RNS Number : 3085S
Marlowe PLC
25 June 2018
 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

25 June 2018

 

Marlowe plc

 

("Marlowe" the "Company" or the "Group")

 

Audited Results for the year ended 31 March 2018

 

Marlowe plc, the UK support services group focused on acquiring and developing companies that provide critical asset maintenance services, announces its audited results for the year ended 31 March 2018.

 

 

Financial performance

 

ADJUSTED RESULTS - Continuing operations

2018

2017

%

 

 

 

 

Revenue

£80.6m

£46.8m

+72%

EBITDA1

£7.2m

£4.0m

+81%

Operating profit1

£6.2m

£3.5m

+75%

Profit before tax1

£5.8m

£3.3m

+74%

Earnings per share - basic1

14.0p

10.4p

+35%

 

 

 

 

Net (debt)/cash

£(2.9)m

£2.6m

 

 

 

 STATUTORY RESULTS - Continuing operations

2018

2017

 

 

 

 

 

Revenue

£80.6m

£46.8m

 

Operating profit

£0.0m

£0.9m

 

(Loss)/profit before tax

£(0.4)m

£0.3m

 

Earnings per share - basic

(2.2)p

1.1p

 

 

 

 

 

 

Financial and operational highlights

 

·   Revenue up 72% to £80.6m; current 12 month run-rate revenues approaching £100m

·   Adjusted EBITDA1 up 81% to £7.2m; adjusted profit before tax up 74% to £5.8m

·   Adjusted earnings per share1 up 35% to 14.0p

·   Nine acquisitions completed during the year and two further acquisitions post year-end, significantly developing the scale of the Group's two operating divisions

·   New service sector entered during the year through acquisition of Ductclean UK ("DCUK") with other service sectors under review

·   Further strong progress in implementing cross-selling strategy across divisions

·   Net debt of £2.9m with significant headroom under debt facilities of £18.0m

 

 

1 Explanations of non-IFRS measures are contained within the Finance Director's review below

 

Commenting on the results, Alex Dacre, Chief Executive, said:

 

"In our second year of trading as Marlowe plc we are pleased to report another strong financial performance and a year of substantial progress in developing the scale and breadth of our platform for growth. During the year we have significantly expanded the scale of our Fire & Security and Water Treatment activities, which have begun to benefit from their increased size, whilst broadening the Group's capabilities through establishing a market leading position in the ventilation hygiene and contamination remediation sectors through the acquisition of DCUK. Our pipeline of acquisition opportunities going into the new financial year is strong.

The current year's trading has started in line with our expectations and we look forward to making further progress during the year."

 

For further information:

 

Marlowe plc

www.marloweplc.com

Alex Dacre, Chief Executive

Mark Adams, Group Finance Director

Tel: +44 (0) 203 813 8498 IR@marloweplc.com

 

Cenkos Securities plc (Nominated Adviser and Broker)

Nicholas Wells

Tel: +44 (0)20 7397 8900

 

FTI Consulting

Nick Hasell

Tel: +44 (0)20 3727 1340

Alex Le May

 

 

Annual Report and Financial Statements and Notice of Annual General Meeting

The Company announces that it has today published its Annual Report & Financial Statements for the year ended 31 March 2018.

 

The AGM has been convened for 10 am on 5 September 2018 at 20 Grosvenor Place, London, SW1X 7HN.

 

The Annual Report & Financial Statements 2018 and the Notice of AGM 2018 can be viewed at or downloaded from the Company's corporate website at www.marloweplc.com.

 

CHIEF EXECUTIVE'S REVIEW

 

Results summary and strategy

 

The Group made good progress during 2018 delivering a strong financial performance with substantial improvements in revenue, adjusted profit and adjusted earnings per share, alongside significant M&A activity and further focus and investment on operational improvements. For the year ended 31 March 2018, adjusted EBITDA1 was up 81% to £7.2 million, adjusted profit before tax1 was up 74% to £5.8 million and adjusted earnings per share1 were up 35% to 14.0p on revenues up 72% to £80.6 million.

We have continued to execute our strategy at pace throughout the year. Our Group has been transformed in the two years since we commenced trading and our run rate revenues are now approaching £100 million.

We formed Marlowe as a platform to create shareholder value through the acquisition and development of businesses in targeted outsourced service sectors across the UK. Attracted to the increasing barriers to entry that we perceived, the regulation that drives its growth, high customer retention rates and its attractive earnings visibility we decided, initially, to enter the Fire & Security market. Since then, we have implemented a clear strategy to build a leading UK support services group providing a range of closely related critical maintenance services each of which is delivered by one of our specialist Fire Protection & Security Systems ("Fire & Security") or Water Treatment & Air Quality ("Water & Air") divisions. Individually, the businesses that make up these divisions are leaders in their fields but together form a group that can provide our customers with a comprehensive and integrated approach to their safety, regulatory compliance and the upkeep of the building systems they rely on. The markets on which we focus offer long-term growth prospects and we continue to benefit from an increased awareness of the requirement to comply with high safety standards and regulations. 

 

We completed nine further acquisitions during our 2018 financial year and have completed another two acquisitions following the year end. Our two operating divisions, now focused on four main service sectors, are becoming well-established forces in their respective markets. Our decentralised structure allows each division operational autonomy within a clearly defined strategic framework. This approach is designed to promote collaboration between all of the Group's businesses and demonstrate to our customers the clear coherence across the services they provide. This decentralised structure relies on the calibre of our divisional management teams, which we have strengthened and refocused during the year through key leadership appointments in our Fire & Security and Water Treatment businesses. 

 

Alongside building market-leading positions in each service sector in which we operate, our model seeks to: identify adjacent areas for further diversification that satisfy certain key investment criteria; acquire a platform business within that area; enhance and improve the operations of that platform; and accelerate its growth through further, targeted, bolt-on acquisitions to build and integrate a national infrastructure.

 

The service sectors that we enter are a logical extension of those where we already have a presence and the acquisition during the year of DCUK, the market leader in ventilation hygiene and contamination remediation, was an example of this strategy in action. Since the DCUK acquisition, we have acquired SB Hygiene and, following the year-end, we acquired the business and assets of Forest Environmental - two complementary add-on acquisitions which have extended the scale and capabilities of DCUK and enhanced its national footprint. Additionally, DCUK's growth has been accelerated through access to the customer base of other Marlowe companies and similarly other Marlowe companies have been successful in delivering services, such as Fire Protection and Water Treatment, to the DCUK customer base.

 

As a Group we now have a successful track record of sourcing, acquiring, integrating and developing businesses providing critical asset maintenance services across the UK and our strategy is focused on three main areas:

 

·    continuing to build the scale of our activities in Fire & Security and Water & Air through continued investment in organic growth, cross-selling across the customer bases and through further fast-paced acquisition activity;

·     enhancing and improving the operations of each of our route-based operating divisions. We are focused on margin enhancement which can be effected through engineer utilisation and productivity, procurement initiatives, and is directly determined by route density such that increased scale, when employed appropriately, results in improved profitability and more rapid response-times and service;

·     broadening the Group's capabilities both within existing service sectors and also by extending the scope of its activities through further targeted strategic acquisitions of businesses in complementary service sectors that possess a strong element of recurring revenues and would benefit from being part of our Group, to which we can then apply the Marlowe acquisition-based growth model.

 

Marlowe's defensive market qualities, strong channel to market, organic growth momentum and potential to acquire new businesses strongly position us to continue to create shareholder value.

 

1 Explanations of non-IFRS measures are contained within the Finance Director's review below

 

 

 

Key performance figures

 

 

 

Revenue

2018

£'m

 

Revenue

2017

£'m

Adjusted1

operating profit

2018

£'m

Adjusted1

operating profit

2017

£'m

Fire & Security

52.6

37.8

3.9

3.4

Water & Air

28.8

9.0

3.3

0.8

Inter-segment eliminations / Head Office costs

(0.8)

-

(1.0)

(0.7)

Total

80.6

46.8

6.2

3.5

 

 

Fire & Security division

 

During a period of significant restructuring, the Fire & Security division traded in line with expectations during 2018 and recorded adjusted EBITDA1 growth of 25% to £4.6 million with adjusted operating profits1 of £3.9 million (2017: £3.4 million) and revenues of £52.6 million (2017: £37.8 million). The main contributor to this growth was the impact of add-on acquisitions made at the end of 2017 and during 2018.

Our Fire & Security division comprises three main activities focused on the maintenance of fire and security systems: installation and mandatory recurring maintenance of mechanical and electrical systems. The systems we maintain are designed to detect and suppress fire, protecting people from the threat it poses; the provision of services related to installing and maintaining electronic security systems; and 24/7 monitoring and connected services for alarms and CCTV from our purpose-built Alarm Receiving Centre ('ARC'). The strategic strength of this business model was demonstrated towards the end of the financial year with the award of a national contract across c.3,000 stores for one of the UK's largest retailers. The division now delivers an integrated fire safety, security and off-site monitoring solution. This strength was also evident following the liquidation of Carillion, a customer of the Group, when we successfully re-secured the majority of the work directly with the end customers that we had previously conducted as a sub-contractor, in a number of cases at enhanced profit margins. 

 

Our model and the bulk of our revenues are based upon contracted maintenance and planned service visits, which are typically arranged months in advance alongside reactive repairs and remedial works, and which provide good forward revenue visibility. During the year we conducted four earnings-enhancing add-on acquisitions in Fire & Security, with a further acquisition since the year-end. These acquisitions have significantly extended our base of recurring revenues and our density of customer locations. When we acquire a business in this space, we refocus it where necessary to ensure that it is aligned with the recurring maintenance on which our model is based.

 

Operational efficiency, which can be enhanced through economies of scale mainly linked to route density, and high standards of service are closely linked in the provision of fire and security services. Through ensuring that engineers have the appropriate training, the correct stock and that their routes are carefully planned, we focus closely on our ability to both increase the amount of time that an engineer spends at a customer's site (as opposed to travelling between them) and also to remediate system faults at the first service visit, thus avoiding the need for a return visit. This results in improved productivity, profitability and service levels which helps us to retain customers who value the critical services we provide. As a business, if our engineers are spending more productive time at customers' sites completing more service work, standards of service and compliance will improve and the key metric, revenue per engineer per day, grows too. As one of a small number of truly national service providers in the market, we expect to benefit from the current trend of national customers consolidating their suppliers.

 

During the past year we have made good progress on the restructuring and integration of the four fire and security acquisitions that were completed in the year and the six acquisitions completed during 2017. The integrations are on track, our model is well-defined, and the business is now operating as three main brands following the recent rebranding of our main Fire & Security entity as Marlowe Fire & Security. Our focus within the division has continued to be on investing in the development of our nationwide operating platform in preparation for further growth, alongside developing and investing in our engineering teams to enhance standards of service and compliance at customers' sites. We expect these initiatives to deliver attractive improvements in our operating margins in the medium term and our near-term operational focus continues to be on leveraging our increased scale.

 

Following the acquisitions, we have been focused on closing and relocating three regional offices and integrating our service delivery network. All the businesses within the division now operate from unified operating systems resulting in increased visibility. The acquisition of Flamefast, the leader in the installation and maintenance of fire suppression systems with a focus on commercial kitchen fire safety, demonstrates our strategy to broaden our capabilities into areas of the fire protection market aligned to our customers' needs. The services provided by Flamefast are also highly complementary to those of other Marlowe businesses, such as DCUK which provides a range of services to commercial kitchens across the UK.

 

The economies of scale that these acquisitions will provide, once integrations are fully complete, are expected to be a significant contributor to enhanced profitability and we are now beginning to see some improvements in margins as acquisition and route density synergies are realised.

 

1 Explanations of non-IFRS measures are contained within the Finance Director's review below

 

 

Water & Air division

 

Our Water & Air division traded strongly in 2018 with adjusted EBITDA1 increasing by £2.7 million to £3.6 million and adjusted operating profits1 of £3.3 million (2017: £0.8 million). Turnover increased from £9.0 million to £28.8 million, as a result of the acquisitions made in 2017 and 2018 which supplemented good organic growth.

 

Our Water & Air division comprises three primary activities: water treatment & hygiene, ventilation hygiene and contamination remediation.

 

Water treatment & hygiene, which has been formed through five acquisitions, is the largest and most profitable segment of the division and is focused on delivering services related to maintaining and optimising a building's water systems to: manage the health and safety risk posed by water borne diseases; maintain systems to improve operational efficiency, extend life and conserve energy; and to provide engineering and installation services to water systems, with a focus on converting these projects into long-term recurring service relationships. Our water treatment activities trade as two main brands, WCS Group and Guardian Water, and operate nationally from four main locations across the UK. We are a top-three player in our segment of the market.    

 

During the year we broadened the division's capabilities into the ventilation hygiene and contamination remediation markets through three acquisitions, two of which were completed during the financial year and one post year-end. These activities are focused on delivering a range of services related to ventilation maintenance, ductwork cleaning and management, kitchen extract cleaning - services largely designed to ensure air hygiene standards and prevent the spread of fire through ventilation systems in commercial buildings, alongside a leading capability in asbestos and contamination remediation services. We trade as DCUK FM from three locations across the UK. The business, which has had a promising start under Marlowe ownership, is the market leader in its sector and unlike our other markets, the ventilation hygiene market is fast-growing, relatively immature and significantly un-vended which provides us with significant scope for organic growth, which has been accelerated during the year through our cross-selling activities. We have proven our ability to accelerate this growth through acquisitions in this market which is at the early stages of consolidation.  

 

Much like our Fire & Security activities, critical mass and route density can lead to increased efficiency in the provision of water and air services. The market remains highly fragmented, but the advantages of route density on a national scale, along with the increasing awareness within our customer base of the requirement to comply with standards and regulations, continues to put pressure on the smaller independent players. We view this as representing a significant opportunity for the Group to continue to consolidate this market through further acquisitions.

 

The integration of the acquisitions conducted during the year is on track and cost savings as a result of the mergers have been in line with our expectations at the time of acquisition. Operating margins within the division improved to 11.6% for the year (2017: 9.3%) as we begin to see the benefits of our increased scale and the effectiveness of our focus on operating efficiencies. As in Fire & Security, we strengthened our management team bringing on board a new leader to head up our water treatment activities towards the end of the year as we prepare the division for further planned growth and continue to convert our well-developed pipeline of acquisition opportunities.

 

Outlook

 

The markets in which we operate are fragmented and offer significant scope for continued organic and acquisitive growth. We are well-placed to take advantage of this opportunity through the model that we have established. We have a well-developed pipeline of attractive opportunities to add further scale to the Group as we continue to implement our strategy of building a leading UK support services group in complementary areas of critical asset maintenance.

 

The new financial year has started in line with our expectations and we look forward to making further strong progress during the year.

 

 

 

Alex Dacre                                                                             

Chief Executive                                                                                              

 

 

FINANCE DIRECTOR'S REVIEW

Revenue

Revenue for the year ended 31 March 2018 was up 72% to £80.6 million (2017: £46.8 million) reflecting organic growth and the contribution from acquisitions completed in the year together with the full year impact of those completed in 2017.

Profitability

On a statutory basis, loss before tax from continuing operations for the year ended 31 March 2018 was £0.4 million (2017: £0.7 million profit). Adjusted profit before tax for the year was £5.8 million (2017: £3.3 million). Our key measures of profitability for the Group are adjusted operating profit and adjusted EBITDA. In the year ended 31 March 2018, adjusted EBITDA increased by 81% to £7.2 million (2017: £4.0 million). Adjusted EBITDA means operating profit before interest, tax, depreciation and amortisation and excludes separately disclosed acquisition and other costs.

Non-IFRS measures

This Results Statement includes measures which are not defined by generally accepted accounting principles such as IFRS. We believe this information, along with comparable IFRS measures, is useful as it provides investors with a basis for measuring the operating performance of the Group on a comparable basis. The Board and our managers use these financial measures to evaluate our operating performance. Non-IFRS financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS. Similarly, non-IFRS measures as reported by us may not be comparable with similar measures reported by other companies.

 

Due to the one-off nature of acquisition and other costs and the non-cash element of certain charges, the Directors believe that adjusted EBITDA and adjusted measures of profit before tax and earnings per share provide shareholders with a more appropriate representation of the underlying earnings derived from the Group's business and a more comparable view of the year-on-year underlying financial performance of the Group.

 

To arrive at adjusted profit before tax the following adjustments have been made:

Continuing operations

2018

£'m

2017

£'m

(Loss)/profit before tax

(0.4)

0.7

Acquisition costs

0.6

0.6

Restructuring costs

3.6

1.1

Exceptional loss on customer liquidation

0.7

-

Amortisation of acquisition intangibles

0.9

0.6

Share-based payments

0.4

0.3

Adjusted profit before tax - continuing operations

5.8

3.3

 

Reconciliation of adjusted operating profit and adjusted EBITDA

 

 

2018

£'m

2017

£'m

Adjusted operating profit

6.2

3.5

Depreciation

1.0

0.5

Adjusted EBITDA

7.2

4.0

 

Acquisition and other costs

 

Acquisition and other costs totalled £6.2 million in the year (2017: £2.6 million).

 

 

2018

£'m

2017

£'m

Acquisition costs

0.6

0.6

Restructuring costs

3.6

1.1

Exceptional loss on customer liquidation

0.7

-

Amortisation of acquisition intangibles

0.9

0.6

Share-based payments

0.4

0.3

Total

6.2

2.6

 

Acquisition costs include legal and professional fees and staff costs incurred as part of the acquisitions.

Restructuring costs, being the costs associated with the integration of acquisitions, remain the key component of acquisition and other costs and increased to £3.6 million (2017: 1.1 million) as the pace of transactions increased in the year and include the bulk of the restructuring of acquisitions in the second half of 2017 and those completed in 2018. These primarily consisted of:

·     The cost of duplicated staff roles during the integration and restructuring period;

·     The redundancy cost of implementing the post completion staff structures;

·     IT costs associated with the integration and transfer Group IT systems.

 

The majority of these costs are incurred in the 12 months following an acquisition.

During the year, Carillion, a customer of the Group, went into liquidation. A large portion of the work carried out for the buildings maintained by that the customer was continued by the Group post-liquidation. As such, the ongoing impact to the trading of the Group was not material. As a result of the liquidation a one-off exceptional bad debt of £0.7m was incurred in the year.

Amortisation of intangible assets for the year was £0.9 million (2017: £0.6 million) with the increase attributable to the higher carrying value of intangible assets.

Earnings per share

As per note 5, basic adjusted earnings per share are calculated as adjusted profit for the year less a standard tax charge divided by the weighted average number of shares in issue in the year. Basic earnings per share reflect the actual tax charge.

 

 

Earnings per Share (EPS)

2018

pence

2017

pence

Basic adjusted earnings per share

14.0

10.4

Basic earnings per share

(2.2)

1.1

 

Interest

Net finance costs amounted to £0.4 million (2017: £0.2 million) which reflects the increased average levels of debt arising from the financing of acquisitions.

Taxation

UK Corporation Tax is calculated at 19% (2017: 20%) of the estimated assessable (loss)/profit for the year. The UK Corporation Tax rate reduced to 19% in the year. The rate will reduce further to 17% from 1 April 2020; accordingly, this rate reduction has been reflected in the deferred tax balance which forms part of the statement of financial position.

Statement of financial position

Net assets increased to £48.1 million (2017: £35.0 million) primarily due to the placing of shares in July 2017 and equity issued as part of acquisition consideration.

Goodwill and intangibles at 31 March 2018 were £42.4 million (2017: £26.6 million).

Property, plant and equipment totalled £4.2 million (2017: £2.6 million), comprising freehold and long leasehold property, leasehold improvements, operational equipment, vehicles and computer systems.

Cash flow

The net cash inflow from operating activities was £2.4 million (2017: £2.5 million) in the year.

There was a net working capital outflow in the year of £3.2 million (2017: £0.8 million).  The movement reflects the increased scale of the Group but also includes additional working capital investment at certain businesses acquired in the year.  Management of working capital is a key focus across the Group with a strong emphasis on cash collection and overdue debt reduction.

Capital expenditure totalled £0.5 million (2017: £0.4 million) following the investment in our IT systems across the business.

Net debt

Net debt at the end of the year was £2.9 million (2017: net cash £2.6 million). In April 2017 we increased our debt facilities with Lloyds Bank by an additional £5.0 million to £18.0 million, comprising £15.0 million of term loans, a £2.5 million revolving credit facility and a £0.5 million overdraft facility. The Group has sufficient headroom on its facilities to continue to fund acquisitions with debt should it so choose.

 

Mark Adams

Group Finance Director

 

Consolidated statement of comprehensive income

For the year ended 31 March 2018

 

Notes

Year Ended 31 March 2018

Year Ended 31 March 2017

Adjusted results

£'m

Acquisition and other costs

£'m

Unadjusted results

£'m

Adjusted results

£'m

Acquisition and other costs

£'m

Unadjusted results

£'m

Revenue                                       2

80.6

-

80.6

46.8

-

46.8

Cost of sales

(54.2)

-

(54.2)

(30.2)

-

(30.2)

Gross profit

26.4

-

26.4

16.6

-

16.6

Administrative expenses excluding acquisition and other costs

(20.2)

-

(20.2)

(13.1)

-

(13.1)

Acquisition costs

-

(0.6)

(0.6)

-

(0.6)

(0.6)

Restructuring costs                       3

-

(3.6)

(3.6)

-

(1.1)

(1.1)

Exceptional loss on customer liquidation

-

(0.7)

(0.7)

-

-

-

Amortisation of acquisition intangibles

-

(0.9)

(0.9)

-

(0.6)

(0.6)

Share-based payments

-

(0.4)

(0.4)

-

(0.3)

(0.3)

Operating profit                           2

6.2

(6.2)

-

3.5

(2.6)

0.9

Finance costs

(0.4)

-

(0.4)

(0.2)

-

(0.2)

(Loss)/profit before tax

5.8

(6.2)

(0.4)

3.3

(2.6)

0.7

Income tax charge                        4

 

 

(0.3)

 

 

(0.4)

(Loss)/profit for the year

 

 

(0.7)

 

 

0.3

Other comprehensive income

 

 

-

 

 

-

(Loss)/profit and total comprehensive income for the year from continuing operations

 

 

(0.7)

 

 

0.3

Attributable to owners of the parent

 

 

(0.7)

 

 

0.3

Earnings per share attributable
to owners of the parent (pence)    

 

 

 

 

 

 

Total

 

 

 

 

 

 

- Basic                                           5

 

 

(2.2p)

 

 

1.1p

- Diluted                                             5

 

 

(2.2p)

 

 

1.1p

Continuing operations

 

 

 

 

 

 

- Basic                                           5

 

 

(2.2p)

 

 

1.1p

- Diluted                                              5

 

 

(2.2p)

 

 

1.1p

 

 

Consolidated statement of changes in equity

For the year ended 31 March 2018

 

 

 

Attributable to the owners of the parent

Share

capital

£'m

 

Share premium £'m

Other

reserves

£'m

Retained

earnings

£'m

Total

 equity

£'m

Balance at 1 April 2016

7.3

-

-

0.2

7.5

Profit for the year

-

-

-

0.3

0.3

Total comprehensive income for the year

-

 

-

-

0.3

0.3

Transactions with owners

 

 

 

 

 

Issue of shares during the year

8.2

19.2

-

-

27.4

Issue costs

-

(0.5)

-

-

(0.5)

Share-based payments charge

-

-

0.3

-

0.3

 

8.2

18.7

0.3

-

27.2

Balance at 31 March 2017

15.5

18.7

0.3

0.5

35.0

 

 

 

 

 

 

Balance at 1 April 2017

15.5

18.7

0.3

0.5

35.0

Loss for the year

-

-

-

(0.7)

(0.7)

Total comprehensive income for the year

-

-

-

(0.7)

(0.7)

Transactions with owners

 

 

 

 

 

Issue of shares during the year

1.8

12.0

-

-

13.8

Issue costs

-

(0.3)

-

-

(0.3)

Share-based payments charge

-

-

0.3

-

0.3

 

1.8

11.7

0.3

-

13.8

Balance at 31 March 2018

17.3

30.4

0.6

(0.2)

48.1

 

 

Consolidated statement of financial position

As at 31 March 2018

 

 

ASSETS                                                                          
Non-current assets

Notes

2018

£'m

2017

£'m

Intangible assets                                                                     

7

42.4

26.6

Property, plant and equipment

 

4.2

2.6

Deferred tax asset

 

-

0.2

 

 

46.6

29.4

Current assets

 

 

 

Inventories

 

2.7

1.8

Trade and other receivables

 

24.6

16.5

Cash and cash equivalents

 

7.7

7.8

 

 

35.0

26.1

Total assets

 

81.6

55.5

LIABILITIES
Current liabilities

 

 

 

Trade and other payables

 

(19.9)

(14.0)

Financial liabilities - borrowings

 

(2.3)

(1.1)

Other financial liabilities

 

(0.3)

(0.2)

Current tax liabilities

 

(0.5)

(0.2)

Provisions

 

(0.2)

(0.1)

 

 

(23.2)

(15.6)

Non-current liabilities

 

 

 

Trade and other payables

 

(1.0)

-

Financial liabilities - borrowings

 

(7.7)

(3.7)

Deferred tax liability

 

(1.3)

(1.0)

Other financial liabilities

 

(0.3)

(0.2)

 

 

(10.3)

(4.9)

Total liabilities

 

(33.5)

(20.5)

Net assets

 

48.1

35.0

Equity

 

 

 

Share capital

 

17.3

15.5

Share premium account

 

30.4

18.7

Other reserves

 

0.6

0.3

Retained earnings

 

(0.2)

0.5

Equity attributable to the owners of the parent

 

48.1

35.0

 

Consolidated statement of cash flows

For the year ended 31 March 2018

 

 

Notes

Year ended

31 March

2018

£'m

Year ended

31 March

2017

£'m

Net cash generated from operations                     

8

3.2

3.2

Net finance costs

 

(0.4)

(0.2)

Income taxes paid

 

(0.4)

(0.5)

Net cash generated from operating activities

 

2.4

2.5

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(0.5)

(0.4)

Disposal of property, plant and equipment

 

0.3

0.1

Restructuring costs

 

(3.6)

(1.1)

Purchase of subsidiary undertakings, 
net of cash acquired

 

(11.2)

(23.3)

Cash flows used in investing activities

 

(15.0)

(24.7)

Cash flows from financing activities

 

 

 

Proceeds from share issues

 

10.0

20.0

Repayment of bank borrowings

 

(5.2)

(6.7)

New bank loans raised

 

6.7

6.5

Cost of share issues

 

(0.3)

(0.5)

Finance lease repayments

 

(0.7)

(0.2)

Other financing activities

 

2.0

0.3

Net cash generated from financing activities

 

12.5

19.4

Net (decrease)/increase in cash and cash equivalents

 

(0.1)

(2.8)

Cash and cash equivalents at start of year

 

7.8

10.6

Cash and cash equivalents at end of year

 

7.7

7.8

Cash and cash equivalents shown above comprise:

 

 

 

Cash at bank

 

7.7

7.8

 

 

Notes to the audited preliminary financial information for the year ended 31 March 2018

 

1. Basis of preparation

 

The figures for the year ended 31 March 2018 have been extracted from the audited statutory financial statements for the year on which the auditors have issued an unqualified opinion.  The financial information attached has been prepared in accordance with the recognition and measurement requirements of international financial reporting standards (IFRS) as adopted by the EU and international financial reporting interpretations committee (IFRIC) interpretations issued and effective at the time of preparing those financial statements. The accounting policies applied in the year ended 31 March 2018 are consistent with those applied in the financial statements for the year ended 31 March 2017.

 

The financial information for the year ended 31 March 2018 and 31 March 2017 does not constitute statutory financial information as defined in Section 434 of the Companies Act 2006 and does not contain all of the information required to be disclosed in a full set of IFRS financial statements. This announcement was approved by the Board of Directors and authorised for issue on 25 June 2018. The auditor's report on the financial statements for 31 March 2018 was unqualified, and did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain a statement under either Section 498 (2) or 498 (3) of the Companies Act 2006.

 

The Group meets its day to day working capital requirements through organic cash generation and its bank facilities.  The Group's budgets for 2019 and forecasts for 2020, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facility.

 

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

 

 

2. Segmental analysis

 

The Group is organised into two main operating segments, Fire Protection & Security Systems ("Fire & Security") and Water Treatment & Air Quality ("Water & Air"). Services per segment operate as described in the Chief Executive's Review. The key profit measures are adjusted operating profit and adjusted EBITDA and are shown before acquisition and restructuring costs, exceptional loss on customer liquidation, share-based payments charge and amortisation of intangible assets. The vast majority of trading of the Group is undertaken within the United Kingdom. Segment assets include intangibles, property, plant and equipment, inventories, receivables and operating cash. Central assets include deferred tax and head office assets. Segment liabilities comprise operating liabilities. Central liabilities include income tax and deferred tax, corporate borrowings and head office liabilities. Capital expenditure comprises additions to property, plant and equipment and includes additions resulting from acquisitions through business combinations. Segment assets and liabilities are allocated between segments on an actual basis.

 

Continuing operations

Fire &

Security

£'m

Water

& Air

£'m

Head

Office

£'m

2018

Total

£'m

Revenue

52.6

28.8

-

81.4

Inter-segment elimination

(0.7)

(0.1)

-

(0.8)

Revenue from external customers

51.9

28.7

-

80.6

Segment adjusted operating profit/(loss)

3.9

3.3

(1.0)

6.2

Acquisition costs

 

 

 

(0.6)

Restructuring costs

 

 

 

(3.6)

Exceptional loss on customer liquidation

 

 

 

(0.7)

Amortisation of acquisition intangibles

 

 

 

(0.9)

Share-based payments

 

 

 

(0.4)

Operating profit

 

 

 

-

Finance costs

 

 

 

(0.4)

Loss before tax

 

 

 

(0.4)

Tax charge

 

 

 

(0.3)

Loss after tax

 

 

 

(0.7)

Segment assets

16.8

11.3

53.5

81.6

Segment liabilities

6.9

5.0

21.6

33.5

Capital expenditure

0.3

0.2

-

0.5

Depreciation and amortisation

0.7

0.3

0.9

1.9

 

 

Continuing operations

Fire &

Security

£'m

Water

& Air

£'m

Head

Office

£'m

2017

Total

£'m

Revenue

37.8

9.0

-

46.8

Inter-segment elimination

-

-

-

-

Revenue from external customers

-

-

-

46.8

Segment adjusted operating profit/(loss)

3.4

0.8

(0.7)

3.5

Acquisition costs

 

 

 

(0.6)

Restructuring costs

 

 

 

(1.1)

Amortisation of acquisition intangibles

 

 

 

(0.6)

Share-based payments charge

 

 

 

(0.3)

Operating profit

 

 

 

0.9

Finance costs

 

 

 

(0.2)

Profit before tax

 

 

 

0.7

Tax charge

 

 

 

(0.4)

Profit after tax

 

 

 

0.3

Segment assets

18.7

2.3

34.5

55.5

Segment liabilities

8.6

1.8

10.1

20.5

Capital expenditure

0.3

0.1

-

0.4

Depreciation and amortisation

0.4

0.1

0.6

1.1

 

The revenue from external customers was derived from the Group's principal activities primarily in the UK (the Company is domiciled in England).

 

 

Reconciliation of segment adjusted operating profit to adjusted EBITDA

 

Fire &

Security

£'m

Water

& Air

£'m

Head

Office

£'m

2018

Total

£'m

Segment adjusted operating profit/(loss)

3.9

3.3

(1.0)

6.2

Depreciation

0.7

0.3

-

1.0

Adjusted EBITDA

4.6

3.6

(1.0)

7.2

 

Fire &

Security

£'m

Water

& Air

£'m

Head

Office

£'m

2017

Total

£'m

Segment adjusted operating profit/(loss)

3.4

0.8

(0.7)

3.5

Depreciation

0.4

0.1

-

0.5

Adjusted EBITDA

3.8

0.9

(0.7)

4.0

The above tables reconcile segment adjusted operating profit/(loss), which excludes separately disclosed acquisition and other costs, to the standard profit measure under International Financial Reporting Standards (Operating Profit). This is the Group' Alternate Profit Measure used when discussing the performance the performance of the Group. The Directors believe that adjusted EBITDA and operating profit is the most appropriate approach for ascertaining the underlying trading performance and trends as it reflects the measures used internally by senior management for all discussions of performance and also reflects the starting profit measure when calculating the Group's banking covenants.

 

Adjusted EBITDA is not defined by IFRS and therefore may not be directly comparable with other companies' adjusted profit measures.  It is not intended to be a substitute, or superior to, IFRS measurements of profit.

 

Major Customers

 

For the year ended 31 March 2018 no customers (2017: Nil) individually accounted for more than 10% of the Group's total revenue.

 

 

3. Restructuring costs

 

Restructuring and redundancy costs were £3.6m in 2018 (2017: £1.1m). These costs arise due to the following:

 

·     The cost of duplicated staff roles during the integration and restructuring period

·     The redundancy costs of implementing the post completion staff structures

·     IT costs associated with the integration and transfer to Group IT systems

 

 

4. Taxation

 

2018

£'m

2017

£'m

Current tax:

 

 

UK corporation tax on loss/profit for the year

0.5

0.2

Adjustment in respect of previous periods

(0.2)

-

Total current tax

0.3

0.2

Deferred tax:

 

 

Current year

(0.1)

0.2

Adjustment in respect of previous periods

0.1

-

Total deferred tax

-

0.2

Total tax charge

0.3

0.4

 

The charge for the year can be reconciled to the profit in the Consolidated Statement of Comprehensive income as follows:

 

2018

£'m

2017

£'m

(Loss)/profit before tax

(0.4)

0.7

(Loss)/profit before tax multiplied by the rate of corporation tax of 19.0% (2017: 20.0%)

(0.1)

0.2

Effects of:

 

 

Expenses not deductible for tax purposes

0.5

0.2

Prior year adjustments

(0.1)

-

Tax (credit)/charge

0.3

0.4

 

 

5. Earnings per ordinary share

 

Basic earnings per share have been calculated on the (loss)/profit for the year after taxation and the weighted average number of ordinary shares in issue during the year.

 

2018

2017

Weighted average number of shares in issue

33,296,260

25,508,993

Total profit/(loss) for the year

(£0.7m)

£0.3m

Total basic earnings per ordinary share (pence)

(2.2p)

1.1p

Weighted average number of shares in issue

33,296,260

25,508,993

Executive incentive plan

157,880

98,992

 

 

 

Weighted average fully diluted number of shares in issue

33,454,140

25,607,985

Total fully diluted earnings per share (pence)

(2.2p)

1.1p

 

Adjusted earnings per share

 

The Directors believe that the adjusted earnings per share provide a more appropriate representation of the underlying earnings derived from the Group's business. The adjusting items are shown in the table below:

 

2018

£'m

2017

£'m

(Loss)/profit before tax

(0.4)

0.7

Adjustments:

 

 

Acquisition costs

0.6

0.6

Restructuring costs

3.6

1.1

Exceptional loss on customer liquidation

0.7

-

Amortisation of acquisition intangibles

0.9

0.6

Share-based payments charge

0.4

0.3

Adjusted continuing profit for the year

5.8

3.3

 

The adjusted earnings per share, based on the weighted average number of shares in issue during the year is calculated below:

 

2018

2017

Adjusted profit before tax (£'m)

5.8

3.3

Tax at 19/20% (£'m)

(1.1)

(0.7)

Adjusted profit after tax (£'m)

4.7

2.6

Adjusted basic earnings per share (pence)

14.0

10.4

Adjusted fully diluted earnings per share (pence)

13.9

10.3

 

 

6. Dividends

 

The Company has not declared any dividends in respect of the current year or prior period.

 

 

7. Business combinations

 

If the following acquisitions had been completed on the first day of the financial year, Group revenue would have been £98m and profit before tax would have been £0.1m. Following acquisitions a number of restructuring costs are incurred, and after this post acquisition restructuring the acquisitions have a positive impact on Group profit before tax.

 

Acquisition of Advance Environmental Limited

 

On 15 June 2017 the Company acquired Advance Environmental Limited ("Advance"), a provider of water treatment and hygiene services, for a total consideration of £2.7 million, satisfied by the payment of £2.7 million in cash on completion.

 

The final fair values are as follows:

 

 

Fair value

at acquisition

£'m

Cash

0.8

Intangible assets - customer relationships

0.6

Trade and other receivables

0.4

Property, plant and equipment

0.1

Trade and other payables

(0.5)

Deferred tax liabilities

(0.1)

Tax liabilities

(0.1)

Net assets acquired

1.2

Goodwill

1.5

Consideration

2.7

Satisfied by:

 

Cash to vendors

2.7

 

One hundred percent of the equity of Advance was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £67k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year Advance would have generated £2.2m revenue and £0.5m profit before tax.

 

Acquisition of Ductclean (UK) Limited

 

On 31 July 2017 the Company acquired Ductclean (UK) Limited ("DCUK"), a provider of ductwork and kitchen extract cleaning and contamination remediation services, for a total consideration of £9.2 million, satisfied by the payment of £3.3 million in cash, £3.4m satisfied by the issuance of 878,031 ordinary shares of the Company on completion, and additional earnouts of £0.5m, £1m and £1m payable subject to the achievement of certain performance targets by the acquired business 2 months, 14 months and 26 months respectively post acquisition. The shares are subject to a lock-in period of 60 months. The earnouts can be settled in cash or ordinary shares at the Company's option. The earnout shares would be issued at the market price at the time of issue and subject to the same lock-in period. It is expected that DCUK will achieve its performance targets and the earnouts will be paid out in full. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

Fair value

at acquisition

£'m

Trade and other receivables

2.7

Property, plant and equipment

2.0

Loans receivable

1.9

Intangible assets - customer relationships

0.7

Inventories

0.5

Loans payable

(2.4)

Trade and other payables

(1.9)

Cash

(0.5)

Finance leases

(0.4)

Tax liabilities

(0.2)

Deferred tax liabilities

(0.2)

Net assets acquired

2.2

Goodwill

7.0

Consideration

9.2

Satisfied by:

 

Cash to vendors

3.3

Ordinary Shares in Marlowe plc to vendors

3.4

Deferred cash consideration to vendors

2.5

 

One hundred percent of the equity of DCUK was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £175k have been charged to profit or loss.

If the acquisition had been completed on the first day of the financial year DCUK would have generated £16.4m revenue and £1.2m profit before tax. 

 

Acquisition of The Philton Group Limited

 

On 14 August 2017 the Company acquired The Philton Group Limited ("Philton"), a provider of fire protection services, for a total consideration of £0.1 million, satisfied by the payment of £0.1 million in cash on completion. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

Fair value

at acquisition

£'m

Trade and other receivables

0.2

Trade and other payables

(0.3)

Tax liabilities

(0.1)

Cash

(0.1)

Net assets acquired

(0.3)

Goodwill

0.4

Consideration

0.1

Satisfied by:

 

Cash to vendors

0.1

 

One hundred percent of the equity of Philton was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £42k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year Philton would have generated £0.8m revenue and £0.1m profit before tax.

 

Acquisition of BTE Systems Limited

 

On 25 August 2017 the Company acquired BTE Systems Limited ("BTE"), a provider of fire protection services, for a total consideration of £1.7m, satisfied by the payment of £1.5m in cash on completion and a cash payment of up to £0.2m payable subject to the achievement of certain performance targets by the acquired business 6 months post acquisition. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

Fair value

at acquisition

£'m

Cash

0.5

Trade and other receivables

0.4

Intangible assets - customer relationships

0.3

Loans Payable

(0.1)

Trade and other payables

(0.1)

Net assets acquired

1.0

Goodwill

0.7

Consideration

1.7

Satisfied by:

 

Cash to vendors

1.5

Deferred cash consideration to vendors

0.2

 

One hundred percent of the equity of BTE was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £48k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year BTE would have generated £1.5m revenue and £0.3m profit before tax.

 

Acquisition of dB Audio and Electronic Services Limited

 

On 25 October 2017 the Company acquired dB Audio and Electronic Services Limited ("dB"), a provider of fire protection services, for a total consideration of £0.5m, satisfied by the payment of £0.5m in cash on completion. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

 

Fair value

at acquisition

£'m

Cash

 

0.3

Trade and other receivables

 

0.2

Trade and other payables

 

(0.1)

Tax liabilities

 

(0.1)

Net assets acquired

 

0.3

Goodwill

 

0.2

Consideration

 

0.5

Satisfied by:

 

 

Cash to vendors

 

0.5

 

One hundred percent of the equity of dB was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £39k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year dB would have generated £0.9m revenue and £0.1m profit before tax.

 

Acquisition of SB Hygiene Limited

 

On 8 December 2017, the Company acquired SB Hygiene Limited ("SB"), a provider of duct cleaning services, for a total consideration of £0.8m, satisfied by the payment of £0.8m in cash on completion. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

Fair value

at acquisition

£'m

Trade and other receivables

0.4

Property, plant and equipment

0.1

Trade and other payables

(0.3)

Loans payable

(0.2)

Finance leases

(0.1)

Net assets acquired

(0.1)

Goodwill

0.9

Consideration

0.8

Satisfied by:

 

Cash to vendors

0.8

 

One hundred percent of the equity of SB was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £47k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year SB would have generated £0.7m revenue and £nil profit before tax.

 

Acquisition of Guardian Water Treatment

 

On 20 December 2017, the Company acquired Guardian Water Treatment Limited and GPCS Limited ("Guardian"), a provider of water treatment services, for a total consideration of £4.0m, satisfied by the payment of £3.1m in cash on completion and £0.9m in cash payable subject to the achievement of certain performance targets by the acquired business in the period ending 31 March 2018. The business met its targets and £0.9m deferred consideration was paid in June 2018. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

Fair value

at acquisition

£'m

Trade and other receivables

1.7

Intangible assets - customer relationships

0.6

Cash

1.0

Trade and other payables

(0.9)

Tax liabilities

(0.1)

Deferred tax liabilities

(0.1)

Net assets acquired

2.2

Goodwill

1.8

Consideration

4.0

Satisfied by:

 

Cash to vendors

3.1

Deferred cash consideration to vendors

0.9

 

One hundred percent of the equity of Guardian was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £91k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year Guardian would have generated £7.7m revenue and £1.0m profit before tax.

 

Acquisition of Future Water Limited

 

On 7 February 2018, the Company acquired Future Water Limited ("Future"), a provider of water treatment services, for a total consideration of £0.6m, satisfied by the payment of £0.5m in cash on completion and £0.1m in cash payable subject to the achievement of certain performance targets by the acquired business in the period ending 31 July 2018. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

Fair value

at acquisition

£'m

Trade and other receivables

0.2

Intangible assets - customer relationships

0.1

Trade and other payables

(0.3)

Net assets acquired

-

Goodwill

0.6

Consideration

0.6

Satisfied by:

 

Cash to vendors

0.5

Deferred cash consideration to vendors

0.1

 

One hundred percent of the equity of Future was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £46k have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year Future would have generated £1.8m revenue and £nil profit before tax.

 

Acquisition of Flamefast Fire Systems Limited

 

On 26 March 2018, the Company acquired Flamefast Fire Systems Limited ("Flamefast"), a provider of fire protection and suppression services, for a total consideration of £0.1m, satisfied by the payment of £0.1m. Since the acquisition date is less than 12 months prior to the Group's accounts being signed off, the acquisition balance sheet is still subject to finalisation.

 

The provisional fair values are as follows:

 

 

Fair value

at acquisition

£'m

Trade and other receivables

1.3

Intangible assets - customer relationships

0.1

Inventories

0.5

Trade and other payables

1.0

Loans payable

(0.9)

Net assets acquired

-

Goodwill

0.1

Consideration

0.1

Satisfied by:

 

Cash to vendors

0.1

 

One hundred percent of the equity of Flamefast was acquired in this transaction. Deferred tax has been provided on the value of the intangible assets at the tax rate applicable at the time the asset is expected to be realised. Acquisition costs of £nil have been charged to profit or loss.

 

If the acquisition had been completed on the first day of the financial year Flamefast would have generated £5m revenue and £(0.1)m loss before tax.

 

8. Net cash generated from operations

 

2018

£'m

2017

£'m

Continuing operations

 

 

(Loss)/profit before tax

(0.4)

0.7

Depreciation of property, plant and equipment

1.0

0.5

Amortisation of intangible assets

0.9

0.6

Net finance costs

0.4

0.2

Acquisition costs

0.6

0.6

Restructuring costs

3.6

1.1

Share-based payments charge

0.4

0.3

Gain on disposal of property, plant and equipment

(0.1)

-

Decrease/(increase) in inventories

0.3

(0.2)

(Increase)/decrease in trade and other receivables

(1.2)

(1.4)

(Decrease)/increase in trade and other payables

(2.3)

0.8

Net cash generated from continuing operations

3.2

3.2

 

 

9. Post balance sheet events

 

On 23 April 2018 the Company acquired Island Fire Protection Limited, a provider of fire protection services, for a total consideration of £1.4m. One hundred percent of the equity was acquired in this transaction. A purchase price allocation has not yet been performed as the Company is still in the process of establishing the fair value of the assets and liabilities acquired in this acquisition.

 

On 17 May 2018 the Company acquired the business and assets of Forest Environmental Limited, a provider of duct cleaning and asbestos remediation services, for a total consideration of £0.6m. A purchase price allocation has not yet been performed as the Company is still in the process of stablishing the fair value of the assets and liabilities acquired in this acquisition.

 


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FR LLFEERIIFFIT