Final Results

RNS Number : 6148N

Sureserve Group PLC

24 January 2023

Sureserve Group plc

("Sureserve" or the "Group")

Final results for the year ended 30 September 2022

Delivering strategic growth

Sureserve, the Social Housing Energy Services Group, is pleased to announce its audited results for the year ended 30 September 2022.

Financial highlights

· Revenue^*1 increased by 27.0% to £275.1m (2021: £216.6m)

· EBITA^*1,2 increased by 36.6% to £16.8m (2021: £12.3m)

· Profit before tax^*1 increased by 40.5% to £15.6m (2021: £11.1m)

· Adjusted basic earnings per share^*3 increased by 28.6% to 9.0p (2021: 7.0p)

· Net cash^*4 (excluding IFRS 16 lease liabilities) increased to £23.3m (2021: £16.4m)

· Order book^*1 increased by 18.0% to £593.5m (2021: £502.9m)

Operational overview

· Internal efficiencies have improved EBITA margin^*1 to 6.1% (2021: 5.7%)

· 99 contract wins valued at £247.0m (2021: £400.0m)

· Average contract length now 6 years (2021: 5 years)

· Over 90% of contracts in the gas businesses have price-index linked clauses

· CorEnergy acquired in December 2021 for £7.6m performing ahead of management expectations, improving the Group's credentials in renewables

· Good progress made on ESG as we deliver on our targets and sustainability strategy

· Board strengthened with the appointment of Peter Smith (CEO), Sam Vohra (CFO) and Tania Songini (Non-Executive Director)

Outlook

· The Group's order book^*1 provides good visibility of revenue streams with 79% of FY23 expected revenue covered by the order book at the start of the financial year

· Despite the inflationary cost pressures, the Group has mitigated the effects of these demonstrating the resilience of our business model

· The Group's momentum has continued with a good start to trading in FY23

· The Board remains confident in the outlook for FY23

Peter Smith, Chief Executive Officer of Sureserve, commented:

"I am pleased to report a year of progress at Sureserve building on last year's momentum to achieve strong increases in revenue and profits. Our order book^*1 of £593.5m is a tremendous asset, providing a clear line of sight of future revenues, and the shift to longer term contracts that we have seen gives us confidence in the year ahead and beyond.

Last year we stated our ambition to be to be the UK's leading social housing energy services provider. We remain focused on pursuing a strategy of both organic growth and acquisitions to increase our presence in the gas heating and renewables sectors, and our acquisition of CorEnergy has proven to be a successful addition to our renewables expertise. In a fragmented market, our defined strategy supports our ambitions to be a leading social housing energy services provider delivering projects that matter at the forefront of the UK energy transition.

The Group's experienced management teams are well placed to support our clients through the energy transition, and deliver against our ambition to double our sales and further improve net margins and earnings per share within the next four years.

I would like to thank the whole Sureserve team for their hard work during the year. We continue to offer a critical service to our clients, and I believe the business is well placed to benefit from the opportunities that lie ahead."

Notes

^*1 - From continuing operations. Continuing operations comprises the Social Housing Energy Services division and Central costs segment. Sureserve Fire and Electrical Limited and Precision Lift Services Limited have been classified as assets held for sale and are excluded from continuing operations.

^*2 - EBITA is defined as Operating profit before impairment of goodwill, amortisation of acquisition related intangibles and exceptional items.

^*3 - Adjusted basic earnings per share from continuing and discontinued operations excluding impairment of goodwill, amortisation of acquisition related intangibles, exceptional items and their associated tax effect.

^*4 - From continuing and discontinued operations. The cash from discontinued operations is presented within assets held for sale.

Enquiries:

Sureserve Group
Peter Smith, Chief Executive Officer Sameet Vohra, Chief Financial Officer	07590 929 431 07834 740 059

Camarco (Financial Public Relations)
Ginny Pulbrook	020 3757 4992
Rosie Driscoll
Toby Strong

Shore Capital (Nominated Adviser and Broker)	020 7408 4090
Stephane Auton
Daniel Bush
Tom Knibbs Fiona Conroy

Notes to editors

Sureserve is a leading UK social housing energy services Group. The Group was founded in 1988 and is headquartered in Dartford. It currently employs 2,673 staff from 31 offices across the UK.

Chairman's statement

In FY22 we achieved a 36.6% increase in EBITA to £16.8m (FY21: £12.3m). Our focus, as always, is on adjusted basic earnings per share which improved to 9.0p, 28.6% better than the previous year (FY21: 7.0p). We now have all the key staff who have performance responsibility, the Chief Executive Officer, Chief Financial Officer, and subsidiary Managing Directors, on earnings focused share options.

In last year's Chairman's statement, I outlined our then new strategy which is to build upon our position as a leading heating, and heating maintenance provider to the social housing sector in the UK. We estimate that, with about 12% of the £1.3 billion annual social housing gas market, we are already a leading provider. Our ambition is to double our sales and significantly improve our net margin and earnings per share within the next four years.

The four key deliverables for the Group outlined last year were:

1. Bolt on acquisitions in the gas-heating space.

2. Continued organic growth from existing businesses.

3. Strategic acquisitions of renewable energy businesses.

4. Driving internal efficiencies to better our EBITA margin on sales.

We have unambiguously achieved organic growth in revenues (from continuing operations). In FY22 revenues increased by 27.0% compared with FY21.

Our internal efficiencies in continuing operations have improved EBITA margin to 6.1% (from 5.7% in FY21) despite the well reported inflationary pressures.

We remain committed to our stated acquisition strategy and have identified a number of opportunities that would potentially meet our strategic criteria. We are reviewing several of these opportunities and are positive on the outlook for progress in this area. As we have previously stated, we intend to sell our two businesses held for disposal.

Your Board was strengthened in FY22 by the appointments of Peter Smith (CEO), Sameet Vohra (CFO), and Tania Songini (Non-Executive Director) who has considerable experience of renewable energy. I am grateful to all of my fellow directors, whose judgement and insight has proved invaluable to the Group.

Nick Winks

Non-Executive Chairman

Chief Executive's review

Trading has been strong throughout the year, with the Group achieving revenues of £275.1m and EBITA of £16.8m from continuing operations. Our cash position increased to £23.3m from £16.4m in FY21. Whilst the global economy has been impacted by a number of challenges, not least war in Ukraine, the ongoing energy price increases and domestic inflation, the services we offer remain of critical importance to our clients and are predominantly driven by non-discretionary, regulatory standards. There have been challenges with the availability of some components, but we continue to adapt and find solutions. Our clients have also been supportive and understanding, showing a good deal of flexibility where required. I would like to thank both our suppliers and our clients for the collaborative approach they continue to demonstrate.

Our year-end order book of £593.5m is a tremendous asset. To have such clear line of sight to future revenues is a real strength of the Group. A large number of contracts in our gas businesses are price-index linked, providing a level of inflation protection. The recent shift towards longer term contracts, some over seven years, has helped our forward visibility and we continue to benefit from high on-going appointment and retention levels. Our average contract length is now 6 years, with several long term contract wins and extensions noted elsewhere in this report. Having this client commitment enables us to plan and resource accordingly. Contract wins of £247.0m in FY22 reinforces our confidence in the Group's on-going and future success.

The past year has seen changes to the executive team. With my elevation to the Chief Executive Officer role, a thorough search began for my successor to the Chief Financial Officer role. Sam Vohra joined the Group in December 2021, initially on an interim basis, but it rapidly became clear that he would make an excellent permanent Chief Financial Officer and I was delighted when he secured the role in April 2022. He brings a fresh perspective as well as considerable experience.

In 2021 we identified Social Housing Energy Services as our core market and stated our ambition to be the UK's leading social housing energy services provider. That strategy encompasses both strong organic growth and acquisitions to increase our existing presence in gas heating and find companies in the longer-term renewables sector, which will leave us well placed as the UK's energy system transitions, alongside improving our internal efficiencies.

The acquisition of CorEnergy in December 2021 has been a real success performing better than our expectations and has integrated well into the Sureserve Group. CorEnergy provides us with skills and knowledge of the renewables market, which will be essential to enable us to grow the business and focus on the UK's energy transition. Its team has doubled in size in the past year, has moved to new larger premises and its pipeline of opportunities is considerable. CorEnergy provides a good example of the type of renewables acquisitions we are seeking.

We continue to review a number of acquisition opportunities and are positive on the outlook for 2023. As previously stated, we have two businesses which do not fit our renewed strategy and we continue to search for buyers.

ESG remains central to the work we do. I attended our Sureserve Academy Awards in May 2022 at Old Trafford where prizes were awarded across each of the subsidiary businesses. I would like to give my special congratulations to Lexie Smith, of Providor, who won the overall award. We undertook an Employee Engagement Survey in May 2022, our first since November 2020. The results were encouraging and helped to identify areas where we can improve which we are focused on. I am particularly proud of Sureserve achieving the Armed Forces Covenant Silver Award for our commitment to employing and supporting ex-services personnel in the business. Additionally, we were delighted to announce our three-year sponsorship of the Young Persons Trust for the Environment Better Planet Schools programme. As we announced last year, we are committed to transitioning our fleet of vans and cars from diesel to electric. The worldwide shortage of key components has made this more challenging than anticipated and caused delays. However, at the end of September 2022, 11% of our fleet was electric up from 3% in September 2021.

The Sureserve Foundation held its second fund raising dinner in November 2022. The Foundation seeks to reduce the burden of fuel poverty in the UK, by raising charitable donations. I am delighted to report that this event raised in excess of £60,000 towards this most worthwhile of causes.

The strength of Sureserve comes from the commitment, passion and skills of those whom we employ and, as always, I want to thank all our staff for all they do. Their dedication to our clients, suppliers and colleagues is key to our ongoing success.

Peter Smith

Chief Executive Officer

Operational review

Group Summary

As we announced in our full year results last year, the Group's growth strategy will build on our expertise, experience and leading position in the market as a social housing energy services provider across the UK. We believe that by combining selective and targeted acquisitions alongside developing organic growth opportunities, there is potential for continued substantial growth within the Group in the years ahead.

We were pleased to announce during FY22 that we achieved carbon neutrality for our Scope 1 and 2 emissions and Scope 3 Business Travel and Waste, for all UK operations for the financial reporting year, 1st October 2020 - 30th September 2021. Working with the Carbon Trust, we have taken steps to calculate the Group's carbon footprint and satisfactorily offset this to achieve carbon neutrality in accordance with PAS 2060.

We are proud to support ex-Forces personnel and reservists in rewarding, long-term careers across our businesses. We recognise the valuable experience and skills offered by ex-service men and women. As a signatory of the Armed Forces Covenant and through a close partnership with CTP (Career Transition Partnership) we continue to create exciting opportunities to join the Group.

The Group had a strong financial year, continuing the momentum seen in the prior year, despite the broader macroeconomic environment and inflationary cost pressures. This demonstrates the resilience of the business model which is based on predictable and recurring revenues in areas supported by non-discretionary and regulatory led spend. Our growth is underpinned by high levels of long term contracts and frameworks for which we have continued to see high appointment and retention levels. We are also continuing to see an increase in contract lengths, with a number of contracts of over seven years in duration recently won, taking the average contract length to 6 years. Our client base, largely of local authorities and housing associations, provides us with sustainable partnerships that we regard as blue chip.

As previously reported our refreshed strategy is to drive growth from within our specialism of social housing energy services ('SHES'). We believe this focus plays to our core strengths and in identifying business areas where we have an established market position, we can maximise our growth potential. The results below have therefore been presented on a continuing operations basis (including the SHES business and central costs) and do not include our fire and electrical or lift businesses which are classified as being held for sale (with the 2021 prior year comparatives being restated).

The Group delivered year on year revenue growth of 27.0% to £275.1m (FY21: £216.6m). This was driven by strong organic growth from new contract wins, extensions and additional spending from certain clients, together with the inclusion of CorEnergy which was acquired in December 2021. We saw strong growth across our gas compliance businesses from contract wins and extensions, and an increase in the level of renewables work, particularly in the Aaron Services business. The energy efficiency, renewables and smart metering businesses also saw significant growth compared to last year. Part of this was a return to more normalised trading levels where revenues had been impacted in the prior year from Covid-19 restrictions in place, particularly in the energy efficiency and smart metering businesses. However, we also saw increases from planned growth in smart metering from investments in additional people and training. This increases our operational capabilities and improves opportunity through our partnership with our utility clients.

EBITA increased by 36.6% to £16.8m (FY21: £12.3m), with this additional profitability driven by a combination of factors. Improved EBITA performance within gas was revenue and volume led, following contract wins and extensions. CorEnergy profitability was a positive benefit compared to the prior year. This is pleasing and also resulted in a positive impact to FY22 EBITA, both in absolute terms and on a margin basis. The Providor headcount and training investments made in the first half of this year impacted the overall EBITA margin but will result in future benefit as scale continues to increase.

Looking forward

We remain optimistic around opportunities for continued growth within the Group, which underpins our refreshed strategy. We believe our businesses have a positive outlook, with many opportunities for growth ahead. Our strong position is reinforced by the Government's continued emphasis on a net zero target for carbon emissions by 2050 with current legislation supporting this target. The Group and our experienced management teams are well placed to support our clients through the energy transition, and we will continue to monitor developments as opportunities present themselves.

The current energy environment in the UK has prompted additional actions from the Government. One such action, announced in November 2022, is the introduction of a new £1bn ECO+ scheme, which will provide funding for hundreds of thousands of homes across the country to install new home insulation. This is part of wider actions across energy policy to help the UK meet its ambition of becoming energy independent. The new scheme will extend support to those who do not currently benefit from any other Government support to upgrade their homes and is in addition to the existing £6.6bn 'Help to Heat' energy schemes. Around one-fifth of the £1bn fund will also be targeted towards the most vulnerable, including those on means tested benefits or in fuel poverty. The Group has been active in delivering other Energy Company Obligation ('ECO') schemes and is well placed to benefit from these new opportunities as they arise.

Energy services and future energy transition is a core focus moving forward and we believe we have developed a successful basis for achieving growth both organically and through acquisition. Our established presence in the installation of solar PV works, battery storage projects, energy efficient lighting, air source heat pumps and electric vehicle charging points presents our experienced management team with attractive growth opportunities going forward that we are well placed to deliver on. The backdrop of climate change and ongoing Government initiatives, and future commitments, is believed likely to provide ongoing opportunities to increase our delivery in these, and associated, service areas.

As we communicated at the time, purchasing CorEnergy is a key example of the type of strategic acquisition we wish to pursue. CorEnergy is a business focused on delivering sustainable energy solutions for public and private sector organisations, supplementing our energy services and immediately enhancing earnings for the Group. In line with our refreshed strategy, we will continue to review other appropriate acquisition opportunities as we expand our scale, service mix and geographical offering.

The nature of our Group, particularly our gas businesses, remains as a core service provider to customers, including vital emergency repair and testing services to properties. Our continued growth further strengthens our position in the gas sector, with a true national reach and market leading businesses. Nearly all of our gas contracts include annual contractual price increases which are either CPI linked, or another associated price index linked, with the increase typically falling due on the contract anniversary date. Consequently, we are well positioned to continue our growth both organically and through further acquisitions in what are mostly fragmented and regional markets. Each of the gas businesses achieved double-digit revenue growth and we remain confident that our experienced leadership in this stable sector provides a strong platform for further growth and cash generation underpinned by a strong order book.

While we are not exposed to fluctuations in wholesale gas prices given our position as an installer and maintainer of heating assets, we are well positioned to benefit from UK Government initiatives to reduce fuel poverty, particularly in times when wholesale energy prices are high for extended periods. Our role is to support our client base and the end user with compliant, safe and effective heating. In addition to the gas heating services and products we more generally work with, we are seeing increased demand for alternative heat sources. This includes, but is not limited to, air source heat pumps. The Government has targeted 600,000 heat pump installations per year by 2028 as part of its 2050 net zero initiative. We therefore believe this will continue to be an area of focus and an opportunity for growth as we move forward. It is seen as largely supplementary to existing revenue streams.

The Board is encouraged that high bidding success rates, and contract retention levels, continue to be achieved by the Group. The order book from continuing operations totalled £593.5m at the end of September 2022. This represented an 18.0% increase compared to last year (September 2021: £502.9m). On an overall Group basis, the order book totalled £640.2m (2021: £527.1m). This provides visibility over future revenue, profitability and cash flow, and allows longer term planning to occur, which helps drive efficiency. The order book is consistent with our previously stated view around our targeted efforts on long term contracts that provide opportunities to deliver profitably in our core areas. We continue to target securing contracts with long term visibility and robust value. We remain confident in our future profitable growth with a significantly increased order book value and good visibility on future earnings, underpinning our belief in a robust financial outlook.

Operational summary

Gas

The Group's gas businesses provide planned and responsive maintenance, installation and repair services predominantly to local authority and housing association clients, in the areas of domestic and commercial gas. These activities include the installation of lower carbon renewable technologies such as air source heat pumps.

Each of the three gas businesses, Sure Maintenance, K&T Heating and Aaron Services, delivered double-digit growth compared to the prior year. Following the increase in size of Aaron Services, both organically and from the acquisition of Vinshire in 2021, the three gas businesses are now more similar in revenue size. In addition to winning new business, this is in part due to the contractual price increase mechanisms included within nearly all of the contracts. The latter has helped to mitigate against some of the temporary cost pressures experienced during the year resulting in increased profitability. As well as project-based work, we provide contracted service and repair work throughout the year. The gas businesses normally have more callouts during colder months, resulting in higher labour and materials costs. This seasonality drives higher levels of profitability and cash generation in the warmer months when call-out rates are lower, and a proportion of our engineers can be redeployed to jobs that yield further income. As a result, a significant proportion of the annual profit occurs during the second half of the financial year.

The gas businesses continued their track record of new wins during the year. The most significant awards included a Gas Servicing, Repair and Installation Contract with L&Q for £68.0m over an eight year period; a heating services, repairs and installations contract with Longhurst Group for up to £30.0m over a maximum of five years; a contract with Metropolitan Thames Valley Housing valued at more than £20.0m for domestic, commercial heating and electrical works over a four-year term; £20.0m of work over a maximum of 10 years for heating servicing, repairs and installations on behalf of the London Borough of Tower Hamlets;; a 10-year gas servicing and maintenance contract with Wandle Housing Association for over £10.0m; and an award of £10.0m over 10 years with Southend-on-Sea Borough Council.

Other notable achievements included the improvement of energy efficiency at Widnes Vikings Stadium through the delivery of renewable energy upgrades for Halton Borough Council, and Sure Maintenance being recognised as Heating Contractor of the Year at the 2022 ASCP Safety & Compliance Awards.

Water and air hygiene

H2O is our water and air risk assessment specialist provider across the UK. Performance of the business has continued to be positive with strong client service supporting consistent delivery. The business has again achieved several wins in the year including a number of individual awards for water testing and sampling including £0.7m with London Borough of Merton, £0.8m with Sanctuary Housing Group, £0.5m with Royal Borough of Kensington and Chelsea and in excess of £0.5m with Metropolitan Thames Valley Housing for water hygiene risk assessments and monitoring.

Smart metering

Providor is our leading national installer of smart meters (operating as a meter asset manager and meter operator), undertaking work for utility suppliers which are required by the UK Government to install smart meters in every home across England, Wales and Scotland. The business is among the most experienced in the ongoing UK-wide roll-out and remains focused on existing contract delivery through to the current installation deadline of 31 December 2025. As of September 2022, over 26 million of the newly installed meters were operating in smart mode. With more than 55 million smart meter installations required in total, there remains a significant market opportunity ahead of the roll-out deadline.

The business has delivered considerable growth in the year from previous wins and extensions, supported in part by the recruitment of new engineers. The business continues to assess new revenue prospects, from both new clients and existing contractual relationships. This represents an ongoing opportunity to grow further with confidence over operational delivery. The business did witness short term challenges from the pandemic effects during the year, notably from employee absences midway through the first half of the year when high levels of Covid-19 isolation were experienced across the UK. Profitability has decreased compared to last year, largely due to the upfront investment costs associated with engineer recruitment and training as the business resized for future volume growth. The Group expects that this investment will result in improved long-term margins as the business grows.

Providor has extensive experience of the national smart meter roll-out and continues to apply careful management to the situation. We consider our contractual positions while seeking to provide strong and secure employment for our engineers. We recognise that ongoing volatility in gas prices has adversely impacted numerous energy supplier businesses and their ability to trade. We are fortunate that our client base is the larger utility companies who are better placed to successfully navigate pricing volatility. In addition, Ofgem will tend to appoint these larger energy suppliers to take on the smart meter obligations of any failed suppliers. This may further increase the volume of future work with our existing customers. It may also give us access to more engineers via either direct employment or our subcontractor arrangements, where appropriate opportunities present. The UK Government has confirmed that it remains committed to the smart meter roll-out and that it aligns with its net zero commitment.

Energy efficiency and renewables

These businesses provide a range of energy efficiency services such as insulation, heating and energy efficient technologies. The latter includes air source heat pumps, solar PV, battery storage, energy efficient lighting and electric vehicle charging points through the Everwarm and CorEnergy businesses. Everwarm provides these services predominantly for social housing and private homes, through grant funding, with CorEnergy having a focus on non-domestic premises. The Everwarm business also includes our joint ventures, Warmworks and Arbed, which are similarly focused on energy efficiency works in domestic properties backed by Government funding.

Sureserve delivers energy efficiency measures that support carbon emissions savings for utility companies, enabling them to meet their legislative targets. The insulation operations are driven by seasonal influences, as we are unable to render or use the fixing glue necessary for insulation below certain temperatures. As a result, we typically experience a far larger number of productive working days in summer, compared to winter months, with higher revenues and margins normally achieved in the second half of the financial year. CorEnergy works are project based and therefore not subject to the same seasonality.

Results across our energy efficiency businesses saw increased profitability in the Everwarm business together with a positive contribution from the newly acquired CorEnergy business. Everwarm's improved performance was principally due to the increase in revenues. We saw increased delivery and performance in comparison to last year within the Scottish Warmworks joint venture. This was due to a mix of growth in the business with new workstreams added and Warmer Homes Scotland work for the Scottish Government largely returning to normal compared to the prior year where Covid-19 restrictions had remained. Profit from the Arbed joint venture was also ahead of last year, but primarily resulted from one-off management actions related to the end of the Arbed 3 scheme. The contribution from CorEnergy since its acquisition in December 2021 has been positive and ahead of our expectations.

The energy efficiency and renewables businesses continued to see several large wins and awards as reflected in the order book growth. The largest win for Everwarm was a four year energy services contract with Aberdeenshire Council for £10.0m. A number of other £1m+ wins and framework placements throughout the year give management confidence for further new work opportunities, along with existing client contracts and opportunities supporting the Warmworks joint venture. CorEnergy also saw a number of wins including works for Liverpool City Council for £2.5m, works in excess of £1.5m with Dorset Council, and various other ongoing and associated works. We have already seen additional opportunities from CorEnergy's involvement in the Group and access to frameworks and other tenders which may not have been available to it prior to acquisition. An example of this is the contract with the UK Ministry of Defence for solar PV procurement for £5.4m. We believe the complementary services offered by CorEnergy represent a continued opportunity for growth in the Group.

We continue to believe we are well placed to deliver on behalf of our utility partners based on our management team's extensive experience in this area. The 'ECO4' scheme, which commenced on 1 April 2022, commits funding of £1bn per year until 31 March 2026. Additionally, the ECO+ scheme announced in November 2022 will provide a further £1bn in funding. This should provide further opportunity for Everwarm to deliver increased volumes.

The Public Sector Decarbonisation Scheme supports the aim of reducing emissions from public sector buildings by 75% by 2037. Phase 3B announced a further £635m of grant funding available for non-domestic public sector buildings for the financial years 2023 to 2025, this scheme provides an ongoing revenue stream for CorEnergy for consultancy and contracting works for existing and new public sector clients.

Our Warmworks joint venture delivering the Warmer Homes Scotland initiative for the Scottish Government saw continued momentum in performance and client delivery. The Warmworks joint venture announced the acquisition of Connected Response Ltd in December 2021, which will provide a more diverse range of heating solutions to those in need and will continue to support the growth of the business.

As previously reported, the Arbed 3 programme for the Welsh Government has now concluded with details yet to be finalised for any successor scheme. We will monitor this alongside other appropriate opportunities. The joint venture has concluded the installation programme and is currently undertaking remaining post-installation obligations. The Group continues to work elsewhere in Wales, particularly the energy retrofit scheme with Pobl Group in Penderi.

Outlook

The continuity of key individuals and consistent growth have provided us with a stable platform to deliver quality services for our client base. Like many others, due to a combination of factors we are continuing to experience some upward cost pressures on certain materials, labour and fuel prices. However, we are well placed to address these challenges through our resilient business model, where we benefit from a high proportion of price-index linked contracts, and the experience of our management teams and workforce. Our long term collaborative approach with clients and key supply chain partnerships will assist us in continuing to mitigate cost pressures wherever possible.

Our mix of customer propositions and service offerings based on established long-term contractual relationships underpins our future prospects. We expect that the UK Government will remain committed to providing sufficient funding to address fuel poverty in this highly regulated sector. Our view remains that the Group's significant wealth of management experience and client relationships gives Sureserve a market leading proposition in energy services and energy transition. We believe that our ECO credentials will allow us to continue to service our large utility clients as well as others. This means we are well placed to provide a high quality service to our customers and deliver effectively for all of our stakeholders.

Our financial performance and order book growth have continued to improve throughout FY22, building on last year's momentum. This is underpinned by high levels of long term contracts and frameworks for which we have continued to see high appointment and retention levels. Our client base, consisting largely of local authorities and housing associations, provides us with the continuity to move forward with partners which we regard as blue chip. Our plans support our ambitions to be the leading social housing energy services provider delivering projects that matter at the forefront of the UK energy transition. We remain confident in the ongoing prospects of the businesses.

Peter Smith

Chief Executive Officer

Chief Financial Officer's review

Following the update to the Group's strategy during the year, the Board of Directors has changed the basis of segmental reporting to move away from the previously reported two segment reporting basis (Compliance and Energy Services) to a single business segment of "Social Housing Energy Services". As part of the updated strategy, the Group is looking to dispose of the Sureserve Fire and Electrical Limited and Precision Lift Services Limited entities and so these have been included as assets held for sale. The Social Housing Energy Services operating segment and central costs are shown as continuing operations and exclude these two businesses that are held for sale.

Group revenue from continuing operations ^*1 , increased by 27.0% to £275.1m (2021: £216.6m), reflecting strong revenue growth across all businesses. CorEnergy, which was acquired in December 2021, has performed ahead of the Board's expectations, contributing to Group revenue of £9.8 million including the full revenue relating to the solar PV MOD contract, in conjunction with another group company, and achieving EBITA of £1.0 million post-acquisition. Total Group revenue from continuing and discontinued operations increased by 26.8% to £309.3m (2021: £244.0m).

Group EBITA from continuing operations ^*1,2 , increased by 36.6% to £16.8m (2021: £12.3m) reflecting strong revenue growth, notwithstanding the inflationary macroeconomic backdrop experienced in the second half of the year, and the investments made in headcount and training in the smart metering business where headcount increased during the year to meet demand from our utility customers. Central costs were £3.4m (2021: £2.7m) with the increase primarily relating to higher IFRS2 share scheme accounting charges, M&A advisory costs, as well as certain one-off items. Total Group EBITA from continuing and discontinued operations increased by 27.4% to £18.6m (2021: £14.6m).

The Group reported an operating profit ^*1 of £16.4m (2021: £12.1m), after £0.3m of amortisation charges for acquisition intangibles (2021: £nil), £nil impairment of goodwill (2021: £0.2m) and exceptional costs of £0.1m (2021: £nil) relating to acquisition costs for CorEnergy.

The net finance expense ^*1 was £0.9m (2021: £1.0m), and taxation ^*1 was £2.5m (2021: £2.0m). The profit after tax ^*1 , was £13.1m (2021: £9.1m).

The Group reported an operating loss from discontinued operations of £1.7m (2021: operating profit of £2.7m), after a £3.5m goodwill impairment charge (2021: £nil) and exceptional income of £nil (2021: £0.4m). The loss after tax from discontinued operations was £2.0m (2021: profit after tax of £2.3m).

Finance expense

The net finance expense ^*1 was £0.9m (2021: £1.0m), which represented the interest charged on our borrowing facilities (net of finance income), together with the amortisation of loan arrangement fees and other interest, which totalled £0.3m (2021: £0.5m). The 2022 figure also includes £0.5m interest on lease agreements (2021: £0.5m) in accordance with IFRS16.

Tax

The tax charge on the profit before tax ^*1 was £2.5m (2021: £2.0m). The effective tax rate of 15.9%, was lower than the statutory corporation tax rate of 19% due to true-up adjustments in respect of the prior year tax charge and tax adjustments in relation to share based payments.

Our net cash tax payment ^*3 for the year was £3.1m (2021: £2.4m) reflecting the higher profitability of the Group during the year.

The net deferred tax asset as at 30 September 2022 was £0.4m (2021: £0.3m). The movement primarily related to a reduction in the deferred tax on accelerated capital allowances being offset by additional deferred tax on short term timing differences and share based payments. Further details are set out in note 26.

Earnings per share

Basic earnings per share from continuing operations were 8.0 pence (2021: 5.7 pence), based on profit after tax from continuing operations of £13.1m (2021: £9.1m). Group adjusted basic earnings per share ^*3 was 9.0 pence (2021: 7.0 pence).

Our statutory profit^*4 for the year was £11.1m (2021: £11.4m). Based on the weighted average number of shares in issue during the year of 163.9m, this resulted in basic earnings per share of 6.8 pence (2021: 7.1 pence) from continuing and discontinued operations.

Cash flow performance

Our operating cash flow ^*4 for the period was an inflow of £16.4m (2021: £14.2m), and the management of working capital remains an area of continued focus. This includes accrued income, receivables and payables, and we manage these balances within our existing banking facilities. However, we recognise the importance of supporting our supply chain and have ensured that we have continued to pay our suppliers to contractual terms.

Acquisition of CorEnergy Limited

On 7 December 2021, the Group acquired the entire issued share capital of CorEnergy Limited. The consideration paid for CorEnergy was £6.6m, plus a working capital adjustment of £1.0m (paid in cash), taking the total consideration paid to £7.6m. £3.3m was satisfied through cash and a further £3.3m in the issue of 3,704,811 new ordinary shares of 10p each in Sureserve which were issued at an effective price of 89.4p each.

Net cash

At 30 September 2022, the Group had net cash (including cash balances in assets held for sale) excluding lease liabilities^*4 of £23.3m (2021: £16.4m).


	2022	2021
	£'000	£'000

Cash and cash equivalents	19,319	16,444
Unamortised finance costs (included in other receivables)	151	27
Net cash pre-lease liabilities	19,470	16,471
Lease liabilities	(15,076)	(12,043)
Total net cash in continuing operations	4,394	4,428
Cash and cash equivalents in assets held for sale	3,989	-
Lease liabilities in assets held for sale	(599)	-
Total net cash (including lease liabilities)	7,784	4,428
Total net cash (excluding lease liabilities)	23,308	16,444

The total net cash, including lease liabilities ^*4 of £15.7m (2021: £12.0m), was £7.8m (2021: £4.4m).

Banking arrangements

In December 2021, the Group renewed its bank facilities to provide an overdraft facility of £5,000,000 together with a three year revolving credit facility of £15,000,000 which runs to 31 January 2025.

As at 30 September 2022 the revolving credit facility remained undrawn (2021: £nil), and remained undrawn as at the date of issuing this report. National Westminster Bank ('NatWest') continues to be an excellent and supportive banking partner.

Statement of financial position

The principal items in our balance sheet are goodwill, right of use assets and working capital.

There was a decrease in goodwill of £1.5m from 30 September 2021, due to the reallocation of goodwill relating to assets held for sale of £7.8m offset by an increase of £6.2m in relation to the acquisition of CorEnergy. As at 30 September 2022, there are £nil acquisition intangibles (2021: £nil) remaining on the statement of financial position as these have been fully amortised.

Right of use assets has increased by £2.8m to £14.4m (2021: £11.6m) which primarily relates to an increase in our commercial vehicle fleet over the year.

Net current assets (excluding cash and lease liabilities) ^*4 stood at £8.0m (2021: net current liability of £1.4m). Net current assets stood at £25.2m (2021: £11.0m).

The principal balances in working capital are noted below and reflect a continued focus on working capital management:

	As at 30 September 2022 £m	As at 30 September 2021 £m
Trade receivables	23.1	18.4
Accrued income	22.1	17.9
Trade payables	(31.2)	(24.9)
Accruals	(11.1)	(11.7)

^*2 - EBITA is defined as Operating profit before impairment of goodwill, amortisation of acquisition related intangibles and exceptional items.

^*4 - From continuing and discontinued operations. The cash from discontinued operations is presented within assets held for sale.

Risks

The Board considers strategic, financial and operational risks and identifies actions to mitigate those risks.

Our year-end review included an assessment of accrued income, of which the balance was £22.1m at the reporting date (2021: £17.9m), and this is regularly reviewed for impairment. Accrued income represents a balance sheet risk in our industry and we continue to ensure a balanced approach between risk and possible outcome on final invoicing.

We continue to manage a number of potential risks and uncertainties, including claims and disputes which are common to other similar businesses which could have a material impact on short- and longer-term performance. The Board remains focused on the outcome of a number of contract settlements on which there is a range of outcomes for the Group in terms of both cash flow and impact on the consolidated statement of comprehensive income.

In preparing our annual accounts, we have taken a view on the financial risk of pending claims and disputes and seek to provide in full for potential shortfalls, whilst taking account of potential counterclaims , such that we have a collectively balanced position of risk across all such matters.

Going Concern statement

The Directors acknowledge the Financial Reporting Council's 'Guidance on going concern, risk and viability' issued in June 2020. The Group's business activities, together with factors likely to affect its future development, performance and position, are set out in the Strategic Report within the 2022 Annual Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review, as part of the Strategic Report of the 2022 Annual Report. In addition, note 32 to the consolidated Financial Statements within the 2022 Annual Report includes details of the Group's approach to financial risk management, its financial instruments and hedging activities, and its exposure to credit risk and liquidity risk.

In assessing the Group and Company's ability to continue as a going concern, the Board reviews and approves the annual budget, three-year plan and a rolling 12 month forecast, including forecasts of cash flows, borrowing requirements and covenant headroom. The Board reviews the Group's sources of available funds and the level of headroom available against its committed borrowing facilities and associated covenants. The Group's financial forecasts, considering possible sensitivities in trading, indicate that the Group will be able to operate within the level of its committed borrowing facilities and within the requirements of the associated covenants for the foreseeable future. NatWest remains very supportive of the Group and in December 2021, the Group renewed its bank facilities to provide an overdraft facility of £5,000,000 together with a three year revolving credit facility of £15,000,000 which runs to 31 January 2025. The Directors have a reasonable expectation that the Group and Company have adequate resources to continue their operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

Sameet Vohra

Chief Financial Officer

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2022


	Notes	2022	2021
			(restated) ^*1
		£'000	£'000

Continuing operations
Revenue	4	275,096	216,577
Cost of sales		(234,049)	(180,275)
Gross profit		41,047	36,302

Other operating expenses		(25,644)	(25,198)
Share of results of joint venture	19	1,424	1,158

Operating profit before exceptional and other items	4,5	16,827	12,262

Acquisition costs	8	(120)	-
Amortisation of acquisition related intangibles		(269)	-
Impairment of goodwill	15	-	(188)

Operating profit		16,438	12,074

Finance expense	9	(864)	(1,000)

Profit before tax	4,5	15,574	11,074

Taxation	12	(2,481)	(1,997)

Profit for the period attributable to the equity holders of the Group from continuing operations		13,093	9,077

(Loss) / profit for the period from discontinued operations	6	(2,022)	2,275
Profit for the period attributable to the equity holders of the Group		11,071	11,352

Earnings per share from continuing operations
Basic	14	8.0p	5.7p
Diluted	14	7.8p	5.6p

(Loss) / earnings per share from discontinued operations
Basic	14	(1.2p)	1.4p
Diluted	14	(1.2p)	1.4p

Earnings per share from continuing and discontinued operations
Basic	14	6.8p	7.1p
Diluted	14	6.6p	7.0p

Adjusted earnings per share
Basic	14	9.0p	7.0p
Diluted	14	8.8p	6.8p

The accompanying notes are an integral part of this consolidated statement of comprehensive income.

^*1 The prior year numbers have been restated due to two entities classified as discontinued at 30 September 2022 (see note 6 for further details).

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 30 September 2022

		2022	2021
	Notes	£'000	£'000
Non-current assets
Goodwill	15	40,932	42,479
Other intangible assets	16	1,403	820
Property, plant, and equipment	17	1,989	2,009
Right of use assets	18	14,363	11,564
Interests in joint ventures	19	2,494	1,660
Deferred tax assets	26	444	344
		61,625	58,876
Current assets
Inventories	20	5,059	4,199
Trade and other receivables	21	53,996	43,249
Cash and cash equivalents		19,319	16,444
		78,374	63,892
Assets classified as held for sale	6	15,338	-
Total current assets		93,712	63,892
Total assets		155,337	122,768

Current liabilities
Trade and other payables	22	54,070	47,397
Lease liabilities	27	5,494	4,071
Provisions	25	497	403
Income tax payable		238	1,003
		60,299	52,874
Liabilities directly associated with assets classified as held for sale	6	8,233	-
Total current liabilities		68,532	52,874
Net current assets		25,180	11,018

Non-current liabilities
Lease liabilities	27	9,582	7,972
Provisions	25	1,467	1,596
		11,049	9,568
Total liabilities		79,581	62,442
Net assets		75,756	60,326

Equity
Called up share capital	28	16,589	16,122
Share premium account	30	28,740	25,620
Share-based payment reserve	30	634	349
Merger reserve	30	20,067	20,067
Retained earnings		9,726	(1,832)

Equity attributable to equity holders of the Company		75,756	60,326

The financial statements of Sureserve Group plc (registered number 09411297) were approved by the Board of Directors and authorised for issue on 23 January 2023. They were signed on its behalf by:

S Vohra

Director

The accompanying notes are an integral part of this consolidated statement of financial position.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2022

	Share capital	Share premium account	Share-based payment reserve	Own shares	Merger reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 October 2020	15,934	25,408	650	(290)	20,067	(11,663)	50,106
Profit for the year	-	-	-	-	-	11,352	11,352
Dividends paid (Note 13)	-	-	-	-	-	(1,595)	(1,595)
Issue of shares (exercise of options)	188	212	-	-	-	(105)	295
Equity settled share based payments, net of tax	-	-	168	-	-	-	168
Reserve transfer	-	-	(469)	290	-	179	-
At 30 September 2021	16,122	25,620	349	-	20,067	(1,832)	60,326
Profit for the year	-	-	-	-	-	11,071	11,071
Issue of shares (acquisition of CorEnergy Limited) (Note 34)	370	2,942	-	-	-	-	3,312
Issue of shares (exercise of options)	97	178	-	-	-	-	275
Equity settled share based payments, net of tax	-	-	381	-	-	391	772
Reserve transfer	-	-	(96)	-	-	96	-
At 30 September 2022	16,589	28,740	634	-	20,067	9,726	75,756

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2022


		2022	2021
			(restated) ^*1
	Notes	£'000	£'000
Cash flows from operating activities
Cash generated from operations	33	16,372	12,259
Interest paid		(791)	(885)
Income taxes paid		(2,637)	(2,037)
Net operating cash flows from discontinued activities		3,408	4,833
Net cash generated from operating activities		16,352	14,170

Cash flows from investing activities
Purchase of shares in subsidiary, net of cash acquired		(2,661)	(200)
Purchase of property, plant, and equipment		(765)	(1,528)
Purchase of intangible assets		(911)	(543)
Sale of property and equipment		7	18
Net investing cash flows from discontinued activities		(85)	(44)
Net cash used in investing activities		(4,415)	(2,297)

Cash flows from financing activities
Proceeds from issue of shares		275	295
Dividend paid to shareholders		-	(1,595)
Repayment of lease liabilities		(4,797)	(3,505)
Finance issue costs		(201)	-
Net financing cash flows from discontinued activities		(350)	(303)
Net cash used in financing activities		(5,073)	(5,108)

Net increase in cash and cash equivalents		6,864	6,765

Cash and cash equivalents at beginning of year		16,444	9,679

Cash and cash equivalents at end of year		23,308	16,444

Cash and cash equivalents		19,319	16,444
Cash and cash equivalents included in assets held for sale		3,989	-
Cash and cash equivalents at end of year		23,308	16,444

The accompanying notes are an integral part of this consolidated statement of cash flows.

Cash and cash equivalents shown above excludes capitalised loan arrangement fees.

^*1 The prior year numbers have been restated due to two entities classified as discontinued at 30 September 2022 (see note 6 for further details).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

General Information

Sureserve Group plc is a company incorporated in England and Wales under the Companies Act. The address of the registered office is Crossways Point 15, Victory Way, Crossways Business Park, Dartford, Kent, DA2 6DT.

The consolidated Financial Statements are presented in Pounds Sterling because that is the currency of the primary economic environment in which the Group operates. The principal activities are discussed in the operational review of the annual report.

Financial Information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2022 or 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the registrar of companies, and those for 2022 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Annual Report and Accounts and Annual General Meeting

The 2022 Annual Report and Accounts and Notice of the Annual General Meeting will be posted to shareholders and published on the Group's website at https://www.sureservegroup.co.uk/plc/investors/ shortly. The Annual General Meeting is to be held on 21 March 2023.

1. Basis of preparation

Basis of accounting

The consolidated financial statements of Sureserve Group Plc are prepared in accordance with the historical cost convention, in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The Company's ordinary shares are quoted on AIM, a market operated by the London Stock Exchange.

The principal accounting policies adopted are set out below.

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group's Financial Statements except as noted below.

All amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand pounds sterling unless otherwise stated.

Adoption of new and revised standards

The accounting policies adopted are consistent with those of the previous financial year.

New standards and interpretations not applied

The International Accounting Standards Board issued the following standards and interpretations for annual periods beginning on or after the effective dates as noted below. The adoption of the below standards is not expected to have a significant impact on the financial statements.

IAS/IFRS standards		Effective for accounting periods starting on or after
IFRS 17	Insurance Contracts	1 January 2023
IFRS 3 (amendment): reference to the conceptual framework	Business combinations	1 January 2022
IAS 37 (amendment): onerous contracts - cost of fulfilling a contract	Provisions, contingent liabilities, and contingent assets	1 January 2022
IAS 16 (amendment): proceeds before intended use	Property, plant, and equipment	1 January 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

1. Basis of Preparation (continued)

Basis of consolidation

The consolidated Financial Statements incorporate the assets, liabilities, income, and expenses of the Group. The Financial Statements of the subsidiaries are prepared for the same financial reporting period as the Company. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies used into line with those used by the Group. Intercompany transactions, balances and unrealised gains and losses transactions between Group companies are eliminated on consolidation.

As a consolidated statement of comprehensive income is published, a separate profit and loss account for the parent company is omitted from the Financial Statements by virtue of section 408 of the Companies Act 2006.

Going concern

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The Directors regard the foreseeable future as no less than 12 months following publication of its annual Financial Statements, so in practical terms, 16 months from the reporting date. T he Directors review and approve the annual budget, three-year plan and forecasts, including forecasts of cash flows, borrowing requirements and covenant headroom , taking account of reasonable possible changes in trading performance and the current state of its operating market and are satisfied that the Group should be able to operate within the level of its current facilities and in compliance with the covenants arising from those facilities. In December 2021, the Group renewed its bank facilities to provide an overdraft facility of £5,000,000 together with a revolving credit facility of £15,000,000 which runs to 31 January 2025. At 23 January 2023, the revolving cash facility remained undrawn. Accordingly, the directors have adopted the going concern basis in preparing the financial information. Please see further statement in the strategic report.

2. Significant accounting policies

Operating segments

Following the update to the Group's strategy during the period, the Board of Directors has changed the basis of segmental reporting to move away from the previously reported two segment reporting basis (Compliance and Energy Services) to a single business segment of "Social Housing Energy Services". Costs are allocated to the appropriate segment as they arise with central overheads apportioned on a reasonable basis. Operating segments are presented in a manner consistent with internal reporting, with inter-segment revenue and expenditure eliminated on consolidation.

Business combinations

Acquisitions of subsidiaries are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquired company and the equity interest issued by the Group in exchange for control of the acquired company. Acquisition-related costs are recognised as non-trading exceptional costs in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and liabilities assumed are recognised at their fair value. Goodwill is measured as the excess of the sum of the consideration transferred over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the excess is recognised immediately in profit or loss as a bargain purchase gain.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with IFRS 9 or IAS 37 as appropriate, with the corresponding gain or loss being recognised in profit or loss.

Acquisition costs

Management believes that acquisition costs are exceptional in nature and they are presented as such in the income statement, so as not to distort presentation of the underlying performance of the Group.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

2. Significant accounting policies (continued)

Goodwill

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which the goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Intangible assets

Intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight line basis over their useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

The estimated useful life for each asset type is set out below.

· Computer software and capitalised development costs - three to five years

· Development costs are capitalised when the asset is identifiable, the value can be measured reliably and it is probable that economic benefits will flow to the Group.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Intangible assets are recognised if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using suitable valuation techniques.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

The estimated useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Intangible asset Useful economic life Valuation method

· Contracted customer order book Remaining period of the contract Expected cash flows receivable

· Customer relationships Five years Expected cash flows receivable

· Non-compete agreements Five years With or without method

Derecognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. The gain or loss from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss when the asset is derecognised.

Property, plant, and equipment, and right of use assets

Property, plant, and equipment, and right of use assets are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is calculated so as to write off the cost of a tangible asset, less its estimated residual value, over the estimated useful economic life of that asset on the following bases:

· Leasehold improvements: over the period of the lease

· Plant & equipment: 15% to 33.33% per annum on a straight-line basis

· Fixtures & fittings: 20% to 33.33% per annum on a straight-line basis

· Motor vehicles: 25% per annum on a straight-line basis

· Right of use assets: over the period of the lease

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Right of use assets are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal, or when no future economic benefits are expected to arise from the continued use of the asset. The gains or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

2. Significant accounting policies (continued)

Impairment of tangible and intangible assets excluding goodwill

At each reporting date, the Group reviews the carrying amounts of tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Exceptional items

Items which are significant by their size and/or nature require separate disclosure and are reported separately in the statement of comprehensive income. Details of exceptional items are explained in Note 8.

Revenue

Revenue recognition is determined according to the requirements of IFRS 15 "Revenue from contracts with customers". All revenue is considered revenue from contracts with customers as defined by IFRS 15. IFRS 15 prescribes a five-step model of accounting for revenue recognition which includes identifying the contract, identifying performance obligations, determining the transaction price, allocating the transaction price to different performance obligations and the timing of recognition of revenue in connection with different performance obligations.

For contracts with multiple components to be delivered such as solar panels, servicing and repairs, management applies judgement to consider whether those promised goods and services are: (i) distinct - to be accounted for as separate performance obligations; (ii) not distinct - to be combined with other promised goods or services until a bundle is identified that is distinct; or (iii) part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.

At contract inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has rights to under the present contract. This includes the fixed price stated in the contract and an assessment of any variable consideration resulting from variation orders, discounts, rebates, refunds, performance bonuses, penalties, service credits. Variable consideration is estimated based on the expected value or the most likely outcome method and is only recognised to the extent that it is highly probable that a subsequent change in its estimate would not result in a significant revenue reversal.

Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied.

For each performance obligation identified in the contract, the Group determines if revenue will be recognised over time or at a point in time.

Performance obligations satisfied over time

The Group recognises revenue over time on contracts where any of the following criteria is met;

· The customer simultaneously receives and consumes the benefits provided by the Group's performance as the Group performs it; or

· The services provided creates or enhances an asset that the customer controls; or

· The services provided do not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

2. Significant accounting policies (continued)

Revenue (continued)

The Group typically recognises revenue on an over time basis for the following:

· Certain energy services

· Gas services

· Fire services

· Water and air hygiene services

· Lift services

For each performance obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group's performance in transferring control of the goods or services to the customer. This decision requires assessment of the real nature of the goods or services that the Group has promised to transfer to the customer. The Group applies the relevant output or input method consistently to similar performance obligations in other contracts.

Performance obligations satisfied at a point in time

If the criteria for satisfying a performance obligation over time are not met, revenue is recognised at the point in time when control of the goods or services transfers to the customer. This will be at the point when the jobs are completed and there is a right to invoice.

The Group typically recognises revenue on a point in time basis for the following:

· Smart metering

· Certain energy services

(i) Schedule of Rates ("SOR") contracts

SOR contracts are set based on predetermined rates for a list of services and duties required by the customer.

For short term jobs usually completed within a few days, the right to consideration is considered to correspond directly with the value of performance completed to date as measured by the amounts specified for each job set out on the rate card. Revenue is recognised when the jobs are completed or invoiced. Where deemed appropriate, the Group will utilise the practical expedient within IFRS 15 and recognise revenue in line with amounts invoiced. Contract fulfilment costs are expensed as incurred.

For longer term jobs, the Group applies the relevant output or input revenue recognition method for measuring progress that depicts the Group's performance in transferring control of the goods or services to the customer. Contract fulfilment costs are expensed as incurred.

Certain longer term jobs use the output method based upon surveys of performance completed or milestones reached which allow the Group to recognise revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services under the contract.

Under the input method, revenue is recognised in direct proportion to costs incurred where the transfer of control is most closely aligned to the Group's efforts in delivering the service.

(ii) Fixed price (or lump sum) service contracts

Certain contracts, in particular for gas servicing and maintenance, are procured on a fixed price basis. Revenue qualifies for recognition over time as the customer receives and consumes the benefits from the service as it is being provided. Revenue for maintenance/reactive activities is recognised on a straight line basis over the term of the contract. Where servicing and maintenance activity is expected to take place evenly throughout the performance period, revenue is recognised on a straight-line basis over the contract term. Where activity is more aligned to periodic service events, then revenue is allocated to those events and recognised over the contract term when those events take place. Contract fulfilment costs are expensed as incurred.

(iii) Accrued income and deferred income

The Group's customer contracts include a diverse range of payment schedules which are often agreed at the inception of longer term jobs under which it receives payments throughout the term of the contracts.

Where revenue recognised at the period end date is more than amounts invoiced, the Group recognises an accrued income contract asset for this difference. Where revenue recognised at the period end date is less than amounts invoiced, the Group recognises a deferred income contract liability for this difference.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

2. Significant accounting policies (continued)

Employee benefits

Retirement benefit costs

The Group contributes to the personal pension plans of certain employees of the Group. The assets of these schemes are held in independently administered funds. The pension cost charged in the Financial Statements represents the contributions payable by the Group in accordance with IAS 19.

Share-based payments

The Company has issued equity-settled share-based awards and free shares to certain employees. The fair value of share-based awards with non-market performance conditions is determined at the date of the grant using a bi-nominal model. The fair value of share-based awards with market related performance conditions is determined at the date of grant using the Monte Carlo model. Share-based awards are recognised as expenses based on the Company's estimate of the shares that will eventually vest, on a straight line basis over the vesting period, with a corresponding increase in the share option reserve.

At each reporting date the Company revises its estimates of the number of options that are expected to vest based on service and non-market performance conditions. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares that will eventually vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. Options with market-related performance conditions will vest based on total shareholder return against a selected group of quoted market comparators. Following the initial valuation, no adjustments are made in respect of market based conditions at the reporting date.

Employee Benefit Trust

The Company established an Employee Benefit Trust upon its IPO, whose remit is to hold Sureserve Group plc shares on behalf of its employees. The trust is wholly funded by the Group and although legally independent is deemed to be controlled by the Group as the Trust relies on it for funding and the Company is able to remove and appoint the trustees. The assets and liabilities of the Trust are therefore consolidated with those of the Group.

Finance income and costs

Interest receivable and payable on bank balances is credited or charged to the statement of comprehensive income as incurred.

Finance arrangement fees and issue costs are capitalised and netted off against borrowings. All other borrowing costs are written off to the statement of comprehensive income as incurred. If there are nil borrowing costs the finance arrangement fees are included within other receivables.

Notional interest payable, representing the amortisation of loan arrangement fees, is charged to finance costs.

Costs incurred in raising finance

Costs incurred in raising finance are capitalised and amortised through the profit and loss account over the term of the funding. In the event that the associated finance product is refinanced prior to its expiring, the unamortised costs are treated as an "Other Item" on the face of the statement of comprehensive income, to the extent that they are replaced with fees and costs associated with raising the new finance.

Assets held for sale

Assets and liabilities within a disposal group classified as held for sale are presented separately and measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. However, some held for sale assets such as financial assets or deferred tax assets, continue to be measured in accordance with the Group's relevant accounting policy for those assets. Once classified as held for sale, the assets are not subject to depreciation or amortisation. Any profit or loss arising from the sale of a discontinued operation or its remeasurement to fair value less costs to sell is presented as part of a single line item, profit, or loss from discontinued operations.

Discontinued operations

A discontinued operation is a component of the Group that either has been disposed of or is classified as held for sale. A discontinued operation represents a separate major line of the business. Profit or loss from discontinued operations comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal group(s) constituting the discontinued operation.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

2. Significant accounting policies (continued)

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's asset for current tax is calculated using tax rates prevailing at the year end.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences; deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that have been enacted or substantively enacted at the statement of financial position date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. When current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where appropriate, labour and overheads which have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Provision is made, where appropriate, to reduce the value of inventory to its net realisable value.

Government grants

The Group recognises a government grant when it is receivable. Government grants are offset against applicable costs where appropriate, as opposed to being reported as other income.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, and where it is probable that the Group will be required to settle that obligation and the amount can be reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the time value of money is material). Details of material provisions are disclosed unless it is not practicable to do so or where it could be expected to prejudice seriously the position of the entity.

Contingent liabilities

Where a provision or accrual is deemed to be required it has been included within the consolidated statement of financial position. For contingent liabilities where an economic outflow is possible, it is often not practicable to estimate the financial effect due to the range of estimation uncertainty. For contingent liabilities where the possibility of economic outflow is remote, disclosure of the estimated financial effect is not required.

Contingent liabilities acquired in a business combination are initially valued at fair value at the acquisition date. At the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with IAS 37 and the amount initially recognised.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

2. Significant accounting policies (continued)

Joint ventures

Under IFRS 11 joint ventures are accounted for under the equity method of accounting. A joint venture is a joint arrangement whereby the parties have joint control of the arrangement and have rights to the net assets of the arrangement. Loans receivable from joint ventures and investments in joint venture entities are reviewed for impairment at each year end.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Group are as follows:

(a) Trade and other receivables

Trade and other receivables are recognised initially at fair value and measured subsequently at amortised cost less any provision for impairment losses including expected credit losses. In accordance with IFRS 9 the Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and accrued income contract assets, estimated using a combination of historical experience and forward-looking information.

(b) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. Bank overdrafts are presented as current liabilities to the extent that there is no right of offset with cash balances. A contractual obligation from a customer is completed when the payment is approved on the customer's banking system, whether this be via BACS or same day transfer, with cash being recognised as the contractual obligation is released.

Trade and other payables are not interest bearing and are stated initially at fair value and subsequently held at amortised cost.

(d) Bank and other borrowings

Interest-bearing bank and other loans are recorded at the fair value of the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for at amortised cost and on an accruals basis in the statement of comprehensive income using the effective interest method. Interest is added to the carrying value of the instrument to the extent that they are not settled in the period in which they arise.

(e) Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of the financial instrument's contractual obligations rather than the financial instrument's legal form. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

(f) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Leases

The Group assesses whether a contract is a lease at inception of the contract. A lease conveys the right to direct the use and obtain substantially all of the economic benefits of an identified asset for a period of time in exchange for consideration.

A right of use asset and corresponding lease liability are recognised at commencement of the lease. The lease liability is measured at the present value of the lease payments, discounted at the rate implicit in the lease, or if that cannot be readily determined, at the group's incremental borrowing rate specific to the type of asset. The lease liability is subsequently measured at amortised cost using the effective interest rate method. It is remeasured, with a corresponding adjustment to the right of use asset, when there is a change in future lease payments resulting from a rent review, or change in the Group's assessment of whether it is reasonably certain to exercise a purchase, extension or break option. The right of use asset is initially measured at cost, comprising: the initial lease liability and any dilapidation or restoration costs. The right of use asset is subsequently depreciated on a straight-line basis over the shorter of the lease term or the useful life of the underlying asset. The right of use asset is tested for impairment if there are any indicators of impairment. Leases of low value assets and short-term leases of 12 months or less are expensed to the Group income statement over the lease term .

Nature and purpose of each reserve in equity

Share capital is determined using the nominal value of shares that have been issued.

Share premium represents the difference between the nominal value of shares issued and the fair value of the total consideration receivable at the issue date.

Equity-settled share-based employee remuneration is credited to the share-based payment reserve until the related share options are exercised. Upon exercise the share-based payment reserve is transferred to retained earnings.

The merger reserve was created in relation to the Group reorganisation under IFRS 3, in which Sureserve Group plc replaced Sureserve Holdings Limited as the Group's ultimate parent company.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

3. Critical accounting judgements and key sources of uncertainty

In the application of the Group's accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or the period of the revision and future periods if the revision affects both current and future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Revenue recognition

Revenue is recognised based on the stage of completion of job or contract activity. Certain types of service provision pricing mechanisms require minimal estimation and judgement; however service provision lump sum and longer term contracts do require judgements and estimates to be made to determine the stage of completion and the expected outcome for the individual contract. A sum will be recognised in relation to accrued income on the statement of financial position, details of which are described in Note 21. The accrued income balance at 30 September 2022 was £22.1m (2021: £17.9m). These assessments include a degree of uncertainty and therefore if the key judgements and estimates change, further adjustments of recoverable amounts may be necessary. Revenue is generated from a large number of contracts with customers, such that there is limited sensitivity to material revisions arising from changes in estimates on individual contracts.

Provisions for legal and other claims

The Group continues to manage a number of potential risks and uncertainties, including claims and disputes, which are common to other similar businesses and which could have a material impact on short and longer term performance. The Board remains focused on the outcome of a number of contract settlements on which there is a range of outcomes for the Group in terms of both cash flow and impact on the statement of comprehensive income.

In quantifying the likely outturn for the Group, the key judgements and estimates will typically include:

· The scope of the Group's assessed responsibility

· An assessment of the potential likelihood of economic outflow

· An estimation of economic outflow (including potential likelihood)

· A commercial assessment of potential further liabilities

Estimates of amounts provided take account of legal advice where sought. Details of specific cases are not disclosed due to potential commercial sensitivity. Provisions at 30 September 2022 includes £1.1m (2021: £1.1m) in respect of the disposal of Lakehouse Contracts Limited and Foster Property Maintenance Limited - see Notes 8 and 25 for details of the basis of estimation used, as well as Note 31 Contingent liabilities.

The total carrying value of provisions at 30 September 2022 was £2.0m (2021: £2.0m) - see Note 25 for further details.

Impairment of intangible assets and goodwill

The Group assesses whether there are any impairment indicators for non-financial assets at each reporting date using a discount rate of 13.1% (2021: 7.3%). Goodwill is tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. These cash flows are based on the Board approved annual budget and three year plan. Further details are given in Note 15.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 30 September 2022

4. Operating segments

The Group's chief operating decision maker is considered to be the Board of Directors. The Group's operating segments are determined with reference to the information provided to the Board of Directors in order for it to allocate the Group's resources and to monitor the performance of the Group.

Following the update to the Group's strategy during the period, the Board of Directors has changed the basis of segmental reporting to move away from the previously reported two segment reporting basis (Compliance and Energy Services) to a single business segment of "Social Housing Energy Services." The services provided to customers within Social Housing Energy Services comprises of the following:

· Installation, maintenance and repair-on-demand of gas appliances and central heating systems, and air and water hygiene solutions where we contract predominantly under framework agreements to predominantly housing associations and local authorities.

· Consultancy and project management services for renewables and other technology.

· Services in the energy efficiency sector, including external, internal and cavity wall insulation, loft insulation, gas central heating, boiler upgrades and other renewable technologies. The services are offered under various energy saving initiatives including Energy Company Obligations ("ECO"), Green Deal and the Scottish Government's HEEPs ("Home Energy Efficiency Programme") Affordable Warmth programme. Clients include housing associations, social landlords, local authorities and private householders and we have trading relationships with all of the large utility suppliers and many of the leading smaller suppliers.

· Metering services involving the installation, servicing and administration of smart meter devices and associated data.

All revenue and profit is derived from operations in the United Kingdom only.

The profit measure the Board used to evaluate performance is operating profit before amortisation of acquisition intangibles, impairment of goodwill and exceptional items (acquisition costs), as outlined below and on the face of the income statement.

The Group accounts for intercompany trading on an arm's length basis. All intercompany trading is eliminated on consolidation.

The following is an analysis of the Group's revenue and Operating profit before amortisation of acquisition intangibles, impairment of goodwill and exceptional items (acquisition costs) by reportable segment:

	2022	2021 (restated)
	£'000	£'000
Continuing revenue
Social Housing Energy Services	276,029	219,555
Intercompany elimination	(933)	(2,978)
Total revenue	275,096	216,577

No customer represents more than 10% of revenue.

Reconciliation of operating profit before exceptional and other items to profit before taxation

	2022	2021 (restated)
	£'000	£'000
Continuing operating profit before exceptional and other items by segment
Social Housing Energy Services	20,236	15,011
Central costs	(3,409)	(2,749)
Total operating profit before exceptional and other items	16,827	12,262
Amortisation of acquisition intangibles	(269)	-
Impairment of goodwill	-	(188)
Acquisition costs	(120)	-
Finance expense	(864)	(1,000)
Profit before taxation from continuing operations	15,574	11,074

Only the Group consolidated statement of financial position is regularly reviewed by the chief operating decision maker and consequently no segment assets or liabilities are disclosed here under IFRS 8.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

5. Profit before taxation

	2022	2021 (restated)
	£'000	£'000
Profit before taxation is stated after charging/(crediting):
Amount of inventories recognised as an expense (Note 20)	71,258	58,927
Depreciation of property, plant, and equipment (Note 17)	726	681
Depreciation of right of use assets (Note 18)	5,036	4,403
Amortisation of intangible assets (Note 16)	597	451
Staff costs	98,904	85,307
Profit on disposal of property, plant, and equipment	(7)	(208)

6. Assets held for sale and discontinued operations

Following the update to the Group's strategy, the Group is looking to dispose of the Sureserve Fire and Electrical Limited and Precision Lift Services Limited businesses, and a disposal process has commenced which is expected to be completed within 12 months. Accordingly, as required under IFRS, the associated assets and liabilities have consequently been presented as held for sale at 30 September 2022. The businesses were both initially classified as held for sale at 31 March 2022. An impairment review was undertaken at that time and this did not indicate any impairment of the carrying value of either business. Subsequent to 31 March 2022, based on offers received for the Precision Lifts Limited business, an impairment charge of £3.5m was recognised in respect of goodwill.

The results of the discontinued operations, which have been included in the profit for the year, were as follows:

	2022	2021 (restated)
	£'000	£'000

Revenue	34,177	27,437
Cost of sales	(27,397)	(21,067)

Gross profit	6,780	6,370

Other operating expenses	(4,988)	(4,037)
Exceptional income	-	387
Impairment of goodwill	(3,460)	-

Operating (loss) / profit	(1,668)	2,720

Finance expense	(24)	(16)

(Loss) / profit before tax from discontinued operations	(1,692)	2,704
Taxation	(330)	(429)

(Loss) / profit for the period attributable to the equity holders of the Group from discontinued operations	(2,022)	2,275

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

6. Assets held for sale and discontinued operations (continued)

			2022
			£'000

Current assets
Goodwill			4,321
Other intangible assets			16
Property, plant and equipment			87
Right-of-use assets			594
Deferred tax asset			88
Inventories			1,713
Trade and other receivables			4,530
Cash and cash equivalents			3,989
Total assets classified as held for sale			15,338

Current liabilities
Trade and other payables			6,958
Income tax payable			366
Lease liabilities			599
Provisions			310
Total liabilities directly associated with current assets classified as held for sale			8,233

Net assets held for sale			7,105

The proceeds of disposal are expected to exceed the carrying amount of the related net assets after the impairment charge of £3,460,000.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

7. Auditor's remuneration

	2022	2021
	£'000	£'000
The analysis of the auditor's remuneration is as follows:

Fees payable to the Company's auditor and their associates for audit services to the Group:
- The audit of the Company's and Group's annual accounts	125	100
- The audit of the Company's subsidiaries	350	250
Total audit fees	475	350

Fees payable to the Company's auditor and their associates for other services to the Group:
- Agreed upon procedures on interim results	40	35
Total non-audit fees	40	35

8. Exceptional items

	2022	2021
		(restated)
	£'000	£'000

Release of provision for potential legal settlement costs	-	800
Costs on disposal of Lakehouse Contracts Limited and Foster Property Maintenance Limited	-	(800)
Acquisition costs of CorEnergy Limited	(120)	-
	(120)	-

Exceptional items are considered non-trading because they are not part of the underlying trade of the Group.

Acquisition costs comprise legal and professional costs in relation to acquisition of CorEnergy Limited and amounted to £0.1m (2021: nil).

Lakehouse Contracts Limited and Foster Property Maintenance Limited were sold on 17 August 2018 were previously disclosed as discontinued operations. The Board has reviewed the nature and time elapsed in classifying these and determined they are exceptional items.

Exceptional items comprise:

· £nil (2021: £0.8m) of additional costs provided for in the year, relating to legacy transactions

· £nil (2021: (£0.8m)) release of provisions for potential legal settlement costs, (see further details in note 31)

On 20 December 2019, Mapps Group Limited, the acquirer of Lakehouse Contracts Limited and Foster Property Maintenance Limited, went into liquidation. During the year we corresponded with the Liquidators and advisers to both Mapps Group Limited and Lakehouse Contracts Limited in an effort to progress and resolve any outstanding claims. We are still awaiting the provision of necessary information from the Liquidators in order to progress matters. £nil additional costs (2021: £0.8m) have been provided for during the year. At 30 September 2022, the group has provisions for liabilities relating to the disposal of £1.1m (2021: £1.1m). In addition to the amounts provided for above, there are a number of potential contingent liabilities arising from the disposal including, but not limited to:

• Potential claims under parent company guarantees and bonds for projects. The value of bonds and guarantees is included within Note 31

• Potential claims under clauses in the sale and purchase agreement including working capital adjustments and warranties/indemnities. Resolution of these outstanding claims is in the hands of the Liquidators of Mapps Group Limited and Lakehouse Contracts Limited

Whilst a claim has been received from the Liquidators of Lakehouse Contracts Limited, the Group has claims against Lakehouse Contracts Limited and Mapps Group Limited for amounts that exceed their best estimate of any amounts that may potentially be due to Lakehouse Contracts Limited and Mapps Group Limited under clauses in the sale and purchase agreement. The Board is in continuing dialogue with all parties.

Further details are not disclosed on the basis that such disclosure would be seriously prejudicial.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

9. Finance income and finance expenses

	2022	2021 (restated)
	£'000	£'000

Finance expenses
Interest payable on bank overdrafts and loans	194	378
Loan arrangement fee amortisation	78	109
Interest on lease agreements (Note 27)	543	455
Other interest payable	49	58
	864	1,000

10. Information relating to employees

The average number of employees, including Directors, employed by the Group during the year was:

	2022	2021 (restated)
	Number	Number

Direct labour and contract management	1,656	1,525
Administration and support	759	662
	2,415	2,187

	2022	2021 (restated)
The aggregate remuneration was as follows:	£'000	£'000

Wages and salaries	87,181	75,410
Social security	9,365	7,783
Pension costs - defined contribution plans	2,474	1,829
Equity-settled share-based payments	381	285
	99,401	85,307

11. Retirement benefit obligations

The Group contributes to the personal pension plans of certain employees of the Group. The assets of these schemes are held in independently administered funds. From 1 February 2014, the Group contributes to a new workplace pension scheme for all employees in compliance with the automatic enrolment legislation. The Group paid £2,474,000 in the year ended 30 September 2022 (2021 (restated): £1,829,000). At the reporting date, £375,330 of contributions were payable to the funds (2021: £442,000).

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

12. Tax on profit on ordinary activities

	2022	2021 (restated)
	£'000	£'000
Current tax
Current year	3,213	1,846
Current tax - prior year	(476)	95
Total current tax	2,737	1,941
Deferred tax (Note 26)	(256)	56
Total tax on profit on ordinary activities	2,481	1,997

The tax assessed for the year differs from the standard rate of corporation tax in the UK. The differences are explained below:


	2022	2021 (restated)
	£'000	£'000

Profit before tax	15,574	11,074

Effective rate of corporation tax in the UK	19%	19%

Profit before tax at the effective rate of corporation tax	2,959	2,104

Effects of:
Income not deductible for tax purposes	(341)	(101)
Adjustment of deferred tax to closing tax rate	(54)	(89)
Current tax credited to equity	90	-
Deferred tax credited to equity	302	-
Current tax - prior year	(476)	95
Deferred tax - prior year	1	(12)
Tax charge for the year	2,481	1,997

Factors that may affect future charges

The closing deferred tax provision has been calculated at 25% in accordance with the rate enacted at the statement of financial position date.

In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase to 25%. This new law was substantively enacted on 24 May 2021.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

13. Dividends

The Board did not recommend the payment of a dividend for the year ended 30 September 2022 (2021: nil).

The final dividend for the year ended 30 September 2020 of 1p per share amounting to £1.6million was paid in the prior year.

14. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

	2022	2021 (restated)
	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	163,895,387	160,267,970

Diluted
Effect of dilutive potential ordinary shares:
Share options	3,694,811	2,910,442
Weighted average number of ordinary shares for the purposes of diluted earnings per share	167,590,198	163,178,412

Earnings for the purpose of basic and diluted earnings per share from continuing operations being net earnings attributable to the owners of the Company from continuing operations (£'000)	13,093	9,077

Basic earnings per share from continuing operations	8.0p	5.7p
Diluted earnings per share from continuing operations	7.8p	5.6p

(Loss) / earnings for the purpose of basic and diluted earnings per share from discontinued operations being net earnings attributable to the owners of the Company from discontinued operations (£'000)	(2,022)	2,275

Basic (loss) / earnings per share from discontinued operations	(1.2p)	1.4p
Diluted (loss) / earnings per share from discontinued operations	(1.2p)	1.4p

Earnings for the purpose of basic and diluted earnings per share being net profit after tax attributable to the owners of the Company from continuing and discontinued operations (£'000's)	11,071	11,352

Basic earnings per share	6.8p	7.1p
Diluted earnings per share	6.6p	7.0p

Earnings, for the purpose of basic and diluted earnings per share, being net profit after tax attributable to the owners of the Company from continuing and discontinued operations, adjusted for the tax effected impairment of goodwill, amortisation of acquisition intangibles and exceptional items (£'000's)	14,695	11,153

Basic earnings per share	9.0p	7.0p
Diluted earnings per share	8.8p	6.8p

The number of shares in issue at 30 September 2022 was 165,892,554 (2021: 161,213,788).

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

15. Goodwill


				£'000

At 1 October 2021				42,479
Acquisition of CorEnergy Limited				6,234
Transfer of Sureserve Fire and Electrical Limited and Precision Lift Services Limited to assets held for sale				(7,781)
At 30 September 2022				40,932

Goodwill arising on consolidation represents the excess of the fair value of the consideration transferred over the fair value of the Group's share of the net assets of the acquired subsidiary at the date of acquisition.

Goodwill is not amortised but is reviewed for impairment on an annual basis or more frequently if there is an indication that goodwill may be impaired. Goodwill acquired in a business combination is allocated to cash-generating units ("CGUs") according to the level at which management monitors that goodwill.

Goodwill is carried at cost less accumulated impairment losses.

The carrying value of goodwill is allocated to the following CGUs:

	2022	2021
CGU	£'000	£'000

K&T Heating Services Limited	3,774	3,774
Sureserve Fire and Electrical Limited	-	3,717
Everwarm Limited	17,476	17,476
H2O Nationwide Limited	2,209	2,209
Providor Limited	3,037	3,037
CorEnergy Limited	6,234	-
Sure Maintenance Limited	4,225	4,225
Aaron Services Limited	3,977	3,977
Precision Lifts Limited	-	4,064
	40,932	42,479

An asset is impaired if its carrying value exceeds the unit's recoverable amount which is based upon value in use. At each reporting date impairment reviews are performed by comparing the carrying value of the CGU to its value in use. At 30 September 2022 the value in use for each CGU was calculated based upon the cash flow projections of the latest Board-approved three-year forecasts together with a further two years estimated and an appropriate terminal value to perpetuity.

Future forecasted profits are estimated by reference to the average operating margins achieved in the period immediately before the start of the forecast period.

The estimated growth rates are based on past experience and knowledge of the individual markets. The Directors believe that the Social Housing Energy Services markets will continue to present strong growth opportunities for the CGUs outlined above. Management believes that future growth in these markets is underpinned by a number of factors including:

· A pipeline of new tenders

· Further opportunities to work with other Group companies

· Client demand for safe buildings

· Adjacent market opportunities

The assumptions used in the impairment reviews are outlined below:

The growth rate applied to the cash flows in years four and five of the impairment review performed at 30 September 2022 was 4% (2021: 4%). A terminal growth rate of 2% (2021: 2%) was applied. The pre-tax discount rate applied was 13.1% (2021: 7.3%). Three different types of sensitivity analysis have been performed on two entities that showed potential indicators of impairment, including a 20% reduction in revenue and a reduction in the operating profit margin of between 1% and 2%. The Directors consider that any reasonably possible change in the key assumptions would not cause the carrying amount to exceed its recoverable amount.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

16. Other intangible assets

		Acquisition intangibles
	Computer software	Contracted customer order book	Customer relationships	Non-compete agreements	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 October 2020	1,873	18,606	14,655	1,670	36,804
Additions	545	-	-	-	545
Disposals	(272)	-	-	-	(272)
At 30 September 2021	2,146	18,606	14,655	1,670	37,077
Acquisition of CorEnergy Limited	-	269	-	-	269
Additions	911	-	-	-	911
At 30 September 2022	3,057	18,875	14,655	1,670	38,257

Amortisation
At 1 October 2020	1,147	18,606	14,655	1,670	36,078
Amortisation charge	451	-	-	-	451
Disposals	(272)	-	-	-	(272)
At 30 September 2021	1,326	18,606	14,655	1,670	36,257
Amortisation charge	328	269	-	-	597
At 30 September 2022	1,654	18,875	14,655	1,670	36,854

Carrying value
At 30 September 2022	1,403	-	-	-	1,403

At 30 September 2021	820	-	-	-	820

Contracted customer order book

The value placed on the order book was based upon the cash flow projections over the contracts in place when a business is acquired. Due to uncertainties with trying to forecast revenues beyond the contract term, the Directors have valued contracts over the contractual term only. The value of the order book was amortised over the remaining life of each contract which typically range from one to five years.

Customer relationships

The values placed on the customer relationships were based upon the non-contractual expected cash inflows forecast on the base business over and above contracted revenues. The value of customer relationships was amortised over five years.

Non-compete agreements

The value placed on the non-compete agreements was based upon the non-compete clause and knowledge and know-how of the former owners of the acquired businesses. The value of non-compete agreements was amortised over five years.

All acquisition intangibles have been fully amortised as at 30 September 2022.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

17. Property, plant, and equipment

	Leasehold improvements	Plant & equipment	Fixtures and fittings	Motor vehicles	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 October 2020	676	1,389	1,760	176	4,001
Additions	635	586	349	-	1,570
Disposals	(71)	(223)	(307)	(61)	(662)
At 30 September 2021	1,240	1,752	1,802	115	4,909
Transfer to assets held for sale	(119)	(55)	(223)	(18)	(415)
Additions	21	455	289	-	765
Disposals	(177)	-	(29)	-	(206)
At 30 September 2022	965	2,152	1,839	97	5,053

Depreciation
At 1 October 2020	460	765	1,396	168	2,789
Charge for the year	99	355	227	-	681
Disposals	(2)	(208)	(307)	(53)	(570)
At 30 September 2021	557	912	1,316	115	2,900
Transfer to assets held for sale	(113)	(50)	(175)	(18)	(356)
Charge for the year	114	379	233	-	726
Disposals	(177)	-	(29)	-	(206)
At 30 September 2022	381	1,241	1,345	97	3,064

Net book value

At 30 September 2022	584	911	494	-	1,989

At 30 September 2021	683	840	486	-	2,009

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

18. Right of use assets

	Leasehold property	Commercial Vehicles	Total
	£'000	£'000	£'000
Cost
At 1 October 2020	3,235	7,034	10,269
Acquisition of Vinshire Gas Services Limited	-	283	283
Additions	3,325	6,025	9,350
Disposals	(130)	(1,006)	(1,136)
At 30 September 2021	6,430	12,336	18,766
Transfer to assets held for sale	(179)	(771)	(950)
Variations	-	50	50
Additions	77	8,230	8,307
Disposals	-	(808)	(808)
At 30 September 2022	6,328	19,037	25,365

Depreciation
At 1 October 2020	1,111	2,401	3,512
Charge for the year	1,074	3,329	4,403
Disposals	(130)	(583)	(713)
At 30 September 2021	2,055	5,147	7,202
Transfer to assets held for sale	(111)	(479)	(590)
Charge for the year	938	4,098	5,036
Disposals	-	(646)	(646)
At 30 September 2022	2,882	8,120	11,002

Net book value
At 30 September 2022	3,446	10,917	14,363

At 30 September 2021	4,375	7,189	11,564

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

19. Group entities

Subsidiaries

The Group's subsidiary undertakings are:

	Country of incorporation	Class of capital	%	Principal activity
Aaron Services Limited	England	Ordinary	100	Maintenance and installation of domestic gas heating systems
Sureserve Fire and Electrical Limited	England	Ordinary	100	Fire protection and building electrical services
Bury Metering Services Limited	England	Ordinary	100	Non-trading
CorEnergy Limited	England	Ordinary	100	Renewable and energy saving services
Everwarm Limited	Scotland	Ordinary	100	Energy and insulation services
H2O Nationwide Limited	England	Ordinary	100	Duct and water tank cleaning and refurbishment and building services hygiene
Just Energy Solutions Limited	England	Ordinary	100	Non-trading
K & T Heating Services Limited	England	Ordinary	100	Maintenance and installation of domestic gas heating systems
Precision Lift Services Limited	England	Ordinary	100	Lift installation, modernisation, and maintenance services
Providor Limited	England	Ordinary	100	Smart Metering
Smart Metering Limited	England	Ordinary	100	Non-trading
Sure Maintenance Limited	England	Ordinary	100	Maintenance and installation of domestic gas heating systems
Sureserve Compliance Services Limited	England	Ordinary	100	Intermediate holding company
Sureserve VGS Limited (formerly known as Sureserve Construction Services Limited)	England	Ordinary	100	Intermediate holding company
Sureserve Design and Build Limited	England	Ordinary	100	Non-trading
Sureserve Energy Services Limited	England	Ordinary	100	Intermediate holding company
Sureserve Holdings Limited (*)	England	Ordinary	100	Intermediate holding company
Vinshire Gas Services Limited	England	Ordinary	100	Non-trading
* Directly held investment
The registered office of all entities above is Crossways Point 15, Victory Way, Crossways Business Park, Dartford, Kent, DA2 6DT except for Everwarm Limited whose registered office is 3 Inchcorse Place, Whitehill Industrial Estate, Bathgate, Scotland, EH48 2EE .

Joint ventures

The Group's joint ventures are:

	Country of incorporation	Class of capital	%	Principal activity
Warmworks Scotland LLP	Scotland	Ordinary	33.33	Energy and insulation services
Arbed am Byth	Wales	Ordinary	50	Energy and insulation services

Details of joint ventures

	2022	2021
	£'000	£'000

Carrying value of investment in Arbed am Byth	187	536
Carrying value of investment in Warmworks Scotland LLP	2,307	1,124
	2,494	1,660

Warmworks, a joint venture with Changeworks Resources for Life and the Energy Saving Trust Enterprises Limited, commenced trading in September 2015, and the profit for 2022 was £1,273,000 (2021: profit of £1,013,000). The registered office of Warmworks Scotland LLP is 1 Carmichael Place, Leith, Edinburgh, Midlothian, EH6 5PH.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

19. Group entities (continued)

Arbed am Byth, a joint venture with the Energy Saving Trust Enterprises Limited, commenced trading in August 2018, and the profit for 2022 was £151,000 (2021: £146,000). The registered office of Arbed am Byth is 33 Cathedral Road, Cardiff, Wales, CF11 9HB.

The Arbed programme for the Welsh Government was delivered via our joint venture with the Energy Saving Trust. The scheme ended in November 2021, with a 12-month period following this for any warranty / service work.

20. Inventories

	2022	2021
	£'000	£'000

Raw materials and consumables	5,059	4,199

There are no inventories at 30 September 2022 or 30 September 2021 carried at fair value less costs to sell. The Directors consider that the replacement value of inventories is not materially different from their carrying value. There was no specific security held at either reporting date over inventory.

£71,258,000 (2021 (restated): £58,927,000) of inventories were recognised as an expense in the year.

21. Trade and other receivables

	2022	2021
	£'000	£'000
Current
Trade receivables	23,115	18,414
Other receivables	5,664	3,698
Prepayments	3,122	3,219
Accrued income	22,095	17,918
	53,996	43,249

Other receivables include sales retentions of £3,002,000 (2021: £2,920,000), rebates receivable of £805,000 (2021: £516,000), and finance issue costs of £151,000 (2021: £27,000).
	2022	2021
	£'000	£'000
Trade receivables
Trade receivables not due	19,876	16,386
Trade receivables past due 1-30 days	2,465	1,666
Trade receivables past due 31-60 days	300	84
Trade receivables past due 61-90 days	100	93
Trade receivables past due over 90 days	761	433
Gross trade receivables	23,502	18,662

Provision for credit losses brought forward	(248)	(446)
Credit note applied	121	-
Acquisition of CorEnergy Limited	(41)	-
Amounts written off	4	208
Provision charged to profit or loss in the year	(223)	(10)
Provision for credit losses carried forward	(387)	(248)
Net trade receivables	23,115	18,414

The provision for credit losses of £387,000 (2021: £248,000) includes £387,000 (2021: £148,000) of trade receivables over 90 days past their due date.

The Directors consider that the carrying amount of trade receivables approximates to their fair value. Debts provided for and written off are determined on an individual basis and included in other operating expenses in the financial statements. The Directors believe the credit risk is low due to the majority of the Group's customer base being either public sector or regulated bodies. The Group's maximum exposure on credit risk is fair value on trade receivables as presented above. The Group has not pledged any trade receivables as security. At the end of the year three clients represented over 5% of the total balance of trade receivables ( 2021 : one client).

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

21. Trade and other receivables (continued)

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables and contract assets (accrued income). To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based on similar credit risk and aging. The contract assets have similar risk characteristics to the trade receivables for similar types of contracts. The expected loss rates are based on the Group's historical credit losses experienced over the 5 year period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. The Group has identified key macroeconomic factors in the locations where the Group operates.

22. Trade and other payables

	2022	2021
	£'000	£'000
Current
Trade payables	31,200	24,937
Sub-contract retentions	805	727
Accruals	11,097	11,727
Deferred income	1,693	980
Social security and other taxes	7,901	7,524
Other payables	1,374	1,502
	54,070	47,397

The Directors consider that the carrying amount of trade payables approximates to their fair value for each reported period. Trade payables are non-interesting bearing. Average settlement days are 74 days (2021: 68 days).

23. Borrowings

In December 2021, the Group renewed its bank facilities to provide an overdraft facility of £5,000,000 together with a revolving credit facility of £15,000,000 which runs to 31 January 2025. The revolving credit facility remained undrawn on 30 September 2022 and 30 September 2021. There is a charge over all of the Company's assets in respect of continuing security for the Group's obligations to pay under the revolving credit facility with NatWest.

24. Net cash


	2022	2021
	£'000	£'000

Cash and cash equivalents	19,319	16,444
Unamortised finance costs (included in other receivables)	151	27
Net cash pre-lease liabilities	19,470	16,471
Lease liabilities (note 27)	(15,076)	(12,043)
Total net cash in continuing operations	4,394	4,428
Cash and cash equivalents in assets held for sale	3,989	-
Lease liabilities in liabilities held for sale	(599)	-
Total net cash	7,784	4,428

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

25. Provisions

							Legal and other
							£'000

At 1 October 2020							4,046
Additional provision							746
Released during the year							(1,187)
Utilised in the year							(1,606)
At 30 September 2021							1,999
Additional provision							338
Additional provision on acquisition							40
Utilised in the year							(413)
At 30 September 2022							1,964

Current provisions							497

Non-current provisions							1,467

Legal and other

Provisions relate to property dilapidation obligations, potential contract settlement costs and other potential legal settlement costs. These are expected to result in an outflow of economic benefit over the next one to five years. See notes 8 and 31 for further details.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

26. Deferred taxation

	Accelerated capital allowances	Short term timing differences	Share based payments	Acquisition intangibles	Unutilised losses	Total
	£'000	£'000	£'000	£'000	£'000	£'000

Asset / (provision) bought forward as at 1 October 2020	93	229	56	-	139	517
(Debit) / Credit to P&L	(260)	72	89	-	43	(56)
Deferred tax on share- based payments recognised in equity	-	-	(117)	-	-	(117)
(Liability) / asset carried forward as at 30 September 2021	(167)	301	28	-	182	344
Transfer of assets held for sale	10	(98)	-	-	-	(88)
Acquisition of CorEnergy Limited	(1)	-	-	(67)	-	(68)
(Debit) / Credit to P&L	(264)	102	351	67	-	256
Deferred tax on share- based payments recognised in equity	-	-	-	-	-	-
(Liability) / asset carried forward as at 30 September 2022	(422)	305	379	-	182	444

At 30 September 2022
Non-current asset	-	305	379	-	182	866
Non-current liability	(422)	-	-	-	-	(422)
Net deferred tax (liability) / asset	(422)	305	379	-	182	444
At 30 September 2021
Non-current asset	-	301	28	-	182	511
Non-current liability	(167)	-	-	-	-	(167)
Net deferred tax asset	(167)	301	28	-	182	344

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

27. Lease liabilities


							Present value of minimum lease payments
							£'000

At 1 October 2020							6,836
Repayments							(4,283)
Interest							475
New obligations on acquisition							283
Variation in terms							18
New obligations							9,332
Obligations cancelled							(618)
At 30 September 2021							12,043
Transfer to liabilities held for sale							(365)
Repayments							(5,341)
Interest							543
Variation in terms							50
New obligations							8,307
Obligations cancelled							(161)
At 30 September 2022							15,076

Future lease payments are due as follows:
							Present value of minimum lease payments
							£'000

Less than one year							5,494
Between two and five years							9,582
At 30 September 2022							15,076

Less than one year							4,071
Between two and five years							7,972
At 30 September 2021							12,043

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

28. Called up share capital

Allotted, called-up and fully paid:

2022	2021		2022	2021
Number	Number		£	£

165,892,554	161,213,788	Ordinary shares of £0.10 each	16,589,255	16,121,379

Details of options granted under the Group's share scheme are contained in Note 29.

Voting rights

The holders of ordinary shares are entitled to receive notice of, attend or participate in any general meeting of the Company and to receive any notice of a written resolution proposed to be passed by the Company.

On a show of hands at a meeting the holders of any such shares shall be entitled to one vote for all such shares held.

On a poll at a meeting, for a written resolution, the holder of such shares shall be entitled to such number of votes as corresponds to the nominal value (in pence) or the relevant shares held.

29. Share-based payments

The Company has established a Share Incentive Plan (SIP), Sharesave Scheme (SAYE), Company Share Option Plan (CSOP), Performance Share Plan (PSP) and a Special Incentive Award Plan (SIAP).

The charge recognised for share based payments in the year was £381,000 (2021: £168,000) net of tax.

Sharesave Scheme (SAYE)

The SAYE is open to all employees who satisfy certain criteria, particularly relating to period of employment. The exercise price is equal to the average of the closing quoted market price for the preceding three days less a discretionary discount approved by the Board of not less than 80% of the market value of a share. The Scheme is for three years, during which the holder must remain in the employment of the Group. The shares can be exercised within six months from the maturity of the Scheme.

Company Share Option Plan (CSOP)

The CSOP is open to all employees at the discretion of the Remuneration Committee. The exercise price is equal to the average of the closing quoted market price at the date of grant. The vesting period is for three years, during which the holder must remain in the employment of the Group and is conditional on the achievement of a mix of market and non-market performance conditions from the date of granting the option to the date of potential exercise.

Performance Share Plan (PSP)

The PSP is open to certain employees at the discretion of the Remuneration Committee at a limit not exceeding 150% of the individual's base salary at the date of grant. The exercise price is £nil. The vesting period is for three years, during which the holder must remain in the employment of the Group and is conditional on the achievement of a mix of market and non-market performance conditions from the date of granting the option to the date of potential exercise.

Special Incentive Award Plan (SIAP)

Awards granted under the SIAP take the form of options to acquire Sureserve Shares for nil consideration. The awards will have no beneficial tax status. Only employees who are also Directors of the Company may be granted an award under the SIAP. The Remuneration Committee will have absolute discretion to select the persons to whom awards may be granted and in determining the number of shares to be subject to each award.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

29. Share based payments (continued)

	SAYE	CSOP	PSP	SIAP
Number
At 1 October 2020	3,810,884	3,113,153	840,000	800,000
Granted	-	-	-	180,000
Lapsed	(769,129)	(137,870)	-	-
Exercised	(551,336)	(272,643)	-	(980,000)
At 30 September 2021	2,490,419	2,702,640	840,000	-
Granted	1,719,442	-	696,125	-
Lapsed	(343,399)	(366,583)	(110,000)	-
Exercised	(812,632)	(161,323)	-	-
At 30 September 2022	3,053,830	2,174,734	1,426,125	-

Weighted average exercise price (p)
At 1 October 2021	29.40p	42.84p	-	-
Granted	66.40p	-	-	-
Lapsed	30.56p	42.91p	-	-
Exercised	25.81p	40.75p	-	-
Outstanding at 30 September 2022	50.01p	42.99p	-	-
Outstanding value at 30 September 2021	29.40p	42.84p	-	-

Fair value of options granted
Weighted fair value of one option	20.30p	18.24p	61.66p	-

Assumptions used in estimating the fair value (weighted average)
Share price at date of grant	59.10p	42.75p	65.53p	-
Exercise price	50.01p	42.99p	0.00p	-
Expected dividend yield	0.87%	3.57%	2.20%	-
Risk free rate	0.86%	0.04%	0.48%	-
Expected volatility	37.50%	56.91%	47.45%	-
Expected life	3.31 years	5.41 years	3.00 years	-

In the year ended 30 September 2022, options were granted in respect of the SAYE and PSP schemes.

The weighted average remaining contractual life of outstanding options at 30 September 2022 was 1.3 years (2021: 1.2 years).

The SAYE, CSOP and PSP options were valued under the binomial methodology.

The PSP options granted in FY22 were valued under the Monte Carlo methodology.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

29. Share-based payments (continued)

The inputs into the Binomial model are as follows:	2022	2021

Share price (p)	83.00	-
Exercise price (p)	66.40	-
Expected volatility (%)	38.35	-
Expected life (years)	3.19	-
Risk-free rate (%)	1.40	-
Expected dividend yield (%)	0.00	-

The inputs into the Monte Carlo model are as follows:	2022	2021

Share price (p)	83.50 - 93.50	27.1
Exercise price (p)	0.00	0.00
Expected volatility (%)	36.72 - 36.94	34.90
Expected life (years)	3.00	1.50
Risk-free rate (%)	0.64 - 1.48	0.71
Expected dividend yield (%)	0.00 - 2.52	1.00

Expected volatility was based upon the historical volatility over the expected life of the schemes. The expected life is based upon scheme rules and reflect management's best estimates for the effects of non-transferability, exercise restrictions and behavioral considerations.

30. Reserves

Share premium reserve

The share premium account represents amounts received in excess of the nominal value of shares on issue of new shares, net of the direct costs associated with issuing those shares.

Merger reserve

On 23 March 2015 Sureserve Group plc (then Lakehouse plc) was listed on the Premium Listing segment of the Official List and trading on the Main Market of the London Stock Exchange. As part of a restructuring accompanying the Initial Public Offering ("IPO") of the Group on 23 March 2015, Sureserve Group plc replaced Sureserve Holdings Limited as the Group's ultimate parent company by way of a share exchange agreement. Under IFRS 3 this has been accounted for as a group reconstruction under merger accounting.

Merger accounting principles for this combination gave rise to a merger reserve of £20,067,000.

Share based payment reserve

See note 29 for further details.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

31. Guarantees and contingent liabilities

The Company and certain subsidiaries have, in the normal course of business, given guarantees and performance bonds relating to the Group's contracts totalling £3,537,900 (2021: £5,463,000). A subsidiary of the Group has provided a guarantee of £750,000 (2021: £750,000) to the Warmworks Scotland LLP joint venture.

Contingent liabilities in respect of the disposal of Lakehouse Contracts Limited and Foster Property Maintenance Limited are disclosed in Note 8.

32. Financial instruments

Financial instruments comprise both financial assets and financial liabilities. The carrying value of these financial assets and liabilities are assumed to approximate their fair values.

The principal financial assets in the Group comprise trade, loans and other receivables and cash and cash equivalents. The principal financial liabilities in the Group comprise borrowings which are categorised as debt at amortised cost, together with trade and other payables, other long-term liabilities, which are classified as other financial liabilities.

Financial risk management

The Group's objectives when managing finance and capital are to safeguard the Group's ability to continue as a going concern in order to provide returns to shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group is not subject to any externally imposed capital requirements.

The main financial risks faced by the Group are liquidity risk, credit risk and market risk (which includes interest rate risk). Currently the Group only operates in the UK and only transacts in Sterling. It is therefore not exposed to any foreign currency exchange risk. The Board regularly reviews and agrees policies for managing each of these risks.

Categories of financial instruments

	Financial assets measured at amortised cost
	2022	2021
Financial assets	£'000	£'000
Current financial assets
Trade receivables, loans, and other receivables	50,874	40,030
Cash and cash equivalents	19,319	16,444

	70,193	56,474

	Financial liabilities measured at amortised cost
	2022	2021
Financial liabilities	£'000	£'000
Current financial liabilities
Trade and other payables	44,428	38,027
Lease liabilities	5,494	4,071
Total current financial liabilities	49,922	42,098

Non-current financial liabilities
Lease liabilities	9,582	7,972
	59,504	50,070

The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

32. Financial instruments (continued)

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group does not enter into derivatives to manage its credit risk.

The maximum exposure to credit risk at the reporting date is represented by the carrying value of the financial assets in the statement of financial position. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.

There has been a minimal history of bad debts as the majority of its sales are to local government councils or housing trust partnerships and as a consequence the Directors do not consider that the Group has a material exposure to credit risk.

Market risk

As the Group only operates in the UK and only transacts in Sterling, the Group's activities expose it primarily to the financial risks of changes in interest rates only and as a consequence of being debt free the Directors do not consider that the Group has a material exposure to interest rate risk.

Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long term funding and liquidity management requirements. The Group's policy on liquidity is to ensure that there are sufficient committed borrowing facilities to meet the Group's long to medium-term funding requirements.

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

(a) Interest rate risk

The Group's revolving credit facility has floating interest rates based on a margin above LIBOR/SONIA. Since the facility was undrawn during both financial years, the Group was not exposed to any interest rate risk.

(b) Interest rate sensitivity analysis

The Group's principal borrowings attract floating rate interest. On a weighted average of £nil (2021: £nil) of debt in the year, a half per cent increase in the floating interest rate would have increased annual interest payable by £nil (2021: nil).

33. Cash generated from operations


	2022	2021 (restated)
	£'000	£'000

Operating profit	16,438	12,074
Adjustments for:
Depreciation	5,762	4,743
Share-based payments	381	285
Amortisation of intangible related assets	597	451
Impairment of goodwill and acquisition intangibles	-	188
Profit on disposal of property, plant, and equipment	(7)	(208)
Changes in working capital:
Inventories	(1,634)	(1,061)
Trade and other receivables	(11,145)	(5,258)
Trade and other payables	6,054	2,704
Provisions	(74)	(1,659)
Cash generated from operations	16,372	12,259

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

34. Business combinations

CorEnergy Limited

On 7 December 2021, the Group, acquired the entire issued share capital of CorEnergy Limited. The consideration paid for CorEnergy was £6.6 million, plus a working capital adjustment of £1 million (paid in cash), taking the total consideration paid to £7.6 million. £3.3 million was satisfied through cash and a further £3.3 million in the issue of 3,704,811 new ordinary shares of 10p each in Sureserve which were issued at an effective price of 89.4p each.

The Directors consider the value assigned to goodwill represents the acquired workforce, expected synergies to be generated from cross-selling opportunities through the extension of the Group's service and solutions offering in renewables, and access to new customers and markets as a result of this acquisition. It is not expected that any goodwill will be deductible for tax purposes. All costs of the acquisition have been recognised as an exceptional expense in the statement of comprehensive income in the period in which it was incurred, the total cost recognised is £120,000.

The effect of the acquisition on the Group's assets and liabilities were as follows:

					Provisional fair value
					£'000
Assets
Current
Trade and other receivables					671
Cash					1,651
Total current assets					2,322

Total assets					2,322

Liabilities
Current
Provisions					(40)
Trade and other payables					(1,045)
Total liabilities					(1,085)

Net assets acquired					1,237
Goodwill					6,234
Acquisition intangibles, net of deferred tax					202
					7,673

Satisfied by:
Cash consideration					3,312
Share consideration					3,312
Working capital adjustment (paid in cash)					1,049
					7,673

Post-acquisition results

The results for CorEnergy Limited since the acquisition date, included within the consolidated Statement of Comprehensive Income for the period ended 30 September 2022, are:

	£'000
Revenue	5,072
Operating profit	1,025
Interest	-
Profit before tax	1,025
Taxation	(191)
Profit for the period	834

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 30 September 2022

34. Business combinations (continued)

Results of business combinations during the period

If the acquisition of CorEnergy Limited had occurred on 1 October 2021, the consolidated statement of comprehensive income for the Group for the period ended 30 September 2022, would have been:

						£'000
Revenue						275,646
Operating profit						16,532
Interest						(864)
Profit before tax						15,668
Taxation						(2,498)
Profit for the period from continuing operations						13,169
Loss from assets held for sale						(2,022)
Profit for the period						11,147

35. Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this Note.

Trading transactions

The Company's subsidiary, Everwarm Limited, provides services to Warmworks Scotland LLP, a joint venture with Changeworks Resources for Life and Energy Saving Trust Enterprises Limited. £15,604,000 of services were provided in 2022 (2021: £9,609,000). £702,000 was charged to Everwarm Limited from Warmworks Scotland LLP for services provided in 2022 (2021: £848,000).

At 30 September 2022 Everwarm Limited had a receivable owing from Warmworks amounting to £2,209,000 (2021: £1,601,000), and a payable of £6,000 (2021: £138,000).

The Company's subsidiary, Everwarm Limited, provides services to Arbed am Byth, a joint venture with Energy Saving Trust Enterprises Limited. As at 30 September 2022 Everwarm Limited had a receivable owing from Arbed am Byth amounting to £nil (2021: £3,000). £488,000 was charged by Everwarm Limited to Arbed am Byth for services provided in 2021 (2021: £243,000). £13,000 was charged to Everwarm Limited from Arbed am Byth for services provided in 2022 (2021: £nil).

Remuneration of key management personnel

The remuneration of the Directors and members of the Board, together with other key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 - Related Party Disclosures. The key management personnel are the members of the Executive Management Team. Further information about the remuneration of individual Group Directors is provided in the audited part of the remuneration report;

	2022	2021
	Number	Number

Number of members of the Executive Management Team at each year end	13	15

	2022	2021
	£'000	£'000

Short-term employee benefits	3,350	2,766
Share-based payment charge	180	113
Post-employment benefits	272	211
Compensation for loss of office	150	187
	3,952	3,277

In addition to the above dividends were paid to directors of £nil (2021: £1,000). Gains on exercise of share options were £nil (2021: £860,000).

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Sureserve Group (SUR)

Thursday, 2nd January 2025

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