ollie Head
Toby Strong
Shore Capital (Nominated Adviser and Broker) 020 7408 4090
Stephane Auton
Dan Bush
Fiona Conroy
Notes to editors
Sureserve is a leading Compliance and Energy Services group that
performs critical functions in homes, public and commercial
buildings, with a focus on clients in the UK public sector and
regulated markets. Services are delivered through two divisions:
Compliance and Energy Services.
The Group was founded in 1988 and is headquartered in Basildon
and currently employs some 2,299 staff.
Chairman 's Statement
Introduction and Trading Performance
On 18 March 2021, I was appointed Interim Chairman and Peter
Smith was appointed Interim Chief Operating Officer, following Bob
Holt's decision to step down from the Board.
I am delighted to report that despite the challenges presented
to it from the global pandemic, the Sureserve Group has continued
to make solid progress. In the six months to 31 March 2021, the
Group is reporting a 4.6% increase in Group revenue of GBP114.6m
(H1 2020: GBP109.6m) and a 22% increase in Group EBITA to GBP4.8m
(H1 2020: GBP3.9m). Profit before tax on continuing operations was
up 72% to GBP4.4m (H1 2020: GBP2.6m). During the period under
review, the Group won new contracts totaling GBP112.1m and is
reporting a current order book of GBP371.6m, which provides strong
visibility of future earnings.
Our basic earnings per share (from continuing operations)
increased by 71% to 2.2p (H1 2020: 1.3p). The Group has continued
to generate cash and has an improved balance sheet with net cash of
GBP9.7m (excluding lease liabilities) (H1 2020: net debt of
GBP3.5m).
This excellent performance reflects our focused business model,
underpinned by regulatory demand and with an established public
sector client base with contracted recurrent revenues. We remain
optimistic on the opportunities available to the Group and look
forward to further delivering on our growth strategy.
Covid-19 Update
As communicated in our full year financial results to 30
September 2020, the unprecedented situation presented by the
Covid-19 pandemic and ongoing Government response is continuing to
impact Group operations, as with many others. The safety of our
employees and customers has remained paramount throughout and will
continue be our absolute priority. While the national situation in
terms of cases and lockdown restrictions has improved in recent
months and is less severe in comparison to the initial stages of
the pandemic response one year ago, it remains fluid with impacts
to some extent on all aspects of operations.
Our focus remains on serving our customers in the safest manner
possible while protecting the wellbeing of colleagues and
minimising virus spread risk, including but not limited to ensuring
our 'Covid-Secure' status through NQA verification standards. Our
detailed responses and key protocols were documented in full
through our year end reporting and continue to evolve while our
focus remains on safe delivery as we continue to refine our
approach to effective operations.
We remain hopeful that current Government guidance and
communications are indicative of further relaxations of
restrictions over the coming months but will remain vigilant and
reactive to updates as they occur. Given trading continues to be
impacted as a result of the Government pandemic response measures
and restrictions, certain businesses within the Group continue to
receive Government support as applicable, as set out in the
Operational Review.
Our People
My fellow directors and I are most grateful for the exceptional
efforts and hard work of our workforce over this difficult period.
Our people must be commended for the way in which they have
continued with the task of looking after our clients and, at the
same time, having to address the difficulties of working in a more
constricted environment under Covid-19. The adjective "staunch"
comes to mind.
Our experienced executive team has continued to demonstrate its
tenacity in managing the business during the pandemic, with periods
of consolidation and preparation now moving back into the delivery
of contracts, building on the trust gained by clients and
maximising the potential of an already engaged and operationally
ready workforce. The team has provided the solid base for the
Group's strong trading performance that I summarised above and I
personally would like to thank them all.
During the past six months, the Group has continued to
prioritise the health and wellbeing of the workforce. The cost of
this in our business has been substantial and immeasurable but
appropriate to the end objective of ensuring our peoples' and our
customers' maximum safety as far as possible.
Following the departure of Bob Holt as Executive Chairman in
March, the Board began the formal process to appoint a new
independent Non-Executive Chairman and a new Chief Executive. The
Group will provide an update on this process as and when
appropriate.
ESG
Alongside the delivery of consistent organic growth, the Group's
performance and long-term goals are connected to our Environmental,
Social and Governance related objectives. In the first half of this
year we have reduced our Energy consumption in office premises by
7.7% and the Energy consumption of the fleet by 32.3%, both in line
with our Carbon reduction targets. This has also partly been
assisted by reduced activity due to lockdown. We are currently
working with the Carbon Trust to achieve carbon neutral status via
the PAS 2060 accreditation. We continue to be accredited on a
number of ISO standards to protect ourselves, our environment,
partners, clients and their customers. We have recently launched a
pilot project to convert the first batch of our vehicle fleet of
1,600 light commercial vehicles and 60 company cars across the UK.
30 zero emissions electric commercial vehicles have been ordered as
we start to transition from Euro 6 diesel to electrical power. We
have also begun the roll-out of zero emissions electric company
cars to our Leadership team, ensuring sustainability is at the
heart of our culture, and our ongoing commitments to realising
carbon reductions across the Group. This aligns with our service
proposition of the installation and maintenance of EV charge
points.
The Group has a strong training culture, delivered via the
Sureserve Academy, and is focused on developing skills at all
levels. I am pleased to say that we are looking to increase the
number of employees in training this year, including those entering
the business through traditional Apprentice routes. We are
enthusiastic when it comes to our responsibility for bringing
forward the next generation of engineers, leaders and
professionals, who all remain at the very heart of our
business.
The Sureserve Foundation, formed in 2019 to combat the effects
of fuel poverty across the UK, provides support to local community
organisations, housing associations and local authorities. The
Foundation has been able to deliver a number of projects by way of
grants and hardship funds.
Our Equality, Diversity and Inclusion steering group has put in
place a five-year strategy, and is working with the Gender &
Equality, and Ethnicity & Diversity working groups to achieve
the Group's long-term objectives.
On Governance, you will have seen that we recently announced
that we are changing our board structure to the more conventional
one of separating the Executive Chairman role into two, namely a
Non-Executive Chairman and Chief Executive. As we are focused on
following best practice, we will continue to review the skill set
and composition of the Board, which best meets with the need of the
business as it grows.
Strategy for Growth
We have now created a successful basis for growth, and in
essence, this will be pursued both organically and through
acquisition with different strategies applied by our two divisions.
Although any further Covid-19 related lockdowns might inhibit
plans, the Sureserve team continue to remain responsive and focused
on delivering this growth strategy.
For Energy Services, growth is likely to be driven by
Government-sponsored schemes. The current ECO scheme and HEEPS in
Scotland are focused on reductions in carbon emissions and fuel
poverty, with most of the clients being local councils and housing
associations. The latest announcement by the Government of the
acceleration of climate change commitments is very encouraging and
while the Green Homes Grant scheme for homeowners only lasted for
six months and suffered from very poor take-up, the allocation of
GBP320m to the "local authority delivery" (or "LAD") part of the
scheme is a welcome development as this allows us to better support
our public sector clients, such as councils, in delivering the
necessary energy efficient home improvements. Everwarm's expertise
and regulatory licenses mean that expansion in England is an
attractive prospect and we are seeing new opportunities and
contract awards from this as further described below.
The Board are conscious that energy-saving technology is
changing and the Group is therefore developing other low carbon
expertise, including installation of heat pumps, solar PV, battery
energy storage solutions, electric vehicle charging points,
innovative insulation techniques and other energy efficiency
initiatives as markets develop. Client demands and supply chain
capability are driving enhancements.
Growth at Providor will be driven by the Government push to
finish the smart metering instalment plan by 2025.
In the Compliance division, we will continue to support and grow
our bid teams and expand our services with new and existing clients
with a view to increasing market share. In-fill acquisitions, such
as that of Vinshire in December, which help us to spread our
geographical coverage and customer base, are exactly the type of
tactical acquisition we will continue to pursue.
We would expect the new Chairman and Chief Executive to focus on
this buy-and-build strategy after their appointments.
Outlook
The Group has entered the second half of the financial year
ahead of previous management expectations, in a solid position and
expects, with our GBP371.6m order book providing visibility of
earnings, that the Group will report further profitable growth
during 2021.
I remain optimistic about the prospects of the Group for the
year ahead and, along with my colleagues at Sureserve, will
continue to focus on our vision to be the supplier of choice to
communities across the UK for their compliance and energy services,
becoming market leaders through excellence in service delivery,
innovation and customer service and thereby enhancing value for
shareholders.
Robert Legget, Interim Chairman
OPERATIONAL REVIEW
Group Summary
The overall Group performance remains positive despite the
background of Covid-19 which we believe continues to demonstrate
the resilience of the business model, given the basis of
predictable and recurring incomes in areas supported by
non-discretionary and regulatory-led spend. Despite this we do
continue to see considerable trading impacts, particularly within
our Energy Services division, from the Government pandemic response
measures and restrictions. Given these impacts, where appropriate,
businesses in the Group have applied for and received Government
support. Following the continued emphasis and delivery on cash
conversion we took the decision to fully repay any previously
deferred VAT payments by 31 March 2021, in line with the original
HMRC guidelines and intention.
Compliance (68% of Group revenue / H1 FY20: 66%)
Compliance: six months ended Unaudited Unaudited Change
31 March 6 months 6 months
to 31 March to 31 March
2021 2020
Revenue (GBPm) *(1) 78.9 73.4 7.6%
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EBITA (GBPm) *(2) 5.8 3.7 57.8%
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EBITA margin 7.4% 5.0% 2.4ppts
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*(1) Division revenue figures include revenue from intercompany
trading which accounts for a total across both divisions of GBP1.7m
in 2021 and GBP1.1m in 2020.
*(2) EBITA is defined as operating profit before amortisation of
acquisition intangibles.
The Compliance division provides planned and responsive
maintenance, installation and repair services predominantly to
local authority and housing association clients, in the areas of
domestic and commercial gas, fire and electrical, water and air
hygiene, and lifts. These services cover clients' social housing
and public building assets, as well as industrial and commercial
properties. Gas services comprise over three quarters of the
divisional revenues. We believe we remain the largest player in
this fragmented and typically localised market and have enhanced
our service offering both organically during the period but also
through the acquisition of Vinshire Gas Services Limited (Vinshire)
in December as previously reported. Vinshire is a heating services
and installations company, providing services primarily for Housing
Associations and Local Authorities across the East and West
Midlands, complementing Aaron Services activities with offices in
Derby and West Bromwich. We are pleased with the progress the
business and team have made in the few months of trading since
joining the group.
We are predominantly paid for service and repair work on a fixed
price basis evenly through the year. The gas businesses (which as
noted above encompass the majority of the division's revenues) have
more call-outs during colder months, resulting in higher labour and
materials costs. This seasonality drives higher levels of
profitability and cash generation in the warmer months when
call-out rates are lower and a proportion of our engineers can be
redeployed to jobs that yield further income. As a result,
historically a significant proportion of the division's annual
profit arises during the second half of the financial year, making
the strong results in this current period even more pleasing.
Revenue growth combined with a move above our previous H1 EBITA
margin levels of 5% has seen a considerable step forward in our
profits.
The division delivered period-on-period revenue growth of 7.6%
to GBP78.9m (H1 FY20: GBP73.4m), driven by continued new contract
wins, extensions and some additional spending from certain clients
and workstreams where spending had been deferred earlier in the
pandemic. We also saw positive impact from the Vinshire acquisition
in addition to ongoing regulatory pressures in the sector.
Installation and commercial project works exceeded expectations in
the first half of the year, which by adding to our improved
contractual client base further strengthened our position. EBITA
increased by 57.8% to GBP5.8m (H1 FY20: GBP3.7m), with this
additional profitability driven by a combination of factors.
Improved EBITA performance across both gas and non-gas was driven
from this overall revenue growth but also margin improvements which
arose from work mix including more commercial works in addition to
efficiencies gained by the experienced management teams as scale
continues to increase.
The division continued its track record of new wins during the
period with particular success within our gas businesses, including
securing GBP8m of work over three years for heating servicing and
repairs with Richmondshire District council, gas heating and
maintenance awards over four years of GBP4.8m with Saffron Housing
Trust and GBP4.0m with Royal Borough of Kensington and Chelsea, a
GBP2.5m award with L&Q for electrical works and other smaller
gas servicing and maintenance wins. Other significant wins in the
division include GBP2.0m of fire door repair work for London
Borough of Newham, a GBP2.0m contract with VIVID Housing for fire
alarm servicing and maintenance works and GBP1.6m with Thanet
District Council for lift refurbishment works, along with numerous
other wins across the full range of workstreams including GBP1.2m
of water hygiene and risk assessments with Southern Housing
Group.
We believe the future outlook for our Compliance businesses
remains strong, underpinned by high levels of long-term contracts
and frameworks for which the division has continued to see high
appointment levels, along with an ongoing trend towards regulatory
services. Our client base, which is largely comprised of local
authorities and housing associations, provides us continuity moving
forward with blue chip clients. As previously communicated the
nature of our Compliance businesses is of core services including
vital emergency repair and testing cover to our local authority and
housing association customers, to ensure compliance with gas,
electricity and building testing regulations. The Government
continuing to recognise many of our employees within their "key
worker" classification has enabled us to support clients and
provide these crucial services throughout the pandemic.
During the pandemic the division has experienced some delays in
accessing certain residential and communal properties to undertake
work as a result of the Government measures in response to
Covid-19, including physical distancing and travel restrictions.
Some local authority customers have, where work is considered of a
lower priority or not essential, chosen to defer certain elements
at points during the pandemic. The division received GBP0.3m of job
retention scheme money from the Government in the six-month period,
reflecting the reduction in work levels seen for certain delivery
teams.
We believe that following the temporary uncertainty and
disruption to the market our mix of customer and services remains
strong and longer-term the demand for these works and underlying
fundamentals will underpin our future prospects when conditions
recover. As a market leader in gas testing with true national reach
we believe further opportunities will be forthcoming to grow our
business. We will remain proactive in assessing potential future
acquisitions, such as the Vinshire business we are delighted to
have added to the Group during the period.
Energy Services (32% of Group revenue / H1 FY20: 34%)
Energy Services: six months ended Unaudited Unaudited Change
31 March 6 months to 6 months to
31 March 2021 31 March 2020
Revenue (GBPm) *(1) 37.3 37.3 0.2%
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EBITA (GBPm) *(2) 0.8 1.9 (60.6)%
--------------- --------------- ----------
EBITA margin 2.0% 5.2% (3.2)ppts
--------------- --------------- ----------
*(1) Division revenue figures include revenue from intercompany
trading which accounts for a total across both divisions of GBP1.7m
in 2021 and GBP1.1m in 2020.
*(2) EBITA is defined as operating profit before amortisation of
acquisition intangibles.
Energy Services undertakes a range of energy efficiency services
for social housing and private homes through two businesses:
-- Everwarm delivers insulation and heating, energy efficient
technologies including electrical vehicle charging points, air
source heat pumps, battery storage and solar PV, including works
within non-domestic properties. Everwarm combines these services
with providing carbon emissions savings for energy companies,
enabling them to meet their legislative targets. The insulation
operations are driven by seasonal influences, as we are unable to
render or use fixing glue necessary for insulation at certain lower
temperatures. As a result, we typically experience a far larger
number of productive working days in summer, compared to winter
months, with the result that this business also sees higher
revenues and margins in H2 each year.
-- Providor is our leading national installer of smart meters
(operating as a meter asset manager and meter operator), which
undertakes work for both large and small utility suppliers, who are
required to install smart meters in every home in England, Wales
and Scotland. The business is among the most experienced in the
ongoing UK-wide government roll-out and as we have previously
advised the deadline for installation is now the end of June 2025,
allowing a realistic timeframe for delivery and sustainable
installation levels in coming years. Fewer than half of the 55m
total meters within the roll-out have now been installed as smart,
with a significant market opportunity remaining.
Divisional revenues for the period increased nominally by 0.2%
to GBP37.3m (H1 FY20: GBP37.3m), which was pleasing as achieved
against the backdrop of significant impact from further Covid-19
pandemic restrictions. These were seen particularly in Scotland
where non-essential works inside properties, such as energy
efficiency improvements and smart meter installations, have been
restricted significantly unless considered of an emergency nature.
Both Providor and Everwarm saw revenue lower than expectations
because of this. Everwarm saw significant reductions from the same
period last year while Providor revenues mitigated this. Providor
saw increases from the comparable period last year, largely due to
growth from significant contract wins. Divisional EBITA margin
reduced to 2.0% (H1 FY20: 5.2%), more in line with performance
levels seen in the full year results to September 2020 and not
considered representative of expected performance.
Results across our Energy businesses saw significantly decreased
profitability in both the Everwarm and Providor businesses.
Everwarm's performance was principally due to the reduction in
revenues while Providor was impacted by lower growth more than
expected, resulting in much lower profitability given the business
had scaled up its cost base to deliver significantly higher
volumes, which did not transpire. The Arbed joint venture saw
reduced performance from significant reductions in volumes given
difficulty in delivering works to the levels anticipated due to the
pandemic and restrictions in Wales, with works largely considered
non-essential. We saw increased delivery and performance in
comparison to same period last year within the Scottish Warmworks
joint venture. This was due to a mix of growth in the business with
new workstreams added and the majority of Warmer Homes Scotland
work for the Scottish Government continuing, with only a small
number of measures being impacted given the importance of the
boiler improvement delivery to potentially vulnerable and fuel poor
individuals.
The division had previously seen significant recent wins
including large geographical extensions of our smart metering
installation services with Scottish Power and EDF, and therefore
the focus for the Providor business has been one of mobilisation of
those key awards against the backdrop of successfully navigating
the Covid-19 pandemic. We were also delighted to receive
confirmation of a two-year extension to our existing smart metering
installation and management services contract with Scottish Power,
which we believe is representative of our strong relationship and
delivery performance.
The Everwarm business continued to see several large wins and
awards as reflected in the order book growth below. This included
GBP4.7m for London Borough of Ealing, GBP2.3m with East Lindsey
Council and GBP2.0m with Doncaster Metropolitan Borough Council,
all for energy efficiency works through the LAD (Local Authority
Delivery) scheme, which has seen the business further
geographically diversify into England. The business also won
GBP2.0m of external wall insulation and other services with Fife
Council and a GBP1.7m win with Ancho Housing Association for
kitchen replacement works along with further awards such as GBP1.0m
of additional works with East Lothian Council.
Providor remains focused on existing contract delivery through
to the current Government smart meter deadline of June 2025 and
continues to review new contract opportunities. This represents an
ongoing opportunity to strengthen further, with previously awarded
agreements and an evaluation of existing contracts and further
potential extensions available giving us confidence over future
delivery, despite the short-term challenges introduced,
particularly in Scotland, from the ongoing pandemic
restrictions.
Within Everwarm, carbon prices remained largely stable during
the period however volumes remain impacted by Covid-19 and the
ongoing challenges with 'ECO3' due to measure types and qualifying
properties. We continued to work through this period and believe we
are well-placed to deliver on behalf of our utility partners based
on our management team's extensive experience in this area. In
February 2021 the UK Government announced plans to increase
spending on ECO to GBP1bn per year (from GBP640m) to 2026 which
should provide further opportunity for Everwarm to deliver
increased volumes.
Our Warmworks joint venture delivering the Warmer Homes Scotland
initiative for the Scottish Government saw ongoing operationally
strong performance and client delivery, predominantly due to the
ability to continue trading closer to normal conditions, despite
the ongoing pandemic impacts. The Scottish Government's flagship
Home Energy Efficiency Programme for Scotland (" HEEPS ") continued
to perform well with its diversified installation portfolio,
focusing on central heating, boiler improvements and other energy
efficiency installation measures. We believe there is potential
growth based on increased funding now available, along with
additional project work from other clients.
The Arbed 3 programme for the Welsh Government via our joint
venture with the Energy Saving Trust, focused on improvements to
households likely to be living in severe fuel poverty, is ongoing.
In the reporting period we continued to navigate the challenges
caused by the pandemic and restrictions on works, however we are
hopeful of better performance over the summer period as we work
towards the current contractual end date of November 2021.
Sureserve's Energy division has not been afforded the same 'key
worker' status as seen in our Compliance businesses due to a
combination of our services delivered and devolved government
approaches around continuation of works, particularly in Scotland.
This has resulted in what we believe to be short-term reductions in
trade within both Energy businesses and joint ventures. Given
reduced volumes from expectations the businesses have applied for
appropriate government support, with the division receiving GBP0.6m
of job retention scheme money from the Government in the six-month
period, along with ongoing other actions such as customer and
supplier negotiations and the implementation of any necessary cost
control procedures to best mitigate negative impacts.
We believe the prospects for our Energy business remains strong
We have seen some encouraging recent wins, with Everwarm in
particular at the forefront of this, and are well placed to deliver
additional work where appropriate opportunities present. The UK
Government's commitment to create a net zero carbon economy by 2050
is expected to drive further focus on energy efficiency with
announcements and commitments on this now being seen regularly. We
will continue to monitor developments and believe the group is well
placed to take advantage.
New Wins and Order Book
The Board are encouraged that high bidding success rates
continue to be achieved by the Group. Contract wins in the period
totalled GBP112.1m, contributing to a period-end order book of
GBP371.6m. This represented a 14.8% increase on the comparative
period (31 March 2020: GBP323.7m). The order book is consistent
with our previously stated view around our targeted efforts on long
term contracts that provide opportunities to deliver profitably in
our core areas. We believe our order book remains strong across the
group with growth in Everwarm's order book particularly pleasing
and we believe reflecting the positive opportunity and our
credentials within the sector. We continue to focus on securing
contracts with long term visibility and robust value and following
recent investments in bidding resource are well placed to
capitalise on various opportunities going forward.
Financial Review
The Group had a strong period posting an EBITA of GBP4.8m from
continuing activities (H1 2020: GBP3.9m).
Group revenue increased by 4.6% to GBP114.6m (H1 2020:
GBP109.6m), mainly reflecting an increase in revenues in the
Compliance Services, whose revenues increased by 7.6% to GBP78.9m
(H1 2020: GBP73.4m). Revenues in the Energy division increased by
0.2% to GBP37.3m (H1 2020: GBP37.3m). These divisional revenue
figures include revenue from intercompany trading which accounts
for a total of GBP 1.7m (H1 2020: GBP1.1m).
Group EBITA increased by 22.1% to GBP4.8m (H1 2020: GBP3.9m),
reflecting an increase in EBITA in the Compliance division of 57.8%
to GBP5.8m (H1 2020: GBP3.7m) and a decrease in EBITA in Energy
Services of 60.6% to GBP0.8m (H1 2020: GBP1.9m). Central costs were
GBP1.8m (H1 2020: GBP1.7m).
We reported an operating profit of GBP4.8m (H1 2020: GBP3.1m),
after GBPnil of amortisation charges for acquisition intangibles
(H1 2020: GBP0.8m). Remaining un-amortised intangible assets in the
balance sheet are not acquisition related.
Net finance expense was GBP0.4m (H1 2020: GBP0.6), and taxation
was GBP0.8m (H1 2020: GBP0.5m). The statutory profit after tax was
GBP3.5m (H1 2020: GBP2.2m).
Tax
The effective tax rate for the period was 19%, compared with a
statutory rate of corporation tax of 19%. We expect a full year
effective tax rate of 19%.
Earnings Per Share
Basic earnings per share from continuing operations were 2.2
pence (H1 2020: 1.3 pence), based on profit after tax from
continuing operations of GBP3.5m (H1 2020: GBP2.1m).
Adjusted earnings per share from continuing operations excluding
amortisation of acquisition intangibles and share based payments
were 2.3 pence (H1 2020: 1.8 pence), based on adjusted profit after
tax from continuing operations excluding amortisation of
acquisition intangibles and share based payments of GBP3.7m (H1
2020: GBP2.9m).
Our statutory profit for the year was GBP3.5m (H1 2020:
GBP2.2m). Based on the weighted average number of shares in issue
during the year of 159.5m, this resulted in basic earnings per
share of 2.2 pence (H1 2020: 1.3 pence).
Cash Flow Performance
Our operating cash flow for the period was an inflow of GBP4.4m
(H1 2020: GBP6.3m).
The management of working capital is a continued focus. This
includes accrued income, debtors and creditors. We manage these
balances within our banking facilities. However, we recognise the
importance of supporting our supply chain. We have ensured that we
have paid our suppliers as normal.
Net Cash / Debt
At 31 March 2021, the Group had net cash excluding lease
liabilities of GBP9.7m (31 March 2020: net debt of GBP3.5m). The
deferred VAT payments of GBP6.1m were repaid on 31 March 2021.
However, this represents a snapshot in time and the facility was
undrawn for the whole period (H1 2020: weighted average RCF
drawdown - GBP9.7m).
The total net debt, including lease liabilities of GBP10.9m was
GBP1.2m (31 March 2020: GBP9.9m).
Banking Arrangements
We had drawn GBPnil as at 31 March 2021 (31 March 2020:
GBP10.0m) under our revolving credit facility (excluding borrowing
costs). At the date of issuing this report we had drawn GBPnil
(excluding borrowing costs); National Westminster Bank ('NatWest')
continues to be an excellent and supportive partner.
In December 2018, the Group renewed its bank facilities to
provide an overdraft facility of GBP5,000,000 together with a
revolving credit facility of GBP25,000,000, which runs to 31
January 2022. Formal discussions regarding the refinancing of the
RCF with Natwest are continuing and we do not anticipate any
challenges.
We are confident that our banking facilities provide sufficient
support in managing our corporate affairs and provide sufficient
capacity to plan for future growth, particularly in bidding with
confidence on new contracts.
Statement of Financial Position
The principal items in our balance sheet are goodwill and
working capital.
There was an increase of GBP0.5m in goodwill, due to the
acquisition of Vinshire. As at 31 March 2021, there are GBPnil
acquisition intangibles remaining on the statement of financial
position.
As at 31 March 2021, net current assets stood at GBP6.0m (31
March 2020: GBP10.1m).
The principal movements in working capital are noted below and
reflect a continued focus on working capital;
Mar-21 Mar-20 Sep-20
GBPm GBPm GBPm
Trade receivables 20.5 28.3 16.7
Accrued income 12.5 9.6 17.3
Trade payables (23.3) (23.6) (19.5)
Accruals (9.8) (7.6) (9.9)
Risks
The Board considers strategic, financial and operational risks
and identifies actions to mitigate those risks.
Our half year review included an assessment of accrued income,
of which the balance was GBP12.5m at 31 March 2021 (31 March 2020:
GBP9.6m). As a Group we review regularly for impairment. Accrued
income represents a balance sheet risk in our industry and we
continue to ensure a balanced approach between risk and possible
outcome on final invoicing.
We continue to manage a number of potential risks and
uncertainties, including claims and disputes which are common to
other similar businesses which could have a material impact on
short and longer-term performance. The Board remains focused on the
outcome of a number of contract settlements on which there is a
range of outcomes for the Group in terms of both cash flow and
impact on the consolidated statement of comprehensive income.
In preparing our interim financial statements, we have taken a
view on the financial risk of pending claims and disputes and seek
to provide in full for potential shortfalls, whilst taking account
of potential counter claims, such that we have a collectively
balanced position of risk across all such matters.
Going Concern Statement
In assessing the Group's ability to continue as a going concern,
the Board reviews and approves the annual budget, three-year plan
and a rolling 12-month forecast, including cash flows, borrowing
requirements and covenant headroom. The Board reviews the Group's
sources of available funds and the level of headroom available
against its committed borrowing facilities and associated
covenants. The Group's financial forecasts, taking into account
possible sensitivities in trading performance including the
potential impact of Covid-19, indicate that the Group will be able
to operate within the level of its committed borrowing facilities
and within the requirements of the associated covenants for the
foreseeable future. NatWest remains supportive of the Group and in
December 2018, the Group renewed its banking facilities to provide
an overdraft facility of GBP5,000,000 together with a revolving
credit facility of GBP25,000,000, which runs to 31 January 2022.
Formal discussion regarding the refinancing of the RCF with Natwest
are continuing and we do not anticipate any challenges. The
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
of accounting in preparing the interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 March 2021
Unaudited Unaudited Audited
six months six months year ended
ended 31 ended 31 30 September
March 2021 March 2020 2020
Notes GBP'000 GBP'000 GBP'000
Revenue 2 114,557 109,551 195,706
Cost of sales (96,005) (92,029) (160,449)
Gross profit 18,552 17,522 35,257
Other operating expenses (14,601) (13,736) (24,952)
Share of results of joint venture 850 146 99
Operating profit before amortisation
of acquisition intangibles 2 4,801 3,932 10,404
Amortisation of acquisition intangibles - (800) (1,600)
---------------
Operating profit 4,801 3,132 8,804
Finance expense (417) (614) (1,047)
Investment income - 39 39
Profit before tax from continuing
operations 2 4,384 2,557 7,796
Taxation 3 (847) (498) (1,486)
Profit for the period attributable
to the equity holders of the Group
from continuing operations 3,537 2,059 6,310
------------- ------------- ---------------
Discontinued operations
Profit for the period from discontinued - 128 -
operations
------------- ------------- ---------------
Profit for the period attributable
to the equity holders of the Group 3,537 2,187 6,310
============= ============= ===============
Earnings per share from continuing
operations
Basic 5 2.2p 1.3p 4.0p
Diluted 5 2.2p 1.3p 3.9p
===== ===== =====
Earnings per share from continuing
operations and discontinued operations
Basic 5 2.2p 1.4p 4.0p
Diluted 5 2.2p 1.4p 3.9p
===== ===== =====
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 March 2021
Unaudited Unaudited Audited
As at 31 As at 31 As at 30
March 2021 March 2020 September
2020
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill 42,810 42,357 42,357
Other intangible assets 822 1,416 726
Property, plant and equipment 1,968 1,302 1,212
Right-of-use assets 10,675 6,296 6,757
Interest in joint venture 1,352 614 501
Deferred tax asset 517 603 517
58,144 52,588 52,070
------------- ------------- ------------
Current assets
Inventories 3,181 3,276 3,022
Trade and other receivables 42,479 45,015 40,054
Cash and cash equivalents 6 9,647 6,273 9,679
------------- ------------- ------------
55,307 54,564 52,755
------------- ------------- ------------
Total assets 113,451 107,152 104,825
------------- ------------- ------------
Current liabilities
Trade and other payables 44,268 40,045 42,764
Lease liabilities 6 3,646 3,279 3,167
Provisions 368 465 825
Income tax payable 1,060 634 1,073
------------- ------------- ------------
49,342 44,423 47,829
------------- ------------- ------------
Net current assets 5,965 10,141 4,926
------------- ------------- ------------
Non-current liabilities
Loans and borrowings 6 - 9,810 -
Lease liabilities 6 7,264 3,106 3,669
Provisions 2,951 3,287 3,221
10,215 16,203 6,890
------------- ------------- ------------
Total liabilities 59,557 60,626 54,719
------------- ------------- ------------
Net assets 53,894 46,526 50,106
============= ============= ============
Equity
Called up share capital 15,959 15,895 15,934
Share premium account 25,474 25,318 25,408
Share-based payment reserve 749 586 650
Own shares (290) (290) (290)
Merger reserve 20,067 20,067 20,067
Retained earnings (8,065) (15,050) (11,663)
Equity attributable to equity holders
of the Group 53,894 46,526 50,106
============= ============= ============
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2021
Share-based
Share payment
Share premium reserve Own shares Merger Retained Total
capital account reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 October 2019
(audited) 15,895 25,318 538 (290) 20,067 (17,237) 44,291
Profit for the period - - - - - 2,187 2,187
Share based payments - - 48 - - - 48
---------- ---------- ------------ ------------- ---------- ----------- ---------
At 31 March 2020
(unaudited) 15,895 25,318 586 (290) 20,067 (15,050) 46,526
---------- ---------- ------------ ------------- ---------- ----------- ---------
Issue of shares (exercise
of options) 39 90 - - - - 129
Profit for the period - - - - - 4,123 4,123
Dividends paid - - - - - (795) (795)
Share based payments - - 123 - - - 123
Reserve transfer - - (59) - - 59 -
---------- ---------- ------------ ------------- ---------- ----------- ---------
At 30 September 2020
(audited) 15,934 25,408 650 (290) 20,067 (11,663) 50,106
========== ========== ============ ============= ========== =========== =========
Profit for the period - - - - - 3,537 3,537
Issue of shares (exercise
of options) 25 66 - - - - 91
Share based payments - - 160 - - - 160
Reserve transfer - - (61) - - 61 -
At 31 March 2021
(unaudited) 15,959 25,474 749 (290) 20,067 (8,065) 53,894
======= ======= ===== ====== ======= ======== =======
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 March 2021
Unaudited Unaudited Audited
six months six months year ended
ended 31 ended 31 30 September
March 2021 March 2020 2020
Notes GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 8 4,409 6,292 23,869
Interest paid (280) (540) (957)
Interest received - 39 -
Taxation (796) (242) (736)
Net cash generated from operating
activities 3,333 5,549 22,176
------------- ------------- ---------------
Cash flows from investing activities
Acquisition of subsidiary, net of (200) - -
cash acquired
Receipt of deferred consideration
on prior period disposals - 930 930
Purchase of property, plant and
equipment (1,077) (283) (621)
Purchase of intangible assets (319) (232) (539)
Sale of property, plant and equipment - 3 31
Net cash (used in) / generated from
investing activities (1,596) 418 (199)
------------- ------------- ---------------
Cash flows from financing activities
Proceeds from issue of shares 91 - 129
Dividend paid to shareholders - - (795)
Repayment of bank borrowings - - (10,000)
Lease payments (1,860) (2,146) (4,084)
Net cash used in financing activities (1,769) (2,146) (14,750)
------------- ------------- ---------------
Net (decrease) / increase in cash
and cash equivalents (32) 3,821 7,227
Cash and cash equivalents at beginning
of year 9,679 2,452 2,452
Cash and cash equivalents at end
of period / year 9,647 6,273 9,679
============= ============= ===============
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 31 March 2021
1. Basis of preparation
The results presented in this report are unaudited and they have
been prepared in accordance with the recognition and measurement
principles of International Accounting Standards in conformity with
the requirements of the Companies Act 2006 that are expected to be
applicable to the financial statements for the year ending 30
September 2021 and on the basis of the accounting policies to be
used in those financial statements. The figures for the year ended
30 September 2020 are extracted from the statutory accounts of the
group for that period. The condensed consolidated financial
statements do not include all the information and disclosures
required in the annual financial statements and should be read in
conjunction with the Group's annual financial statements, being the
statutory financial statements for Sureserve Group plc, as at 30
September 2020, which have been prepared in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006.
The condensed consolidated financial statements for the six
months ended 31 March 2021 do not comprise statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 30 September 2020 have been
approved by the Board of Directors and delivered to the Registrar
of Companies. These accounts, which contained an unqualified audit
report under Section 495, did not include a reference to any
matters to which the auditor drew attention by way of emphasis of
matter and did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006.
Significant accounting policies
The accounting policies adopted in the preparation of the
condensed consolidated financial statements are consistent with
those followed in the preparation of the Group's annual financial
statements for the year ended 30 September 2020.
Seasonality
The Group has seasonal influences in specific areas. The
Compliance division experiences higher activity levels in Gas and
Lift services in colder weather, leading to higher working capital
requirements and lower profitability in winter, and the opposite in
the summer. Within Energy Services it is not possible to render
walls or use fixing glue at temperatures below three degrees
centigrade, nor perform cladding work in high winds. As such,
weather has an influence on this business, meaning that the Group
has to plan to increase capacity during warmer and more settled
periods to compensate for time lost during colder ones.
2. Operating segments
The Group's chief operating decision maker is considered to be
the Board of Directors. The Group's operating segments are
determined with reference to the information provided to the Board
of Directors in order for it to allocate the Group's resources and
to monitor the performance of the Group.
The Board of Directors has determined an operating management
structure aligned around the two core activities of the Group, with
the following operating segments applicable:
(i) Compliance: focused on gas, fire, electrics, air, water and
lifts where we contract predominantly under framework agreements.
Services comprise the following:
- Installation, maintenance and repair-on-demand of gas appliances and central heating systems
- Compliance services in the areas of fire protection and building electrics
- Air and water hygiene solutions
- Service, repair and installation of lifts
(ii) Energy Services: we offer a range of services in the energy
efficiency sector, including external, internal and cavity wall
insulation, loft insulation, gas central heating, boiler upgrades
and other renewable technologies. The services are offered under
various energy saving initiatives including Energy Company
Obligations ("ECO"), Green Deal and the Scottish Government's HEEPs
("Home Energy Efficiency Programme") Affordable Warmth programme.
Clients include housing associations, social landlords, local
authorities and private householders and we have trading
relationships with all of the large utility suppliers and many of
the leading smaller suppliers. We also provide metering services
involving the installation, servicing and administration of devices
and associated data.
All revenue and profit is derived from operations in the United
Kingdom only.
The profit measure the Board used to evaluate performance is
operating profit before amortisation of acquisition intangibles, as
outlined below and on the face of the income statement.
The Group accounts for inter-segment trading on an arm's length
basis. All inter-segment trading is eliminated on
consolidation.
The following is an analysis of the Group's revenue and
Operating profit before amortisation of acquisition intangibles by
reportable segment:
Unaudited Unaudited Audited
six months six months year ended
ended ended 30 September
31 March 31 March 2020
2021 2020
GBP'000 GBP'000 GBP'000
Revenue
Compliance 78,922 73,351 137,155
Energy Services 37,337 37,250 60,363
Total segment revenue 116,259 110,601 197,518
Inter-segment elimination (1,702) (1,050) (1,812)
------------- ------------- ---------------
Total revenue 114,557 109,551 195,706
------------- ------------- ---------------
Reconciliation of operating profit before amortisation of
acquisition intangibles to profit before taxation
Unaudited Unaudited Audited
six months six months year ended
ended ended 30 September
31 March 31 March 2020
2021 2020
GBP'000 GBP'000 GBP'000
Operating profit before amortisation
of acquisition intangibles by segment
Compliance 5,839 3,701 11,813
Energy Services 758 1,926 788
Central (1,796) (1,695) (2,197)
------------- ------------- ---------------
Total operating profit before amortisation
of acquisition intangibles 4,801 3,932 10,404
Amortisation of acquisition intangibles - (800) (1,600)
Finance costs (417) (614) (1,047)
Investment income - 39 39
Profit before taxation from continuing
operations 4,384 2,557 7,796
============= ============= ===============
Only the Group consolidated statement of financial position is
regularly reviewed by the chief operating decision maker and
consequently no segment assets or liabilities are disclosed here
under IFRS 8.
3. Taxation
The income tax charge for the six months ended 31 March 2021 is
calculated based upon the effective tax rates expected to apply to
the Group for the period of 19%.
4. Dividends
The proposed final dividend for the year ended 30 September 2020
of 1.0 pence per share amounting to GBP1.6m and representing a
total dividend of 1.0 pence for the full year (2019: 0.5 pence per
share), was paid on 30 April 2021 to the shareholders on the
register at the close of business on 19 January 2021.
5. Earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Unaudited Unaudited Audited
six months six months year ended
ended 31 ended 30 September
March 2021 31 March 2020
2020
Number Number Number
Weighted average number of ordinary
shares for the purposes of basic earnings
per share 159,518,741 158,947,467 159,025,339
Diluted
Effect of dilutive potential ordinary
shares:
Share options 3,843,300 1,840,747 3,200,981
------------- ------------- -----------------
Weighted average number of ordinary
shares for the purposes of diluted earnings
per share 163,362,041 160,788,214 162,226,320
============= ============= =================
Earnings for the purpose of basic and
diluted earnings per share from continuing
operations being net earnings attributable
to the owners of the Company from continuing
operations (GBP'000) 3,537 2,059 6,310
Basic earnings per share from continuing
operations 2.2p 1.3p 4.0p
Diluted earnings per share from continuing
operations 2.2p 1.3p 3.9p
Earnings for the purpose of basic and
diluted earnings per share being net
profit after tax attributable to the
owners of the Company from continuing
and discontinued operations (GBP'000's) 3,537 2,187 6,310
Basic earnings per share 2.2p 1.4p 4.0p
Diluted earnings per share 2.2p 1.4p 3.9p
============= ============= =================
The number of shares in issue at 31 March 2021 was
159,587,390.
The weighted average number of Ordinary shares in issue during
the year excludes those accounted for in the own shares
reserve.
6. Net debt
Unaudited Unaudited Audited
31 31 30 September
March March 2020
2021 2020
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 9,647 6,273 9,679
Bank loans and credit facilities - (9,810) -
Unamortised finance costs (included
in other
receivables 82 - 136
------------- ------------ --------------
Net cash / (debt) excluding lease
liabilities 9,729 (3,537) 9,815
Lease liabilities (10,910) (6,385) (6,836)
------------- ------------ --------------
Total net (debt) / cash (1,181) (9,922) 2,979
============= ============ ==============
7. Business combinations
Vinshire Gas Service Limited
On 3 December 2020 the Group acquired certain trade and other
assets of Vinshire Plumbing and Heating Limited, which included the
entire share capital of Vinshire Gas Services Limited, for
consideration as detailed below. Vinshire Gas Services Limited's
principal activity is that of installation and maintenance of
plumbing and heating systems. The effect of the acquisition on the
Group's assets and liabilities were as follows:
Provisional
fair value
GBP'000
Assets
Non-current
Property, plant and equipment 283
Current
Inventories 13
Trade and other receivables 490
Cash -
------------
Total assets 786
Liabilities
Non-current
Provisions (20)
Trade and other payables (1,019)
------------
Total liabilities (1,039)
Net liabilities acquired (253)
------------
Satisfied by:
Cash consideration 200
Goodwill capitalised 453
============
The Directors consider the value assigned to goodwill represents
the workforce acquired, expected synergies to be generated, and
access to additional geographical areas in the UK as a result of
this acquisition. It is not expected that any goodwill will be
deductible for tax purposes.
Post-Acquisition results
The results for Vinshire Gas Services Limited since the
acquisition date, included within the consolidated Statement of
Comprehensive Income for the period ended 31 March 2021, are:
GBP'000
Revenue 2,494
--------
Profit from operations 101
Interest (3)
--------
Profit before tax 98
Taxation (19)
--------
Profit for the period 79
--------
8. Cash used in operations
Audited
Unaudited Unaudited year ended
six months six months 30 September
ended 31 ended 31 2020
March 2021 March 2020
GBP'000 GBP'000 GBP'000
Operating profit 4,801 3,132 8,805
Adjustments for:
Depreciation 2,223 2,515 4,793
Amortisation of intangible assets 213 978 1,984
Share-based payments 160 48 171
Profit on disposal of property,
plant and equipment (16) (3) (10)
Changes in working capital:
Inventories (147) (240) 37
Trade and other receivables (2,786) (3,455) 1,618
Trade and other payables 688 3,175 6,035
Provisions (727) 142 436
Cash generated from operations 4,409 6,292 23,869
------------- ------------- --------------
9. Related party transactions
There have been no material changes to the related party
balances disclosed in the Group's Annual Report and Accounts 2020
and there have been no related party transactions that have
materially affected the financial position or performance of the
Group in the six months to 31 March 2021.
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END
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