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Filta Group Holdings (FLTA)

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Tuesday 20 April, 2021

Filta Group Holdings

Final Results

RNS Number : 9451V
Filta Group Holdings PLC
20 April 2021
 

Filta Group Holdings plc

("Filta", the "Company" or the "Group")

 

Full year audited results for the financial year ended 31 December 2020

 

Financial Highlights

 

· Group Revenue fell 34% to £16.4m (2019: £24.9m) reflecting impact of COVID-19.

 

Revenue declined 31% and 38% in US and UK respectively

Despite impact of lockdowns, gained 935 and 750 new customers in FY20 in the US and UK respectively, positioning Filta well as business ramps up

Recurring revenue remained at over 70% of Group Revenue

 

· Gross margins grew to 42.2% (2019: 40.7%) as prior year efficiency improvements continued to take hold.

 

· Adjusted EBITDA* of £1.1m (2019: £3.2m) reflects a robust core customer base and a strong and swift response to a significant adverse impact on the Group's markets.

 

· Profit before tax, excluding non-cash charges (amortisation, depreciation and share based payments) remained positive at £0.6m (2019: 2.6m).

 

· Cash at year end of £4.2m (2019: £2.9m) resulting in net debt of £1.6m (2019: £2.1m) inclusive of £1.1m (2019: £1.2m) of lease liabilities.

 

· The Board is not recommending the payment of a final dividend as it considers it prudent to continue to conserve cash until the trading recovery has gathered more momentum.

 

*Adjusted for non-recurring items being acquisition related costs, share based payments.

 

Jason Sayers, CEO, commented:

 

" Despite the challenges of the pandemic, I am very pleased to report on the excellent progress made across the Group during 2020. As outlined in previous updates, we implemented measures early on  during the pandemic to improve efficiencies and preserve cash. These measures have proven successful, returning an increase in gross margins to 42.2%. Similarly, during the period, we gained 935 and 750 new customers in the US and UK respectively, providing us with a robust position from which to grow as we exit the lockdown phases.

 

"As lockdown restrictions continue to ease and vaccine programmes are rolled out successfully, particularly in the US and the UK, current business levels have moved past 70% of that pre-COVID-19, with the majority of our largest US and UK customers still to reopen, indicating that demand for Filta's services is poised to increase further. In accordance with this, we have moved our focus back onto the Group's core service offerings, following the success of the FiltaShield service, which we launched in April 2020 to help customers open as safely, as normally and as quickly as possible.

 

"With COVID-19 still causing levels of uncertainty, we are continuing to carefully monitor developments in our markets and will manage our activities accordingly. Where possible we have sought ways to aid our customers in their efforts to reopen, and this has in turn improved relations with existing customers. The strength of our brand and the relations with customers has proven invaluable during this time, providing us with further confidence in the resilience of the Group.

"Our long-term focus remains on growing the business both organically and through acquisitions of high margin, repeat revenue businesses in the grease management market. With the Group now much more efficient and with a strong pipeline of sales in place, I believe the outlook is very promising as we exit these challenging times."

 

 19th April 2021

 

 

Enquiries:  

 

Filta Group Holdings plc     Tel: +1 407 996 5550

Jason Sayers, Chief Executive Officer 

Brian Hogan, Chief Financial Officer 

 

Cenkos Securities plc (NOMAD and Broker)   Tel: +44 20 7397 8900

Stephen Keys, Camilla Hume   

 

Yellow Jersey PR   Tel: +44 7747 788 221

Charles Goodwin 

Joe Burgess

Henry Wilkinson

 

CHAIRMAN'S STATEMENT

 

Introduction

 

The Group, in common with many businesses around the world and, particularly those involved in or dependent upon the restaurant, leisure and entertainment industries, has endured a very challenging  time over the last year. The impact of COVID-19 resulted in a 34% decline in revenue against the prior year as many of our customers were forced to suspend business for long periods during 2020.

 

The sudden fall in business levels during March 2020 was particularly frustrating because, in the early part of the year, we were enjoying strong revenue growth and significantly better operating margins as a result of the profit improvement actions implemented in the UK in the last quarter of 2019.

 

However, following the introduction of social distancing lockdowns towards the end of Q1, our focus moved to cash preservation in order to ensure that we would be able to ride out a worldwide economic downturn, the duration of which was, at that time, impossible to predict with any certainty. Whilst some uncertainties still remain and there are likely to be more bumps in the road, there are good reasons to look forward with optimism and we are in a position to do this because we have preserved our cash and protected our balance sheet over the last 12 months. We also took the opportunity, during the period of reduced activity, to identify additional and complementary service offerings and ways to further improve delivery of our services and we are now seeing the benefits come through.

 

Results

 

Revenue was down by £8.5m, or 34%, at £16.4m (2019: £24.9m), although a 28% reduction in operating costs to £17.0m (2019: £23.7m) enabled us to deliver an operating loss of £0.6m, £1.8m down on the previous year (2019: £1.2m profit), and a loss before tax of £0.9m (2019: £0.9m profit).

 

Adjusted EBITDA, which we regard as the best financial measure of underlying performance as it is struck before one-off and non-cash charges, including acquisition and restructuring costs, depreciation, amortisation and share-based payments, was £1.1m (2019: £3.2m), representing a profit margin of 6.4% (2019: 12.7%) and reflecting the fact that the fixed costs were, in a year of reduced revenue, 44% of total operating costs (2019: 38%).

 

We finished the year with net borrowings of £1.6m (2019: £2.1m), including £1.1m of lease liabilities (2019: £1.2m), and with a gross cash balance of £4.2m (2019: £2.9m). At the year end, the Group had a further £0.4m of available funding through its unutilised overdraft facility. The increase in cash resources was a direct result of applying strict cash controls, including agreeing salary reductions with staff and management, the deferral of non-essential spend and taking advantage of government support schemes. During the year we received funding under the UK furlough schemes, which helped us to fund staff wages during the worst affected periods and enabled the principal business activities to operate on a cash neutral basis through the year. We also drew down £1.2m of funding under the UK Coronavirus Business Interruption Loan Scheme ("CBILS") and a further £0.2m under the US Payroll Protection Program ("PPP").

 

Strategy

 

The Group's business platform has comprised a mix of franchised and Company-owned operations offering services to the commercial kitchen sector. Fryer Management (FiltaFry), which is a maintenance service delivering repeat revenues, has been the core of our franchised activities for several years and in the UK in recent years we have developed a number of Company-owned activities, including refrigeration seal replacement (FiltaSeal); fat, oil and grease control and collection (FiltaFOG); drain maintenance (FiltaDrain); and pump installation and maintenance (FiltaPump), all of which have a strong repeat service pattern. 

 

We believe that all of these services are both complementary to each other and offer strong growth opportunities, as well as providing good revenue visibility and stability. This has been borne out by the fact that despite the almost complete close down of a large proportion of our customers' activities at various times during the year, we were still able to generate sufficient revenue to maintain a cash neutral trading position.

 

However, we continue to seek other complementary activities to add to our portfolio of services aimed at both our existing commercial kitchens market and at potential new markets. During the year we launched FiltaVent, which installs and maintains kitchen air venting systems, and FiltaShield to provide bacterial cleaning services to both eating establishments and other premises which are required to ensure that they are bacteria-free.

 

We launched the FiltaFOG Cyclone, a grease interceptor that has been very well received by our customers in the UK. In a further development designed to improve the execution efficiency, we have begun to utilise our franchise network to deliver FiltaFOG services in areas where we do not have adequate in-house technician coverage.  In the US, we have had encouraging success in rolling out our Fryer Management service to healthcare and supermarket customers.

 

Environmental, Social and Governance

 

The Board, as a whole, has overall responsibility for environmental, social and governance matters and we recognise our duty to stakeholders to operate the business in an ethical and responsible manner.  We are committed to developing our environmental and social responsibility agenda, recognising that it can play a major part in leading and influencing all of our people and operations.

 

Our corporate culture defines who we are, what we stand for and how we do business, and it is integral to the success of the Group.  Our strong reputation has been built on the solid foundation of an ethical culture, underpinned by a well-defined and effective system of governance.  We are committed to equal opportunities and an entirely non-discriminatory working environment where everyone is treated with dignity and respect and we strive to create an inspiring working environment where everyone is engaged and motivated.

 

The Board has always taken its environmental impact very seriously and is continuously seeking ways in which its services and actions can help to protect and improve the  environment.  The Group's core services support our customers ongoing efforts to reduce their energy, oil, and water usage and, in turn, we continue to invest in energy efficient capital equipment and improved operational processes in order to reduce our wastage. These ongoing efforts have, unquestionably, reduced both our customers' and our environmental impact over the years whilst improving our productivity.  Our approach is to work through education, communication and direct action.

 

Current trading and outlook

 

Lockdown restrictions were in place in the UK through the first quarter of the current financial year and in North America, many of our major customers, such as stadia, universities and corporate dining, are not yet re-opened. Notwithstanding this, the upward trend in business levels that we saw in the second half of 2020 has continued into the current year, with the numbers of new customers in both of our markets being particularly encouraging.

 

We have already sold 3 franchises in the US this year and have a strong pipeline of potential franchisees seeking to join the network, a trend which we expect to continue as the economy gradually recovers. Fryer management, which remained profitable and cash generative throughout 2020, is now operating at 78% of its pre- COVID levels and its major stadia and university customers have not yet re-opened.

 

In the UK, all of our core activities are trading very satisfactorily with some significant new business having been added to the Site services activities. We are also pleased to have had an incredibly positive reaction from customers to the new FiltaFOG Cyclone. In addition, we are deriving increasing revenues from FiltaShield, which was started in response to the need for bacterial cleaning services to combat COVID-19.

 

Our business in Europe, where the lockdowns are more widespread than in the UK, is operating on a "care and maintenance" basis but, nonetheless, has completed 1 franchise sale and is receiving a great deal of interest from potential franchisees, which is an encouraging sign for the future.

 

With the lockdown restrictions expected to be lifted further over the next 2 to 3 months and with the vaccination programmes progressing well in the UK and US, the Board is confident that the progress that we have seen in the first quarter will continue through the year and, moreover, that the Group is emerging from a highly challenging time much stronger operationally and in robust financial health.

 

Dividends

 

During the last year, in its efforts to preserve cash resources, the Board has asked its employees to take salary reductions, has made use of support grants and loans provided by the government and has adopted a policy of deferring non-essential spend. Moreover, whilst there has been a significant improvement in trading levels in recent months and the general health and economic outlook is promising, there remain uncertainties as to when we will be fully free from the impact of COVID-19.

 

The Board considers that, given this background and circumstances, it would not be appropriate to pay a dividend in respect of the year ended 31 December 2020. However, the Board recognises that dividends are an important element of shareholder returns and would like to reassure shareholders that, provided the progress that has been made in the first quarter of the year continues, it fully expects to be able to resume the payment of dividends in respect of 2021.

 

Management, Staff, and Franchise Owners

 

The organisational culture remains a focus of our governance principles.  We feel an honest, open, and collaborative culture is important to the Group's future success and the Board, and senior management are aware of their influence in fostering the proper culture. The welfare and skills development of our staff are also a priority.

 

I thank all our employees for their continuing hard work and commitment to the Group and would like to recognise their part in helping the Group to manage its way through a particularly challenging time.

 

Similarly, our franchise owners and their performance, professionalism and client commitment are critical to our own reputation and success. We thank them for their support over the last year and, working together, we look forward to helping them to return to their pre-COVID state.

 

 

 

Tim Worlledge

Chairman

19 April 2021

 

 

OPERATIONS REVIEW

 

Introduction

 

2020 was certainly a challenging year for the hospitality sector that we service. The fact that we ended the year with adjusted EBITDA of £1.1m and cash positive, demonstrates the strength of our business model and the commitment of the people that we have at Filta.

 

The first two months were setting us up for a highly successful year; North America was showing 20% year on year growth; the UK had not only experienced growth but also improved its margins; and we had strong franchise growth in Germany.

 

Then in March the picture changed with COVID-19 leading to severe lockdowns in all our markets which resulted in the closing of the vast majority of our customers.

 

In the third quarter the lockdowns started to lift, and revenues began to come back.  Restaurants became creative with take-out and delivery options, supermarkets and hospitals were busier than ever, although catering at universities, stadiums and business dining have yet to reopen. Since then, the situation in each of the markets we operate in has been different with lockdowns and openings coming at varying times.

 

Despite all of this, Filta remained focused on helping our customers through the worst times and we adapted our business model to cope with the new world, which stands us in good stead as the vaccine roll out programs in the UK and US offer hope for all our customers to fully reopen their venues.

 

Our long-term focus remains on growing the business, both organically and through acquisitions of high margin, repeat revenue businesses.

 

North America

 

As mentioned above, the first part of the year saw strong growth with network revenue growing to an annualised run rate of over $60m. The severe lockdowns initiated in Q2 were followed by vastly different levels of business in different parts of the continent.  Some states like Florida opened up fully in Q3 and have not shut since whilst others, such as California and New York, have remained closed and are only, now, just reopening. 

 

Overall, despite the extensive shutdowns, trading in North America remained relatively robust with total revenue of £7.8m in 2020 (2019: £11.3m) 

 

Network revenue, being the total revenue of our US-based franchisees for all services provided to their customers , represents the best indicator of how COVID-19 effected the business. The US  franchise network generated $37m (£29m) of revenues in 2020 (2019: $51m/£40m), a decrease of 28%.

 

The franchise network is both the showpiece and the cornerstone of our business - our franchisees connect us to our markets and our performance reflects their performance. We are committed to providing the franchisees with the necessary support to give them the best chance of success.

 

Although much of the royalty is fixed per Mobile Filtration Unit ('MFU') that the franchisees own, we took the decision, in order to support our franchise base, to link the royalty paid to each franchisee's revenue during the COVID-19 period. This resulted in a fall in revenue contributed by Fryer Management Services in North America to £7.0m (2019: £10.1m). At the height of the lockdown, Fryer Management Services revenue fell to approximately 50% of the previous year but by the end of the year we were back up to c.70% of prior year revenue and, more encouragingly, c.20% of that revenue was derived from new customers that were added since the start of the COVID-related lockdowns.

 

We constantly seek to increase our franchise base, but the majority of our own revenue growth comes from the growth of our existing franchise owners. One of our strategic objectives is to encourage multi-MFU franchisees, which both allays financial risk and provides owners with higher investment returns.

 

We continue to take on new franchise owners for unallocated territories and to upgrade existing franchises.  Our strategy is to recruit owners and to upgrade underperforming territories by seeking new franchisees (resales) who have the ambition and business acumen to expand their market, thereby enlarging the platform for Filta's own Fryer Management repeat revenues to increase year after year.  In 2020 we recruited 6 new Franchise Owners (2019:7) and achieved 4 resales (2019:4).

 

Mainland Europe

 

Whilst our business in mainland Europe, which is also principally a franchised offering, only accounts for 3% of total Group revenue it achieved 2 new franchise sales (2019:7) despite lockdowns during the year whilst its revenue of £0.5m (2019: £0.5m) remained flat year on year.

 

The business is at an early stage and the growth comes, principally, from adding new franchisees. With the 2 added in 2020, it took us to 16 in Europe, albeit that they have mostly suspended trading, currently.

 

The start to the new year has been slow with continued lockdown restrictions imposed across the continent. Despite the economic uncertainty, we continued to receive interest from potential franchisees and, indeed, have seen 1 new sale and 1 resale through March. Accordingly, we expect to see further growth in the latter part of the year once our customers can re-open their businesses

with nearer to full capacity and we will support our franchisees by helping to add key accounts.

 

There is still future growth potential in mainland Europe, but we have reduced overhead (three full-time staff members) and have minimised our financial exposure until the lockdowns end, customers reopen and we can, once again, seek to expand the business.

 

UK

 

In the UK, we provide Fryer Management services through a franchise network but the majority of the revenue is derived from Company-owned activities, Equipment Sales & Installation and Site Services, whose revenues totalled £7.6m (2019: £11.7m).

 

Our strategy is to develop a range of complementary services which provide health and safety advantages, improve efficiency or reduce operational costs to commercial kitchens. Usually, all of these benefits accrue to customers whilst allowing them to meet any compliance regulations in place.

 

Fryer Management

 

Fryer Management revenue fell to £0.6m (2019: £1.4m). The majority of franchise owners in the UK remain single unit operators and we anticipate the work to come back as the economy reopens.

 

Equipment Sales & Installation

 

Total equipment sales and installation revenue was £1.4m in 2020 (2019: £2.8m).  With limited capital investment occurring, we had anticipated this revenue segment to drop further but the introduction of Filta's new ground-breaking grease recovery unit, the FiltaFOG Cyclone, helped drive fourth quarter sales which have remained strong into 2021.  The FiltaFOG Cyclone produces better oil separation at a lower operating cost than any other product on the market today.

 

Site Services

 

Site Services, which comprise our planned maintenance and other recurring revenues, saw its revenue drop 30% to £6.2m (2019: £8.9m). 

 

All of the activities in this category have a common theme in being the provision of maintenance services, a large portion of which is planned and therefore has clear visibility, and the remainder of which are reactive but also have a high level of predictability because of their recurring nature. As sites continue to reopen in the UK, this segment should recover quickly.

 

A selection of our UK Franchisees are now performing FOG servicing.  This is a direction that is going to be expanded over the coming years, moving this side of the  business to a more capital light model.

 

We have continued to add new sites during the year, positioning us well once the lockdowns are lifted in the UK and the sector returns to relative normalcy.

 

People

 

Good people are key to any business and we continue to build a great team at Filta, many of whom have worked for the Group for well over 10 years. They have been a key component to our success both through their hard work and dedication to the brand and by the strong relationships that they have developed with customers and franchise owners alike.

 

2020 was a challenging year, not only for the business, but on a personal front for many of our staff members as working from home became the new norm.  I really would like to thank all of our valued staff members, in all our markets, who stepped up and helped the business adapt to the changing situations. It has certainly brought everybody closer as a team and will stand us in good stead for the future.

 

In North America, the management team remains stable with Tom Dunn, Chief Executive Officer North America, continuing to run the day to day business, enabling us to continue executing on our plans.  Regular communication with franchisees through webinars helped everybody to stay positive and has put us in a great position coming into the recovery.

 

In the UK, we appointed Brian Riordan as Managing Director in October. Brian brings to Filta over 30 years' experience of working across food services and facilities management, sales and marketing, retail, and hotels. Most recently, Brian was the Managing Director for Aramark UK. Prior to Aramark, Brian spent several years as an Operations Director at Compass Group, the largest contract foodservice company in the world, and at Marriott Hotels, both in the US and Europe.

 

Jos van Aalst, Managing Director of Filta's mainland Europe business, continues to oversee the business in Europe and deftly managed lockdowns across multiple countries whilst remaining in contact with existing and prospective franchisees. He has us well positioned for an H2 recovery.

 

Company culture is the outcome of a Company's values, expectations and environment.  We are dedicating a significant amount of our time as senior leaders of the organisation to building, refining and nurturing our culture so that it is clearly understood by everyone working for us currently and is easily transferrable to new hires. 

 

Market Conditions

 

Our fortunes are substantially dependent on many of the businesses that have been most affected by the coronavirus pandemic; restaurants, pubs, hotels, sporting venues, colleges, and other places for social gathering. It has therefore been inevitable that we would see a significant fall in activity and revenues, which has generally been the case throughout our operations.

 

Macro-economic conditions always tend to trump any micro conditions that a company can bring to the table. As such, most of our customer base was significantly affected in each of our markets. 

 

Despite the COVID-related lockdowns, the US economy shrank just 3.5% in 2020. In March of this year, the US enacted new legislation that will inject a further $1.9 trillion into the economy. This follows on the $3.5 trillion previously spent in 2020. That is over $15,000 per person and, unsurprisingly, personal savings rates are at their highest levels in history. The vaccine roll-out has been a huge success with current projections estimating the US will have vaccinated 75% of the population within next 3 months. As many states now re-open, our sector is recovering quickly, and the OECD predicts US GDP growth of 6.5% for 2021.  We are well positioned to take advantage of the economic resurgence that our industry is predicted to experience later this year and beyond.

 

The UK experienced more excessive lockdowns which resulted in a GDP decline of 9.9% in 2020. These lockdowns, and the corresponding economic decline, had an especially adverse impact on the Group's restaurant and pub customers.  The government's response was to inject over £200 billion into the economy which has led to household savings rates doubling. Like the US, the success of the vaccine programme has been impressive and the reopening  of the leisure sector, now taking place, will hopefully lead to a quick recovery. OECD predicts UK GDP growth of 5.1% in 2021 and we are well positioned to capitalise on this with improved sales teams, customer relationships and operations.

 

Mainland Europe (primarily Germany where we operate), is behind on their vaccine roll-out, but will no doubt catch up later this year, enabling their economies also to bounce back.

In addition to the post COVID-19 recovery, we believe that with the ever-increasing health, safety and food hygiene requirements the demand for our services will be undiminished when more normal circumstances return.

 

Current Trading & Outlook

 

Whilst the COVID-19 pandemic has had a significant impact on the Group in the short term, we remain confident in our medium and long-term growth prospects. The road maps announced in each of our operating locations illustrate how lockdowns and restrictions will begin to be lifted over the coming months as further significant progress is being made with the ongoing vaccination process.

 

We continue to take proactive actions to adapt our operations to ensure the Group can thrive and is well placed for the recovery. We continue to execute at pace and are confident in our ability to be agile and respond to increasing volumes from our customers as our end market segments begin to re-open and recover.

 

We will continue to focus on our strategy whilst delivering outstanding levels of service to our customers. This, combined with our existing scale, ability to flex costs and focus on operational excellence make us confident that we will be able to take advantage of growth opportunities as they arise and to increase returns to shareholders over time.

 

Jason Sayers

Chief Executive Officer

19 April 2021

 

 

FINANCIAL REVIEW

 

Summary

Group revenue of £16.4m (2019: £24.9m)

Gross profit margins improved to 42.2% (2019: 40.8%)

Adjusted EBITDA of £1.1m (2019: £3.2m)

Loss before tax of £0.9m (2019: profit before tax £0.9m)

Basic loss per share of 3.46p (2019: basic earnings per share 1.39p)

 

 

Revenue

 

As anticipated, our 2020 results reflect the dramatic impact that COVID-19 has had on the Group. Following a strong start to the year, with organic revenue in the first two months pre-pandemic up 3.2%, total revenue for the year to 31 December 2020 reduced to £16.4m (2019: £24.9m). We

experienced significant disruption in our two biggest geographical markets of the UK and North America with turnover down 38% and 31% respectively. However, across the Group, we directly serviced c.800 new customers contributing c.£1.2m of revenue during the year.

 

 

 

 

 

Gross Profit

 

Gross profit was £6.9m (2019: £10.2m) impacted by the lower volume. However, spending controls and FY19 efficiency improvements have led to an increase in gross margin to 42.2% (2019: 40.7%). Following a return to normal conditions we believe there is room for further

improvement in margins which, combined with our strong market presence will lead to improved gross profit.

 

Adjusted EBITDA

 

Adjusted EBITDA fell to £1.1m (2019: £3.2m) with an Adjusted EBITDA margin of 6.4% (2019: 12.7%).  Despite reduced spending in the current year, the adjusted overhead base as a percentage of revenue is up from the prior year due to the significant volume decline. 

 

Adjusted EBITDA reconciliation

 

Adjusted EBITDA has been arrived at as follows:

 

 

 

 

2020

 

2019

 

£

 

£

Profit before tax

(866,231)

 

936,284

Acquisition, legal and restructuring costs

187,465

 

296,410

Share-based payments

85,067

 

261,631

Depreciation and amortisation

1,370,258

 

1,396,932

Finance costs, net

277,010

 

271,314

Adjusted EBITDA

1,053,569

 

3,162,571

 

Alternative Performance Measures

 

In addition to IFRS performance measures directly observable in the financial statements, additional performance measures (Adjusted EBITDA, Network Revenue and Cash Earnings Per Share) are used internally by management to assess performance.  Management believes that these measures provide useful information as they are used to evaluate performance of business units, to analyse trends in cash-based operating expenses, to establish operational goals and allocate resources.  Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, exceptional costs and share based payment expense, net of cash settled outlays, for all services provided to customers and is an important measure of our growth in the markets we serve.  Network Revenue represents the total revenue earned by our US franchise network. Cash Earnings Per Share is defined as basic earnings per share before depreciation, amortisation and share based payment expense, net of cash settled outlays.

 

Deferred Income  

 

Group revenue for the year ended 31 December 2020 includes £0.7m (2019: £0.7m) which was released from brought forward deferred income during the year. We generated a further   £0.5m of deferred revenue relating to territory fees on both new and existing franchises which will be recognised over the life of the franchise agreements. The deferred revenue balance, which declined by £0.3m to £2.7m, was also negatively impacted by the foreign exchange effect of a weakening dollar which had a £0.1m effect on the year-end balance.

 

 

 

 

 

 

Taxation

 

We manage all taxes, both direct and indirect, to ensure that we pay the appropriate amount of tax in each country while ensuring that we respect the applicable tax legislation and utilise, where appropriate, any legislative reliefs available. This tax strategy is reviewed, regularly monitored and

endorsed by the Board. The Group's net tax charge for the year ended 31 December 2020 was £0.1m (2019: £0.5m) principally due to tax payable in the US of £0.4m (2019: £0.6m) on statutory profits offset by changes in the Group's deferred tax assets and liabilities. These generated a deferred tax credit of £0.3m (2019: £0.1m) due to an increase in the deferred tax asset related to the carry forward of UK tax losses and to the unwinding of the deferred tax liability on acquisition related intangible assets .

 

Earnings per share

 

The basic and diluted loss per share for the year were 3.46p (2019: 1.39p earnings per share).

 

Cash and Liquidity

 

COVID-19 initially had a significant impact on the Group's cash generation, but cash preservation measures, aggressive cash collection efforts and utilisation of government programs helped preserve liquidity. The Group generated cash from operations of £1.7m (2019: £0.8m) reducing to £1.3m (2019: £0.3m) after the payment of taxes. Cash used in investing activities of £0.3m  was significantly lower than in 2019 (£2.2m), which included a prior year acquisition related payment of £1.8m, as we reduced our capital spending by 37%.The Group's financing activities generated cash of £0.5m (2019: £1.9m cash used) as the inflow of £1.2m from the Coronavirus Business Interruption Loan Scheme more than offset the debt servicing requirements of £0.8m (2019: £1.4m), whilst the Group's decision to forego dividend payments contributed £0.6m of the improvement. Overall, the Group realised benefits of £1.0m from government furlough schemes and an additional £0.5m from the UK VAT deferral program.

 

At the year end the Group had cash balances of £4.2m (2019: £2.9m) and outstanding borrowings of £4.7m (2019: £3.8m) ex. Lease liabilities, resulting in a 41% decline in its net debt position to £0.5m (2019: £0.9m). The Group's available cash and unutilised overdraft facility stood at £4.6m (2019: £3.2m).

 

The Group has, with strong cash management, support from our banking partners and access to government funding, built a stronger cash position than existed before the start of COVID-19. The Board believes that its strong financial platform leaves it well placed to trade through 2022, even if there are more COVID-related setbacks, and to implement its growth strategy over the coming years.

 

Brian Hogan

Chief Financial Officer

19 April 2021

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

Notes

2020

 

2019

 

 

£

 

£

 

 

 

 

 

Revenue

5

16,401,621

 

24,922,526

Cost of sales

 

(9,484,035)

 

(14,756,297)

Gross profit

 

6,917,586

 

10,166,229

Other income

 

76,922

 

191,404

Distribution costs

 

(87,824)

 

(203,344)

Administrative costs

 

(7,495,905)

 

(8,946,691)

Operating (loss)/profit

 

(589,221)

 

1,207,598

Analysed as:

 

 

 

 

Adjusted EBITDA

 

1,053,569

 

3,162,571

Acquisition and restructuring related costs

6

(187,465)

 

(296,410)

Depreciation and amortisation

15,16,17

(1,370,258)

 

(1,396,932)

Share based payment expense, net of cash settled

32

(85,067)

 

(261,631)

 

 

(589,221)

 

1,207,598

 

 

 

 

 

Finance income

 

5,041

 

6,945

Finance costs

9,17

(282,051)

 

(278,259)

(Loss)/profit before tax

 

(866,231)

 

936,284

Income tax expense

10

(139,748)

 

(532,418)

 

 

 

 

 

(Loss)/profit after tax

 

(1,005,979)

 

403,866

 

 

 

 

 

Net (loss)/profit attributable to owners

 

(1,005,979)

 

403,866

Other comprehensive income

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

 

Exchange differences on translation of foreign operations

 

(168,192)

 

(149,110)

Total other comprehensive loss for the year

 

(168,192)

 

(149,110)

 

 

 

 

 

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

 

 

(1,174,171)

 

 

254,756

 

(Loss)/earnings per share

 

 

 

 

 

 

 

 

 

Basic (pence)

12

(3.46)

 

1.39

Diluted (pence)

12

(3.46)

 

1.39

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

Notes

2020

 

2019

 

 

£

 

£

Non-current assets

 

 

 

 

Property, plant and equipment

16

1,251,656

 

1,336,110

Right of use asset

17

1,041,726

 

1,270,479

Deferred tax assets

11

796,414

 

678,497

Intangible assets

15

5,836,360

 

6,514,954

Goodwill

15

1,639,523

 

1,639,523

Deposits

 

11,398

 

5,272

Contract acquisition costs

19

419,913

 

415,663

Trade receivables

18

264,274

 

411,732

 

 

11,261,264

 

12,272,230

 

 

 

 

 

Current assets

 

 

 

 

Inventories

20

1,604,451

 

1,759,955

Trade and other receivables

18

2,325,678

 

4,064,811

Contract acquisition costs

19

72,958

 

57,426

Cash and cash equivalents

21

4,208,498

 

2,891,014

 

 

8,211,585

 

8,773,206

 

 

 

 

 

Total assets

 

19,472,849

 

21,045,436

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

22

2,289,889

 

3,260,885

Borrowings

23

1,076,927

 

792,672

Lease Liability

24

319,480

 

332,974

Deferred income

26

592,065

 

534,066

 

 

4,278,361

 

4,920,597

 

 

 

 

 

Non-current liabilities

 

 

 

 

Deferred tax liability

 

1,027,498

 

1,159,121

Borrowings

23

3,647,088

 

2,976,887

Lease Liability

24

770,119

 

882,447

Deferred income

26

2,086,565

 

2,496,173

 

 

7,531,270

 

7,514,628

Total liabilities

 

11,809,631

 

12,435,225

 

 

 

 

 

Equity

 

 

 

 

Share capital

28

2,909,816

 

2,908,535

Share premium

28

3,679,085

 

3,659,204

Other reserves

29

233,431

 

27,415

Translation reserve

 

(701,267)

 

(533,075)

Retained profits

 

1,542,153

 

2,548,132

Total equity

 

7,663,218

 

8,610,211

Total equity and liabilities

 

19,472,849

 

21,045,436

 

The financial statements were approved and authorised for issue by the Board on 19 April 2021 and were signed on its behalf by:

____________________

Brian Hogan, Chief Financial Officer

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

Translation

 

 

 

Share

Share

Other

Merger

Exchange

Retained

Total

 

Capital

Premium

Reserves

Reserve

Reserve

Earnings

Equity

 

£

£

£

£

£

£

£

 

 

 

 

 

 

 

 

Balance at 31 December 2018

2,891,863

3,372,351

329,634

(339,687)

(383,965)

2,711,352

8,581,548

Adjustment on initial application of IFRS 16 net of tax

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(8,971)

 

 

(8,971)

At 1 January 2019 restated

2,891,863

3,372,351

329,634

(339,687)

(383,965)

2,702,381

8,572,577

Profit for the year

 

 

 

 

 

403,866

403,866

Foreign exchange translation differences

 

-

 

-

 

-

 

-

 

(149,110)

 

-

 

(149,110)

Total comprehensive income

-

-

-

-

(149,110)

403,866

254,756

Dividends paid (note 14)

-

-

-

-

-

(558,115)

(558,115)

Issue of share capital (note 28)

 

16,672

 

286,853

 

-

 

-

 

-

 

-

 

303,525

Equity consideration paid

-

-

(250,000)

-

-

-

(250,000)

Share based payments (note 29/32)

 

-

 

-

 

287,468

 

-

 

-

 

-

 

287,468

Balance at 31 December 2019

2,908,535

3,659,204

 

367,102

 

(339,687)

(533,075)

 

2,548,132

 

8,610,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2019

2,908,535

3,659,204

367,102

(339,687)

(533,075)

2,548,132

8,610,211

Loss for the year

 

 

 

 

 

(1,005,979)

(1,005,979)

Foreign exchange translation differences

 

-

 

-

 

-

 

-

 

(168,192)

 

-

 

(168,192)

Total comprehensive income

-

-

-

-

(168,192)

(1,005,979)

(1,174,171)

Dividends paid (note 14)

-

-

-

-

-

-

-

Issue of share capital (note 28)

 

1,281

 

19,881

 

-

 

-

 

-

 

-

 

21,162

Share based payments (note 29/32)

 

-

 

-

 

206,016

 

-

 

-

 

-

 

206,016

Balance at 31 December 2020

2,909,816

3,679,085

 

573,118

 

(339,687)

(701,267)

 

1,542,153

 

7,663,218

 

 

During the year 12,809 shares (2019: 166,725) were issued as part of the contingent consideration related to our acquisitions in 2018.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Notes

2020

2019

 

 

 

£

£

 

Operating activities

 

 

 

 

Profit before taxation for the year

 

(866,231)

936,284

 

Adjustments for non-cash operating transactions:

 

 

 

 

Finance costs

9,17

277,010

271,314

 

Depreciation

16

172,560

216,677

 

Amortisation of intangible assets

15

867,269

857,992

 

Depreciation of right of use assets

17

330,429

322,262

 

(Gain)/loss on disposal of tangible fixed assets

 

(12,215)

(10,739)

 

Share based payment charge

29,32

85,067

283,215

 

 

 

853,889

2,877,005

 

 

 

 

 

 

Movements in working capital:

 

 

 

 

Decrease in trade and other receivables

 

1,606,223

271,249

 

Increase in contract acquisition costs

 

(19,018)

(78,814)

 

Decrease in trade and other payables

 

(795,266)

(1,080,879)

 

Decrease in cash settled share option liability

 

-

(21,584)

 

Increase in proceeds from government grants

 

226,481

-

 

Decrease/(increase) in inventories

 

155,505

(538,301)

 

Decrease in deferred revenue

 

(351,609)

(629,680)

 

Cash flow from operations

 

1,676,205

798,996

 

Taxes paid

 

(393,249)

(485,798)

 

Net cash flow from operations

 

1,282,956

313,198

 

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of property, plant and equipment

16

(100,166)

(288,251)

 

Proceeds from disposals of property, plant and equipment

 

13,831

39,697

 

Deferred consideration on subsidiary acquisition

25

-

(1,800,293)

 

Purchase of other intangible assets

15

(194,985)

(176,538)

 

Net cash used in investing activities

 

(281,320)

(2,225,385)

 

 

Financing activities

 

 

 

 

Repayment of borrowings

 

(302,538)

(876,272)

 

Net proceeds from borrowings

23

1,200,000

-

 

Payment of lease liabilities

 

(231,005)

(291,656)

 

Net proceeds from issue of share capital

 

21,162

31,525

 

Dividends paid to shareholders

14

-

(558,115)

 

Interest paid

9

(232,463)

(226,826)

 

 

 

 

 

 

Net cash from/(used in) financing activities

 

455,156

(1,921,344)

 

 

 

 

 

 

Net change in cash and cash equivalents

 

1,456,792

(3,833,531)

 

Cash and cash equivalents, beginning of the year

21

 

2,891,014

 

6,789,968

 

Exchange differences on cash and cash equivalents

 

 

(139,308)

 

(65,423)

 

Cash and cash equivalents, end of year

21

4,208,498

2,891,014

 

 

 

 

 

 

 

 

 

Parent company statement of financial position

 

 

Notes

2020

 

2019

 

 

 

£

 

£

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

Investments in subsidiaries

13

8,765,743

 

8,765,743

 

Intangible assets

 

1,401

 

1,275

 

Amount due from subsidiaries

18

3,172,036

 

3,188,966

 

 

 

11,939,180

 

11,955,984

 

Current assets

 

 

 

 

 

Trade and other receivables

 

83,541

 

161,041

 

Amount due from subsidiaries

18

72,229

 

600,246

 

Cash and cash equivalents

21

51,856

 

109,089

 

 

 

207,626

 

870,376

 

Total assets

 

12,146,806

 

12,826,360

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

22

21,485

 

44,016

 

Borrowings

23

942,763

 

786,049

 

Amount due to subsidiaries

 

622,748

 

522,534

 

 

 

1,586,996

 

1,352,599

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

23

2,385,526

 

2,746,541

 

 

 

2,385,526

 

2,746,541

 

 

 

 

 

 

 

Total liabilities

 

3,972,522

 

4,099,140

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

28

2,909,816

 

2,908,535

 

Share premium

28

3,679,085

 

3,659,204

 

Other reserves

29

573,118

 

367,102

 

Retained earnings

 

1,012,265

 

1,792,379

 

Total equity

 

8,174,284

 

8,727,220

 

 

 

 

 

 

 

Total equity and liabilities

 

12,146,806

 

12,826,360

 

 

No statement of comprehensive income is presented by the company as permitted by section 408 of the Companies Act. The loss dealt within the financial statements of the parent Company for the year ended 31 December 2020 is £780,114 (2019:Profit £370,426).

 

The financial statements were approved and authorised for issue by the Board on 19 April 2021 and were signed on its behalf by:

 

 

____________________

Brian Hogan, Chief Financial Officer

 

 

parent company statement of changes in equity

 

 

 

 

 

 

 

 

 

 

Share

Share

Other

Retained

Total

 

Capital

Premium

reserve

Earnings

Equity

 

£

£

£

£

£

 

Balance at 1 January 2019

2,891,863

3,372,351

329,634

1,980,068

8,573,916

 

 

 

 

 

 

Loss for the year

-

-

-

370,426

370,426

Total comprehensive income

 

 

 

370,426

370,426

Dividends paid (note 14)

-

-

-

(558,115)

(558,115)

Issue of share capital (note 28)

16,672

286,853

-

-

303,525

Share based payments (note 29/32)

-

-

287,468

-

287,468

Equity consideration paid

-

-

(250,000)

-

(250,000)

Balance at 31 December 2019

2,908,535

3,659,204

367,102

1,792,379

8,727,220

 

 

 

 

 

 

 

Balance at 1 January 2020

2,908,535

3,659,204

367,102

1,792,379

8,727,220

 

 

 

 

 

 

Loss for the year

-

-

-

(780,114)

(780,114)

Total comprehensive income

 

 

 

(780,114)

(780,114)

Dividends paid (note 14)

-

-

-

-

-

Issue of share capital (note 28)

1,281

19,881

-

-

21,162

Share based payments (note 29/32)

-

-

206,016

-

206,016

Equity consideration paid

-

-

-

-

-

Balance at 31 December 2020

2,909,816

3,679,085

573,118

1,012,265

8,174,284

 

 

 

 

 

 

During the year 12,809 shares (2019: 166,725) were issued of which Nil (2019: 32,500) were issued for cash (2019: £31,525) and the balance of shares were issued as part of the contingent consideration related to our acquisition in 2018.

 

 

PARENT COMPANY STATEMENT OF CASH FLOWS

 

 

 

2020

 

2019

 

 

 

 

£

 

£

 

 

Operating activities

 

 

 

 

 

 

Profit before tax

 

(757,640)

 

466,270

 

 

Adjustments for non-cash operating transactions:

 

 

 

 

 

 

Finance costs

 

168,745

 

194,997

 

 

Amortisation

 

854

 

308

 

 

Shared based payment charge

 

191,004

 

283,215

 

 

 

 

(397,037)

 

944,790

 

 

Movements in working capital:

 

 

 

 

 

 

Decrease/(increase) in trade and other receivables

 

466,739

 

(537,790)

 

 

Increase/(decrease) in trade and other payables

 

129,657

 

(7,471)

 

 

Net cash from operations

 

199,359

 

399,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

(Decrease)/increase in advances to subsidiaries

 

96,273

 

(1,242,853)

 

 

(Increase)/decrease in investment in subsidiary

 

-

 

117,339

 

 

Deferred consideration on subsidiary acquisition

 

-

 

(1,800,293)

 

 

Purchase of other intangible assets

 

(980)

 

(1,583)

 

 

Net cash used in investing activities 

 

95,293

 

(2,927,390)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Repayment of borrowings

 

(246,154)

 

(800,000)

 

 

Proceeds from issue of share capital, net of costs

 

21,162

 

31,525

 

 

Proceeds from borrowings, net of costs

 

-

 

500,000

 

 

Dividends paid to shareholders

 

-

 

(558,115)

 

 

Interest paid

 

(126,893)

 

(153,145)

 

 

Net cash (used in)/from financing activities

 

(351,885)

 

(979,735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(57,233)

 

(3,507,596)

 

 

Cash and cash equivalents, beginning of the year

 

109,089

 

3,616,685

 

 

Cash and cash equivalents, end of year

 

51,856

 

109,089

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.   GENERAL INFORMATION

 

Filta Group Holdings plc was incorporated in England and Wales on 31 March 2016.  Its registered office is at The Locks, Hillmorton, Rugby, Warwickshire, England, CV21 4PP.

 

The Company is listed on the AIM market of the London Stock Exchange. The Company acts as the holding company of a group of subsidiaries that are involved in the franchising of on-site environmental kitchen solutions to restaurants, catering establishments and institutional kitchens. The services include microfiltration of cooking oil, fryer cleaning, temperature calibration, waste oil disposal and specially designed filters for refrigeration units and coolers. The Filta Group sells franchises and operates in the UK, the United States and Canada. Additionally, the Company operates two direct sale businesses including refrigeration seal replacement and the installation, repair and maintenance of drain dosing and grease recovery units. Further details of the Company's subsidiaries are provided in Note 13.

 

2.   BASIS OF PREPARATION

 

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union including interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

 

The consolidated financial statements have been prepared under the historical cost convention except for financial instruments that have been measured at fair value through profit and loss. The presentational and functional currency of the Company is Pounds Sterling. The functional currency of the subsidiaries is determined by the primary economic environment in which they operate.

Basis of consolidation

The consolidated financial statements comprise the financial information of the Company and its subsidiaries (the "Group") made up to the end of the reporting period.

 

The consolidated financial statements present the results of the Company and its subsidiaries and joint arrangements as if they formed a single entity.  Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement. Where necessary, adjustments are made to the financial statements of subsidiaries to align with the Group accounting policies.

 

Where a subsidiary undertaking is sold, the profit or loss on disposal is calculated as the difference between the aggregate of the fair value of the consideration received and the carrying amount of the assets and liabilities of the subsidiary on the date of disposal less any transaction costs relating to the disposal.  Cash received on disposal of businesses is shown within investing activities in the Consolidated cash flow statement, net of cash and cash equivalents disposed of and transaction costs.

 

All intercompany transactions and balances between Group entities, including unrealised profits arising from them, are eliminated upon consolidation.

 

Going concern

The Group has reacted quickly and decisively to the COVID-19 pandemic, implementing a range of prudent cost management and cash preservation actions, securing additional funding facilities, revising bank covenants and taking advantage of government programs to protect the business from any potential adverse impact. Notwithstanding all of these actions, there continues to be uncertainty surrounding the resolution of the pandemic and the impact on the wider economy.

 

The current and plausible future impact of COVID-19 and the related macroeconomic environment on the Group's activities and performance has been considered by the Board in preparing its going concern assessment. The Group has prepared a base case scenario, reflecting an initial set of assumptions around financial projections and trading performance, together with various, more pessimistic, expectations for market developments over the remainder of 2021 and 2022 to reflect subdued trading conditions.  The specific assumptions used within the base case scenario, with regard to the assumed dates for the staged reopening of hospitality, follow those set out within the UK Government's recently announced four-step roadmap for the easing of restrictions across England.  It is assumed that arrangements within the Group's other geographies will follow a similar roadmap.

 

The Board is required to assess going concern at each reporting period. These assessments are significantly more difficult given the uncertainties about the impact of COVID-19, the extent and duration of social distancing measures and the impact on the markets in which the Group operates. The level of judgment to be applied has therefore increased considerably. The Directors have considered three main factors in reaching their conclusions on going concern, as set out below.

 

1) Cash Flows and Sensitivity Analysis

 

In assessing going concern, the Directors considered a variety of scenarios in the context of the COVID-19 pandemic. These scenarios are designed to stress test liquidity and covenant compliance. EBITDA used within the scenarios is that used for bank covenant purposes. The three most relevant scenarios, in ascending order of severity, reviewed to test going concern are as follows:

 

 

Base Case Scenario

This scenario assumes that those markets that the Group operates in, and which are yet to open, will gradually begin to reopen during the second quarter. April assumes a modest increase in current volumes, based on the planned reopening of restaurants, pubs and outdoor hospitality whilst May assumes a more stepped increase as a result of the planned reopening of indoor hospitality (UK pubs and restaurants), stadiums and arenas at partial occupancy.  By June 2021, this scenario assumes that volumes have reached c. 80% of normalised levels and stays there through Q2.  Volumes increase in Q3, reaching a maximum of c. 90% of normalised volumes by September 2021 with modest decreases thereafter due to seasonality to reach c.85% of normalised volumes for the year. Further monthly increases are then assumed throughout 2022 that will result in a c.10% revenue growth over our pre-COVID levels.

 

10% Revenue decline off Base Case

In this scenario the gradual recovery to the Group's markets assumed within the Base Case is delayed by an additional month, a result that would not enable a return to our normalised monthly levels in 2021, reaching c.77% of normalised volumes for the year.  Revenue in, and beyond, the final quarter of 2021 is then consistent with that assumed in the Base Case, reflective of a successful vaccine rollout and pent-up consumer demand.

 

20% Revenue decline off Base Case

This scenario largely mirrors that within the 'Delay in Lifting of Restrictions Scenario' above, however, it effectively assumes a full quarter delay in recovery which subdues volumes further.

 

2) Covenants

 

As previously announced, the Group negotiated waivers of testing on its banking covenants up to and including until the June 2021 covenant test date. From September 2021, the Group will be expected to submit to its originally agreed upon covenant testing requirements.  In all three scenarios detailed above, the financial projections indicate that the Group would remain in compliance with the financial covenants in its bank facilities. A decline in underlying EBITDA in excess of that contemplated in the scenarios would need to persist throughout the period for a covenant breach to occur. Whilst the Q1 2022 Cash Flow Cover under the 20% revenue decline scenario is met it does so with little margin for further decline. All other covenants, under each scenario, are met with reasonable margin to absorb further downside.

 

The Group also has a number of mitigating actions within its control (not all of which were included in the scenarios) including balance sheet management, further reducing levels of discretionary spend and rationalising its overhead base in order to be able to meet the covenant tests.

 

3) Liquidity

 

The Group finished the year ended 31 December 2020 with £4.2m in cash and a further unutilised £0.4m overdraft facility. Under each of the above scenarios, the Group maintains a sufficient level of cash to fully support its ongoing requirements through the measurement period and beyond.

 

Going Concern Statement

 

After considering the current financial scenarios, the severe but plausible sensitivities and the facilities available to the Group and Company, the Directors have a reasonable expectation that the Group and Company have adequate resources for their operational needs, will remain in compliance with the financial covenants set out in the bank facility agreement and will continue in operation for at least the

next 12 months from the date of approving both the Group and Company financial statements.  As a

 

consequence, and having reassessed the principal risks and uncertainties, the Directors considered it appropriate to adopt the going concern basis in preparing the Group and Company financial statements.

 

Parent Company

The parent company has taken advantage of s.408 of the Companies Act 2016 not to publish

the parent company profit and loss account.

 

3.   SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

 

The principal accounting policies of Filta Group Holdings plc and its subsidiaries are set out below.  These policies have been consistently applied unless otherwise stated.

 

3.1   Foreign currencies

 

  Functional and presentation currency

  The consolidated financial statements are presented in Pounds Sterling, which is also the functional currency of the parent company.

 

  Foreign currency transactions and balances

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss.

 

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

 

  Foreign operations

In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than Pounds Sterling are translated into Pounds Sterling upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period.

 

  On consolidation, assets and liabilities have been translated into Pounds Sterling at the closing rate at the reporting date. Income and expenses have been translated into Pounds Sterling at the average rate, as an approximation of rates on the dates of the transactions over the reporting period. Exchange difference are charged/credited to other comprehensive income and recognised in the translation reserve in equity.

 

3.2    Segment reporting

  The results of operating segments are reported in a manner consistent with internal reporting.

The Group has four operating segments. In identifying these operating segments, management follows the Group's service lines representing its main products and services. Further details of segment reporting are provided in Note 5.

 

3.3    Revenue

  For the year ended 31 December 2020 the Group used the five-step model as prescribed under IFRS 15 on the Group's revenue transactions. This included the identification of the contract, identification of the performance obligations under same, determination of the transaction price, allocation of the transaction price to performance obligations and recognition of revenue. The point of recognition

 

arises when the Group satisfies a performance obligation by transferring control of a promised good or service to the customer, which could occur over time or at a point in time.

 

Revenue represents the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

 

Revenue from goods and services provided to customers not invoiced at the reporting date is recognised as accrued income within trade and other receivables.

 

The Filta Group executes franchise agreements for each franchise area which set out the terms of the arrangement with the franchisee.

 

These agreements require the franchisee to pay an initial, non-refundable franchise fee and royalties based upon the number of filtration machines operating in each franchise area.

 

The franchise fee consists of two distinct components:

 

· the opening package; and

· the territory fee

 

Each of these revenue streams are defined in the franchise agreement and support the treatment under our accounting policy.

 

The revenue associated with the opening package is recognised when substantially all initial services required by the franchise agreement are performed, which is generally upon the completion of training of the franchisee. Therefore, there is no deferral of this revenue unless the training period spans the year-end.

 

The territory fee represents the exclusive right to operate in a designated territory for a stated length of time. The territory fee is deferred over the length of the franchise agreement and released to the combined statements of comprehensive income on a straight-line basis.

 

In circumstances where franchise territories are resold, on an arm's length basis, between ar franchisee and a third party, it is the Group's policy to continue to recognise the deferred revenue over the life of the original franchise agreement.  Should there be an additional opening package, or territory sale, as part of the resale, these components will follow the aforementioned revenue recognition process under the new franchise agreement policy.

 

Royalty income is recognised as earned with an appropriate provision for estimated uncollectible amounts, which is included in operating expenses.

 

Supplies and other revenues are recognised when the product or service is delivered or shipped to customers. Provision for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period in which the related sales are recorded.

 

3.4   Contract acquisition costs

  The incremental costs to directly obtain a contract with a customer are capitalised and recognised within contract assets where management expects to recover those costs. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognised as an expense in the period where incurred. Contract assets are subsequently amortised over the period consistent with the Group's transfer of the related goods or services to the customer.

The costs capitalised include sales commission paid to employees and broker fees paid to third parties where payment is identified as relating directly to the sale of a territory license and initially recognised upon the signing of a customer contract. The costs are amortised over the contract life. Management

is required to determine the recoverability of contract related assets at each reporting date. An

impairment exists if the carrying amount of any asset exceeds the amount of consideration the Group expects to receive in exchange for providing the associated goods and services, less the remaining costs

that relate directly to providing those goods and services under the relevant contract. An impairment is recognised immediately where such losses are forecast.

The movement in the contract asset balance in the period therefore represents additional payments made, subsequent amortisation and any required impairment.

 

3.5  Investments in subsidiaries

Investments in subsidiaries are valued at cost less provision for any impairment, and an impairment review is carried out annually by the Directors.

 

3.6    Property, plant and equipment

All items of property, plant and equipment are initially recorded at cost.  All repair and maintenance expenses are recognised in profit or loss when incurred.

 

After initial recognition, property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.

 

All items of property, plant and equipment are depreciated to write off the cost of the assets over their estimated useful lives as follows:

 

    Annual rate

 

Freehold property    2%

Plant and machinery  10-15%

Motor vehicles      25%

Fixtures and fittings    20%

 

The estimated useful life and depreciation method are reviewed, and adjusted as appropriate, at each reporting date. Fully depreciated assets are retained in the financial statements until they are no longer in use.

 

3.7  Business combinations and goodwill

Business combinations are accounted for using the acquisition method.  The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree.  Acquisition costs are expenses and included in Administrative expenses.  The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition are recognised at their fair value at the acquisition date.

 

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of any contingent consideration deemed to be

 

an asset or liability will be recognised in accordance with IFRS 9, either in profit or loss or in other comprehensive income.

 

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of cost of the business combination over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.  If, after reassessment, the group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.  It is reviewed for impairment at least annually.  Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

 

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units (or groups of cash generating units) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 

3.8  Intangible assets

  Intangible assets identified in a business combination are capitalised at fair value as at the date of the acquisition and their costs are amortised over a straight-line basis over their expected useful lives.  Software and development expenditure is capitalised as an intangible asset if the asset created can be identified, if it is probable that the asset created will generate future economic benefits and if the development cost of the asset can be measured reliably.  Amortisation expense is charged to administrative expenses in the income statement on a straight-line basis over its useful life. 

 

The expected useful lives of the assets are as follows:

 

Customer relationships  - 5 to 10 years

Customer contracts  - 5 to 10 years

Supply contracts       - 15 years

Reacquired Rights     - 6.75 years

Software development   - 3 years

 

Those costs associated with maintaining computer software programmes are recognised as an expense as incurred.

 

3.9    Impairment of tangible and intangible assets

At each reporting end date, the Company reviews the carrying amounts of its 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 in order to determine the extent of the impairment loss (if any).

 

3.10  Inventories

  Inventories are stated at the lower of cost and net realisable value. Cost is based on the first in, first out principal and comprise direct materials and, where applicable, direct labour costs and overheads that 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. A provision is made, where necessary, in all inventory categories for obsolete, slow moving, and defective items.

 

 

 

3.11  Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant financial instrument. The accounting policy for financial instruments is as follows:

 

Financial assets

(i) Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities. For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

(ii) Trade and other receivables

Trade receivables are recognised initially at the invoice amount and subsequently measured at amortised cost, less provision for impairment.

 

Under IFRS 9, the Group elected to use the simplified approach to measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and contract assets that result from transactions that are within the scope of IFRS 15, irrespective of whether they contain a significant financing component or not.

 

IFRS 9 requires the Group to consider forward looking information and the probability of default when calculating expected credit losses. The measurement of expected credit losses reflects an unbiased and probability weighted amount that is determined by evaluating the range of possible outcomes as well as incorporating the time value of money. The Group considers reasonable and supportable customer-specific and market information about past events, current conditions and forecasts of future economic conditions when measuring expected credit losses.

 

The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows of the asset, discounted, where material, at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Income Statement within 'administrative costs'. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 'administrative costs' in the Income Statement.

 

Financial liabilities

(i) Trade and other payables

Trade payables are not interest-bearing and are initially measured at fair value. Subsequent to initial recognition these liabilities are measured at amortised cost. The Group has contract liabilities in the form of deferred income which arises from consideration received in advance of the satisfaction of performance obligations.

 

(ii) Borrowings

Interest-bearing loans and overdrafts are initially measured at fair value, net of direct issue costs. These financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised over the period of the relevant liabilities.

 

3.12  Equity

Equity comprises the following:

 

· "Share capital" represents the nominal value of equity shares.

· "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

· "Other reserves" represent the equity element in the form of share options and warrants, see notes 29 and 32 for additional information on these instruments.

· "Retained earnings" represents retained profits and accumulated losses.

· "Merger reserve" arose on the reverse takeover of the Group in October 2016.

 

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

 

3.13  Share-based payments

(I) Equity-settled share-based payments

Equity-settled share-based payments are measured at the fair value of the awards based on the market value of the shares at  the grant date. Fair value excludes the effect of non-market-based vesting conditions. The fair value is charged to the consolidated statement of income and credited to retained earnings on a straight-line basis over the period the estimated awards are expected to vest.

 

At each reporting date, the Company revises its estimate of the number of equity instruments expected to vest as a result of  the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated statement of income such that the cumulative expense reflects the revised estimate, with a corresponding adjustment  to retained earnings.

 

(II) Cash-settled share-based payments

For cash-settled share-based payments, a liability is initially recognised at fair value based on the estimated number of awards that are expected to vest, adjusting for market based performance conditions. Subsequently, at each reporting period until the liability is settled, it is remeasured to fair value with any changes in fair value recognised in the consolidated statement of income.

 

3.14  Taxation

The income tax expense for the year comprises current and deferred tax.

 

Current tax

The charge for current taxation is the tax currently payable based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated 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 liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

 

Deferred tax

Deferred tax is provided using the liability method on differences between the carrying amounts of assets and liabilities in the consolidated balance sheet and the tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences and 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 deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction which is not a business combination and at the time of the transaction affects neither the tax profit nor the accounting profit.

 

 

 

The carrying amount of deferred tax assets is reviewed at each reporting end 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 are expected to apply in the period when the liability is settled, or the asset is realised based on tax rates that have been enacted or substantively enacted by the reporting end date. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax arising from a business combination is included in the resulting

goodwill or excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the business combination costs.

 

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

 

3.15  Leases

The Group adopted IFRS 16 Leases effective 1 January 2019. The Group leases various properties, equipment, and vehicles. Contracts typically cover fixed periods between one and 10 years and may contain extension options as described below. Lease terms are negotiated on an individual basis and include a wide variety of different terms and conditions.

 

Leases are booked as a right-of-use asset and as a corresponding lease liability at the date at which the leased asset is available for use by the Group. Each lease payment is apportioned between the reduction of the outstanding lease liability and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities are valued at the net present value of the future lease payments, which includes fixed lease payments, variable lease payments based on indexes and rates, residual value guarantees, purchase options and termination penalties. Lease payments are discounted using the interest rate implicit in the lease, or if that rate cannot be determined, the Group's incremental borrowing rate.

 

Right-of-use assets are measured at cost, comprising the amount of the initial lease liability adjusted by any lease payments made at or before the commencement date of the lease, any lease incentives received, initial direct costs and any estimated restoration costs.

 

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are identified as leases with a term of 12 months or less. Low-value assets comprise general office equipment.

 

3.16  Government Grants

Grants are accounted for under the accruals model as permitted by IAS 20. Grants are recognised in profit or loss statement in the same period as the related expenditure. This includes the Government Coronavirus Job Retention Scheme ('Furlough') and the US Payroll Protection Program ('PPP').

 

3.17  Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortisation, exceptional items and share based payment expense. The separate reporting of these items helps provide a better picture of the Group's underlying performance. Items which may be included within this category include:

 

· Costs associated with acquisitions; and

· Other particularly significant or unusual items.

 

Adjusted EBITDA is presented separately in the statement of comprehensive income as the Directors believe that it needs to be considered separately to gain an understanding of the underlying profitability of the trading businesses.

 

3.18  Critical accounting judgments and key sources of estimation uncertainty

 

Revenue recognition (Judgement)

Under IFRS 15, revenue recognition is based on the principle that revenue is recognised when control of a good or service transfers to a customer. Revenue is measured based on the consideration specified in a contract with a customer and is recognised when a customer obtains control of the services. The Group's franchise contracts are defined as having two distinct performance obligations, the Opening Package and the Territory Fee.

 

A degree of judgement arises with respect to the recognition of revenue on initial franchise fees, giving rise to estimation uncertainty. Management reviews on a regular basis the allocation within an initial franchise fee between the opening package and the territory fee. Whereas the opening package fee is recognised, as explained in note 3.3, generally upon the completion of the training of the franchisee, the portion related to the territory fee is deferred and recognised over the life of the franchise agreement. The total amount currently in deferred income in this respect amounts to £2,678,630 (2019: £3,030,239). The revenue recognised in respect of the opening package and the apportioned territory fee in the current year was £1,086,248 (2019: £1,381,567).

 

Recoverability of trade receivables (Judgement and estimates)

The Group provides credit to customers and as a result there is an associated risk that the customer may not be able to pay outstanding balances.

Under IFRS 9 the Group uses an allowance matrix to measure Expected Credit Loss (ECL) of trade receivables from customers. Loss rates are calculated based on the probability of a receivable progressing through successive chains of non-payment to write-off. The rates are calculated at a business unit level which reflects the risks associated with geographic region, age mix of customer relationship and type of product purchased.

 

IFRS 16 "Leases" (Judgement)

Where the Group has an option to extend or terminate a lease, management uses its judgement to determine whether such an option would be reasonably certain to be exercised. Management considers all facts and circumstances, including past practice and costs that would be incurred if an option were to be exercised, to help them determine the lease term. Management have also applied judgements in assessing the discount rate, which are based on the incremental borrowing rate. Such judgements could impact lease terms and associated lease liabilities. The Group has availed of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and the guidance in IFRIC 4 will continue to be applied to those leases entered into or modified before 1 January 2019.

 

Going concern (Judgement and estimates)

Since the COVID-19 pandemic began management has endeavored to understand the uncertainties associated with this unprecedented event, to quantify its impact on the future of the business and assess whether these uncertainties would cast doubt on the Group's ability to continue as a going concern. Given the improved but ongoing degree of uncertainty management has relied on its knowledge of its customers, the markets they operate in and the anticipated impact and duration of government restrictions that have been instituted globally to stem the transmission of the virus. To address this uncertainty, management completed a three year forecast that estimated the impact on the Group's revenue, profits and current and future cash resources under a best case and plausible downside scenarios. Significant judgment was required in preparing these forecasts including but not limited to;

 

· Duration of government restrictions - As of the date of this report, governments in our two primary markets of the United Kingdom and North America have been more definitive regarding the timing and nature of their plans to loosen restrictions as they anticipate a phased reopening of the economy over the coming months. Management has used its judgement to estimate how and when its customers will ramp up through the spring and summer and ultimately through year end. As we have outlined in Note 2 "Going Concern", we have assumed various degrees of recovery in our scenario testing none of which are assumed to return us to our pre-COVID normalised run rates.

· Government support - The Group has taken advantage of government support programs put in place by in each of our operating locations. This principally consists of the employee furlough scheme and the Coronavirus Business Interruption Loan Scheme in the UK and the Paycheck Protection Program offered in the US. Whilst it is estimated that the furlough program saves c.£0.1m per month, management has used the best information available to it and its judgement, where needed, to anticipate the duration of the furlough program, the changing resource requirements throughout the forecast period and how and when employees will be transitioned off of furlough as customers begin to ramp up. The Group has been successful in accessing both a UK CBILS loan and two tranches of the US Paycheck Protection loan/grant in the amounts of £1.2m and £0.4m respectively each of which are factored into the forecast.

 

· Liquidity and Banking - At year end the Group's available cash and unutilised overdraft facility totalled £4.6m and the forecast assumed the same starting point. Within each of the considered scenarios the Group maintains sufficient cash to meet all its obligations. The Group also has in place appropriate amendments to the covenants through June 2021.

 

Management has used its best judgement to forecast its cash requirements and cash availability in order t o assess whether the Group is able to continue as a going concern for at least, but not limited to, 12 months from the reporting date   and in each scenario the Group maintains sufficient levels of cash and unutilised overdraft to support the business through FY22.

 

Impairment (Judgement and estimates)

The Group is required to review assets for objective evidence of impairment. It does this on the basis of a review of the budget and rolling forecasts, which by their nature are based on a series of assumptions and estimates. The Group has performed impairment tests on those cash generating units which contain goodwill, and on any assets where there are indicators of impairment. The key assumptions associated with these reviews are detailed in Note 15.

 

Taxation (Judgement and estimates)

The Group is subject to income tax in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions for which the ultimate tax determination is uncertain. The Group recognises liabilities based on estimates of whether additional taxes will be due. Once it has been concluded that a liability needs to be recognised, the liability is measured based on the tax laws that have been enacted or substantially enacted at the end of the reporting period. The amount shown for current taxation includes an estimate for tax uncertainties and is based on the Directors' best probability weighted estimate of the probable outflow of economic resources that will be required to settle the liability. Where the final tax outcome of these matters is different from the amounts that were initially estimated, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. The Group estimates the most probable amount of future taxable profits, using assumptions consistent with those employed in impairment calculations, and taking into consideration applicable tax legislation in the relevant jurisdiction. These calculations also require the use of estimates.

 

4.   ADOPTION OF REVISED STANDARDS EFFECTIVE DURING 2020

 

A number of new amendments to standards are effective for annual periods beginning after 1 January

  2020 and earlier application is permitted; however, the Group has not early adopted them in preparing these consolidated financial statements. These are not expected to have a significant impact on adoption.

 

5.    SEGMENT ANALYSIS

 

In January 2019, following the acquisition of Watbio Holdings Ltd ("Watbio"), the Group began to make a number of changes to its organisational structure and management system consistent with its integration of Watbio.  With these changes, the Group has updated its reportable segments. There continues to be four reportable segments as follows:

 

The Site Service's segment includes the legacy Seal replacement service as well as capabilities in providing preventive maintenance and reactive services in the markets that it serves.  The Equipment Sales & Installation segment represents the provision of design, sale and installation solutions. The Franchise Development and Fryer Management segments remain unchanged. The Group also has three geographic segments: United Kingdom, North America and Europe. 

Previously reported segment information has been recast, as applicable, for all periods presented to reflect the changes in the Company's reportable segments.

 

The segments represent components of the Company for which separate financial information is available that is utilised on a regular basis by the chief operating decision maker (which takes the form of the Board of Directors), in determining how to allocate resources and evaluate performance. The segments are determined based on several factors, including client base, homogeneity of products, technology, delivery channels and similar economic characteristics.

 

Revenue and non-current assets by origin of geographical segment for all entities in the Group are as follows:

 

Revenue

 

 

 

 

 

2020

£

 

2019

£

 

North America

7,762,771

 

11,302,537

 

U.K.

8,154,425

 

13,124,702

 

Europe

484,425

 

495,287

 

Total

16,401,621

 

24,922,526

 

Non-current assets

 

 

 

2020

£

 

 

 

2019

£

 

North America

1,882,302

 

2,009,411

 

U.K.

8,972,757

 

9,643,205

 

Europe

406,205

 

619,614

 

Total

11,261,264

 

12,272,230

 

Revenue

 

 

 

 

2020

£

 

2019

£

Franchise Development

1,038,287

 

1,494,674

Fryer Management

7,812,833

 

11,716,594

Equipment Sales & Installation

1,377,210

 

2,792,685

Site Services

6,173,291

 

8,918,573

Total

16,401,621

 

24,922,526

 

 

 

 

             

 

Management measures revenues by reference to the Group's core services and products and related services, which underpin such income.  No customer has accounted for more than 10% of total revenue during the periods presented. Assets and liabilities are not fully allocated to the individual revenue segments as such information is not provided to the chief operating decision maker.  

 

Operating segment performance for the year ended 31 December 2020:

 

 

Franchise Development

Fryer Management

Equipment Sales & Installation

Site Service

Total

 

£m

£m

£m

£m

£m

Sales to external customers

  1.0

  7.8

  1.4

  6.2

  16.4

Adjusted EBITDA

  0.4

  0.8

  (0.1)

  0.0

  1.1

Acquisition and legal costs

  - 

  (0.0)

  (0.0)

  (0.1)

  (0.2)

Share based payments

  0.0

  0.1

  (0.0)

  (0.2)

  (0.1)

Depreciation and amortisation

  (0.1)

  (0.7)

  (0.1)

  (0.5)

  (1.4)

Operating loss

  0.3

  0.2

  (0.3)

  (0.7)

  (0.6)

Net finance costs

  (0.0)

  (0.1)

  (0.0)

  (0.1)

  (0.3)

Loss before taxation

  0.3

  0.0

  (0.3)

  (0.8)

  (0.9)

Taxation

 

 

 

 

  (0.1)

Other comprehensive income

 

 

 

 

  (0.2)

Loss and total comprehensive income

 

 

 

 

  (1.2)

 

 

Operating segment performance for the year ended 31 December 2019:

 

Franchise Development

Fryer Management

Equipment Sales & Installation

Site Service

Total

 

 

£m

£m

£m

£m

£m

 

Sales to external customers

  1.5

  11.7

  2.8

  8.9

  24.9

 

Adjusted EBITDA

  0.7

  1.8

  0.2

  0.5

  3.2

 

Acquisition and legal costs

  - 

  - 

  (0.1)

  (0.3)

  (0.3)

 

Share based payments

  (0.0)

  (0.1)

  (0.0)

  (0.1)

  (0.3)

 

Depreciation and amortisation

  (0.1)

  (0.7)

  (0.2)

  (0.5)

  (1.4)

 

Operating profit

  0.6

  1.0

  (0.1)

  (0.4)

  1.2

 

Net finance costs

  (0.0)

  (0.1)

  (0.0)

  (0.1)

  (0.3)

 

Profit before taxation

  0.6

  0.9

  (0.1)

  (0.4)

  0.9

 

Taxation

 

 

 

 

  (0.5)

 

Other comprehensive income

 

 

 

 

  (0.1)

 

Profit and total comprehensive income

 

 

 

 

  0.3

 

 

 

 

 

 

6.   Operating profit and adjusted EBITDA

 

 

 

 

 

 

 

 

 

The following have been included in arriving at operating profit and adjusted EBITDA:

 

 

 

 

 

 

2020

 

2019

 

 

£

 

£

 

Depreciation of property, plant and equipment (note 16)

172,560

 

216,677

 

Amortisation of intangible assets (note 15)

867,269

 

857,992

 

Depreciation of right of use assets

330,429

 

322,263

 

Gain on disposal of plant and equipment

(12,215)

 

(10,739)

 

Staff costs, including Directors (note 7)

4,972,012

 

7,137,774

 

Receipts from Government Grants

(959,117)

 

-

 

Share based payment

85,067

 

283,215

 

Cost of acquisition

-

 

60,448

 

Recovery on contingent consideration (note 25)

-

 

(138,942)

 

Restructuring

187,465

 

374,904

 

Foreign exchange gains

67,156

 

83,975

 

 

 

 

 

 

Profit before tax is stated after charging:

 

 

 

 

Auditors' remuneration:

 

 

 

 

Fees payable to the Company's Auditor and their associates for the audit of the Company's annual accounts

90,582

 

66,413

Fees payable to the Company's Auditor and their associates for other services:

 

4,630

 

 

-

The audit of the Company's subsidiaries pursuant to legislation

39,074

 

39,666

Tax and other services

40,567

 

66,299

Total auditors' remuneration

174,853

 

172,378

 

 

 

 

Lease rental expense on low value and/or short term leases

3,402

 

10,178

 

                             

 

During the period, the Group benefited from €0.7m of government grants in the form of the Job Retention Scheme in the UK. In addition, the subsidiaries also benefitted from personnel cost reductions for a total amount of €1.0m due to Government assistances around the world. In accordance with accounting policy, this credit is included in the Income Statement over the same period as the staff costs for which it compensates. Additionally, £0.5m of VAT payments have been deferred to 2021.

 

Exceptional items consist of the following:

 

2020

 

2019

 

 

£

 

£

 

Acquisition related

-

 

60,448

 

Recovery on contingent consideration

-

 

(138,942)

 

Restructuring

121,682

 

374,904

 

COVID-19 customer provision

62,287

 

-

 

Legal and professional

3,496

 

-

 

 

187,465

 

296,410

 

 

 

 

 

 

7.   STAFF COSTS

 

 

 

 

2020

 

2019

 

£

 

£

Gross salaries

5,121,236

 

6,005,194

Social security costs

507,689

 

601,968

Pension contributions

76,528

 

93,725

Share based payment charge

85,067

 

283,215

Other staff benefits

140,609

 

153,672

 

5,931,129

 

7,137,774

Government support

 

(959,117)

4,972,012

 

-

7,137,774

 

 

 

 

The average number of employees of the Group during the year was as follows:

 

 

 

 

2020

 

2019

 

 

No.

 

No.

 

Directors

8

 

8

 

 

Staff

 

 

 

 

Administration

26

 

34

 

Customer Services/Network Support

30

 

25

 

Business Development/Marketing

4

 

6

 

Sales

14

 

9

 

Other

62

 

86

 

 

144

 

168

 

 

 

 

 

 

             

8.   REMUNERATION OF KEY MANAGEMENT PERSONNEL

 

2020

 

2019

 

£

 

£

Remuneration for qualifying services

671,262

 

658,845

 

671,262

 

658,845

 

Details of Directors' remuneration are provided in the Remuneration Report.

 

 

 

 

9.   FINANCE COSTS

 

 

 

 

2020

 

2019

 

£

 

£

Bank and other loans

231,639

 

234,604

Finance fees

50,412

 

43,655

 

282,051

 

278,259

 

 

 

 

10.   INCOME TAX EXPENSE

 

 

 

 

2020

 

2019

 

 

£

 

£

 

Corporation Tax

 

 

 

 

Charge for the year

410,434

 

604,458

 

 

 

 

 

 

Deferred tax

 

 

 

 

Origination and reversal of temporary differences

 

(270,686)

 

(72,040)

 

Total tax charge

139,748

 

532,418

 

                 

 

Reconciliation of corporation taxation:

 

2020

 

2019

 

£

 

£

(Loss)/profit before tax

(866,231)

 

929,432

 

 

 

 

 

Tax calculated at the domestic tax rate of 19% (2019: 19%)

 

(164,584)

 

 

176,592

 

 

 

 

Tax effects of:

 

 

 

Income not subject to tax

(49,900)

 

(20,689)

Expenses not deductible for tax purposes

-

 

194,999

Tax deductions not recognised as an expense

(91,765)

 

(58,150)

Tax losses in the year for which no deferred tax is recognised

-

 

57,909

Other timing differences

167,794

 

14,306

Withholding tax payable on intercompany dividend

-

 

53,393

Adjustments in respect to prior years

-

 

(78,178)

Impact of overseas tax rates

255,728

 

149,785

Release of deferred tax on share options

22,475

 

42,451

Total

139,748

 

532,418

 

The Filta Group's effective tax rate for the year ended 31 December 2020 was (16.1%) (2019: 57.3%). The effective rate is an amalgamation of mainly UK (19%), US (28%) and Canadian (27.6%) rates for the periods reported. The change from prior year has been particularly affected by the geographic mix of profits for the year and the inability to offset US and Canadian pre-tax profits with UK losses. 

The Filta Group has tax losses of approximately £1,462,379 (2019: £749,447) to carry forward against future profits. The UK tax losses have no expiry date and a deferred tax asset of £277,852 (2019: £110,731) has been recognised in respect of them.

 

There are no other available tax losses in the Group.

 

11.   DEFERRED TAX ASSETS / LIABILITIES

 

The movement in the Group's deferred tax asset during the year is as follows:

 

 

 

2020

 

2019

 

£

 

£

At start of year

678,497

 

754,728

Movement for the year

137,166

 

(59,183)

Foreign exchange differences

(19,249)

 

(17,048)

At end of year

796,414

 

678,497

         

 

The deferred tax balances relate to temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial information as summarised below.

 

 

2020

 

2019

 

£

 

£

Tax losses

277,852

 

110,731

Deferred revenue

518,562

 

545,291

Other

-

 

22,475

At end of year

796,414

 

678,497

 

The movement in the Group's deferred tax liability during the year is as follows:

 

 

2020

 

2019

 

£

 

£

At start of year

1,159,121

 

1,291,31

Credit for the year

(131,623)

 

(132,197)

 

At end of year

1,027,498

 

1,159,121

 

 

 

 

 

 

             

12.   EARNINGS PER SHARE

 

Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the company by the weighted average number of shares in issue during the year.

 

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to take account of all dilutive potential ordinary shares and adjusting the profit attributable, if applicable, to account for any tax consequences that might arise from conversion of those shares.

 

 

 

2020

 

2019

Earnings attributable to equity holders of the company

(1,005,979)

 

403,866

 

 

 

 

Weighted average number of shares

29,097,146

 

29,041,697

Effect of dilutive share options and awards

-

 

104,870

Weighted average number of shares for dilutive earnings

29,097,146

 

29,146,567

Earnings per share

 

 

 

Basic

(3.46)

 

1.39

Diluted

(3.46)

 

1.39

 

 

 

 

             

13.   INVESTMENT IN SUBSIDIARIES

 

The subsidiaries of Filta Group Holdings plc are as follows:

 

 

 

2020

2019

 

Company

Class

ownership interest

ownership interest

Nature of business

The Filta Group Limited

Ordinary

100%

100%

Environmental Services

The Filta Group Incorporated

Ordinary

100%

100%

Environmental Services

Filta Refrigeration Limited

Ordinary

100%

100%

Discontinued

FiltaFry Limited

Ordinary

100%

100%

Dormant

Bio Depot Limited

Ordinary

100%

100%

Dormant

FitaSeal Limited

Ordinary

100%

100%

Dormant

Filta Environmental Canada, Limited

Ordinary

100%

100%

Environmental Services

Filta Europe B.V.

Ordinary

100%

100%

Environmental Services

FiltaFry Deutschland GmbH

Ordinary

100%

100%

Environmental Services

Watbio Holdings Limited

Ordinary

100%

100%

Environmental Services

Watbio Limited

Ordinary

100%

100%

Environmental Services

Watling Hope Installations Limited

Ordinary

100%

100%

Environmental Services

Environmental Biotech Limited

Ordinary

100%

100%

Environmental Services

M&M Asset Maintenance

Ordinary

100%

100%

Environmental Services

 

The registered office of all subsidiaries is The Locks, Hillmorton, Rugby, Warwickshire, CV21 4PP,  apart from the following:

 

Company

Registered Office address

 

The Filta Group Incorporated

7075 Kingspointe Parkway, Suite 1, Orlando, Florida 32819 United States

 

Filta Environmental Canada Limited

27th floor, P.O. Box 49123, 595 Burrard Street, Vancouver, British Columbia, V7X 1J2 Canada

 

Filta Europe B.V.

Debbeshoek 14B, 7071XK Ulft, Netherlands

 

FiltaFry Deutschland GmbH

Pliniusstraße 8, 48488 Emsbüren, Germany

 

 

14.  DIVIDENDS

 

 

 

 

2020

 

2019

 

£

 

£

Distributions to equity holders in the year :

 

 

 

Final dividend for the year ended 31 December 2019 of Nil (2018:0.92p per share)

-

 

267,286

Interim dividend for the year ended 31 December 2020 of Nil (2019: 1.00p per share)

 

-

 

 

290,829

 

-

 

558,115

The Board has not recommended a final dividend for the year ended 31 December 2020

 

-

 

 

-

           

 

15.   INTANGIBLE ASSETS

 

 

 

 

 

 

 

 

 

 

Computer Software

 

Goodwill

Customer Relationships

Customer Contracts

Supply Contract

 

Total

 

 

  £

£

£

  £

£

£

 

Cost

 

 

 

 

 

 

 

Balance at 1 January 2020

719,320

1,639,523

3,963,737

2,489,489

724,481

9,536,550

 

Additions

194,985

-

-

-

-

194,985

 

Foreign exchange

(21,917)

-

-

-

-

(21,917)

 

Balance at 31 December 2020

892,388

1,639,523

3,963,737

2,489,489

724,481

9,709,618

 

 

 

 

 

 

 

 

 

Amortisation and impairmen t

 

 

 

 

 

 

 

Balance at 1 January 2020

507,804

-

525,348

300,623

48,298

1,382,073

 

Amortisation

124,392

-

430,995

263,584

48,298

867,269

 

Foreign exchange

(20,857)

-

-

5,250

 

(15,607)

 

Balance at 31 December 2020

611,339

-

956,343

569,457

96,596

2,233,735

 

 

 

 

 

 

 

 

 

Net book value at 31 December 2020

281,049

1,639,523

3,007,394

1,920,032

7,475,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Computer Software

 

Goodwill

Customer Relationships

Customer Contracts

Supply Contract

 

Total

 

  £

£

£

  £

£

£

Cost

 

 

 

 

 

 

 

Balance at 1 January 2019

542,782

1,639,523

3,963,737

2,489,489

724,481

9.360.012

Additions

194,245

-

-

-

-

194.245

Foreign exchange

(17,707)

-

-

-

-

(17,707)

Balance at 31 December 2019

719,320

1,639,523

3,963,737

2,489,489

724,481

9,536,550

 

 

 

 

 

 

 

Amortisation and impairmen t

 

 

 

 

 

 

 

Balance at 1 January 2019

398,963

-

94,353

40,741

-

534,057

 

Amortisation

115,687

-

430,995

263,012

48,298

857,992

 

Foreign exchange

(6,846)

-

-

(3,130)

 

(9,976)

 

Balance at 31 December 2019

507,804

-

525,348

300,623

48,298

1,382,073

 

 

 

 

 

 

 

 

Net book value at 31 December 2019

211,516

1,639,523

3,438,389

2,188,866

  676,183

8,154,477

 

 

 

 

 

 

 

 

 

                                   

Intangible assets are valued separately for each acquisition and the primary method of valuation used is the discounted cash flow method. The majority of acquired intangibles are amortised using an amortisation profile based on the projected cash flows underlying the acquisition date valuation of the intangible asset. The Group keeps the expected pattern of consumption under review.

 

Impairment tests for goodwill and intangibles

 

The Group is obliged to test goodwill and other intangibles with indefinite useful lives for impairment, at least annually, or at any time if there are indications that these assets might be impaired.

 

In order to perform this test, management is required to compare the carrying value of the relevant cash generating unit ('CGU') including the goodwill with its recoverable amount.  The CGU's to which the goodwill has been attributed and their carrying value are summarised below.

 

 

2020

£

2019

£

Franchise development

90,946

90,946

Equipment sales & installation

369,297

369,297

Site service

1,179,280

1,179,280

Total

1,639,523

1,639,523

 

The recoverable amount of a CGU is primarily determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on annual financial budgets which are approved by the Board and the same as used in the Group's going concern assessment. Income and costs within

the budget are derived on a detailed, 'bottom up' basis - all income streams and cost lines are considered and appropriate growth, or decline, rates are assumed for each, all of which are then reviewed, challenged and stress tested, firstly by senior management and ultimately by the Board.

Income and cost growth forecasts are risk adjusted to reflect specific risks facing each CGU and take into account the markets in which they operate. Cash flows beyond the three year budgeted period are extrapolated using an estimated 3% growth rate into perpetuity. The growth rate does not exceed the long-term average growth rate for the markets in which the CGU's operate. Further, other than as included in the financial budgets, it is assumed that there are no material adverse changes in legislation that would affect the forecast cash flows.

 

The pre-tax discount rate used within the recoverable amount calculations was 10.18% (2019: 8.11%) and is based upon the weighted average cost of capital reflecting specific principal risks and uncertainties. The discount rate takes into account, amongst other things, the risk free rate of return, the market risk premium and beta factor reflecting the average Beta for the Group. The same discount rate has been used for each CGU as the principal risks and uncertainties associated with the Group, as highlighted on pages 20 to 23, would also impact each CGU in a similar manner. The Board acknowledge that there are additional factors that could impact the risk profile of each CGU. These additional factors were considered by way of sensitivity analysis performed as part of the annual

impairment tests. The level of impairment recognised is predominantly dependent upon judgments used in arriving at future growth rates and the discount rate applied to cash flow projections. Key drivers to future growth rates are dependent on the Group's ability to maintain and grow income streams whilst effectively managing operating costs. The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in the cash flow projections. Where the value-in-use calculations suggest an impairment, the Board would consider alternative use values prior to realising any impairment, being the fair value less costs to dispose.

A sensitivity analysis has been performed and the Board have concluded that no reasonably foreseeable change in the key assumptions would result in an impairment of the goodwill.  In particular, a 5% increase in the discount rate or a 5% decrease in the terminal value growth rate would not result in impairment.  

 

16.   PROPERTY, PLANT AND EQUIPMENT

 

Details of the Group's property, plant and equipment and their carrying amounts are as follows:

 

 

 

Fixture and

Plant and

 

 

 

 

Fittings

Machinery

Motor

Total

 

Freehold

Property

& Equipment

 

Vehicles

 

 

£

£

£

£

£

Cost

 

 

 

 

 

At 1 January 2020

1,567,860

161,327

436,294

168,835

2,334,316

Additions

7,060

36,660

50,724

5,722

100,166

Disposals

-

(988)

(3,300)

(52,305)

(56,593)

Foreign exchange

(49,715)

2,343

(2,443)

(1,370)

(51,185)

 

 

 

 

 

 

At 31 December 2020

1,525,205

199,342

481,275

120,882

2,326,704

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 January 2020

711,396

76,537

155,133

55,140

998,206

Depreciation charge

40,178

40,428

68,595

23,359

172,560

Disposals

-

(546)

(3,300)

(51,130)

(54,976)

Foreign exchange

(29,538)

(8,058)

(2,512)

(634)

(40,742)

 

 

 

 

 

 

At 31 December 2020

722,036

108,361

217,916

26,735

1,075,048

 

 

 

 

 

 

Net Book Values

 

 

 

 

 

At 31 December 2020

803,169

90,981

263,359

94,147

1,251,656

 

Cost

 

 

 

 

 

At 1 January 2019

1,618,452

179,986

299,723

477,947

2,576,108

IFRS 16 transition

 

 

 

(287,396)

(287,396)

Additions

1,674

49,137

233,490

3,950

288,251

Disposals

(10,640)

(64,989)

(94,999)

(24,351)

(194,979)

Foreign exchange

(41,626)

(2,807)

(1,920)

(1,315)

(47,668)

At 31 December 2019

1,567,860

161,327

436,294

168,835

2,334,316

 

 

 

 

 

 

Depreciation

 

 

 

 

 

At 1 January 2019

704,960

115,070

140,871

122,027

1,082,928

IFRS 16 transition

-

-

-

(77,068)

(77,068)

Depreciation charge

45,561

28,732

113,483

28,901

216,677

Disposals

(10,468)

(63,566)

(94,785)

(17,174)

(185,993)

Foreign exchange

(28,657)

(3,699)

(4,436)

(1,546)

(38,338)

At 31 December 2019

711,396

76,537

155,133

55,140

998,206

 

 

 

 

 

 

Net Book Values

 

 

 

 

 

At 31 December 2019

856,464

84,790

281,161

113,695

1,336,110

                     

Certain of the property, plant and equipment listed above are held as security against bank facilities referred to in note 23. 

 

17.   RIGHT OF USE ASSETS

 

 

 

 

 

 

 

Land and buildings

Plant and equipment

Motor vehicles

Total

Cost

£

£

£

£

At 1 January 2019

  535,485

  1,525

  309,063

  846,073

Additions

  -

  3,169

  912,596

  915,765

Disposals

  (175,677)

  -

  (44,704)

  (220,381)

At 31 December 2019

  359,808

  4,694

  1,176,955

  1,541,457

Additions

  12,980

  -

  99,688

  112,667

Disposals

  (20,232)

  -

  (100,237)

  (120,469)

Foreign exchange

  2,177

  (170)

  237

  2,245

At 31 December 2020

  354,733

  4,525

  1,176,643

  1,535,900

Depreciation

 

 

 

 

At 1 January 2019

  -

  -

  -

  -

Charge for the year

  (125,714)

  (75)

  (196,473)

  (322,262)

Disposals

  38,329

  -

  11,994

  50,323

Foreign exchange

  -

  -

  961

  961

At 31 December 2019

  (87,384)

  (75)

  (183,519)

  (270,978)

Charge for the year

  (84,378)

  (862)

  (245,189)

  (330,429)

Disposals

  20,232

  -

  88,111

  108,343

Foreign exchange

  (594)

  3

  (519)

  (1,111)

At 31 December 2020

  (152,124)

  (934)

  (341,116)

  (494,174)

Net book value

 

 

 

 

At 31 December 2020

  202,608

  3,591

  835,527

  1,041,726

At 31 December 2019

  272,423

  4,620

  993,436

  1,270,479

At 1 January 2019

  535,485

  1,525

  309,063

  846,073

 

 

 

 

 

 

 

 

2020

2019

 

 

 

 

 

Depreciation expense on right of use assets

330,429

  322,262

Interest expense on lease liabilities

 

  50,412

  43,655

 

18.   TRADE AND OTHER RECEIVABLES

 

  Trade and other receivables consist of the following:  

 

 

 

 

Total

2020

 

2019

 

£

 

£

Trade receivables, gross

2,248,013

 

3,591,379

Impairment allowance

(208,278)

 

(83,262)

Trade receivables, net

2,039,735

 

3,508,117

 

 

 

 

Prepayments and other receivables

258,937

 

402,206

Franchise payment plans, net

291,280

 

566,220

 

2,589,952

 

4,476,543

 

 

 

 

Current

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

2019

 

£

 

£

Trade receivables

1,962,842

 

3,508,117

Prepayments and other receivables

258,937

 

402,206

Franchise payment plans, net

103,899

 

154,488

 

2,325,678

 

4,064,811

 

 

 

 

Non-current

2020

 

2019

 

£

 

£

Trade receivables

76,893

 

-

Franchise payment plans, net

187,381

 

411,732

 

264,274

 

411,732

 

Trade and other receivables include amounts that the Filta Group has agreed may be settled over extended repayment terms. The amount due from related parties in the parent company of £3.2m consist of £1.5m of loans to subsidiaries to fund debt repayment and acquisitions and is repayable after more than twelve months while the balance of £1.7m is for normal working capital requirements.  The loans to subsidiaries bear interest at commercial rates. All amounts are eliminated on the Group Consolidated Statement of Financial Position.

 

The Group applies a simplified approach to measure the loss allowance for trade receivables classified at amortised cost, using the lifetime expected loss provision. The expected credit loss on trade receivables is estimated using a provision matrix by reference to past default experience and credit rating, adjusted as appropriate for current observable data. The following table details the risk profile of trade receivables based on the Group's provision matrix.

 

 

 

 

Trade receivables - days past due

 

31 December 2020

 

 Not past due

< 30

31 - 60

60 - 90

> 90

Total

Gross carrying amount

  328,141

  565,174

 386,660

 149,822

 724,428

  2,154,225

Weighted average expected credit loss rate

1.1%

1.4%

2.4%

9.4%

24.0%

9.7%

Expected credit loss

  3,610

  7,630

  9,154

  14,111

  173,773

208,278

 

 

 

 

Trade receivables - days past due

 

31 December 2019

 Not past due

< 30

31 - 60

60 - 90

> 90

Total

Gross carrying amount

2,115,940

  534,788

 273,355

 140,802

 526,494

  3,591,379

Weighted average expected credit loss rate

0.8%

1.8%

4.2%

6.1%

6.8%

2.3%

Expected credit loss

  17,826

  9,698

  11,421

  8,624

  35,693

83,262

 

 

 

 

 

 

Movement in the expected credit loss:

 

 

 

 

 

 

2020

 

2019

 

 

 

 

 

£

 

£

At beginning of year

 

 

 

 

83,262

 

184,022

Impairment loss recognised

 

 

 

 

135,290

 

(18,353)

Utilised

 

 

 

 

(10,274)

 

(84,407)

At end of year

 

 

 

 

208,278

 

  83,262

 

19.   CONTRACT ACQUISITION COSTS

 

  The Group capitalises incremental costs to obtain contracts with customers where it is expected these costs will be recoverable. Incremental costs to obtain contracts with customers are considered those which would not have been incurred if the contract had not been obtained. For the Group, these costs relate  primarily to third party broker fees. The Group has elected to use the practical expedient as allowable by IFRS 15 whereby such costs will be expensed as incurred where the expected amortisation period  is one year or less. Where the amortisation period is greater than one year, these costs are amortised over the contract term on a systematic basis consistent with the transfer of the underlying goods and services within the contract to which these costs relate, which will generally be on a rateable basis. Expense recognised in 2020 was £86,256 (2019: £76,845) whilst

Impairment of capitalised contract costs was £nil in 2020 (2019: £nil).

 

The amount of capitalised contract cost expected to be recovered after more than one year is £0.4m (2019: £0.4m).

 

20.   INVENTORIES

 

 

2020

 

2019

 

£

 

£

Finished goods

1,604,451

 

1,759,955

Total

1,604,451

 

1,759,955

 

Inventories primarily consists of filtration machines, filters, grease recovery units and parts and are stated at the lower of cost (on a first-in, first-out basis) and net realisable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realisable value. There are no material stock provisions at either period end. No material amounts have been written-off in either year ended 31 December 2020 or 31 December 2019 within the income statement of the Company. £2.9m of inventories were recognised as an expense within the year (2019: £4.1m).

 

21.    CASH AND CASH EQUIVALENTS

 

Group

2020

 

2019

 

£

 

£

 

 

 

 

Cash at bank and in hand

4,208,498

 

2,891,014

 

 

 

 

Company

 

 

 

Cash at bank and in hand

51,856

 

109,089

 

 

 

 

22 .    TRADE AND OTHER PAYABLES

 

2020

 

2019

Group

£

 

£

 

 

 

 

 

 

Trade payables

1,294,512

 

2,555,860

 

Taxes and social security

531,763

 

194,199

 

Accruals and other payables

463,614

 

510,826

 

 

2,289,889

 

3,260,885

 

Company

Trade payables

16,933

 

39,272

Taxes and social security

4,552

 

4,744

Accruals and other payables

-

 

-

 

21,485

 

44,016

 

Analysis of trade and other payables 

These are classified as short term and are expected to be settled within 12 months.

 

23.   LOANS AND OTHER BORROWINGS

Group

2020

 

2019

 

£

 

£

Total

 

 

 

Bank loans

4,674,378

 

3,722,617

Related party loans

49,637

 

46,942

 

4,724,015

 

3,769,559

 

 

Current

 

 

 

Bank loans

1,076,927

 

792,672

 

1,076,927

 

792,672

 

Non-current

 

 

 

Bank loans

3,597,451

 

2,929,945

Related party loans

49,637

 

46,942

 

 

3,647,088

 

2,976,887

 

Company

2020

 

2019

 

£

 

£

Total

 

 

 

Bank loans

3,328,289

 

3,532,590

 

3,328,289

 

3,532,590

 

Current

 

 

 

 

Bank loans

942,763

 

786,049

 

942,763

 

786,049

             

 

Non-current

 

 

 

Bank loans

2,385,526

 

2,746,541

 

 

2,385,526

 

2,746,541

The bank loans are comprised of a £4,000,000 term loan (£2,828,289 net of debt issuance costs), which carries a variable interest rate of Libor plus 3% and is repayable in equal instalments of £246,154 per quarter, a $905,785 US Dollar denominated mortgage loan (£646,089), which carries an interest rate of 4.5% and matures in 2024 and a £1,200,000 Coronavirus Business Interruption Loan which carries a variable interest rate of 3.99% over the Bank of England base rate and is repayable in equal instalments of £20,000 per month. 

 

24.  LEASE LIABILITIES

 

  Details of the Group' Lease Liabilities are as follows:

Group

2020

 

2019

 

£

 

£

Total

 

 

 

Leases

1,089,599

 

1,215,421

 

1,089,599

 

1,215,421

 

Current

 

 

 

Leases

319,480

 

332,974

 

319,480

 

332,974

 

Non-current

 

 

 

Leases

770,119

 

882,447

 

 

770,119

 

882,447

 

 

 

 

25.  CONTINGENT CONSIDERATION

 

  As part of the business combinations completed by the Group in 2018 certain contingent consideration formed the basis of the total consideration reported.

 

  Filtafry Deutschland GmbH

  On 6 February 2020, pursuant to a share purchase agreement between the Company and FiltaFry Deutschland GmbH, 12,809 shares of 10 pence each were issued to Chesskin Beheer B.V. at a price of 165.2 pence each, giving rise to a share premium of £19,881.

 

On 6 February 2019, pursuant to a share purchase agreement between the Company and FiltaFry Deutschland GmbH, 9,225 shares, calculated based on an average share price of 236p and an exchange rate of 0.8694, were issued to the Seller.

 

Watbio Holdings Limited

Contingent consideration of £1,954,611 to be satisfied by the following:

 

Final EBITDA payment  1,440,455

Retention debt payment  £ 264,156

Consideration shares  £  250,000

 

On 22 March 2019, 125,000 ordinary shares priced at 200p were issued to the sellers to satisfy the consideration shares due. On 28 March 2019, a payment of £1,440,455 was remitted to the Sellers to satisfy the final EBITDA payment consideration. On 30 June 2019, a payment of £125,314 was remitted to the Sellers and represented a full and final payment of the retention debt. The remaining amount of £138,942 was recognised in income in the period. This has been included in other income in the profit and loss accounts and has been deducted when calculating the adjusted EBITDA.

 

26.  DEFERRED INCOME

 

  Deferred income relates to certain performance obligations from franchise sales that are deferred over the life of the franchise agreement.  The deferral period is 10 years in North America and 5 years in the UK and mainland Europe and revenue is recognised equally over the deferral period.

 

Movements in Deferred income are as follows:

 

 

1 Jan 2020

New franchise agreements

Utilisation

Foreign exchange

31 Dec 2020

 

£

£

£

£

£

Deferred income

3,030,239

467,775

(736,374)

(83,010)

2,678,630

 

 

 

 

 

 

Current

 

 

 

 

592,065

Non-current

 

 

 

 

2,086,565

Total

 

 

 

 

2,678,630

 

27.   RECONCILIATION OF MOVEMENTS IN NET DEBT

 

 

 

1 January 2020

Cash flows

Acquisition

Non-cash changes

31 December 2020

 

 

 

 

Foreign exchange movements

Fair value changes

 

 

£

£

£

£

£

£

Long term borrowings

  3,769,559

  (284,178)

  1,200,000

  38,634

 

4,724,015

Lease liabilities

  1,215,421

  (231,005)

  100,952

  4,231

  -

1,089,599

Total

  4,984,980

  (515,183)

  1,300,952

  42,865

  -

5,813,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 January 2019

Cash flows

Acquisition

Non-cash changes

31 December 2019

 

 

 

 

Foreign exchange movements

Fair value changes

 

 

£

£

£

£

£

£

Long term borrowings

  4,581,505

  (832,434)

  -

  20,488

 

  3,769,559

Lease liabilities

  168,448

  (32,588)

  251,561

  -

  828,000

  1,215,421

Total

  4,749,953

  (865,022)

  251,561

  20,488

  828,000

4,984,980

28.  SHARE CAPITAL

 

The share capital of Filta Group Holdings plc consists of fully paid ordinary shares with a nominal value of 10 pence. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote.

 

2020

2019

 

 

Number

£

  Number  £

 

Allotted and fully paid

 

 

 

 

 

Total shares in issue at 1 January

29,085,355

2,908,535

28,918,630

2,891,863

 

Issue of ordinary shares

12,809

1,281

134,225

13,422

 

Issued under share option scheme

-

-

32,500

3,250

 

Total shares in issue at 31 December

29,098,164

2,909,816

29,085,355

2,908,535

 

                   

 

On 6 February 2019, pursuant to a share purchase agreement between the Company and FiltaFry Deutschland GmbH, 9,225 shares of 10 pence each were issued to Chesskin Beheer B.V. at a price of 238.5 pence each, giving rise to a share premium of £21,078.

 

On 22 March 2019, pursuant to a share purchase agreement between the Company and Watbio Holdings Limited, 125,000 shares of 10 pence each were issued to the sellers at a price of 200 pence, giving rise to a share premium of £237,500, to partially satisfy share consideration due as part of the total consideration paid for the business.

 

Between 3 June 2019 and 3 October 2019 certain employees exercised their rights under the Company's EMI Share Option Scheme and 32,500 shares of 10 pence each were issued to satisfy the exercise. These shares were priced at a range of 177 pence to 224 pence and gave rise to a share premium of £28,275.

 

On 6 February 2020, pursuant to a share purchase agreement between the Company and FiltaFry Deutschland GmbH, 12,809 shares of 10 pence each were issued to Chesskin Beheer B.V. at a price of 165.2 pence each, giving rise to a share premium of £19,881.

 

29.   OTHERRESERVES

 

Group

2020

 

2019

 

£

 

£

Merger reserve

(339,687)

 

(339,687)

Share based payment reserve

573,118

 

367,102

 

233,431

 

27,415

Company

 

 

 

 

Share based payment reserve

573,118

 

367,102

 

573,118

 

367,102

 

Merger reserve

The Directors consider the substance of the acquisition of the Subsidiaries by Filta Group Holdings plc is that of a combination of entities under common control and therefore it fell outside the scope of IFRS 3 (revised 2008).

 

Share based payment reserve

The Company established the Filta Group Holdings Enterprise Management Incentive Scheme in 2017 to award U.K. employees with equity settled share options. The options were granted on 5 May 2017

and vest equally over a three-year period beginning on 5 May 2019.  Subsequent options were granted on 16 October 2017, 11 January 2019, 15 May 2019, 18 November 2019 and 15 July 2020 all with similar vesting schedules to the original grants. The total charge recognised for share-based payments in respect of employee services received for the year ended 31 December 2020 was £85,067 (2019: £287,468).

 

30.   FINANCIAL INSTRUMENTS

 

Risk Management objectives and policies

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Filta Group's competitiveness and flexibility. Further details regarding these policies are set out below.

 

Management reviews its monthly reports through which it assesses the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.  

 

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they arise while maximising the return to shareholders.

 

The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the Parent, comprising issued capital, reserves and retained earnings, and long and medium-term debt facilities. Term loans are used to finance long-term investment such as acquisitions. Overdrafts are used to manage short-term cash requirements and minimise interest costs. The Group's financing facilities contain the usual financial covenants including maximum leverage, minimum interest cover and minimum operating cash flow. The Group has been provided waivers from its bank through 30 June 2021.

 

The Group's dividend policy is to provide sustainable dividends to shareholders, consistent with the Group's earnings growth to attract long-term investors and to align shareholders returns on their investment in tandem with the Group's growth. The payment and amount of any dividends or distributions to shareholders is at the discretion of the Board, and subject to shareholder approval.

 

Market risk management

Management do not consider the company exposed to interest rate or inflation risks significant enough to have a material effect on the profitability of the company.

 

  Foreign currency sensitivity

The Filta Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than Pounds Sterling. The currency giving rise to this risk is primarily the US Dollar. Foreign currency risk is monitored closely on an ongoing basis to ensure that the net exposure is at an acceptable level.

 

A majority of the Filta Group's financial assets and liabilities are held in Dollars and movements in the exchange rate against Sterling has an impact on both the results for the year and equity.  The Filta Group maintains a natural hedge whenever possible, by matching the cash inflows (revenue streams) and cash outflows in foreign currencies.

 

The following table demonstrates the sensitivity to a reasonably possible change in sterling against the US Dollar and Canadian Dollar with all other variables held constant.

 

 

 

Change in rate

Effect on profit before tax

£

Effect on equity

£

USD

+10%

(161,369)

298,412

USD

-10%

197,228

(364,725)

CAD

+10%

(2,092)

12,492

CAD

-10%

13,390

(15,268)

EUR

+10%

13,446

(38,218)

EUR

-10%

(16,435)

46,710

 

Interest rate sensitivity

The interest rate sensitivity has been determined based on the exposure at the reporting date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the reporting date was outstanding for the full year. All financial liabilities, other than financing liabilities, are interest free.

 

The following table analyses interest bearing loans, borrowings, and lease liabilities by fixed and floating mix.

 

 

 2020

 2019

 

 

 

 Floating LIBOR

  2,828,289

  3,032,590

 Floating Base

1,200,000

 -

 Fixed

  1,785,325

  1,952,390

 Total

  5,813,614

  4,984,980

 

As the Group has no significant interest-bearing assets, the Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's interest rate risk arises from its borrowings, chiefly its floating GBP LIBOR term debt. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

 

An increase or decrease of 100 basis points in each of the applicable rates would impact reported after-tax profit by £0.04m (2019: £0.03m) and equity by £0.04m (2019: £0.03m). 

 

Credit risk management:

The Filta Group's exposure to credit risk, or the risk of counterparties defaulting, arises mainly from trade and other receivables. The Filta Group manages its exposure to credit risk by the application of credit approvals, credit limits and monitoring procedures on an ongoing basis. For other financial

assets (including cash and bank balances), the Filta Group minimises credit risk by dealing exclusively with high credit rating counterparties.

 

As the Filta Group does not hold any collateral, the maximum exposure to credit risk is represented by the carrying amount of the financial assets as at the end of each reporting period.

 

Liquidity risk management:

The Filta Group currently holds cash balances to provide funding for normal trading activity. The Filta Group also has access to both short-term and long-term borrowings to finance capital expenditure requirements. Trade and other payables are monitored as part of normal management routine.  

 

Categories of financial instruments:

The table below sets out the Group's classification of each of its financial assets and liabilities at 31 December 2020  All amounts are stated at their carrying value.

 

 

2020

 

2019

 

£

 

£

Financial Assets

At amortised cost:

 

 

 

Cash and cash equivalents

4,208,498

 

2,891,014

Trade and other receivables (excluding prepayments)

2,341,916

 

4,084,963

Deposits

11,398

 

5,272

 

6,561,812

 

6,981,249

Financial Liabilities

 

 

 

Trade and other payables (excluding taxes)

1,758,127

 

3,066,685

Borrowings

4,724,015

 

3,769,559

 

6,482,142

 

6,836,244

 

The table below summarises the maturity profile (representing undiscounted contractual cash flows) of the Group's financial liabilities:

 

 

 

 

 

 

At 31 December 2020

Less than 3 months

3 to 12 months

1 to 5 years

Over 5 years

Total

 

£

£

£

£

£

 

 

 

 

 

 

Trade and other payables

  1,708,679

  20,288

  29,160

  -

  1,758,127

Expected future interest payments

  11,942

  178,930

  300,510

  1,861

  493,243

Borrowings

  5,492

  1,071,435

  3,507,088

  140,000

  4,724,015

Total

  1,726,113

  1,270,653

  3,836,758

  141,861

  6,975,385

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

Less than 3 months

3 to 12 months

1 to 5 years

Over 5 years

Total

 

£

£

£

£

£

Trade and other payables

  3,019,615

  16,817

  30,253

  -

  3,066,685

Expected future interest payments

  34,150

  158,510

  316,725

  -

  509,385

Borrowings

  5,559

  787,113

  2,976,887

  -

  3,769,559

Total

  3,059,324

  962,440

  3,323,864

  -

  7,345,628

 

31.   RETIREMENT BENEFIT SCHEMES

 

Defined contribution scheme

Since October 2016, the Group has operated a defined contribution retirement benefit scheme for all eligible employees in its U.K. subsidiary.  The assets of the scheme are held separately from those of the group in funds under the control of the trustee.  The subsidiary is required to contribute 2% of payroll costs to the retirement benefit scheme to fund the benefits.  The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. 

 

The total cost charged to income of £76,528 (2019: £93,725) represents contributions payable to the scheme by the Group at specified rates.  Any contributions unpaid at the balance sheet date are included as an accrual at that date. The Group has no further payment obligations once the contributions have been paid.

 

 

32.  SHARE OPTION SCHEME

 

  The Company maintains an EMI Share Option Scheme to incentivise executives and employees of Filta Group Holdings and its subsidiaries.  For U.K. employees, Options have been awarded over a total of 2,285,000 ordinary shares, equivalent to 7.9% of the Company's current issued share capital.   The options vest, subject to the satisfaction of certain conditions, over a period of 4 years from the date of grant.  All options issued, which have not previously vested, will meet the vesting conditions between 2021 and 2024 and are exercisable at any time after vesting and within 10 years from the grant date.

 

  Additionally, all qualifying U.S. employees have been awarded share acquisition rights (SARs). The SARs are conditional bonuses whose value will be calculated by reference to the amount by which the price of the Company's ordinary shares has risen above the base price at the date of exercise, thus providing holders of SARs the same reward value as if the SARs were share options. The qualifying conditions and timing of vesting are identical to those within the share option scheme for UK employees.  All SARs are settled in cash when exercised.  A total of 800,000 SARs have been awarded.

 

  In the ordinary course of business, an option will normally only be exercisable to the extent it has fully vested, and any applicable non-market performance conditions have been satisfied or waived. Options shall lapse to the extent unexercised on the tenth anniversary of the date of grant or such earlier date as specified by the Board at the date of grant.

 

  As at 31 December 2020, a total of 1,690,000 (2019: 1,690,000) were outstanding, having a range of exercise prices from 0.97p to 2.30p (2019: 0.97p to 2.30p) and a weighted average exercise price of 1.60p (2019:1.76p). These outstanding awards have a weighted average contractual life of 8.13 years (2019: 8.59 years).

 

  Certain of the share options and share acquisition rights contain performance conditions which must be met in order to vest. The performance condition for each holder, relate to targets for annual EBITDA growth.

 

Movement in the number of share options outstanding during the year, including grant dates and grant price were as follows:

 

Share Options

Share acquisition rights

Total

Outstanding at 1 January 2020

  1,175,000

  515,000

  1,690,000

Granted on 15 July 2020 (0.970p)

  300,000

  132,500

  432,500

Total granted during the year

  300,000

  132,500

  432,500

Exercised during the year

  -

  -

  -

Total exercised during the year

  -

  -

  -

Forfeited during the year (0.970p)

  (15,000)

  (20,000)

  (35,000)

Forfeited during the year (1.74p)

  -

  -

  -

Forfeited during the year (2.15p)

  (195,000)

  (22,500)

  (217,500)

Forfeited during the year (2.30p)

  (15,000)

  -

  (15,000)

Forfeited during the year (1.46p)

  (120,000)

  (15,000)

  (135,000)

Forfeited during the year (0.965p)

  (22,500)

  (7,500)

  (30,000)

Total forfeited during the year

  (367,500)

  (65,000)

  (432,500)

Total Outstanding at 31 December 2020

  1,107,500

  582,500

  1,690,000

Exercisable at 31 December 2020

  67,500

  115,000

  182,500

 

During the year, the Company recognised total expense of £85,067 (2019: £283,215) related to the fair value of the share-based payment arrangements. This included £206,016 (2019: £303,360) related to equity-settled share options and (£120,949) (2019: (£20,145) from cash-settled SARs. The SARs liability at 31 December 2020  was £187,347 (2019: £284,117). The Group's share price at 31 December 2020 is lower than grant price on the outstanding options issued and, as a result, there is no deferred tax asset recongnised.

 

These amounts were determined using the Black Scholes model, with the following assumptions for each type of award granted:

 

Stock Options

 

Weighted average fair value

86.01p

Weighted average exercise price

164.7p

Expected life of option (years)

8.3

Risk free rate

1.75%

Dividend yield

0.0%

Volatility

51.9%

Share Appreciation Rights

 

Weighted average fair value

52.54p

Weighted average exercise price

149.5p

Expected life of option (years)

7.8

Risk free rate

1.56%

Dividend yield

0.0%

Volatility

54.2%

 

33.   RELATED PARTY TRANSACTIONS

 

Remuneration of Directors and other transactions

The remuneration, interests and related party transactions with the directors of Filta Group Holdings plc and its subsidiaries (the "Directors") who are considered to be the key management personnel of the entity, are disclosed in Note 8. There are no other transactions with directors.

 

Notes payable to related party

On 31 January 2018, Filtafry Deutschland GmbH entered into notes totaling £48,201, bearing interest at 2.5%, with companies which held the master licenses acquired in the acquisition. The managing director of FiltaFry Deutschland GmbH is the sole director of one of these companies. The notes mature on 31 January 2023 and include the right to repay early without penalty. These amounts are classified within borrowings.

 

Interest accrued on the notes amounted to £1,241 at 31 December 2020 (2019: £1,071). 

 

34.   EVENTS AFTER THE REPORTING DATE

 

On 4 February 2021, following application through our incumbent bank HSBC, we received a second PPP loan through the U.S. Small Business Administration in the amount of $288,605. The loan is

intended to be used to cover payroll costs and other eligible expenses for a period of up to 24 weeks from receipt of the loan proceeds. There is a stipulation in the loan agreement allowing the borrower to apply for loan forgiveness on a prorated basis up to 100% of the loan value. The borrower must show that at least 60% of the loan was used to retain and compensate employees and that the average full time equivalent employee count was not reduced over a prescribed period. We anticipate that we will be making a request for full forgiveness of the loan, however, at this time it is too early to determine the amount and outcome of that request. The loan term, for any residual value of the loan not forgiven, is 5 years and begins 12 months from receipt of the loan at an interest rate of 1%.

 

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