Results for the year ended 31 March 2017

RNS Number : 5067J

Marlowe PLC

29 June 2017

 

Marlowe plc

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

Audited Results for the year ended 31 March 2017

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 2017.

Financial Performance:

ADJUSTED RESULTS	2017	2016¹
Revenue	£46.8m	-
EBITDA*	£4.0m	-
Operating profit**	£3.5m	-
Profit before tax**	£3.3m	-
Net cash	£3.0m	£10.6m

1     For the period ended 31 March 2016. Company only.

*     Earnings before interest, taxes, depreciation and amortisation ("EBITDA")

**    Before amortisation of intangible assets, share based payments, and acquisition and restructuring costs

STATUTORY RESULTS
Revenue	£46.8m	-
Operating profit/(loss)	£0.9m	(£0.1m)
Profit/(loss) before tax	£0.7m	(£0.1m)
Earnings per share - basic	1.1p	(0.9p)

Financial and Operational Highlights

·     Established a platform for growth focused on the fragmented fire & security and water treatment markets

·     Eight acquisitions completed during the year and one further acquisition post year-end forming two operating divisions; Fire & Security and Water Treatment

·     Integration of all eight acquisitions in the year is largely complete

·     Statutory Group revenue of £46.8m

·     Run rate revenues in the region of £65m

·     Adjusted EBITDA of £4.0m

·     Adjusted basic earnings per share of 10.4p

·     Net cash of £3.0m and debt headroom of £15.3m

·     £23m of growth capital raised during the year through equity placings

·     Ratio of fee earners to support staff improved from c.52% to c.61%; progress in utilisation and route density  

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

"In our first year of trading as Marlowe plc we are pleased to report a strong financial performance and a year of significant strategic progress in establishing a platform for growth. During the year we have achieved a top-five position in both of our core markets of Fire & Security and Water Treatment, developed national coverage and begun to benefit from our increased scale.

We have a well-developed pipeline of attractive opportunities to add scale to Marlowe as we implement our strategy of building a leading UK support services group in complementary areas of critical asset maintenance. 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	Tel: [phone]
[e-mail]
Cenkos Securities plc (Nominated Adviser and Broker)
Nicholas Wells	Tel: [phone]
Elizabeth Bowman
FTI Consulting
Nick Hasell	Tel: [phone]
Alex Le May

CHAIRMAN'S STATEMENT 2017

Financial Performance 

I am pleased to report a strong maiden year for Marlowe in 2017. The company has made significant progress in implementing its strategy of organic and acquisitive growth focused on regulated service markets. The fire & security and water treatment markets that we entered during the year have seen robust trading conditions, and alongside our rapid growth in these markets we have made good progress rationalising and improving our operational structure. The markets we occupy are fragmented, and offer significant scope for continued organic and acquisitive growth. We are well-placed to continue to take advantage of this opportunity through the model that we have developed following the successful acquisition and integration of eight businesses during 2017 and a further acquisition since the start of the new financial year.

For the year to 31 March 2017, adjusted earnings before interest, tax, depreciation, amortisation, share-based payment charges, and acquisition and restructuring costs were ahead of expectations at £4.0 million. Turnover was £46.8 million. Earnings per share on an adjusted basis were ahead of expectations at 10.4 pence.

The Company has two operating divisions, Fire & Security and Water Treatment, both of which are focused on providing critical asset maintenance services across the UK built environment. Performance across both divisions, which underwent considerable post-acquisition reorganisation during the year, was strong. As a consequence of completing acquisitions at different stages during the year our results do not reflect a full year of trading for all the entities within our current group. Our Fire & Security division's turnover, which includes the results for partial ownership of six businesses that were acquired at different stages throughout the year, was £37.8m with an adjusted operating profit of £3.4m. Water Treatment's turnover, which includes the part-year results for two acquisitions conducted at different stages during the year, was £9.0m and adjusted operating profit was £0.8m.

Corporate Transactions

The Group made eight acquisitions during the year funded through a combination of debt, equity fundraisings and equity issued to vendors of businesses that have since joined the Group.

-     Fire & Security, Water Treatment: In April 2016, we acquired Swift Fire and Security ("Swift") for £13m and WCS Environmental ("WCS") for £1.9m in conjunction with the admission of Marlowe to AIM

-     Fire & Security: In May, we acquired FAFS Fire ("FAFS") for £2.5m

-     Water Treatment: In September, we acquired H2O Chemicals ("H2O") for £2.5m

-     Fire & Security: In October, we acquired Hentland Group ("Hentland") for £4.7m

-     Fire & Security: In November, we acquired Titan Fire & Security ("Titan") for £0.8m

-     Fire & Security: In February 2017 we acquired BBC Fire Protection ("BBC") for £8.3m and Alpha Peerless for £0.6m

Since the year-end, we have made one further acquisition:

-     Water Treatment: In June we acquired Advance Environmental for £2.7m.

Funding

Net cash at the year-end was £3.0 million.

In April we increased our current debt facility with Lloyds Bank by an additional £5 million to £18.0 million. The increased debt facility will provide further resources to support the Company's acquisition-led growth strategy. In the past year we have benefited from significant support from existing shareholders and new institutional investors and have raised £23m through equity placings during the year. We have significant resources available for further acquisitions and we feel confident in our ability to continue to attract further funding and investment to execute our growth strategy.

Board

Nigel Jackson, one of the founders and Managing Director of Swift Fire and Security, joined the Board as an Executive Director following its acquisition in April 2016.

People

Since the first acquisition in April 2016 the Group has rapidly developed in scale, geography and technical breadth. We now employ over 800 people, over half of whom are highly skilled engineers. The continued dedication of all the teams across Marlowe, during periods of change when new people have joined the Group, has been impressive. The businesses that are in the Group deliver services that are provided by people. As we strive to build our businesses into market leaders we are relying on these people to continue to demonstrate the drive, expertise and passion that has been evident over the past financial year. I thank all our people for their contribution to our first year of strong performance.

Outlook

The integration of our nine acquisitions is proceeding to plan and we have identified a well-developed pipeline of attractive opportunities to add further scale to Marlowe as we continue to implement our strategy of building a leading UK support services group in complementary areas of critical asset maintenance. The current year's trading has started in line with our expectations and we look forward to making further progress during the year.

Derek O'Neill

Chairman

CHIEF EXECUTIVE'S STRATEGIC AND FINANCIAL REVIEW

Strategy

The company made very good progress during the year delivering a strong trading performance, significant M&A activity and investment in operational improvements. We have executed our strategy at a fast pace throughout the year, more than doubling our run rate revenues and profits since our first acquisition.

We formed Marlowe in May 2015 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, and the regulation that drives its growth, we decided, initially, to enter the Fire & Security market. We acquired Swift Fire & Security in April 2016. Since then, we have begun to implement our strategy of building a leading UK support services group in complementary areas of critical asset maintenance. We completed seven further acquisitions during 2017 and completed a further deal following the year-end. We have established two operating divisions: Fire & Security and Water Treatment and are quickly becoming a part of the UK business-to-business service landscape. Our decentralised structure allows each division operational autonomy. Each has its own management team and operational expertise, within a clearly delineated strategic framework.

The service sectors that we occupy are complementary to one another and all the businesses in our Group provide services which safeguard people and assets, maintain systems at optimised efficiency and ensure compliance with regulation (and all are at least partially necessitated by mandatory regulation). Additionally, all the services that we provide as a group share a similar channel to market, customer base and route-based operational methodologies.

Our model is based on identifying areas for the Group to operate in which demonstrate certain investment criteria, acquiring a platform business within that area, enhancing and improving the operations of that platform and then accelerating its growth through further, targeted, bolt-on acquisitions to build and integrate a national infrastructure. Finally, we look to take advantage of opportunities for the businesses within our group to realise strategic synergies through collaboration with one another.

As a Group, we only enter a market if we can see a path to becoming a top-three player in that market and during the year we have built a top-five market position in both Fire & Security and Water Treatment. In line with our strategy, we have developed true national coverage of mainland Britain in each of our sectors which, along with our specific focus on the UK market (in sectors in which our large competitors tend to be divisions of US multinationals) and our ability to provide a range of technical and regulated services through the same channel, we perceive as a significant competitive advantage in winning business against our regional, single-service competitors.

Each of the service sectors that we currently occupy share operational characteristics which are complementary. Our services are primarily route-based and technical. Each of our operating divisions now benefit from a lower-cost shared support function providing efficient administration with regional service, sales and scheduling hubs throughout the UK. Our engineers are typically field-based and live close to the areas that they service. Operating in sectors which can benefit from complementary operational methods allows us to apply similar improvement techniques across the Group. Our continued focus on the reduction of overheads and investment in operational efficiency offers the potential for significant margin enhancement.

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

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

·     enhancing and improving the operations of each of our route-based operating divisions: during the year, our base of fee-earning engineers and technicians has grown rapidly and operational efficiencies, reorganisation and the synergies between acquired businesses have led to our ratio of fee-earners to sales and support staff improving from approximately 52% to approximately 61%. We expect this key ratio to continue to improve as we benefit from the investments the Group is making in operational efficiency and shared support functions and as we conduct further acquisitions. We are focused on margin enhancement which can be influenced through engineer utilisation and productivity and is directly influenced by route density such that increased scale, when employed appropriately, results in more rapid response-times and service and improved profitability;

·     broadening the Group's activities through further targeted strategic acquisitions in complementary sectors to which we can then apply the Marlowe acquisition-based growth model.

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

Key Performance Figures

	Revenue 2017	Revenue 2016	Adjusted* Operating Profit 2017	Adjusted* Operating Profit 2016
Fire & Security	£37.8m	-	£3.4m	-
Water Treatment	£9.0m	-	£0.8m	-
Head Office costs	-	-	(£0.7m)	-
Total	£46.8m	-	£3.5m	-

*   Before amortisation of intangible assets, share based payments, and acquisition and restructuring costs.

These are the key results from the ongoing businesses which are included in the fuller statement set out under 'Profit Before Tax' below.

Fire & Security Division

Our Fire & Security division comprises three main activities focused on the maintenance of fire and security systems: installation and recurring maintenance of systems designed to detect fire and to protect people from the threat of fire; the provision of services related to installing and maintaining electronic security systems; 24/7 monitoring and remote-diagnostic services for alarms and CCTV from a purpose-built Alarm Receiving Centre ('ARC').

The bulk of our revenues are derived from contracted maintenance, with planned service visits, which are typically arranged months in advance alongside reactive repairs. The installation work that we conduct is, for the most part, carried out for existing service customers, or with the view to converting a systems installation into a long-term service relationship.

During the year we conducted six earnings enhancing acquisitions in Fire & Security and have established a top-four market position, operating nationally from seven sites across the UK. The business employs about 550 people, 60% of whom are technically skilled technicians and engineers. We provide services to a very broad range of customers, ranging from the Royal Estates, for which we hold the Royal Warrant, and the Bank of England, to national retailers, universities, local authorities, leisure facilities and industry throughout the UK. During a year we carry out about 390,000 scheduled service visits, many of which will result in necessary additional work at the time of service, or on a return visit. Operational efficiency and high standards of service are closely linked in the provision of fire & security services: Through ensuring that engineers have the appropriate training and the correct stock, we focus closely on our ability to remediate faults at the first service visit rather than making return visits to customer sites. 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 at our customers sites will improve. The most efficient means of generating organic growth in our specialist service markets comes through delivering best-in class service levels which lead to customer referrals. We try to allow our engineers the autonomy to spend sufficient time at each service visit to provide - and in some cases to upsell - all the required services alongside ensuring that our routes are planned in such a way that an engineer can spend more time at customers sites improving standards of compliance and less unprofitable time travelling between service visits.

Trading and Operations

Trading in Fire & Security was strong with adjusted operating profits of £3.4 million and revenues of £37.8 million.

Our base of recurring service revenues, which mainly comprise contracted planned preventative maintenance visits to customer sites, grew strongly with the addition of some key national accounts comfortably outweighing customer attrition. A key component of our growth strategy in Fire & Security is to use our now well-established national coverage to grow our national accounts portfolio whilst taking advantage of our proximity to regional customers, through our regional presence, to maintain the growth of our SME customers - the rate of which was strong during the year. Our scale now ensures that our Group possesses the appropriate technical capabilities, supplier relationships and accreditations, to service our customers' requirements - some of whom will only procure from service providers who meet very high quality standards or have relationships with specific suppliers.

Over the last year our main focus has been on the integration of the six acquisitions that were completed in the year. The integrations are well-progressed and the business is now operating as four main brands, each under the Marlowe Critical Services banner.

A new Fire & Security division Finance Director joined the business during the year, in line with our strategy to implement improved financial systems and controls following each acquisition.

We have completed the reorganisation of the Swift and Hentland businesses resulting in cost-savings in line with expectations at the time of each acquisition. Following the Alpha Peerless and Titan acquisitions we closed two offices and were able to reduce back office headcount in line with expectations. The operations of these businesses were transferred into our London hub which was formed through the FAFS acquisition. All the businesses within the division now operate from the same, improved operating systems which is resulting in improved efficiency and visibility.

The rate at which we successfully resolve an issue during the first service visit and the number of service visits that an engineer carries out per day are rising, as is, crucially, the average revenue that each engineer is generating per day. Utilisation, which is a measure of the time an engineer spends at customers' sites as a percentage of their total working hours, has improved during the year.

Our Alarm Receiving Centre (ARC), which became operational at the start of the year, improved its profitability as the year progressed and the number of monitored alarms increases as we transition connections from the outsourced partners who were previously fulfilling this service and as the centre benefits from its increasing scale and growth. The cost base of the ARC is largely fixed such that further scale is anticipated to enhance profitability.

Our operating margin across the division was 9.0%.

Water Treatment Division

Our Water Treatment division delivers services mainly related to maintaining and optimising water systems to: manage safety from the risk of water borne diseases; improve operational efficiency and conserve energy; provide engineering and installation services to water systems, with a focus on converting these projects into long-term recurring service relationships.    

During the year we conducted two earnings enhancing acquisitions in Water Treatment, with a further deal completed post year-end, and have established a top-five market position operating nationally from six sites across the UK. The business employs about 220 people, 62% of whom are technically skilled technicians and engineers. Like our Fire & Security activities we provide services to a diverse base of 970 customers, ranging from the Houses of Parliament to large manufacturing sites, chains of hotels, hospitals, care facilities, universities and leisure facilities. During a year we carry out about 237,000 service visits, some of which will lead to further opportunities to engineer and upgrade water systems. Much like our Fire & Security activities, critical mass and route density can lead to increased efficiency in the provision of water services. The market remains highly fragmented, but the advantages of route density on a national scale, along with the increasing need to adhere to very high standards of quality and possess appropriate accreditations continues to put pressure on the smaller independent players and we view this as representing a significant opportunity for the Group to continue to consolidate this market through further acquisitions.

Trading and Operations

Water Treatment traded well, turnover was £9.0 million and adjusted operating profit was £0.8 million.

Our base of recurring service revenues demonstrated good organic growth with key successes in developing our portfolio of large healthcare customers. During the year we have implemented a proprietary system, called Marl-X, which enables each business within the Group to access each others customer relationships in order to identify cross-selling opportunities.  Water Treatment experienced good growth during the year as a result of cross-selling from Fire & Security customers.

The integration of the two acquisitions conducted during the year is nearly complete and the businesses now operate as WCS Group under the Marlowe Critical Services banner. Cost savings as a result of the merger have been in line with our expectations at the time of acquisition. Following the H2O acquisition three offices were vacated and the merged businesses within the division now operate from newly implemented operational systems leading to significantly enhanced efficiency levels. As in Fire & Security, a new Finance Director joined the division towards the end of the year with a close focus on cost-control. Post year-end we completed the acquisition of Advance Environmental in June. Integration of the business into our national infrastructure has commenced, which we expect to generate further operational benefits.

Our operating margin across the division was 9.3% for the year.

Head Office Costs

Head office costs, excluding amortisation, share based payments and restructuring and acquisition costs were £0.7 million.

Profit Before Tax

Adjusted profit before tax for the year ended 31 March 2017 was £3.3 million.

Acquisition and other costs of £2.6 million (2016: £0.1 million) include £1.1 million (2016: £0.1 million) of restructuring and redundancy costs. During the year, most of the costs relating to the rationalisation of Swift, WCS, FAFS, H2O Chemicals, Hentland, Titan and Alpha Peerless were incurred. This primarily consisted of redundancy payments, double-running costs of roles which were scheduled for redundancy and double-running costs of properties prior to rationalisation. The majority of these costs are incurred in the 12 months following an acquisition. Typically, the restructuring and redundancy costs incurred equate to approximately the anticipated annualised cost saving.

Amortisation of intangible assets for the year was £0.6 million (2016: £Nil) with the increase attributable to the higher carrying value of intangible assets.

Due to the one-off nature of acquisition and other costs and the non-cash element of certain charges, the Directors believe that an adjusted measure of profit before tax and earnings per share provides shareholders with a more appropriate representation of the underlying earnings derived from the Group's business.  To arrive at adjusted profit before tax the following adjustments have been made:

Continuing operations	2017 £'m		2016 £'m
Profit before tax	0.7		(0.1)
Share based payments charge	0.3		-
Acquisition costs	0.6		-
Amortisation of intangible assets	0.6		-
Restructuring costs	1.1		0.1
Adjusted profit before tax - continuing operations	3.3		-

Reconciliation of Adjusted Operating Profit and Adjusted EBITDA

	2017 £'m		2016 £'m
Adjusted Operating profit	3.5		-
Depreciation	0.5		-
Adjusted EBITDA	4.0		-

Earnings Per Share (EPS)

	2017		2016
Basic adjusted earnings per share (pence)	10.4p		-
Basic earnings per share (pence)	1.1p		-

Basic adjusted earnings per share are calculated as adjusted profit for the year less 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.

Acquisition and Other Costs

	2017 £'m		2016 £'m
Acquisition costs	0.6		-
Amortisation of intangible assets	0.6		-
Restructuring costs	1.1		0.1
Share based payments charge	0.3		-
Total	2.6		0.1

As mentioned above, the integration of acquisitions remains the key component of acquisition and other costs. In the year, the Group undertook the bulk of the restructuring on Swift, WCS, FAFS, H2O, Hentland, Titan and Alpha Peerless.

Transaction costs include stamp duty costs in addition to the cost of legal and professional fees incurred as part of the acquisitions.

Restructuring and redundancy costs have increased to £1.1 million in 2017. As noted above these primarily relate to the acquisitions conducted during the year and include:

-    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 wind down of duplicated IT systems and the transfer across to the destination systems.

-    Property costs associated with sites which are identified at the point of acquisition as being superfluous to ongoing requirements and where a credible exit strategy is clear to management.

Interest

Net finance costs amounted to £0.2 million (2016: £Nil) which reflects the increased average levels of debt as a result of acquisitions.

Taxation

UK Corporation Tax is calculated at 20% (2016: 20%) of the estimated assessable profit/(loss) for the year.  The UK Corporation Tax rate remained at 20% throughout the year. The rate will reduce to 19% on 1 April 2017 falling further to 17% on 1 April 2020; accordingly, these rate reductions have been reflected in the deferred tax balance which forms part of the statement of financial position.

Statement of Financial Position

Net assets increased to £35.0 million (2016: £7.5 million) primarily due to the eight acquisitions and the placing of shares. Goodwill and intangibles at 31 March 2017 were £26.6 million (2016: £Nil).

Property, plant and equipment totalled £2.6 million (2016: £Nil), comprising the freehold property in Norwich and Newcastle, operational equipment, vehicles and computer systems.

Cash Flow

The net cash inflow from operating activities increased to £1.4 million (2016: £Nil).

Net working capital usage in the year was £0.8 million which included, working capital requirements for Swift and Hentland acquisitions. The structure of both these transactions was such that the consideration paid was reduced by the estimated amount of working capital required post completion.

Capital expenditure totalled £0.4 million (2016: £Nil) following the investment in our IT systems across the business and in the mobilisation of our Alarm Receiving Centre.

Net Cash

Net cash at the end of the year was £3.0 million (2016 £10.6 million). Facilities at the end of the period totalled £12.5 million, comprising  £10 million of term loans and a £2.5 million revolving credit facility. Scheduled repayments total £3.30 million against the term loans before a final settlement payment of £1.50 million in 2019. The Group has sufficient headroom on its facilities at the end of the period to continue to fund acquisitions as part of its strategy should it choose to do so with debt.

On the 27 April 2017 the Company increased its term loan facility by an additional £5.0 million. 

Consolidated statement of comprehensive income

For the year ended 31 March 2017

Notes	Year Ended 31 March 2017			Period Ended 31 March 2016
	Adjusted results £'m	Acquisition and other costs £'m	Unadjusted results £'m	Adjusted results £'m	Acquisition and other costs £'m	Unadjusted results £'m
Revenue                                 2	46.8	-	46.8	-	-	-
Cost of sales	(30.2)	-	(30.2)	-	-	-
Gross profit	16.6	-	16.6	-	-	-
Administrative expenses excluding acquisition and other costs	(13.1)	-	(13.1)	-	-	-
Acquisition costs	-	(0.6)	(0.6)	-	-	-
Restructuring costs                   3	-	(1.1)	(1.1)	-	(0.1)	(0.1)
Amortisation of acquisition intangibles	-	(0.6)	(0.6)	-	-	-
Gain on merger of Marlowe Holdings Limited	-	-	-	-	7.6	7.6
Impairment of Marlowe Holdings Limited	-	-	-	-	(7.6)	(7.6)
Share-based payments	-	(0.3)	(0.3)	-	-	-
Operating profit                      2	3.5	(2.6)	0.9	-	(0.1)	(0.1)
Finance costs	(0.2)	-	(0.2)	-	-	-
Profit/(loss) before tax	3.3	(2.6)	0.7	-	(0.1)	(0.1)
Income tax credit/(charge)         4			(0.4)	-		-
Profit/(loss) for the year			0.3	-		(0.1)
Other comprehensive income			-	-		-
Profit and total comprehensive income for the year from continuing operations			0.3	-		-
Attributable to owners of the parent			0.3	-		-
Earnings per share attributable to owners of the parent (pence)
Total
- Basic			1.1p			(0.9p)
- Diluted			1.1p			(0.9p)
Continuing operations
- Basic			1.1p			(0.9p)
- Diluted			1.1p			(0.9p)

Consolidated statement of changes in equity

For the year ended 31 March 2017

		Attributable to owners of the parent
	Share capital £'m		Merger relief  reserve £'m	Share Premium £'m	Other reserves £'m	Retained earnings £'m	Total equity £'m
Balance at 14 January 2016	-		-	-	-	-	-
Loss for the year	-		-	-	-	(0.1)	(0.1)
Total comprehensive income for the year	-		-	-	-	(0.1)	(0.1)
Transactions with owners
Issue of shares during the year	7.3		0.3	-	-	-	7.6
Liquidation of Marlowe Holdings Limited	-		(0.3)	-	-	0.3	-
	7.3		-	-	-	0.3	7.6
Balance at 31 March 2016	7.3		-	-	-	0.2	7.5
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

Consolidated statement of financial position

For the year ended 31 March 2017

ASSETS                                                            Notes Non-current assets	2017 £'m	2016 £'m
Intangible assets                                                                      7	26.6	-
Property, plant and equipment	2.6	-
Deferred tax asset	0.2	-
	29.4	-
Current assets
Inventories	1.8	-
Trade and other receivables	16.5	-
Cash and cash equivalents	7.8	10.6
	26.1	10.6
Total assets	55.5	10.6
LIABILITIES Current liabilities
Trade and other payables	(13.1)	(0.1)
Financial liabilities - borrowings	(1.1)	-
Other financial liabilities	(1.1)	-
Current tax liabilities	(0.2)	-
Provisions	(0.1)	-
Subscription received in advance	-	(3.0)
	(15.6)	(3.1)
Non-current liabilities
Financial liabilities - borrowings	(3.7)	-
Deferred tax liability	(1.0)	-
Other financial liabilities	(0.2)	-
	(4.9)	-
Total liabilities	(20.5)	(3.1)
Net assets	35.0	7.5
Equity
Share capital	15.5	7.3
Share premium account	18.7	-
Other reserves	0.3	-
Retained earnings	0.5	0.2
Equity attributable to the owners of the parent	35.0	7.5

Consolidated statement of cash flows

For the year ended 31 March 2017

	Notes	Year ended 31 March 2017 £'m	Period ended 31 March 2016 £'m
Net cash generated from operations	8	2.1	-
Net finance costs		(0.2)	-
Income taxes paid		(0.5)	-
Net cash generated from operating activities		1.4	-
Cash flows from investing activities
Purchase of property, plant and equipment		(0.4)	-
Disposal of property, plant and equipment		0.1	-
Cash received on acquisition of Marlowe Holdings Limited		-	10.6
Purchase of subsidiary undertakings,  net of cash acquired		(23.3)	-
Cash flows used in investing activities		(23.6)	10.6
Cash flows from financing activities
Proceeds from share issues		20.0	-
Repayment of bank borrowings		(6.7)	-
New bank loans raised		6.5	-
Cost of share issues		(0.5)	-
Finance lease repayments		(0.2)	-
Other financing activities		0.3	-
Net cash generated from financing activities		19.4	-
Net (decrease)/increase in cash and cash equivalents		(2.8)	10.6
Cash and cash equivalents at start of year		10.6	-
Cash and cash equivalents at end of year		7.8	10.6
Cash and cash equivalents shown above comprise:
Cash at bank		7.8	10.6

Notes to the audited preliminary financial information for the year ended 31 March 2017

1. Basis of Preparation

The figures for the year ended 31 March 2017 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 2017 are consistent with those applied in the financial statements for the year ended 31 March 2016.

The financial information for the year ended 31 March 2017 and period ended 31 March 2016 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 28 June 2017. The auditor's report on the financial statements for 31 March 2017 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 2018 and forecasts for 2019, 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 & Security; and Water Treatment and incurs head office costs. Services per segment operate as described in the Chief Executive's Operational and Financial review. The main segmental profit measure is adjusted operating profit and is shown before acquisition and other costs, 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.

Revenue

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

Continuing operations	Fire & Security £'m	Water Treatment £'m	Head Office £'m	2017 Total £'m
Revenue	37.8	9.0	-	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 intangible assets				(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

Continuing operations	Fire & Security £'m	Water Treatment £'m	Head Office £'m	2016 Total £'m
Revenue	-	-	-	-
Segment adjusted operating profit/(loss)	-	-	-	-
Acquisition costs				-
Restructuring costs				(0.1)
Amortisation of intangible assets				-
Share-based payments charge				-
Operating loss				(0.1)
Finance costs				-
Loss before tax				(0.1)
Tax charge				-
Loss after tax				(0.1)
Segment assets	-	-	10.6	10.6
Segment liabilities	-	-	(3.1)	(3.1)
Capital expenditure	-	-	-	-
Depreciation and amortisation	-	-	-	-

Major Customers

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

3. Restructuring Costs

Restructuring and redundancy costs have increased to £1.1m in 2017.  This was mainly due to the following:

·     Development and implementation of new IT software across the Group

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

·     The cost of implementing the post completion staff structures

·     IT costs associated with the wind down of duplicated IT systems and the transfer across to the destination systems

·     Property costs associated with sites which are identified at the point of acquisition as being superfluous to   ongoing requirements and where a credible exit strategy is clear to management 

Transaction costs include stamp duty costs and transitional service arrangement fees, in addition to the cost of legal and professional fees incurred as part of the acquisitions.

4. Taxation

	2017 £'m	2016 £'m
Current tax:
UK corporation tax on profit for the year	0.2	-
Adjustment in respect of previous periods	-	-
Total current tax	0.2	-
Deferred tax
Current year	0.2	-
Adjustment in respect of previous periods	-	-
Total deferred tax	0.2	-
Total tax charge	0.4	-

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

	2017 £'m	2016 £'m
Profit/(loss) before tax	0.7	(0.1)
Profit before tax multiplied by the rate of corporation tax of 20.0%	0.2	-
Effects of:
Expenses not deductible for tax purposes	0.2	-
Tax (credit)/charge	0.4	-

5. Earnings Per Ordinary Share

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

	2017	2016
Weighted average number of shares in issue	25,508,993	14,584,999
Total profit/(loss) for the year	£0.3m	(£0.1m)
Total basic earnings per ordinary share (pence)	1.1p	(0.9p)
Weighted average number of shares in issue	25,508,993	14,584,999
Share issue contingent on acquisition of Fire & Security (Group) Limited	-	3,000,000
Executive incentive plan	98,992	-
Weighted average fully diluted number of shares in issue	25,607,985	17,584,999
Total fully diluted earnings per share (pence)	1.1p	(0.9p)

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:

	2017 £'m	2016 £'m
Continuing profit/(loss) before tax	0.7	(0.1)
Adjustments:
Acquisition costs	0.6	-
Restructuring costs	1.1	0.1
Amortisation of intangible assets	0.6	-
Share-based payments charge	0.3	-
Adjusted continuing profit for the year	3.3	-

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

	2017	2016
Adjusted profit before taxation (£'m)	3.3	-
Tax at 20% (£'m)	(0.7)	-
Adjusted profit after taxation (£'m)	2.6	-
Adjusted basic earnings per share (pence)	10.4p	-
Adjusted fully diluted earnings per share (pence)	10.3p	-

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 £65m and profit before tax would have been £1.0m.

Acquisition of Fire and Security (Group) Limited

On 1 April 2016 the Group acquired Fire and Security (Group) Limited ("Swift"), a fire protection and security solutions business, for a total consideration of £13.0m, satisfied by the payment of £8.5m in cash on completion, £1.0m in cash on 31 May 2016 and £3.5m satisfied by the issuance of 3.5m ordinary shares in the Company. The shares are subject to a lock-in arrangement where one third will be released on the first anniversary of the acquisition and a further third on each of the second and third anniversaries of the acquisition.

Further assessments have been made during the year as more information has become available and the fair values of the acquisition have been finalised.  The main changes are valuation of customer relationships, decreasing the value by £0.5m and the recognition of £1.2m loans payable on the balance sheet, which was settled immediately post acquisition.  Other changes have been made to the value of acquired assets and liabilities resulting in an increase of goodwill of £1.9m.

The final fair values are as follows:

	Fair value at acquisition £'m
Trade and other receivables	6.3
Intangible assets - customer relationships	2.6
Cash	0.5
Property, plant and equipment	0.6
Inventories	0.6
Intangible assets - order backlog	0.1
Trade and other payables	(6.3)
Loans payable	(1.2)
Tax liabilities	(0.2)
Deferred tax liabilities	(0.4)
Net assets acquired	2.6
Goodwill	10.4
Consideration	13.0
Satisfied by:
Cash to vendors	9.5
Ordinary Shares in Marlowe plc to vendors	3.5

One hundred percent of the equity of Swift 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 £127k have been charged to profit or loss.

 Acquisition of WCS Environmental Group Limited

On 15 April 2016 the Group acquired WCS Environmental Group Limited ("WCS"), a provider of integrated water treatment, hygiene testing and engineering services, for a for a total consideration of £1.9m, satisfied by the payment of £1.6m in cash and £0.3m satisfied by the issuance of 209,734 ordinary shares of the Company. The shares issued are subject to a lock-in period of between 24 and 36 months. Further assessments have been made during the year as more information has become available and the fair values of the acquisition have been finalised. The main changes are to the valuation of customer relationships, decreasing the value by £0.2m. Other changes have been made to the value of acquired assets and liabilities resulting in an increase of goodwill by £0.4m.

The final fair values are as follows:

	Fair value at acquisition £'m
Trade and other receivables	1.1
Intangible assets - customer relationships	0.5
Property, plant and equipment	0.2
Cash	0.1
Trade and other payables	(0.6)
Loans payable	(0.6)
Deferred tax liabilities	(0.1)
Net assets acquired	0.6
Goodwill	1.3
Consideration	1.9
Satisfied by:
Cash to vendors	1.6
Ordinary Shares in Marlowe plc to vendors	0.3

One hundred percent of the equity of WCS 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 £35k have been charged to profit or loss.

Acquisition of Fire Alarm Fabrication Services Limited

On 12 May 2016 the Group acquired Fire Alarm Fabrication Services Limited ("FAFS"), a provider of fire protection services, for a total consideration of £2.5m, satisfied by the payment of £2.4m 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 11 May 2017 (discounted value £95k).  The business met its targets and £0.1m deferred consideration was paid in May 2017.

The final fair values are as follows:

	Fair value at acquisition £'m
Trade and other receivables	0.8
Cash	0.7
Property - sale and leaseback receivable	0.5
Intangible assets - customer relationships	0.1
Property, plant and equipment	0.2
Trade and other payables	(0.3)
Tax liabilities	(0.2)
Net assets acquired	1.8
Goodwill	0.7
Consideration	2.5
Satisfied by:
Cash to vendors	2.4
Deferred cash consideration to vendors	0.1

One hundred percent of the equity of FAFS 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 £74k have been charged to profit or loss.

If the acquisition had been completed on the first day of the financial year FAFS would have generated £4.6m revenue and £0.7m profit before tax.

Acquisition of H2O Chemicals Limited

On 8 September 2016 the Group acquired H2O Chemicals Limited ("H2O"), a water treatment and hygiene specialist, for a total consideration of £2.5m, satisfied by the payment of £2.1m in cash and £0.4m satisfied by the issuance of 211,765 ordinary shares of the Company. The shares are subject to a lock-in period of 24 months. Since the acquisition date is less than 12 months prior 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
Property - sale and leaseback receivable	0.6
Intangible assets - customer relationships	0.8
Loans receivable	0.2
Loans payable	(1.2)
Trade and other payables	(0.9)
Tax liabilities	(0.1)
Deferred tax liabilities	(0.1)
Net assets acquired	0.6
Goodwill	1.9
Consideration	2.5
Satisfied by:
Cash to vendors	2.1
Ordinary Shares in Marlowe plc to vendors	0.4

One hundred percent of the equity of H2O 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 H2O would have generated £3.9m revenue and £0.2m profit before tax.

Acquisition of Hentland Limited

On 15 October 2016, the Group acquired the business and assets of Hentland Limited, a provider of fire protection and security services, for a total consideration of £4.7m, satisfied by the payment of £4.7m cash on completion. Since the acquisition date is less than 12 months prior 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
Intangible assets - customer relationships	0.5
Inventories	0.5
Property, plant and equipment	0.9
Deferred tax asset	0.2
Finance leases	(0.5)
Cash	(0.4)
Loans payable	(2.0)
Trade and other payables	(1.8)
Net assets acquired	0.1
Goodwill	4.6
Consideration	4.7
Satisfied by:
Cash to vendors	4.7

One hundred percent of the equity of Hentland 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 £82k have been charged to profit or loss.

If the acquisition had been completed on the first day of the financial year Hentland would have generated £11.3m revenue and £0.1m profit before tax.

Acquisition of Titan Fire and Security Limited

On 3 November, the Group acquired the business and assets of Titan Fire and Security Limited ("Titan"), a provider of fire protection services, for a total consideration of £0.8m, satisfied by the payment of £0.5m in cash on completion and two cash payments of £0.15m payable subject to the achievement of certain performance targets by the acquired business in six and twelve months post acquisition. Since the deferred consideration will have to be settled within one year of acquisition if the business meets its targets, the fair value of the consideration is deemed to be its settlement value. The business met its first target and £0.15m was paid in June 2017. It is unclear at this stage whether it will meet the performance target set for 12 months post acquisition. Since the acquisition date is less than 12 months prior 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
Intangible assets - customer relationships	0.2
Inventories	0.1
Net assets acquired	0.3
Goodwill	0.5
Consideration	0.8
Satisfied by:
Cash to vendors	0.5
Deferred cash consideration to vendors	0.3

One hundred percent of the equity of Titan 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 £56k have been charged to profit or loss.

Acquisition of BBC Fire Protection Limited

On 3 February, the Group acquired the business and assets of BBC Fire Protection Limited ("BBC"), a provider of fire protection services, for a total consideration of £8.3m, satisfied by the payment of £7.8m cash on completion, and two cash payments of £0.25m payable subject to the successful completion of an onerous contract which existed on acquisition. The contract is still ongoing so it remains uncertain how much of the additional consideration will be paid. It is expected the onerous contract will be completed within one year of acquisition. As a result the value of the deferred consideration is deemed to be its settlement value. Since the acquisition date is less than 12 months prior 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	2.8
Intangible assets - customer relationships	0.4
Property, plant and equipment	0.6
Finance leases	(0.1)
Cash	4.4
Inventories	0.4
Trade and other payables	(2.1)
Deferred tax liabilities	(0.1)
Net assets acquired	6.3
Goodwill	2.0
Consideration	8.3
Satisfied by:
Cash to vendors	7.8
Deferred cash consideration to vendors	0.5

One hundred percent of the equity of BBC 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 £100k have been charged to profit or loss.

If the acquisition had been completed on the first day of the financial year BBC would have generated £9.4m revenue and £0.6m profit before tax.

Acquisition of Alpha Peerless Fire Systems Limited

On 7 February, the Group acquired the business and assets of Alpha Peerless Fire Systems Limited ("Alpha"), a provider of fire protection services, for a total consideration of £0.6m, satisfied by the payment of £0.6m cash on completion. Since the acquisition date is less than 12 months prior 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	0.3
Intangible assets - customer relationships	0.3
Loans receivable	0.1
Trade and other payables	(0.4)
Net assets acquired	0.3
Goodwill	0.3
Consideration	0.6
Satisfied by:
Cash to vendors	0.6

One hundred percent of the equity of Alpha 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 Alpha would have generated £1.0m revenue and £Nil profit before tax.

8. Net Cash Generated From Operations

	2017 £'m	2016 £'m
Continuing operations
Profit before tax	0.7	(0.1)
Depreciation of property, plant and equipment	0.5	-
Amortisation of intangible assets	0.6	-
Net finance costs	0.2	-
Acquisition costs	0.6	-
Share-based payments charge	0.3	-
(Increase) in inventories	(0.2)	-
(Increase)/decrease in trade and other receivables	(1.4)	0.1
Increase in trade and other payables	0.8	-
Net cash generated from continuing operations	2.1	-

9. Post Balance Sheet Events

On 27 April 2017 the Company increased its debt facility with Lloyds bank by an additional £5m to £18.0m (£15m term loan, £2.5m revolving credit facility, and £0.5m overdraft facility).  £10m of the facility remains undrawn.

On 15 June 2017 the Company acquired Advance Environmental Limited, a provider of water treatment and hygiene services, for a total consideration of £2.7m. 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.

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END

 

 

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