9 July 2024
Kinovo
plc
("Kinovo", the "Group" or the "Company")
Final
Results
Continued
execution of growth strategy delivers Full Year Results ahead of
original expectations
Kinovo plc (AIM:KINO), the
specialist property services Group that delivers compliance and
sustainability solutions, announces its audited results for the
year ended 31 March 2024, with a full year performance ahead of
prior market expectations, as announced on 2 May 2024.
Financial highlights (Continuing
operations):
·
Revenue increased by 2% to £64.1 million (FY23:
£62.7 million)
o reflecting a different revenue mix of workstreams in the year
and the strategic exit from a private sector mechanical contract of
£3.6 million in our Renewables division, impacting full year
revenues
o Regulation grew by 9% to £38.5m
o Regeneration increased by 10% to £19.3m
o Renewables reduced by 36% to £6.3m
·
Adjusted EBITDA1 increased by 23% to
£6.7 million (FY23: £5.5 million)
·
Adjusted Operating Profit2 increased by
22% to £6.5 million (FY23: £5.3 million)
·
Adjusted profit before tax2 increased
by 25% to £6.1 million (FY23: £4.9 million)
·
Basic earnings per share increased 37% to 8.20p
(FY23: 5.97p)
·
Net cash3 of £0.4 million (FY23: £1.1
million)
·
Three year visible revenues4 increased
by 11% to £162.6 million (FY23: £146.4 million)
·
Post period end, banking facilities
renewed
Operating highlights:
·
Continued execution of the growth strategy
focusing on our three pillars of Regulation, Regeneration and
Renewables
·
Mix of works, operational efficiencies and cost
management delivered profitability increases:
o Gross margins increased by 3.1% from 26.3% to 29.4%
o EBITDA margins strengthened by 1.8% from 8.7% to
10.5%
·
Strong visibility of future revenues demonstrates
the business' quality of earnings:
o 99%
of the three year visible revenues are
recurring5
o £69
million of our three year visible revenues are anticipated to be
realised in FY25
o Certain planned FY24 workstreams experienced client delays;
now expected to be delivered in FY25
·
Focus on diversification generates an 11% net
increase in our overall client base
·
Strategic investments to drive implementation and
capitalise on market opportunities, including:
o Strengthened efficiency within our collaborative support
functions, contributing to overall margin improvements
o Established a Retrofit team to focus on works relating to the
Government's Decarbonisation objectives and related awards through
the Social Housing Decarbonisation Fund
o Geographic expansion with a new office in East Anglia which
creates significant business development opportunities initiating
with short-term awards which we are confident will be converted
into longer term contracts
·
Continued Business Development success leading to
longer-term contracts at higher values, including:
o An
Electrical contract with The Hyde Group to deliver up to £40
million over the next 8 years
o A
two-year contract extension for the Mechanical Division with
Haringey Council, with a historical value of approximately £3
million per annum
·
Framework agreements also represent a significant
growth driver, with awards during the year including:
o The
Greener Future Partnership's ("GFP") Decarbonisation Framework,
leading to a direct award with an anticipated value of £4.8 million
over 19 months
o The
Eastern Procurement Limited's Asset Improvement and Sustainability
Framework, with a maximum estimated aggregate value of £156 million
across five contractors over 4 years
Discontinued operations: DCB Kent:
·
Post-period end, have agreed, in principle,
resolution of the final of the nine projects in relation to DCB
Kent ("DCB"), the former construction subsidiary
o Full
and final settlement agreed in principle at £2.2 million payable
over an 18 month period
·
Only one project remains in progress on site,
which will be completed in July 2024, which, combined with the
above, will finally conclude the DCB legacy projects
·
Total cumulative net pre-tax cost to complete all
the DCB projects is expected to be £12.9 million of which the
pre-tax costs charged in FY24 was £7.6 million (FY23: £5.3
million)
o Total costs to complete includes provision for the £2.2
million settlement in principle of the ninth project and excludes
anticipated final account recoveries, contract variations and
claims of up to £2.6 million, which would benefit the Group as and
when they are realised
·
At 31 March 2024 the outstanding balance of the
£12.9 million total estimated cost to complete on the balance sheet
payables was represented by £3.2 million provisions and £0.7
million trade creditors:
o At
31 March 2024, cumulative cash of £9.0 million cash had been paid
on the DCB projects, of which £7.4 million was paid in
FY24
o At
end of Q1 FY25, a further £1.7 million cash had been paid,
accumulating to £10.7 million
o Net
cash remaining to be paid after Q1 FY25, excluding the benefit of
potential anticipated recoveries, is expected to be £2.2 million,
representing the expected settlement of the final project set out
above, payable over an 18 month period
·
The remaining DCB commitments are expected to be
funded from the strong cash generation of the continuing operations
and existing finance facilities
Outlook:
·
Having delivered another year of profitable
growth, the Company remains steadfast in its growth strategy and
commitment to driving value for shareholders
·
The Company has made a positive start to FY25,
underpinned by the momentum of FY24 and continued positive market
drivers
·
The anticipated end to the DCB legacy projects,
provides the opportunity to fully focus on our continuing
operations and the Company is confident of delivering another
strong performance in the year ahead, in line with the Board's
expectations
David Bullen, Chief Executive Officer of Kinovo,
commented:
"Congratulations to the whole team for delivering what has
been another positive year as we continue to execute our exciting
growth strategy. Underpinned by regulatory and market drivers, our
strategy to focus on the three pillars of Regulation, Regeneration
and Renewables continues to bear fruit, with considerable growth in
profitability that exceeded prior expectations, a number of
considerable new contract wins and framework placings and growing
visible revenues.
We
are delighted that we are close to putting DCB behind us, which has
taken significant resources away from our continuing
operations, both operationally and financially. Positively, this
episode demonstrated the robustness and resilience of our business,
as well as the strength and commitment of our team, as we navigated
through these challenges. With agreement in principle for the final
DCB project and the eighth DCB project expecting to be completed in
July 2024, we are pleased and motivated to shortly be fully focused
on our core operations, rather than our past.
Trading in the new financial year has been encouraging so far,
and we remain assured that our one-stop-shop offering focused on
the three strategic pillars will maintain our momentum, whilst
strengthening our trusted partnerships with our clients as we
provide a best in class service to their
residents.
We
look forward to delivering another strong performance in the
current financial year and are equally confident that the patience
of our shareholders will be rewarded as our cash generative
qualities and inherent value become increasingly evident and the
final DCB legacy project is concluded."
1 Adjusted EBITDA excludes
non-underlying items (customer relationship amortisation and share
based payment charge) and is stated after
the effect of a charge for lease payments.
2 Adjusted Operating Profit and
Adjusted Profit before tax stated before non-underlying items of
£0.1 million (FY23: £0.5 million)
3 Includes cash and cash equivalents, net of bank loans and other loans
and overdraft and excluding lease obligations.
4 Three year visible revenues
represents the minimum identifiable revenues, over the following
three year period; being contracted or anticipated spend as well as
historical run rates. Visible revenues does not include potential
income from framework agreements but does include £6.0 million
revenues awarded since 31 March 2024.
5 Revenues arising from term
contracts currently secured or anticipated to be renewed with an
initial period spanning more than 12 months
Enquiries
|
Kinovo plc
|
|
|
Sangita Shah, Chairman
David Bullen, Chief Executive
Officer
|
+44 (0)20 7796 4133
(via Hudson Sandler)
|
|
|
|
|
Canaccord Genuity Limited (Nominated Adviser and Sole Broker)
|
+44 (0)20 7523 8000
|
|
Adam James
Andrew Potts
Harry Rees
|
|
|
|
|
|
Hudson Sandler (Financial
PR)
|
+44 (0)20 7796 4133
|
|
Dan de Belder
Harry Griffiths
Will Reynish
|
|
This announcement contains inside
information for the purposes of article 7 of the Market Abuse
Regulation (EU) 596/2014 as amended by regulation 11 of the Market
Abuse (Amendment) (EU Exit) Regulations 2019/310. Upon the
publication of this announcement, this inside information is now
considered to be in the public domain.
Chair's statement
Overview
This has been a very pleasing year
of solid organic growth, with underlying EBITDA year on year having
increased by 23%. I am particularly delighted that we will
shortly draw a line under the legacy project issues associated with
the disposal of our construction business, DCB, with the completion
of the eight projects and an agreed in principle settlement of the
final project.
The Company, unfettered by the
uncertainties relating to these legacy projects is will now be well
positioned to forge forwards in terms of further growth in
revenues, cash generation and shareholder value. To that end, our
three-year visible revenues have increased by 11% to
£162.6m.
This excellent performance is
entirely attributable to the execution and commitment of all within
the Company to focus on our strategic pillars of Regulation,
Regeneration and Renewables.
Market
Kinovo has been a clear beneficiary
of the political and legislative landscape with increasingly
stringent building and housing regulations resulting in us winning
more work consisting of longer and more valuable contracts.
This trend is set to continue and is unlikely to be diminished with
a new Labour government.
In terms of the capital markets, the
London Stock Exchange reforms will assuredly provide a boost for
liquidity and investment in small caps and small cap equity funds,
allowing better access to capital for retail investors. It is
pleasing to note that the UK is leading Europe in equity
fundraising in terms of volume of equity placed. A resurgent stock
market, coupled with excellent financial performance of the
Company, will unquestionably benefit Kinovo and
shareholders.
ESG
ESG remains a fundamental part of
what drives Kinovo both in terms of day-to-day operations and in
our values and commitments. We are moving to Scope 3
reporting and action and provide a detailed assessment of this in
our section on Sustainability.
Our
People
Unquestionably, our people are at
the very heart of our business and it is due to their sustained
commitment and efforts throughout the organisation that we have had
such a successful year. These efforts were spearheaded by the
Executive management team who have shown resilience in overcoming
the recent challenges relating to DCB, our former construction
business, and to whom I especially express my gratitude.
Outlook
This was a significant year, and I
am excited and optimistic about the prospects for the
business. As we drive organic growth, we may, alongside this,
consider opportunistic bolt-on acquisitions. In time we hope to
reinstate our dividend. Our focus now firmly remains on driving
long-term shareholder value.
Sangita Shah
Chair
9 July 2024
Chief Executive Officer's review
Kinovo delivered an excellent
performance ahead of previous expectations, achieving very strong
profit growth on relatively modest revenue growth. This was
achieved through a different mix of works, particularly reflecting
the increased proportion of higher margin Electrical services in
the year, underpinned by improved operational efficiency and robust
cost base management. Furthermore, we have made significant
progress as we continue to deliver on our strategic
goals.
Revenue from continued operations
grew to £64.1 million (FY23: £62.7 million). Revenue growth was
held back by a number of planned work delays until FY25 and a
year-on-year, £3.6 million reduction in revenue relating to the
strategic exit from a private sector mechanical
contract.
I am pleased that we delivered
strong growth in profitability, with EBITDA rising by 23% to £6.7
million (FY23: 5.5 million), ahead of prior expectations of £6.2
million. Gross margins were 29.4% (FY23: 26.3%) and adjusted profit
before tax grew by 25% to £6.1 million (FY23: £4.9 million). At 31
March 2024, cash balances were £0.5 million and our net cash
position was £0.4 million (FY23: £1.1 million), which is after the
impact of the total cash outflow of £7.4 million from the DCB
legacy projects during the year.
This performance is a result of our
clearly defined growth strategy, with the team focused on driving
our three key pillars of Regulation, Regeneration and Renewables.
Each represents a significant opportunity for the Group as we
continue to execute our strategy and position Kinovo as a
specialist one-stop-shop for all our clients' service needs to meet
regulation and compliance requirements as well as national
decarbonisation targets.
Revenues of £38.5 million for our
Regulation pillar and £19.3 million under Regeneration saw
year-on-year growth of 9% and 10% respectively, offset by
Renewables reducing by 36% to £6.3 million. This performance in
Renewables is predominantly due to the strategic exit from a
private sector mechanical contract as mentioned above. An analysis
of revenues from the three Rs to our segmental reporting is shown
below.
|
|
Build
|
Electrical
|
Mechanical
|
Total
|
|
|
FY24
£'m
|
FY23
£'m
|
FY24
£'m
|
FY23
£'m
|
FY24
£'m
|
FY23
£'m
|
FY24
£'m
|
FY23
£'m
|
|
Regulation
|
14.1
|
14.4
|
19.0
|
15.3
|
5.4
|
5.6
|
38.5
|
35.3
|
|
Regeneration
|
6.4
|
5.3
|
11.3
|
10.4
|
1.6
|
2.0
|
19.3
|
17.6
|
|
Renewable
|
―
|
―
|
1.6
|
2.3
|
4.7
|
7.4
|
6.3
|
9.8
|
|
Total
|
20.5
|
19.7
|
31.9
|
28.0
|
11.7
|
15.0
|
64.1
|
62.7
|
Kinovo won, renewed, or extended 13
contracts and framework agreements during the year. Three-year
visible revenues continue to grow, with an increase of 11% at the
year end to £162.6 million (FY23: £146.4 million), which includes
£6.0 million awarded since 31 March 2024, as well as a further
diversification of our portfolio with a net increase in our overall
client base also of 11%. Of the three-year visible revenues are 99%
recurring and £69 million of our three-year visible revenues are
anticipated to be realised in FY25.
Market
During the year, we managed and
mitigated a number of industry-wide macro-economic pressures,
delivering a trusted partnership service and strengthening our
reputation with our clients.
We continue to benefit from a number
of regulatory and legislative drivers, including the Social Housing
(Regulation) Act, the Building Safety Act, the Fire Safety Act and
Electrical Wiring legislation, which have meaningfully increased
demand for, and frequency of, our range of works across our
operating areas and three growth pillars.
During the year, we continued to
drive the development of our Renewables and Regeneration pillars by
establishing a Retrofit team, which will focus on works relating to
the Government's decarbonisation objectives and related awards
through the Social Housing Decarbonisation Fund. There is a clear
growth opportunity for Kinovo that our Retrofit offering can
support local authorities and councils who are under time and
administrative pressure to progress their initiatives and
activities. The team has had an incredibly encouraging start,
already generating a return on investment, and is delivering a
number of additional new business development opportunities for the
Group. The increased focus on decarbonisation across businesses in
general will play to our advantage as a leading specialist operator
within our regional markets.
Decarbonisation, along with the
other key legislative and regulatory drivers, ensures a greater
focus on compliance and raises quality standards for social housing
residents and continues to deliver non-discretionary-led revenue
opportunities for Kinovo, which our strong reputation will enable
us to leverage.
Strategy
Our focus remains on driving
shareholder value. We continue to reap the rewards of our strategy
to focus on the three key growth pillars of Regulation,
Regeneration and Renewables. This continues to deliver results,
with each being supported by long-term market drivers as well as
the investments in our teams and capabilities to deliver a
best-in-class service and capitalise on cross-selling
opportunities.
These internal investments include
building our business development, procurement and service support
teams, as well as strengthening our sales and marketing collateral.
This is all underpinned by rigorous and robust cost management.
Additionally, we ensure that we continuously develop our offering
to enable us to improve the quality of our proposals for new
projects, as well as enhancing our offering for existing
clients.
The foundation of our business will
continue to focus on driving organic growth, with a primary
objective to continue to demonstrate the cash generative qualities
of the business by building our cash reserves. We will, however,
evaluate the market and may consider acquisitions in the future
which are the right strategic fit for the Group.
Focusing on consolidating our
geographic position, we identified Norfolk as a natural opportunity
for organic geographic expansion. We have considered this for a
while, believing that there is a rich opportunity for a
high-quality specialist building services provider. The Norfolk
office is already delivering, and has won several new
clients.
Critically, the Norfolk team has
generated a number of opportunities for us to demonstrate the
quality of our works through initial short-term awards which we are
confident will be converted into longer-term contracts as our
partnerships develop. Most pleasingly the awareness of our
businesses are increasing in Norfolk, which will prove invaluable
as we continue to implement our growth plans to capitalise on the
identified growth opportunity.
We continue to prioritise the
diversification of our contract and client base, which was a key
driver in our strong bottom-line performance this year. There have
been a number of meaningful new contract wins, contract extensions
and positions on framework agreements which saw us deliver a net
increase of 11% to our overall client base.
Examples of these
include:
·
an electrical contract with The Hyde Group to
deliver up to £40 million over the next eight years;
·
a two-year contract extension for the Mechanical
Division with Haringey Council, with a historical value of
approximately £3 million per annum;
·
a place on The Greener Future Partnership's
("GFP") Decarbonisation Framework which led to a direct award to
Kinovo for the Building Services Division with an anticipated value
of £4.8 million over 19 months to retrofit approximately 200
properties. The framework comprises five housing associations and
over 300,000 homes, representing 9% of the total UK social housing
market;
·
a place on the Eastern Procurement Limited's Asset
Improvement and Sustainability Framework, with a maximum estimated
aggregate value of £156 million across a total of five contractors
over a term of four years; and
·
winning a place on three lots of The Hyde Group's
Alternative Heating Servicing and Maintenance Services and Metering
and Billing Services Framework with an estimated aggregate value of
£132 million across a total of five contractors over a term of four
years.
We anticipate a continued uplift in
the value we are able to derive from our framework placings, and
look forward to updating the market on these in the months
ahead.
Our people are our greatest asset,
and we continue to invest in their development. During the year, we
engaged our staff with 3,983 hours of learning, with 20% of our
employees attending management training, and over 8% of our staff
progressing into more senior roles as we build out our team to
leverage the opportunities ahead.
The sector is recognised as having
an ageing skilled workforce and we remain committed to developing
the next generation into our trades, ensuring we maintain a
pipeline of qualified staff to support our continued growth.
Despite a number of apprentices achieving their qualifications and
graduating during the year, we are pleased to report that we have
maintained our skills pipeline and apprentices account for 12% of
our total employees.
We also see ourselves as a partner
of our local communities, helping to leave a positive and lasting
impact in the areas where we operate. During the year, we undertook
a vast amount of initiatives to benefit our communities amounting
to 1,066 volunteer hours ranging from clearing rubbish, installing
security lighting, prison visits, facilitating mock interviews in
local schools, painting and decorating communal areas in a domestic
violence shelter, providing high-visibility vests for a primary
school through to setting up a food bank with one of the oldest
housing associations in the country, which our staff continue to
attend on a regular basis.
Discontinued operations
I am pleased to report that we have
made significant progress in relation to DCB Kent ("DCB"), our
former construction subsidiary. Having agreed in principle the
settlement of the final of the nine projects post period end, there
is only one project in progress on site which will be completed in
July 2024. Formal agreement on the final project and
completion of the eighth project will, bring an end to this
disappointing situation. This has had a massive impact on resources
both operationally and financially, significantly hindering our
valuation and growth opportunities.
On behalf of the Board, I would like
to thank our shareholders for their patience and support as we
navigated the challenges it brought to our business. In turn, I
also extend our thanks to our team for its resilience, commitment
and efforts regarding DCB - we are pleased and motivated to finally
be fully focused on our future rather than our past.
Outlook
The new financial year has started
positively, in line with the Board's expectations, and our momentum
continues with the ongoing facilitation of the market's legislative
and decarbonisation drivers. Buoyed by the imminent end of the DCB
legacy projects and the opportunity to fully commit to our
continuing operations, we are confident of delivering another
strong performance in the year ahead and are equally confident that
the patience of our shareholders will be rewarded as our cash
generative qualities and inherent value become increasingly evident
and the final DCB legacy project is concluded.
David Bullen
Chief Executive Officer
9 July 2024
Financial review
Strong profit growth resulting from increasing regulation and
legislation drivers
Trading review
Continuing operations
Kinovo delivered a strong trading
result and cash generation from its continuing operations of
specialist property services focusing on electrical, build and
mechanical.
Adjusted EBITDA (after the effect of
a charge for lease payments) increased by 23% to £6.7 million
(FY23: £5.5 million) with operating profit from continuing
operations delivering £6.4 million (FY23: £4.8 million), an
increase of 33%.
Adjusted profit before taxation for
continuing operations was £6.1 million (FY23: £4.9 million), an
increase of 25% and basic earnings per share were up 37% to 8.20p
(FY23: 5.97p).
Revenues increased 2% to £64.1
million (FY23: £62.7 million) with electrical services up 16%,
building services up 2% and mechanical services down 22% as a
result of the different revenue mix of workstreams and the
strategic exit from a private sector contract. As a result of the
change in revenue mix, gross margin increased by 3.1% to 29.4%
(FY23: 26.3%). Gross profit increased by 15% to £18.9 million
(FY23: £16.5 million).
Underlying administrative expenses
of £12.4 million increased £1.2 million (11%) compared to £11.2
million in the prior year.
Profit after tax for the continuing
businesses was £5.1 million (FY23: £3.7 million), an increase of
38%.
Kinovo has substantially completed
the fulfilment of its commitments on the DCB construction projects
as set out in the Chief Executive Officer Review and below.
Discontinued operations reported a loss after tax of £5.7 million
in the period (FY23: loss £4.3 million).
As a result of the discontinued
operations result, the Group has reported a total loss for the
period of £0.6 million (FY23: loss £0.5 million).
Financial position and key indicators
Net cash (excluding lease
liabilities) was £0.4 million at 31 March 2024 compared to net cash
(excluding lease liabilities) of £1.1 million in the prior year,
reflecting continuing working capital efficiency and robust
underlying operational cash generation from the continuing
operations of £5.9 million (FY23: £5.9 million), despite the cash
absorbed by the discontinued operations during the year of £7.4
million (FY23: £2.8 million).
We focus on a range of financial and
non-financial KPIs to assess our performance and ensure that the
Group targets its resources around its clients, operations and
finance. Collectively, they form an integral part of the way that
we manage the business to deliver our strategic goals.
The key financial performance
indicators for the year are set out on the following
pages.
The Board considers Adjusted EBITDA
to be a key alternative performance measure ("APM") as it is
the basis upon which the underlying management
information is prepared and the performance of the business is
assessed by the Board.
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
Income statement
|
|
|
|
|
|
Revenue
|
64,137
|
62,670
|
53,325
|
39,369
|
|
Gross profit
|
18,886
|
16,472
|
12,767
|
9,291
|
|
Gross margin
|
29.4%
|
26.3%
|
23.9%
|
23.6%
|
|
EBITDA1 (excluding effect
of lease payments)
|
7,331
|
6,013
|
4,600
|
2,763
|
|
Adjusted EBITDA2
(including effect of lease payments)
|
6,715
|
5,474
|
4,237
|
2,096
|
|
Adjusted operating
profit3
|
6,483
|
5,297
|
4,091
|
2,010
|
|
Adjusted profit before
taxation4
|
6,143
|
4,896
|
3,822
|
1,572
|
|
Profit after taxation
|
5,128
|
3,713
|
2,262
|
(252)
|
|
Basic earnings per
share5
|
8.20p
|
5.97p
|
3.66p
|
(0.42p)
|
|
Adjusted earnings per
share6
|
8.36p
|
6.76p
|
5.33p
|
2.76p
|
|
Cash flow
|
|
|
|
|
|
Net cash generated from operating
activities
|
7,809
|
5,488
|
9,777
|
5,542
|
|
Adjusted net cash generated from
operating activities7
|
5,885
|
5,865
|
9,442
|
4,360
|
Adjusted operating cash
conversion8 (%)
|
|
|
|
|
|
Financial position
|
|
|
|
|
|
Cash and cash equivalents
|
489
|
1,322
|
2,504
|
1,293
|
|
Term and other loans
|
(86)
|
(177)
|
(2,843)
|
(3,966)
|
|
Net
cash/(debt)9
|
403
|
1,145
|
(339)
|
(2,673)
|
|
Trade receivables
|
4,866
|
3,610
|
4,977
|
5,564
|
|
Accrued income
|
7,677
|
7,066
|
5,247
|
8,634
|
|
Trade payables
|
(14,654)
|
(13,025)
|
(12,552)
|
(11,082)
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
(Loss)/profit after
taxation
|
―
|
―
|
(549)
|
409
|
|
Loss on disposal after
taxation
|
(5,737)
|
(4,261)
|
(12,595)
|
―
|
Net cash (absorbed)/generated by
operating activities
|
|
|
|
|
1 Earnings before
interest, taxation, depreciation and amortisation ("EBITDA") and
excluding non-underlying items, as set out in note 8 of the
financial statements.
2 Adjusted EBITDA
excludes non-underlying items and is stated after the effect of a
charge for lease payments, as set out below.
3 Adjusted
operating profit is stated before charging non-underlying items as
set out in note 9 of the financial statements.
4 Adjusted profit
before taxation is stated after finance costs and before charging
non-underlying items.
5 Basic earnings
per share is the profit after tax divided by the weighted average
number of ordinary shares.
6 Adjusted
earnings per share is the profit before deducting non-underlying
items after tax divided by the weighted average number of ordinary
shares.
7 Net cash
generated from continuing operations before tax and after lease
payments in the period ended 31 March 2024. It is also adjusted to
reflect the payment of deferred HMRC payments to normal
terms.
8 Adjusted net
cash generated from operating activities divided by Adjusted
EBITDA.
9 Net cash/(debt)
includes term and other loans and overdraft net of cash, and
excludes lease obligations.
Adjusted EBITDA reconciliation
Internal management information and
reporting under the Group's banking facilities is focused on
Adjusted EBITDA of £6.7 million (FY23: £5.5 million), which is
stated after the effect of a charge for lease payments. Adjusted
EBITDA has increased by 23% in FY24 following an increase of 29% in
FY23 compared to FY22.
Set out below is the basis for the
calculation of Adjusted EBITDA.
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
Profit before tax
|
6,039
|
4,408
|
2,792
|
(371)
|
|
Add back non-underlying
items:
|
|
|
|
|
|
Amortisation of customer relationships
|
―
|
385
|
940
|
1,582
|
|
Share based
payment charge
|
103
|
103
|
90
|
27
|
|
Exceptional
item
|
―
|
―
|
―
|
334
|
|
Underlying profit before tax
|
6,142
|
4,896
|
3,822
|
1,572
|
|
EBITDA adjustments:
|
|
|
|
|
|
Finance
costs
|
341
|
401
|
269
|
438
|
|
Depreciation of property, plant and equipment
|
148
|
131
|
130
|
82
|
|
Depreciation of right-of-use assets
|
585
|
513
|
336
|
654
|
|
Amortisation of software costs
|
116
|
72
|
44
|
17
|
Profit on
disposal of property, plant and equipment
|
|
|
|
|
|
EBITDA
|
7,332
|
6,013
|
4,600
|
2,763
|
Adjustment for lease
payments
|
|
|
|
|
|
|
|
|
|
|
Non-underlying items
Non-underlying items are considered
by the Board to be either exceptional in size, one-off in nature or
non-trading related items and are represented by the
following:
|
|
|
|
|
|
|
Amortisation of customer
relationships
|
―
|
385
|
940
|
1,582
|
|
Share based payment
charge
|
103
|
103
|
90
|
27
|
|
Exceptional item
|
―
|
―
|
―
|
334
|
|
|
|
|
|
|
The share based payment charge
reflects the impact attributed to the new share schemes established
since 2021. Additional information on the schemes is set out in
note 28.
Finance costs
Finance expenses were £0.3 million
(FY23: £0.4 million) and are represented by interest on bank
borrowings and loans, other interest costs and other finance costs,
being the amortisation of debt issue costs. There was no finance
income in the year.
Tax
The Group tax position reflects an
underlying charge of £0.9 million (FY23: £0.7 million) on
continuing activities set off by tax credits of £1.9 million (FY23:
£1.0 million) on discontinued activities. No tax payments were made
in the current or prior year.
Overall, the Group has no tax
liability at 31 March 2024.
The net deferred tax asset at 31
March 2024 was £1.6 million (FY23: asset £0.6 million), comprising
a deferred tax liability of £0.3 million (FY23: £0.2 million)
relating to right-of-use assets and a deferred tax asset of £1.9
million (FY23: £0.8 million) relating to unused tax losses,
lease liabilities and share based payments.
Earnings per share
Basic earnings per share, from
continuing operations, was 8.20 pence (FY23: 5.97 pence), an
increase of 37%, based on profit after tax of £5.1 million (FY23:
£3.7 million). The weighted average number of shares in issue was
adjusted for the SIP share awards in the year ended 31 March 2024
as set out in note 24 of the financial statements.
Adjusted earnings per share, from
continuing operations, excluding non-underlying items, was up 24%
to 8.36 pence (FY23: 6.76 pence). Diluted adjusted earnings per
share was 8.25 pence (FY23: 6.70 pence), an increase of
23%.
Cash flow performance
Adjusted cash generated from
continuing operations was £5.9 million (FY23: £5.9 million),
resulting in an adjusted operating cash conversion of 88% (FY23:
107%).
Adjusted operating cash conversion
is calculated as cash generated from continuing operations (after
lease payments), and adjusted for the effects of deferred HMRC
repayments of £1.3 million (FY23: repayments of £0.9 million),
divided by Adjusted EBITDA of £6.7 million (FY23: £5.5 million), as
set out below.
|
|
|
|
|
|
|
Cash flow from operating activities
(see note 25)
|
382
|
2,738
|
3,660
|
5,814
|
Adjustment for cash absorbed
by/(generated from) discontinued activities
|
|
|
|
|
|
Net
cash generated from continuing operating
activities
|
7,809
|
5,488
|
9,777
|
5,542
|
|
Less operating lease
payments
|
(582)
|
(511)
|
(471)
|
(667)
|
|
Less corporation tax
received
|
―
|
―
|
―
|
(163)
|
|
|
7,227
|
4,977
|
9,306
|
4,712
|
|
Net adjustment for deferred HMRC
payments
|
(1,342)
|
887
|
136
|
(686)
|
|
|
|
|
|
|
Adjusted net cash generated from continuing operating
activities
|
|
|
|
|
Adjusted EBITDA (see above and note 8)
|
|
|
|
|
Adjusted cash conversion (Adjusted operating cash/Adjusted
EBITDA)
|
|
|
|
|
By arrangement with HMRC, VAT
liabilities of £1.3 million were deferred at 31 March 2024. A
monthly repayment plan has been agreed with HMRC with full
repayment of deferred VAT by 30 September 2024. The arrangement was
necessary, in response to the unexpected calling of the performance
bond on a DCB project at the end of February 2024. The terms of the
performance bond required almost immediate settlement although, as
set out below, in the discontinued operations section, Kinovo has
managed to mitigate the impact, as part of the final DCB project
settlement.
* At 31 March 2023, £0.4
million (at 31 March 2024: £nil) of cash receipts were received in
advance, with a corresponding impact on cash generated in FY24.
Cash conversion restated for the effect of the accelerated cash
receipts would be 94% for FY24 (FY23: 100%).
Cash absorbed by discontinued
operations in the period amounted to £7.4 million (FY23: £2.8
million including working capital provided in April 2022, post
disposal of DCB (Kent) Limited of £1.2 million). Set out below is
an analysis of the net cash flows (absorbed)/generated by DCB
resulting from the costs to complete the projects post
administration of DCB and the contracted working capital support
and underlying cash flow pre-administration of DCB.
|
|
|
|
|
|
|
DCB costs to complete
|
(7,428)
|
(1,523)
|
―
|
―
|
|
DCB cash flow
pre-administration
|
―
|
(1,227)
|
(6,117)
|
227
|
|
|
|
|
|
|
The Group has a centralised treasury
function and actively manages cash flows on both a daily and
longer-term basis. The Group enjoys long-term client relationships
with both its clients, being local Government organisations and
other housing associations, and its supply chain
partners.
Net
cash
Kinovo had a net cash position at 31
March 2024 of £0.4 million compared to net cash of £1.1 million at
31 March 2023, a reduction of £0.7 million as analysed in the table
below and note 21 for full details of borrowings. The reduction in
net cash reflects the payments required to fund the DCB projects
mitigated by the strong operating cash flow from the continuing
businesses and the deferral of HMRC liabilities at 31 March
2024.
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
|
|
|
HSBC Term
Loan
|
―
|
―
|
(2,534)
|
(3,533)
|
(3,333)
|
(5,000)
|
|
Other
loan
|
―
|
(34)
|
(109)
|
(176)
|
(235)
|
(289)
|
|
Mortgage
loan
|
(86)
|
(143)
|
(200)
|
(257)
|
(314)
|
(371)
|
|
|
|
|
|
|
|
|
|
|
(86)
|
(177)
|
(2,843)
|
(3,966)
|
(7,233)
|
(10,879)
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year, the Group repaid
£91,000 of mortgage and other loans (FY23: £2.7 million of HSBC
Term Loan and other loans). Of the borrowings of £86,000 at 31
March 2024, £57,000 is repayable within one year and the balance in
the following financial year.
Discontinued operations - DCB (Kent) Limited
Following its rebranding and
strategic review, Kinovo determined that DCB (Kent) Limited
("DCB"), the Group's construction business, was non-core and was
disposed in January 2022.
On 16 May 2022, DCB filed for
administration and as at the date of these financial statements,
Kinovo has limited expectation of, and has not provided for, the
recovery of amounts owed under the terms of the disposal of
DCB.
Kinovo had residual commitments
under various parent company guarantees for the DCB construction
projects and working capital support. Under the terms of the parent
company guarantees, Kinovo is responsible for the completion of the
projects.
The activities of DCB are presented
as discontinued operations.
There were nine DCB projects in
total with seven finalised at the date of the signing of the
financial statements and another due for completion during July
2024. On the remaining project, Kinovo has reached agreement in
principle, to settle the obligation under the construction contract
and parent company guarantee, releasing Kinovo from its obligations
to complete the project. The expected full and final settlement of
a fixed amount of £2.2 million is payable over a period of 18
months from July 2024. A total of £0.9 million had already been
provided for in the Company accounts under the previously
forecasted costs to complete the DCB legacy projects. The agreement
removes the risk from possible future cost overruns or claims from
this final DCB legacy project.
A performance bond of £0.9 million
remains outstanding on the final project. The bond was called at
the end of February 2024 but with Kinovo's continuing engagement
with the insurer, underwriter and client and the ongoing
discussions between the parties, the bond holder agreed to defer
payment obligations. The agreement in
principle of the settlement of the final project includes the
cancellation of the performance bond once Kinovo has fulfilled the
equivalent value of the bond to the client.
On 8 March 2024, the Group announced
that it expected the overall net cost to complete the construction
projects to be approximately £8.7 million, an increase of £2.9
million on previous expectation resulting from unexpected remedial
works partly related to the adverse weather of winter 2023/24 but
mainly as a result of poor legacy workmanship.
The net costs to complete of £8.7
million included anticipated claims made by Kinovo as a result of
poor sub-contractor workmanship and other contractual recoveries
which had not been confirmed at the date of the signing of the
financial statements. The potential recoveries by Kinovo of up to
approximately £2.6 million are required to be recognised in
future periods, as and when they have been realised.
With the agreement in principle of
the settlement in of the final project and the deferral of the
recognition of the potential recoveries to future periods as and
when realised, the reported net costs to complete all the projects
has increased to a total of £12.9 million with a £7.6 million
(FY23: £5.3 million) pre-tax loss reported in the year ended 31
March 2024.
At 31 March 2024, the outstanding
costs to complete provision was £3.2 million which together with
£0.7 million in trade payables, represents the balance of the total
£12.9 million due to be fulfilled.
A total of £9.0 million has been
paid in FY23 and FY24 on the fulfilment of the project obligations
with a further £1.7 million paid in the first quarter of FY25.
Other than the outstanding amounts on the settlement in principle
of the final project, Kinovo has paid, at the end of the first
quarter of FY25, almost all of the net costs to complete the
projects. The settlement on the final project is expected to be
payable during FY25 and FY26 set off by final account recoveries,
claims and retentions. Each of the projects, except the final
project, has the usual industry standard post completion defect
period of 12 months. We are not aware of or expecting any claim
under these arrangements. The agreement in principle on the final
project represents full and final settlement and therefore there
would not be a defects period.
The remaining DCB commitments are
expected to be funded from the strong cash generation from the
continuing operations and existing finance facilities.
In 2023, £1.2 million was also paid
to DCB for contracted working capital support which is in addition
to the £12.9 million costs to complete the DCB projects. The total
amount paid relating to DCB in 2023 including the working capital
support of £1.2 million was £2.7 million.
Set out below is an analysis of the
DCB costs paid and payable.
|
Cash paid and payable in relation to the DCB project
costs
|
£'000
|
|
Cash paid
|
|
|
FY23
|
1,523
|
|
FY24
|
7,428
|
|
Q1 FY25
|
1,725
|
|
Cumulative cash paid at end of Q1 FY25
|
10,676
|
|
Cash payable
|
|
|
Settlement of final
project
|
2,200
|
|
Other
|
34
|
|
Total reported costs to complete DCB projects (excluding
potential recoveries)
|
12,910
|
Additional details of the
discontinued operations are set out in note 30.
The disposal of DCB allowed the
Group to harmonise its operations and increase the focus on its
three strategic workflow pillars: Regulation, Regeneration and
Renewables as demonstrated by the results delivered for FY24. These
pillars are centred on compliance-driven, regulatory-led specialist
services that offer long-term contracts, recurring revenue streams
and strong cash generation.
Banking arrangements
The Group's debt facilities at 31
March 2024, with HSBC UK Bank plc ("HSBC"), comprised a £2.5
million overdraft facility, which was renewed post year end until
April 2025 and a balance of £86,000 (FY23: £143,000) on a ten-year
mortgage loan. In the period, the Group fully repaid the balance
(FY23: £34,000) on a legacy loan with Funding Circle. Net debt
analysis is set out above and full details of the borrowing
facilities are set out in note 21 of the financial
statements.
The Group also has a purchasing card
facility of £6.0 million, which was renewed on 31 May 2024, with
HSBC which is disclosed within trade creditors and detailed in note
23 of the financial statements. To align with HSBC standard terms
on this product, the facility is scheduled to reduce by £1.4
million on 30 September 2024.
Dividends
No interim dividend was paid (FY23:
£nil). Due to the discontinued operations commitments and the
consequent financial position of Kinovo, the Board does not
recommend the payment of a final dividend for the year ended 31
March 2024 (FY23: £nil). It remains the Board's priority to
complete the outstanding discontinued operations obligations,
proactively manage the level of borrowings and strengthen the
balance sheet, and to resume the payment of a dividend as soon as
financial conditions allow.
Going concern
The financial position of the Group,
its cash flows, the commitments on the discontinued operations,
liquidity position and borrowing facilities are described
above.
In assessing the Group's ability to
continue as a going concern, the Board reviews and approves the
annual budget and longer-term strategic plan, including forecasts
of cash flows.
The Board also reviews the Group's
sources of available funds and the level of headroom available
against its committed borrowing facilities.
After considering the above factors
including possible sensitivities in trading performance, the Board
has an expectation that the Group has adequate resources to
continue in operational existence for the foreseeable
future.
For these reasons, the Board
continues to adopt the going concern basis in preparing the
consolidated financial statements. Accordingly, these accounts do
not include any adjustments to the carrying amount or
classification of assets and liabilities that would result if the
Group was unable to continue as a going concern. Further detail on
going concern is set out in note 2.1.
Clive Lovett
Group Finance Director
9 July 2024
The following pages have been
extracted from the audited financial statements
Independent auditor's report to the
members of Kinovo plc
for the financial year ended 31
March 2024
Opinion
We have audited the financial
statements of Kinovo plc (the 'group') for the year ended 31 March
2024 which comprise the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Cash Flows, the Consolidated Statement of
Changes in Equity and notes to the consolidated financial
statements, including significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards.
In our opinion the group financial
statements:
· give a
true and fair view of the state of the group's affairs as at 31
March 2024 and of its loss for the year then ended;
· have
been properly prepared in accordance with UK adopted international
accounting standards; and
· have
been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are
further described in the Auditor's Responsibilities for the audit
of the financial statements section of our report. We are
independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
An
overview of the scope of our audit
Our audit approach was a risk-based
approach founded on a thorough understanding of the group's
business, its environment and risk profile. We conducted
substantive audit procedures and evaluated the group's internal
control environment. The components of the group are subject to
individual statutory audit and were audited to their own individual
materiality by the group audit team.
For all entities that are subject to
a full scope audit, we evaluated the controls in place at those
components by performing walkthroughs over the financial reporting
systems identified as part of our risk assessment. We also reviewed
the accounts production process and addressed critical accounting
matters. We then undertook substantive testing on significant
classes of transactions and material account balances.
Key
audit matters
Key audit matters are those matters
that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period and
include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including
those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters.
A description of each matter
together with our audit approach is set out below.
|
Audit Area and Description
|
Audit Approach
|
|
Completeness of onerous contract provisions
Due to the parent company guarantee
put in place prior to the disposal of DCB (Kent) Limited, the group
is liable for completion of the contracts originally undertaken by
DCB (Kent). Management estimated the total provision required for
the losses for the 9 projects to be approximately £12.9 million,
out of which £3.2 million remains outstanding as at 31 March
2024.
|
Our audit work included, but was not
limited to, the following procedures:
· We held
discussions with management to understand the latest position of
each project.
· We
reviewed and critically assessed relevant documentation and
correspondence in relation to the projects, including reviewing an
expert report prepared by management's external qualified surveyors
detailing the latest position and estimated costs to complete of
each project. We challenged management and the surveyors on the
contents of the report, critically assessing the methodology and
key assumptions made.
· We
confirmed amounts included in the provision at settlement value to
the draft settlement agreement from the customer, subject to
contract.
· We
considered advice provided by management's legal advisers to
establish if future claims were likely on specified
contracts.
· We
considered evidence which contradicted the assertions made by
management as part of this process, as well as evidence which
corroborated them.
· We
substantively tested transactions incurred pre-year end in respect
of projects for which work had commenced in the year.
· We
reviewed the accounting treatment and related disclosures in the
financial statements to ensure they complied with the relevant
requirements of UK-adopted International Accounting
Standards.
We concluded that the approach
adopted by management in determining the amount of the provision as
at the reporting date was acceptable and in accordance with the
requirements of UK adopted International Accounting Standards,
specifically IAS 37 'Provisions, Contingent Liabilities and
Contingent Assets'.
|
Our
application of materiality
The scope and focus of our audit was
influenced by our assessment and application of materiality. We
define materiality as the magnitude of misstatement that could
reasonably be expected to influence the readers and the economic
decisions of the users of the financial statements. We use
materiality to determine the scope of our audit and the nature,
timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually and on the financial
statements as a whole.
Due to the nature of the group we
considered income to be the main focus for the readers of the
financial statements, accordingly this consideration influenced our
judgement of materiality. Based on our professional judgement,
we determined materiality for the group to be £676,000 based on one
percent of revenue during the period.
On the basis of our risk assessment,
together with our assessment of the overall control environment,
our judgement was that performance materiality (i.e. our tolerance
for misstatement in an individual account or balance) for the Group
was 50% of materiality, namely £338,000.
We agreed to report to the Audit
Committee all audit differences in excess of £33,000, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also reported to the Audit
Committee on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.
Conclusions relating to going concern
In auditing the financial
statements, we have concluded that the directors' use of the going
concern basis of accounting in the preparation of the financial
statements is appropriate. Our evaluation of the directors'
assessment of the group's ability to continue to adopt the going
concern basis of accounting included, but was not limited
to:
· Evaluating management's forecasting accuracy based on
historical budgets versus actual performance;
· Reviewing and critically assessing the detailed cash flow
projections up to September 2025
· Comparison of projected performance to past
performance;
· Reviewing and critically assessing the Board's assessment of
the group's obligations resulting from the administration of DCB
(Kent) Limited and timing thereof;
· Reviewing the terms of the working capital facilities
available to the group and assessing headroom available in the
projections;
· Sensitising cash flows for variations in trading performance
and the group's obligations from the administration of DCB (Kent)
Limited;
· Understanding the most recently available trading results for
the group after the reporting date; and
· reviewing the appropriateness of the disclosures in the
financial statements.
Based on the work we have performed,
we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast
significant doubt on the group's ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the
responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
Other information
The other information comprises the
information included in the annual report, other than the financial
statements and our auditor's report thereon. The directors are
responsible for the other information contained within the annual
report. Our opinion on the group financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the
other information and, in doing so, consider whether the other
information is materially inconsistent with the group financial
statements or our knowledge obtained in the course of the audit or
otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in
the group financial statements themselves. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that
fact.
We have nothing to report in this
regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work
undertaken in the course of the audit:
· the
information given in the Strategic Report and the Directors' Report
for the financial year for which the financial statements are
prepared is consistent with the group financial statements;
and
· the
strategic report and the directors' report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and
understanding of the group and its environment obtained in the
course of the audit, we have not identified material misstatements
in the strategic report or the directors' report.
We have nothing to report in respect
of the following matters where the Companies Act 2006 requires us
to report to you if, in our opinion:
· certain disclosures of directors' remuneration specified by
law are not made; or
· we
have not received all the information and explanations we require
for our audit.
Responsibilities of directors
As explained more fully in the
directors' responsibilities statement, the directors are
responsible for the preparation of the group financial statements
and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary
to enable the preparation of group financial statements that are
free from material misstatement, whether due to fraud or
error.
In preparing the group financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Auditor's Responsibilities for the audit of the financial
statements
Our objectives are to obtain
reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or
error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our
responsibilities is available on the FRC's website at
https://wwww.frc.org.uk/auditors/auditor-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor's-responsibilities-for
This description forms part of our
auditor's report.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are
instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to
detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed
below.
The objectives of our audit in
respect of fraud, are; to identify and assess the risks of material
misstatement of the financial statements due to fraud; to obtain
sufficient appropriate audit evidence regarding the assessed risks
of material misstatement due to fraud, through designing and
implementing appropriate responses to those assessed risks; and to
respond appropriately to instances of fraud or suspected fraud
identified during the audit. However, the primary responsibility
for the prevention and detection of fraud rests with both
management and those charged with governance of the
group.
Our approach was as
follows:
· We
obtained an understanding of the legal and regulatory requirements
applicable to the company and considered that the most significant
are the Companies Act 2006, UK adopted International Accounting
Standards, the rules of the Alternative Investment Market, and UK
taxation legislation.
· We
obtained an understanding of how the company complies with these
requirements by discussions with management and those charged with
governance.
· We
assessed the risk of material misstatement of the financial
statements, including the risk of material misstatement due to
fraud and how it might occur, by holding discussions with
management and those charged with governance.
· We
inquired of management and those charged with governance as to any
known instances of non-compliance or suspected non-compliance with
laws and regulations, and reviewed board minutes for any evidence
of.
· Based
on this understanding, we designed specific appropriate audit
procedures to identify instances of non-compliance with laws and
regulations. This included making enquiries of management and those
charged with governance and obtaining additional corroborative
evidence as required.
There are inherent limitations in
the audit procedures described above. We are less likely to become
aware of instances of non-compliance with laws and regulations that
are not closely related to events and transactions reflected in the
financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Other matter
We have reported separately on the
parent company financial statements of Kinovo plc for the year
ended 31 March 2024. That report includes details of the parent
company key audit matters; how we applied the concept of
materiality in planning and performing our audit of the parent
company and an overview of the scope of our audit of the parent
company. That report includes an emphasis of matter in relation to
in the carrying value of the parent company's investment in
Spokemead Maintenance Limited.
Use
of our report
This report is made solely to the
company's members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit
work has been undertaken for no purpose other than to draw to the
attention of the company's members those matters which we are
required to include in an auditor's report addressed to them. To
the fullest extent permitted by law, we do not accept or assume
responsibility to any party other than the company and company's
members as a body, for our work, for this report, or for the
opinions we have formed.
Colin Turnbull
(Senior Statutory
Auditor)
for and on behalf of Moore Kingston
Smith LLP, Statutory Auditor
6th Floor
9 Appold Street
London
EC1A 2AP
9 July 2024
Consolidated statement of
comprehensive income
for the financial year ended 31
March 2024
|
|
|
12 months to 31 March
2024
|
|
12 months
to 31 March 2023
|
|
|
|
|
Non-
underlying
items
(note 9)
£'000
|
|
|
|
Non-
underlying
items
(note
9)
£'000
|
|
|
Revenue
|
5
|
64,137
|
-
|
64,137
|
|
62,670
|
-
|
62,670
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
18,886
|
-
|
18,886
|
|
16,472
|
-
|
16,472
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
7
|
6,483
|
(103)
|
6,380
|
|
5,297
|
(488)
|
4,809
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
6,142
|
(103)
|
6,039
|
|
4,896
|
(488)
|
4,408
|
|
|
|
|
|
|
|
|
|
|
Profit for the year attributable to the equity holders of
the parent company from continuing
operations
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the period attributable to the
equity holders of the parent company
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
|
From continuing
operations
|
|
|
|
|
|
|
|
|
|
Basic (pence)
|
14
|
|
|
8.20
|
|
|
|
5.97
|
|
Diluted (pence)
|
14
|
|
|
8.08
|
|
|
|
5.92
|
|
From total operations
|
|
|
|
|
|
|
|
|
|
Basic (pence)
|
14
|
|
|
(0.97)
|
|
|
|
(0.88)
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of financial
position
as at 31 March 2024
|
|
|
|
|
|
Assets
|
|
|
|
|
Non-current assets
|
|
|
|
|
Intangible assets
|
15
|
4,514
|
4,511
|
|
Property, plant and
equipment
|
16
|
1,073
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
Inventories
|
18
|
2,612
|
2,438
|
|
Deferred tax asset
|
29
|
1,612
|
610
|
|
Trade and other
receivables
|
19
|
12,907
|
11,087
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and liabilities attributable to equity holders of the
parent company
|
|
|
|
|
Issued capital and reserves
|
|
|
|
|
Share capital
|
24.1
|
6,279
|
6,213
|
|
Own shares
|
24.1
|
(850)
|
(850)
|
|
Share premium
|
24.2
|
9,289
|
9,245
|
|
Share based payment
reserve
|
28
|
172
|
113
|
|
Merger reserve
|
24.3
|
(248)
|
(248)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Borrowings
|
21
|
29
|
86
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
Current liabilities
|
|
|
|
|
Borrowings
|
21
|
57
|
91
|
|
Lease liabilities
|
22
|
594
|
452
|
|
Trade and other payables
|
23
|
21,032
|
18,013
|
|
|
|
|
|
Total current liabilities
|
|
|
|
Total equity and liabilities
|
|
|
|
The financial statements on were
approved by the Board and authorised for issue on 9 July 2024 and
signed on its behalf by:
Clive Lovett
Group Finance
Director
9
July 2024
Company registration number:
09095860
Consolidated statement of changes in
equity
for the financial year ended 31
March 2024
|
|
Issued
share
capital
£'000
|
|
|
Share
based
payment
reserve
£'000
|
|
|
|
|
At
1 April 2022
|
6,213
|
9,245
|
(850)
|
74
|
(248)
|
(14,577)
|
(143)
|
|
Loss and total comprehensive loss
for the year
|
-
|
-
|
-
|
-
|
-
|
(548)
|
(548)
|
|
Purchase of own shares for
SIP
|
-
|
-
|
-
|
(64)
|
-
|
-
|
(64)
|
|
Share based payment
charge
|
-
|
-
|
-
|
103
|
-
|
-
|
103
|
Total transactions with owners
recognised directly in equity
|
|
|
|
|
|
|
|
|
Balance at 31 March 2023
|
6,213
|
9,245
|
(850)
|
113
|
(248)
|
(15,125)
|
(652)
|
|
Loss and total comprehensive income
for the year
|
-
|
-
|
-
|
-
|
-
|
(609)
|
(609)
|
|
Share issue for SIP
|
66
|
44
|
-
|
(33)
|
-
|
-
|
77
|
|
Share based payment
charge
|
-
|
-
|
-
|
103
|
-
|
-
|
103
|
|
Transfer to retained
earnings
for share options
exercised
|
-
|
-
|
-
|
(11)
|
-
|
11
|
-
|
Total transactions with owners
recognised directly in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of cash
flows
for the financial year ended 31
March 2024
|
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
Net
cash generated from operating activities
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
Purchase of property, plant and
equipment
|
|
(159)
|
(90)
|
Purchase of intangible
assets
|
|
|
|
Net
cash used in investing activities
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
Issue of new shares SIP
|
24.1
|
77
|
-
|
|
Repurchase of own shares for
SIP
|
24.1
|
-
|
(64)
|
|
Repayment of borrowings
|
|
(91)
|
(2,666)
|
|
Interest paid
|
|
(341)
|
(401)
|
|
Principal payments of
leases
|
|
(582)
|
(511)
|
Net
cash used in financing activities
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(833)
|
(1,182)
|
Cash and cash equivalents at
beginning of year
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
|
The cash and cash equivalents for
the year ended 31 March 2024 are represented by cash balances of
£489,000 (2023: £1,322,000).
Notes to the consolidated financial
statements
for the financial year ended 31
March 2024
1.
Basis of preparation
Kinovo plc and its subsidiaries
(together the "Group") operate in the specialist mechanical,
electrical and building services markets. The Company is a public
company operating on the AIM market of the London Stock Exchange
("AIM") and is incorporated and domiciled in England and Wales
(registered number 09095860). The address of its registered office
is 201 Temple Chambers, 3-7 Temple Avenue, London EC4Y 0DT. The
Company was incorporated on 20 June 2014.
The Group's financial statements
have been prepared on a going concern basis under the historical
cost convention, and in accordance with UK adopted International
Accounting Standards, the International Financial Reporting
Interpretations Committee ("IFRIC") interpretations issued by the
International Accounting Standards Boards ("IASB") that are
effective or issued and early adopted as at the time of preparing
these financial statements and in accordance with the provisions of
the Companies Act 2006.
The Group has adopted all of the new
and revised standards and interpretations issued by the IASB and
the International Financial Reporting Interpretations Committee
("IFRIC") of the IASB, as they have been adopted by the United
Kingdom, that are relevant to its operations and effective for
accounting periods beginning on 1 April 2023.
The preparation of financial
statements requires management to exercise its judgement in the
process of applying accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements, are disclosed in notes 2 and 4. The
functional and presentational currency of the Group is Pounds
Sterling (£) rounded to the nearest thousand. The principal
accounting policies adopted by the Group are set out in note
2.
2.
Summary of significant accounting policies
2.1. Going
concern
Accounting standards require that
Directors satisfy themselves that it is reasonable for them to
conclude whether it is appropriate to prepare the financial
statements on a going concern basis. The Group's business
activities, together with factors that are likely to affect its
future development and position are set out below and in the Group
Chief Executive Officer's Review on pages [•] and [•].
The continuing business traded
strongly in the year ended 31 March 2024, continuing to grow,
improve margins and maintain a net cash position at the end of the
year.
It is expected to grow further,
extending its' client base, developing the new contracts it has won
and securing new business opportunities through its placing on
various framework agreements and from the work of the business
development team.
In assessing the Group's ability to
continue as a going concern, the Board reviews and approves the
annual budget and longer-term strategic plan, including forecasts
of cash flows.
In building these budgets and
forecasts, the Board has considered market challenges and
uncertainties including the availability of labour and supply chain
resources to grow the business activities.
Kinovo had residual commitments
under various parent company guarantees for its former construction
business, DCB. Under the terms of the parent company guarantees,
Kinovo was responsible for the completion of nine
projects.
Five projects have been completed by
Kinovo and another has been substantially finished with completion
due during July 2024. One project was completed directly by the
client and another client was placed into Administration with
Kinovo not expecting to have any further commitment on the project.
Kinovo has reached a settlement in principle of £2.2 million on the
final project which will be payable by instalments over an eighteen
month period from July 2024. A performance bond amounting to
£860,000 is outstanding on the final project but as part of the
settlement this will be cancelled once Kinovo has paid cumulative
amounts to the client equivalent to the value of the
bond.
Other than the outstanding amounts
on the settlement of the final project, Kinovo has paid, at the
date of signing of the financial statements, almost all of the
gross costs to complete the projects with recoveries expected in
future periods.
The HSBC Bank UK plc overdraft and
purchasing card facilities were renewed after the year end, through
to the end of April 2025. The facilities are expected to be
utilised during the going concern period.
The Directors expect that the cash
generated by the continuing business and the renewal of the HSBC
facilities will provide the financial capacity to facilitate the
growth of the core operations and support the completion of the DCB
project liabilities.
After taking into account the above
factors and possible sensitivities in trading performance, the
Board has reasonable expectation that Kinovo plc and the Group
as a whole have adequate resources to continue in
operational existence for the foreseeable future.
For these reasons, the Board
continues to adopt the going concern basis in preparing the
consolidated financial statements. Accordingly, these accounts do
not include any adjustments to the carrying amount or
classification of assets and liabilities that would result if the
Group were unable to continue as a going concern.
2.2. Basis of
consolidation
The consolidated financial
statements consolidate those of the Company and its subsidiary
undertakings drawn up to 31 March each year. Subsidiaries are
entities that are controlled by the Company. The definition of
control involves three elements: power over the investee; exposure
or rights to variable returns; and the ability to use power over
the investee to affect the amount of the investors' returns. The
Group generally obtains power through voting rights.
The consolidated financial
statements incorporate the financial information of Kinovo plc and
its subsidiaries. Subsidiary companies are consolidated from the
date that control is gained. The subsidiaries of the Group are
detailed in note 6 of the parent company financial statements on
page [•]. All intra-group transactions, balances, income and
expense are eliminated on consolidation.
2.3. Business combinations
and goodwill
Business combinations are accounted
for using the acquisition method, with the exception of the
acquisition of P&R Installation Company Limited. The
acquisition method involves the recognition at fair value of all
identifiable assets, liabilities and contingent liabilities of the
subsidiary at the acquisition date, regardless of whether or not
they were recorded in the financial statements of the subsidiary
prior to acquisition. On initial recognition, the assets and
liabilities of the subsidiary are included in the Consolidated
Statement of Financial Position at their fair values, which are
also used as the bases of subsequent measurement in accordance with
the Group accounting policies.
The acquisition of P&R
Installation Company Limited did not meet the definition of a
business combination as the company was not a business and
therefore falls outside the scope of IFRS 3 (Revised) "Business
Combinations". As IFRS does not provide specific guidance in
relation to Group reorganisations it defers to the next appropriate
GAAP, being UK GAAP. The acquisition of P&R Installation
Company Limited by the Company has therefore been accounted for in
accordance with the principles of merger accounting as set out in
Section 19 of FRS 102. Costs relating to acquisitions in the year
are expensed and are included in administrative
expenses.
Goodwill arising on acquisitions is
recognised for an acquisition as an asset and initially measured at
cost, being the excess of the cost of the business combination over
the Group's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities
recognised.
Where applicable, the consideration
for an acquisition includes any assets or liabilities resulting
from a contingent consideration arrangement, measured at fair value
at the acquisition date. Subsequent changes in such fair values are
adjusted against the cost of acquisition where they result in
additional information, obtained within one year from the
acquisition date, about facts and circumstances that existed at the
acquisition date. All other subsequent changes in fair value of
contingent consideration classified as an asset or liability are
recognised in accordance with IAS 39, either in profit or loss or
as a change to other comprehensive income. Changes in fair value of
contingent consideration classified as equity are not
recognised.
2.4. Revenue
recognition
Revenue is measured at the fair
value of the consideration received or receivable for the provision
of the Group's services. Revenue is recognised by the Group, net of
value added tax, based upon the following:
• Mechanical services
- Mechanical services are supplied under a term
contract or framework agreement with both local authority and
corporate customers that usually span one or more years. These
contracts will outline a number of services that the Group is
retained to provide to the customer ranging from boiler servicing
and meter connections to installing central heating solutions,
including air source heat pumps under decarbonisation projects.
These services will be provided on request from the customer, and
work will be charged based on the customer schedule of rates. Each
service is considered to have a single performance obligation, and
generally takes between a couple of hours and a few days to
complete. Revenue is only recognised at the point that the service
is complete. Invoicing only occurs once the customer has agreed
that the relevant service has been received and completed. Any
costs incurred in advance of the performance obligation being
completed are recognised as work in progress. Any work completed
but not yet agreed with the customer/invoiced is recognised as
accrued income.
• Building services:
Building work is supplied under a term contract or
framework agreement which sets out the range of services the Group
is retained to provide to the customer including refurbishments,
replacements of kitchens and bathrooms, window installations and
painting and decorating, alongside retrofit of insulation. These
services will be provided on request from the customer, and work
will be charged based on the customer schedule of rates. Each
service is considered to have a single performance obligation, and
generally takes between a couple of hours and a few days to
complete. Revenue is only recognised at the point that the service
is complete. Invoicing only occurs once the customer has agreed
that the relevant service has been received and completed. Any
costs incurred in advance of the performance obligation being
completed are recognised as work in progress. Any work completed
but not yet agreed with the customer/invoiced is recognised as
accrued income.
• Electrical services
- Electrical services are supplied under a term
contract or framework agreement with both local authority and
corporate customers that usually spans one or more years. These
contracts will outline a number of services that the Group is
retained to provide to the customer including servicing,
maintenance, emergency call-outs, rewires, as well as installation
of solar PV and other renewable energy sources. These services will
be provided on request from the customer, and work will be charged
based on the customer schedule of rates. Each service is considered
to have a single performance obligation, and generally takes
between a couple of hours and a few days to complete. Revenue is
only recognised at the point that the service is complete.
Invoicing only occurs once the customer has agreed that the
relevant service has been received and completed. Any costs
incurred in advance of the performance obligation being
completed are recognised as work in progress. Any work completed
but not yet agreed with the customer/invoiced is recognised as
accrued income.
It is considered by management that
the above revenue recognition policies are suitable for recognising
revenue arising from the Group's key market verticals. All revenue
streams are wholly attributable to the principle activity of the
Group and arise solely within the United Kingdom. Note 5 gives
further detail of any work in progress and accrued income balances
recognised in relation to contracts with customers.
2.5. Operating profit and
non-underlying items
Operating profit comprises the
Group's revenue for the provision of services, less the costs of
providing those services and administrative overheads, including
depreciation of the Group's non-current assets.
Underlying operating profit before
the deduction of exceptional costs and other adjusting items is one
of the key measures used by the Board to monitor the Group's
performance. Exceptional costs are disclosed on the face of the
Consolidated Statement of Comprehensive Income as "non-underlying
items".
These non-underlying items comprise
costs that are considered by the Board to not relate to the
underlying financial performance of the Group and are separately
analysed so that the users of the accounts can compare trading
performance on a like-for-like basis. Costs falling within this
category will have one or more of the following
attributes:
• one-off
transactions not relating to current or future trading;
• non-cash
items such as amortisation and impairment of financial assets and
share based payment charges; and
•
exceptional in size such that they distort the understanding of
underlying trading activities.
2.6.
Dividends
The Group has a policy of paying
dividends to shareholders in accordance with the amount recommended
by the Directors. If the Directors believe the dividends are
justified by the profits of the Group available for distribution,
they also pay interim dividends. Dividends are recognised when they
become legally payable. In the case of interim dividends, this is
when dividends are paid. In the case of final dividends, this is
when the dividends are approved by the shareholders at the Annual
General Meeting.
2.7. Segmental
reporting
The Board of Directors of Kinovo plc
(which is considered to be the Chief Operating Decision Maker) has
identified the reportable segments to be mechanical services,
building services and electrical services. Direct costs are
allocated to the appropriate segment as they arise and central
overheads are apportioned based on management's estimated
allocation of the underlying utilisation of resources. Operating
segments are presented in a manner consistent with internal
reporting, with inter-segment revenue and expenditure
eliminated on consolidation. The segmental reporting is outlined in
note 6.
2.8. Intangible
assets
In accordance with IFRS 3, an
intangible asset acquired in a business combination is deemed to
have a cost to the Group of its fair value at the acquisition date.
The fair value of the intangible asset reflects market
expectations about the probability that future economic benefits
embodied in the asset will flow to the Group.
Software 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.
Following initial recognition, the
carrying amount of an intangible asset is its cost less any
accumulated amortisation and any accumulated impairment losses.
Amortisation expense is charged to administrative expenses in the
income statement on a straight line basis over its useful
life.
The identifiable intangible assets
and associated periods of amortisation are as follows:
• Customer
relationships
- over the period expected to benefit, typically seven
years.
• Software
and development costs - over four years.
2.9.
Impairment
For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows: cash-generating units
("CGUs"). As a result, some assets are tested individually for
impairment, and some are tested at CGU level. Goodwill is allocated
to CGUs that are expected to benefit from synergies of the related
business combination and represent the lowest level within the
Group at which management monitors the related cash
flows.
Goodwill or CGUs that include
goodwill and those intangible assets not yet available for use are
tested for impairment at least annually. All other individual
assets or CGUs are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be
recoverable.
An impairment loss is recognised in
the Statement of Comprehensive Income for the amount by which the
asset or CGU's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market
conditions less costs to sell, and value in use based on an
internal discounted cash flow evaluation. Impairment losses
recognised for CGUs to which goodwill has been allocated are
credited initially to the carrying amount of goodwill. Any
remaining impairment loss is charged pro rata to the other assets
in the CGU. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss
previously recognised may no longer exist.
2.10. Property, plant and
equipment
Property, plant and equipment is
stated at historical cost less accumulated depreciation.
Depreciation is calculated to write off the cost of the assets, net
of anticipated disposal proceeds, over the expected useful lives of
the assets concerned as follows:
|
Freehold property
|
- 2% on freehold building
cost.
|
|
Long leasehold
improvements
|
- 5% on
long leasehold improvements cost.
|
|
Office and computer
equipment
|
- 25% reducing balance.
|
|
Fixtures and fittings
|
- 25% reducing balance.
|
|
Motor vehicles
|
- 25% reducing balance.
|
Freehold land is not
depreciated.
Subsequent expenditure is included
in the asset's carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic
benefits will flow to the Group and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to
the Statement of Comprehensive Income during the financial period
in which they are incurred.
Gains and losses on disposals are
determined by comparing proceeds with carrying amount and are
included in the Statement of Comprehensive Income.
The residual values and economic
lives of assets are reviewed by the Directors on at least an annual
basis and are amended as appropriate.
2.11. Impairment of property,
plant and equipment
At each Statement of Financial
Position date, the Group reviews the carrying amounts of its
property, plant and equipment 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). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable
amount of the cash‑generating unit to which the asset belongs.
Recoverable amount is the higher of
fair value less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows
have not been adjusted.
If the recoverable amount of an
asset (or cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (cash-generating
unit) is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease. For assets other than goodwill,
where conditions giving rise to impairment subsequently reverse,
the effect of the impairment charge is also reversed as a credit to
the Statement of Comprehensive Income, net of any depreciation or
amortisation that would have been charged since the
impairment.
2.12.
Inventories
Raw materials and consumables are
measured at the lower of cost and net realisable value. Net
realisable value is based on estimated selling price less
additional costs to completion and disposal.
Work in progress is measured at the
lower of cost and net realisable value. Cost comprises direct
materials and direct labour costs that have been incurred in
advance of the performance obligations on contracts being
completed.
2.13. Financial
instruments
Financial assets and financial
liabilities are recognised in the Consolidated Statement of
Financial Position when the Group becomes party to the contractual
provisions of the instrument. Financial assets are de-recognised
when the contractual rights to the cash flows from the financial
asset expire or when the contractual rights to those assets are
transferred. Financial liabilities are de-recognised when the
obligation specified in the contract is discharged, cancelled or
expired.
(a) Trade and other receivables
Trade and other receivables are
recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method less provision
for impairment. Appropriate provisions for expected credit losses
are recognised in the Statement of Comprehensive Income when there
is objective evidence that the assets are impaired. Interest income
is recognised by applying the effective interest rate, except for
short-term trade and other receivables when the recognition of
interest would be immaterial.
The Group incurs costs in advance of
new contracts commencing in association with preparatory work to
ensure the contract can be delivered from day one. These costs
are included within work in progress and released over the life of
the contract.
(b) Cash and cash equivalents
Cash and cash equivalents comprise
cash on hand, demand deposits and other short-term highly liquid
investments that have maturities of three months or less
from inception, are readily convertible to a known amount of
cash and are subject to an insignificant risk of changes in
value.
(c) Equity instruments
An equity instrument is any contract
that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by
the Group are recorded at the proceeds received, net of direct
issue costs.
(d) Trade and other payables
Trade payables are initially
measured at their fair value and are subsequently measured at their
amortised cost using the effective interest rate method; this
method allocates interest expense over the relevant period by
applying the "effective interest rate" to the carrying amount of
the liability.
(e) Borrowings
Borrowings are recognised initially
at fair value, net of transaction costs incurred. Borrowings are
subsequently stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption value is
recognised in the Statement of Comprehensive Income over the period
of the borrowings using the effective interest method.
2.14. Current and deferred
tax
The tax expense for the period
comprises current and deferred tax. Tax is recognised in the
Statement of Comprehensive Income, except to the extent that it
relates to items recognised in other comprehensive income or
directly in equity. In this case, the tax is also recognised in
other comprehensive income or directly in
equity, respectively.
(a) Current tax
Tax payable is based on taxable
profit for the year. Taxable profit differs from net profit
reported in the Statement of Comprehensive Income because it
excludes items of income and 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 Statement of Financial Position date. As the Group has brought
forward losses there is no tax payable for the year to 31 March
2024. Details of the tax charge on ordinary operations and tax
credit on discontinued operations during the year are outlined in
note 13.
(b) Deferred tax
Deferred tax is the tax expected to
be payable or recoverable on temporary differences between the
carrying value of assets and liabilities in the financial
information and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the balance sheet
liability method. Deferred tax assets/liabilities are recognised to
the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be
utilised.
Deferred tax is charged or credited
to the Statement of Comprehensive Income except when it relates to
items credited or charged directly in equity, in which case the
deferred tax is also dealt with in equity.
Deferred tax is calculated at the
tax rates and laws that are expected to apply to the period when
the asset is realised or the liability is settled based upon tax
rates that have been enacted or substantively enacted by the
reporting date.
The carrying amount of deferred tax
assets is reviewed at each reporting 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 assets and liabilities
are offset when there is a legally enforceable right to set off
current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities
on a net basis.
2.15.
Leases
The Group leases various premises,
vehicles and equipment. Rental contracts are typically made for
fixed periods of six months to 5 years but may have extension
options. Contracts may contain both lease and non-lease components.
The Group allocates the consideration in the contract to the lease
and non-lease components based on their relative stand-alone
prices. However, for leases of real estate for which the Group is a
lessee, it has elected not to separate the lease and non-lease
components and instead accounts for these as a single lease
component.
Lease terms are negotiated on an
individual basis and contain a wide range of different terms and
conditions. The lease agreements do not impose any covenants
other than the security interests in the leased assets that
are held by the lessor. Leased assets may not be used as security
for borrowing purposes.
Leases are recognised as a
right-of-use asset and a corresponding liability at the date which
the leased asset is available for use by the Group.
Assets and liabilities arising from
a lease are initially measured on a present value basis. Lease
liabilities include the net present value of the following lease
payments:
• fixed
payments (including in-substance fixed payments), less any lease
incentives receivable;
• variable
lease payments that are based on an index or a rate, initially
measured using the index or rate as at the commencement
date;
• amounts
expected to be payable by the Group under residual value
guarantees;
• the
exercise price or a purchase option if the Group is reasonably
certain to exercise that option; and
• payments
of penalties for terminating the lease, if the lease term reflects
the Group exercising that option.
Lease payments to be made under
reasonably certain extension options are also included in the
measurement of the liability.
The lease payments are discounted
using the interest rate implicit in the lease. If that rate cannot
be determined, which is generally the case for leases in the Group,
the lessee's incremental borrowing rate is used, being the rate
that the individual lessee would have to pay to borrow the funds
necessary to obtain an asset of similar value to the right-of-use
asset in a similar economic environment with similar terms,
security and conditions.
To determine the incremental
borrowing rate, the Group uses recent third-party financing
received by the individual lessee as a starting point, adjusted to
reflect changes in the financing conditions since the third-party
financing was received.
Lease payments are allocated between
principal and finance cost. The finance cost is charged to profit
or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each
period.
Right-of-use assets are measured at
cost comprising the following:
• the amount
of the initial measurement of lease liability;
• any lease
payments made at or before the commencement date less any lease
incentives received;
• any
initial direct costs; and
•
restoration costs.
Right-of-use assets are depreciated
over the shorter of the asset's useful life and the lease term on a
straight line basis. If the Group is reasonably certain to exercise
a purchase option, the right-of-use asset is depreciated over
the underlying asset's useful life.
Payments associated with short-term
leases of equipment and vehicles and all leases of low-value assets
are recognised on a straight line basis as an expense in profit or
loss. Short-term leases are leases with a lease term of twelve
months or less. Low-value assets comprise small items of office
equipment and IT.
2.16. Employee
benefits
The Group operates defined
contribution pension schemes for certain employees of the Group.
The assets of the schemes are held separately from those of the
Group in an independently administered fund. The pension costs
charged to profit or loss are the contributions payable to the
scheme in respect of the accounting period.
All Group companies are in
compliance with their pension obligations and have auto-enrolled,
offering all employees the opportunity to participate.
2.17. Share based
payments
The Group issues equity-settled
share based payment transactions to certain employees.
Equity-settled share based payment transactions are measured at
fair value at the date of grant. The calculation of fair value at
the date of grant requires the use of management's best estimate of
volatility, risk free rate and expected time to exercise the
options. Details regarding the determination of the fair value of
equity-settled transactions are set out in note 28.
The fair value determined at the
grant date of the equity-settled share based payments is expensed
on a straight line basis over the vesting period, based on the
Group's estimate of the number of equity instruments that will
eventually vest. At each reporting date, the Group 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 profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to
reserves.
2.18. Onerous
contracts
In accordance with IAS 37,
assessment of whether any contracts within the business are onerous
is made on an ongoing basis. A contract is deemed to be onerous at
the point at which the unavoidable costs of meeting the contract
outweigh the expected future economic benefit. In making this
assessment the following costs are considered:
• any
incremental costs associated with delivery, ie direct labour,
materials etc.; and
• an
allocation of other direct costs, ie depreciation for machinery
involved etc.
At the point these expected costs
outweigh the future benefit, the full value of the future expected
loss will be provided for as an onerous contract.
2.19. New standards and
interpretations
The Group has applied the following
standards and amendments for the first time for the annual
reporting period commencing on 1 April 2023:
· IFRS
17 Insurance Contracts (including the June 2020 and December 2021
Amendments to IFRS 17)
· IFRS
18 Presentation and Disclosure in Financial Statements
· IFRS
19 Subsidiaries without Public Accountability:
Disclosures
· Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality Judgements -
Disclosure of Accounting Policies
· Amendments to IAS 12 Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
· Amendments to IAS 12 Income Taxes - International Tax Reform -
Pillar Two Model Rules
· Amendments to IAS 8 Accounting Polices, Changes in Accounting
Estimates and Errors - Definition of Accounting
Estimates
The amendments listed above did not
have any impact on the amounts recognised in prior periods and are
not expected to significantly affect the current or future
periods.
2.20. New standards and
interpretations not yet adopted
The following new accounting
standards and interpretations are currently in issue but not
effective for accounting periods commencing on 1 April 2023 and
therefore have not been early adopted by the Group:
• Sale or
Contribution of Assets between an Investor and its Associate or
Joint Venture (Amendments to IFRS 10 and IAS 28)
•
Classification of Liabilities as Current or Non-current (Amendments
to IAS 1)
• Non-current
Liabilities with Covenants (Amendments to IAS 1)
• Supplier Finance
Arrangements (Amendments to IAS 7 and IFRS 7)
• Lease Liability
in a Sale and Leaseback (Amendments to IFRS 16)
These standards are not expected to
have a material impact on the entity in the current or future
reporting periods or on foreseeable future transactions.
3.
Financial risk management
3.1. Financial risk
factors
The Group's activities expose it to
a variety of financial risks: market risk, credit risk and
liquidity risk. The Group's overall risk management programme
focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group's financial
performance.
Risk management is carried out by
management under policies approved by the Board of Directors.
Management identifies and evaluates financial risks and provides
principles for overall risk management, as well as policies
covering specific areas, such as interest rate risk, credit risk
and investment of excess liquidity.
3.2. Market
risk
Market risk is the risk of loss that
may arise from changes in market factors such as interest rates,
foreign exchange and security prices.
(a) Interest rate risk
The Group has exposure to interest
rate risk by virtue of its borrowings with HSBC UK Bank Plc, which
attract interest at a mark-up to the base rate. Details of actual
interest rates can be found in note 21 to these consolidated
financial statements. No hedging arrangements are currently in
place but the Board keeps this under constant review.
3.3. Credit
risk
Credit risk refers to the risk that
a counterparty will default on its contractual obligations
resulting in financial loss to the Group. Credit risk arises
principally from the Group's cash balances and trade receivables
balances. The Group's customers are primarily local authorities and
housing associations with high credit ratings.
The Group has a number of policies
for managing the credit risk of its new and existing customers, and
has dedicated functions focused on cash conversion, collection and
management.
The Group gives careful
consideration to which organisations it uses for its banking
services in order to minimise credit risk and therefore only
financial institutions with a minimum rating of B are used.
Currently the Group bank accounts are held primarily with HSBC UK
Bank Plc which has a Fitch rating of AA-.
3.4. Liquidity
risk
Liquidity risk is the risk that the
Group will not be able to meet its financial obligations as they
fall due. This risk relates to the Group's prudent liquidity risk
management and implies maintaining sufficient cash reserves to meet
the Group's working capital requirements. Management monitors
rolling forecasts of the Group's liquidity and cash and cash
equivalents on the basis of expected cash flow.
As at 31 March 2024, the Group had
cash and cash equivalents of £489,000 (2023:
£1,322,000).
The Group has a centralised treasury
function and actively manages cash flows on both a daily and
longer-term basis.
3.5. Capital risk
management
The Group manages its capital to
ensure that it will be able to continue as a going concern whilst
maximising the return to shareholders. The Group funds its
expenditure on commitments from existing cash and cash equivalent
balances.
There are no externally imposed
capital requirements.
Financing decisions are made by the
Board of Directors based on forecasts of the expected timing and
level of capital and operating expenditure required to meet the
Group's commitments and development plans.
The capital structure of the Group
consists of cash and cash equivalents and equity, comprising issued
share capital and retained profits.
4.
Critical accounting estimates and judgements
The preparation of financial
statements requires management to make estimates and judgements
that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income
and expenditure during year. The estimates and associated
judgements are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources.
The estimates and underlying
judgements are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision
affects both current and future periods.
In the process of applying the
Group's accounting policies, management has decided the following
estimates and assumptions have a significant risk of causing
a material adjustment to the carrying amounts of assets and
liabilities recognised in the consolidated financial
statements.
4.1. Critical judgements in
applying the Group's accounting policies
(a) Valuation of accrued income
Work completed under either a
framework agreement or term contract for gas services, building
services and electrical services is recognised as accrued income
until it has been billed to the client. A level of judgement is
involved in determining whether the Group has met all of the
required performance obligations necessary in order to recognise
the revenue. Accrued income of £7.7 million was recognised within
the Statement of Financial Position at 31 March 2024 (2023: £7.1
million).
(b) Share based payment charge
The Black Scholes model and the
Monte Carlo simulation have been used to calculate the appropriate
charge for the share options issued across the Group's share option
plans in the current and previous years. The use of these models to
calculate a charge involves using a number of judgements to
establish the appropriate inputs to be entered into the models,
covering areas such as exercise restrictions and behavioural
considerations of scheme members. Full details of judgements used
within the calculation to derive the charge are given within note
28. Underlying estimates and a full sensitivity analysis have not
been disclosed as management does not feel that any reasonable
change would materially influence the interpretation of the
charge.
(c) Tax treatment of disposal
There is a tax credit of £1.1
million included in 2022 loss on disposal of £12.6 million on DCB.
Management engaged with third party tax specialists to identify the
appropriate tax treatment of the different aspects of the loss on
disposal and based on relevant judgements and interpretation of tax
legislation, it is managements expectation that £1.1 million of tax
credits will be recoverable from the losses. If a different
viewpoint and interpretation of tax legislation were applied,
it might be concluded that the credit would not be
recoverable.
(d) Costs to complete legacy DCB construction
projects
As part of the obligations under the
terms of the sale of DCB, the Group continues to provide parent
company guarantees (PCG's) on nine construction projects of DCB
which run through to their practical completion. On administration
of DCB the outstanding obligations under the PCG's were assumed by
Kinovo plc. At the date of signing the financial statements seven
of the projects were finalised, one was in progress on site due for
completion in July 2024 and settlement of £2.2 million on the final
project was agreed in principle. The total expected cost to
complete all the projects, including the settlement on the final
project has been determined as £12.9 million which has been fully
provided at 31 March 2024.
At 31 March 2024, the outstanding
provision for completion of the projects was £3.2 million which
includes £2.2 million in respect of the settlement in principle on
the final project. Management have made the judgement that the
settlement on the final project will be completed in accordance
with the agreed commercial terms and conditions. Furthermore they
have judged that the project in progress on site will be completed
in line with the forecast cost and that there is unlikely to be
material post completion remediation work required on the
projects.
4.2. Key sources of
estimation uncertainty
(a) Impairment of goodwill
Determining whether goodwill is
impaired requires an estimate of the value in use of the
cash-generating units ("CGUs") to which goodwill has been
allocated. The value in use calculation involves an estimate of the
future cash flows of the CGUs and also the selection of appropriate
discount rates to calculate present values. Future cash flows are
estimated based on contract value and duration, together with
margin based on past performance. Change in contract values and
duration, together with margins achieved, could result in
variations to the carrying value of goodwill. In addition, an
adverse movement in the discount factor due to an increased risk
profile or a change in the cost of debt (increase in interest
rates) would also result in a variation to the carrying value of
goodwill. The primary sensitivity is the discount rate; however,
the Directors consider that there is no reason to believe it is not
appropriate. See note 15.2 for details on the key estimates used
within the impairment test for goodwill, along with the Group's
sensitivity analysis.
(b) Right-of-use assets
Management is required to make a
number of estimates in recognising right-of-use assets. These key
estimates are considered to be:
• estimation
of the lease term, which is done on a lease-by-lease
basis;
•
determination of the appropriate rate to discount the lease
payments. This is set with reference to the Group's incremental
cost of borrowing. The incremental rate was 8.1% in the current
year (2023: 3.4%); and
• assessment
of whether a right-of-use asset is impaired. An impairment is
considered to be present where the net present value of future cash
benefit of utilising the asset within the business, or if
applicable potential sub-lease income if the asset is no longer
required, is less than the net present value of future lease
payments.
Management considers all facts and
circumstances including its past practice and business plans in
making this estimate on a lease-by-lease basis.
At 31 March 2024 the Group holds
£1.2 million of right-of-use assets (2023: £0.9 million).
Management has reviewed the future benefit and costs of the
underlying assets and has not identified the need to recognise any
impairment.
5.
Revenue
All results in the current and prior
period derive from continuing operations and all revenues arose in
the UK.
There are four customers who
individually contributed 12%, 12%, 11% and 11% respectively towards
the revenue (2023: two contributing 16% and 12%).
The Group has recognised the
following assets within the Statement of Financial Position related
to contracts with customers:
|
|
|
|
|
Current assets relating to contracts
with customers:
|
|
|
|
Trade receivables
|
4,866
|
3,610
|
|
Work in progress
|
2,261
|
2,005
|
|
|
|
|
|
|
|
|
As set out in note 2.12, work in
progress balances arise where costs are incurred in advance of the
performance obligations required to recognise revenue having been
met, and therefore the costs are recognised as an asset.
Accrued income relates to
performance obligations that have been satisfied, but the invoice
has not yet been raised to the customer.
There are no long-term construction
contracts held within continuing operations.
Services are provided under
framework agreements and therefore not considered to have any
unsatisfied performance obligations as at 31 March 2024.
6.
Segmental reporting
The Board of Directors (Chief
Operating Decision Maker) has determined an operating management
structure aligned around the three core activities of the Group,
with the following operating segments applicable:
• Mechanical services:
the Group offers a range of services within the
mechanical services segment which is inclusive but not limited to:
boiler servicing, meter connections and installing central heating
solutions, including air source heat pumps under decarbonisation
projects.
• Building services:
the Group offers a range of services which is
inclusive but not limited to: refurbishment, replacements of
kitchens and bathrooms, window installations and painting and
decorating, alongside retrofit of insulation.
• Electrical services:
the Group offers a range of services within the
electrical services segment which is inclusive but not limited to:
servicing, maintenance, emergency call-outs, rewires, as well as
installation of solar PV and other renewable energy
sources.
The Board adopts the operating
profit before exceptional items and amortisation of acquisition
intangibles as the profit measure. The following is an analysis of
the Group's revenue and operating profit before non-underlying
items, for continuing operations, by reportable segment:
|
|
12 months
ended
31 March
2024
£'000
|
12 months
ended
31 March
2023
£'000
|
|
Mechanical services
|
11,670
|
15,022
|
|
Building services
|
20,555
|
19,686
|
|
|
|
|
|
|
|
|
Reconciliation of operating profit
before non-underlying items to profit before taxation from
continuing operations:
|
|
12 months
ended
31 March
2024
£'000
|
12 months
ended
31 March
2023
£'000
|
|
Operating profit before exceptional
items and amortisation of acquisition intangibles by
segment
|
|
|
|
Mechanical services
|
1,167
|
1,527
|
|
Building services
|
1,419
|
1,494
|
|
Electrical services
|
5,585
|
4,099
|
Unallocated central costs
|
|
|
|
Total operating profit before
non-underlying items
|
6,483
|
5,297
|
|
Amortisation of acquisition
intangibles
|
-
|
(385)
|
|
Share based payment
charge
|
(103)
|
(103)
|
|
Operating profit
|
6,380
|
4,809
|
|
|
|
|
|
|
|
|
Only the Group Consolidated
Statement of Comprehensive Income is regularly reviewed by the
Chief Operating Decision Maker and consequently no segment assets
or liabilities are disclosed under IFRS 8.
7.
Operating profit
Operating profit for the continuing
business is stated after charging all costs including
non-underlying items which are detailed in note 9.
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Inventory recognised as an expense
in cost of sales
|
11,876
|
9,992
|
|
Staff costs
|
13,116
|
11,742
|
|
Depreciation
|
148
|
131
|
|
Depreciation of right of use
assets
|
585
|
513
|
|
Amortisation of software
costs
|
116
|
72
|
|
Auditor's remuneration
|
125
|
114
|
|
|
|
|
The depreciation and amortisation
charges as stated in the table above are included within
administrative expenses in the Consolidated Statement
of Comprehensive Income.
8.
EBITDA for continuing operations
Earnings before interest,
taxation, depreciation and amortisation
("EBITDA")
EBITDA is calculated as
follows:
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Underlying profit before tax from
continuing operations
|
6,142
|
4,896
|
|
Finance costs
|
341
|
401
|
|
Depreciation of property, plant and
equipment
|
148
|
131
|
|
Depreciation of right of use
assets
|
585
|
513
|
|
Amortisation of software
costs
|
116
|
72
|
|
EBITDA from continuing operations (before lease payment
charges)
|
7,332
|
6,013
|
|
|
|
|
Adjusted EBITDA from continuing operations (after lease
payment charges)
|
|
|
9.
Non-underlying items
Operating profit includes the
following items which are considered by the Board to be either
exceptional in size, one-off in nature or non-trading related items
as defined in note 2.5.
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Amortisation of customer
relationships (a)
|
-
|
385
|
Share based payment charge
(b)
|
|
|
|
|
|
|
(a) Amortisation and
impairment of customer relationships
Amortisation of acquisition
intangibles was £nil for the year (2023: £385,000). In 2023 the
charge related to amortisation of the customer relationships
identified by the Directors on the acquisition of Purdy.
(b) Share based payment
charge
A number of Group share option
schemes are in place and new options have been granted during the
year as detailed in note 28. The share based payment charge
has been separately identified as it is a non-cash expense for
the Group.
10.
Employee expenses
The average number of employees
(including Directors) employed during the year was:
|
|
12 months
ended
31 March
2024
No.
|
12
months
ended
31
March
2023
No.
|
|
Management
|
43
|
38
|
|
Administration
|
63
|
56
|
|
|
|
|
|
|
|
|
The aggregate remuneration of the
above employees (including Directors) comprised:
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Wages and salaries
|
11,685
|
10,344
|
|
Social security costs
|
1,113
|
1,137
|
|
|
|
|
|
|
|
|
The remuneration of the Directors
and other key management personnel of the Group is shown in note 27
and the Remuneration Committee Report.
11.
Finance costs and finance income
The Group received no finance income
in either the current or prior period.
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Interest payable on bank borrowings
and loans
|
77
|
140
|
|
Interest payable on lease
liabilities
|
36
|
30
|
|
|
|
|
|
|
|
|
12.
Dividends
The Directors do not recommend a
final dividend for the year ended 31 March 2024 (2023:
£nil).
No interim dividend was paid in the
year or for the previous year.
13.
Income tax
13.1. Components of income
tax charge
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Current income tax expense
|
|
|
|
Current income tax charge in
relation to continuing operations
|
940
|
960
|
|
Current income tax credit in
relation to discontinued operations
|
(1,912)
|
-
|
|
Carry forward tax losses arising in
the year
|
972
|
|
Utilisation of tax losses from
disposal
|
|
|
|
|
|
|
|
Deferred tax
|
|
|
|
|
|
|
|
Credit in connection with intangible
assets acquired
|
-
|
(72)
|
|
Movement in brought forward tax
losses
|
(972)
|
(209)
|
|
Short-term timing
differences
|
-
|
(3)
|
|
Charge for lease liabilities
recognised on adoption of IFRS 16
|
118
|
28
|
|
Credit for right of use asset
recognised on adoption of IFRS 16
|
(121)
|
(28)
|
Credit for share based payment
charge
|
|
|
|
|
|
|
|
Total income tax charge for
continuing operations
|
911
|
695
|
|
Total tax credit for discontinued
operations
|
(1,912)
|
(999)
|
Income tax credit reported in income
statement
|
|
|
13.2. Tax
reconciliation
The tax assessed in each period
differs from the standard rate of corporation tax in the UK. The
differences are explained below.
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Profit on ordinary activities before
taxation
|
(1,610)
|
(852)
|
|
Profit on ordinary activities before
taxation multiplied by standard rate of UK corporation tax of 25%
(2023: 19%)
|
(403)
|
(162)
|
|
Effects of:
|
|
|
|
Non-deductible expenses
|
44
|
66
|
|
Movement in brought forward tax
losses
|
(569)
|
(208)
|
|
|
|
|
|
|
|
|
14.
Earnings per share
14.1. Basic and diluted
earnings per share
The calculation of basic and diluted
earnings per share is based on the result attributable to
shareholders divided by the weighted average number of ordinary
shares in issue during the year.
Basic earnings per share amounts are
calculated by dividing net profit for the year or period
attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the
year. The Group has potentially issuable shares all of which relate
to the Group's share options issued to Directors and
employees.
Basic and diluted profit per share
from continuing operations are calculated as follows:
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Profit used in calculating basic and
diluted earnings per share for continuing operations
|
5,128
|
3,713
|
|
Loss used in calculating basic and
diluted earnings per share for total operations
|
(609)
|
(548)
|
|
Number of shares
|
|
|
|
Weighted average number of shares
for the purpose of basic earnings per share
|
62,528,742
|
62,137,757
|
|
Weighted average number of shares
for the purpose of diluted earnings per share
|
63,393,296
|
62,689,167
|
|
Basic earnings per share (pence) for
continuing operations
|
8.20
|
5.97
|
|
Diluted earnings per share (pence)
for continuing operations
|
8.08
|
5.92
|
|
Basic loss per share (pence) for
total operations
|
(0.97)
|
(0.88)
|
Diluted loss per share (pence) for
total operations
|
|
|
Diluted earnings per share includes
potentially dilutive equity instruments. These instruments are
anti-dilutive in the current and prior year in respect of the loss
per share for total operations.
Options over 5,404,142 ordinary
shares remained outstanding as at 31 March 2024 (2023: 5,439,968)
as detailed in note 28.
Details of loss per share for
discontinued operations are set out in note 30.
14.2. Adjusted earnings per
share
Profit after tax for continuing
operations is stated after deducting non-underlying items totalling
£103,000 (2023: £488,000) as set out in note 9 and the impact of
these items on corporation tax. Non-underlying items are either
exceptional in size, one-off in nature or non-trading related
items. These are shown separately on the face of the Consolidated
Statement of Comprehensive Income.
The calculation of adjusted basic
and adjusted diluted earnings per share is based on the result
attributable to shareholders, adjusted for non-underlying items,
divided by the weighted average number of ordinary shares in issue
during the year.
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Profit after tax
|
5,128
|
3,713
|
|
Add
back:
|
|
|
|
Amortisation of customer
relationships
|
-
|
385
|
|
Share based payment
charge
|
103
|
103
|
Impact of above adjustments on
corporation tax
|
|
|
Adjusted profit after tax
|
|
|
|
Number of shares
|
|
|
|
Weighted average number of shares
for the purpose of adjusted earnings per share
|
62,528,742
|
62,137,757
|
|
Weighted average number of shares
for the purpose of diluted adjusted earnings per share
|
63,393,296
|
62,689,167
|
|
Adjusted earnings per share (pence)
for continuing operations
|
8.36
|
6.76
|
Diluted adjusted earnings per share
(pence) for continuing operations
|
|
|
Diluted adjusted earnings per share
includes potentially dilutive equity instruments.
15.
Intangible assets
|
|
Software
|
Customer
|
|
|
|
|
costs
|
relationships
|
Goodwill
|
Total
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
At 1 April 2023
|
531
|
11,708
|
4,192
|
16,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation
|
|
|
|
|
|
At 1 April 2023
|
212
|
11,708
|
-
|
11,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
Customer
|
|
|
|
|
costs
|
relationships
|
Goodwill
|
Total
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
At 1 April 2022
|
343
|
11,708
|
4,192
|
16,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation
|
|
|
|
|
|
At 1 April 2022
|
140
|
11,323
|
-
|
11,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.1. Customer
relationships
The customer relationships
intangible assets arise on acquisition of subsidiaries when
accounted for as a business combination and relate to the expected
value to be derived from contractual and non-contractual customer
relationships. The value placed on the contractual customer
relationship is based on the expected cash revenue inflows over the
estimated remaining life of each existing contract. The value
placed on the non-contractual customer relationships is based on
the expected cash inflows based on past revenue performance by
virtue of the customer relationship, but using an attrition rate
depending on the length of the relationship. Associated cash
outflows have been based on historically achieved margins and
overhead run rates per £1 of revenue. The net cash flows are
discounted at a rate which the Directors consider is commensurate
with the risks associated with capturing returns from the customer
relationships.
The estimated life for customer
relationships is based on the average of the contracted remaining
life of contracted relationships and estimated life of the
non‑contractual
relationships.
|
|
|
|
|
|
|
Attrition rate where relationship
<5 years
|
80%
|
n/a
|
n/a
|
|
|
Attrition rate where relationship
>5 years
|
50%
|
n/a
|
n/a
|
|
|
Discount rate
|
13.30%
|
12.84%
|
15.79%
|
|
|
Estimated life of relationship at
date of acquisition
|
7
years
|
7.5
years
|
1.5
years
|
|
|
Fair value of customer relationships
at date of acquisition
|
£5,586,000
|
£5,922,000
|
£200,000
|
£11,708,000
|
Current carrying value of customer
relationships
|
|
|
|
|
15.2.
Goodwill
Goodwill on consolidation arises on
the excess of cost of acquisition over the fair value of the net
assets acquired on purchase of the company. Each subsidiary is its
own CGU for the purposes of the goodwill calculation and
impairment reviews and is monitored on an ongoing basis by the
Board.
The goodwill allocated to each
subsidiary entity is presented below:
The Group tests whether goodwill has
suffered any impairment on an annual basis. For the 2024 and 2023
reporting periods, the recoverable amount of the cash-generating
units ("CGUs") was determined based on the value in use
calculations which require the use of key assumptions. The
calculations use cash flow projections based on the level of
recurring revenue from secured contracts, which have already been
won and are expected to be won in the future. Cash flows beyond
five years are extrapolated using the estimated growth rates stated
below. These growth rates are consistent with forecasts included in
industry reports specific to the industry in which the CGU
operates.
The following table sets out the key
assumptions for those CGUs that have significant goodwill allocated
to them. The same assumptions have been used across the CGUs as
they are all considered to operate in markets with similar
characteristics.
|
|
|
|
|
Long-term growth rate (used after 5
years)
|
1.9%
|
1.9%
|
|
3 to 5-year growth rate
|
5.0%
|
5.0%
|
|
|
|
|
15.3. Sensitivity
review
Management has performed a range of
sensitivity analysis around movements in both the discount rates
and future growth rates used within the model and does not
anticipate that any realistic changes in the assumptions would
cause the assets to be impaired.
16.
Property, plant and equipment
At 31 March
2024
|
|
|
|
|
Fixtures
and
fittings
£'000
|
Office
and
computer
equipment
£'000
|
|
|
Cost
|
|
|
|
|
|
|
|
At 1 April 2023
|
300
|
643
|
-
|
89
|
626
|
1,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
At 1 April 2023
|
-
|
174
|
-
|
42
|
380
|
596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
At 1 April 2023
|
300
|
469
|
-
|
47
|
246
|
1,062
|
|
|
|
|
|
|
|
|
At 31 March
2023
|
|
|
|
|
Fixtures
and
fittings
£'000
|
Office
and
computer
equipment
£'000
|
|
|
Cost
|
|
|
|
|
|
|
|
At 1 April 2022
|
300
|
617
|
-
|
55
|
596
|
1,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
At 1 April 2022
|
-
|
148
|
-
|
29
|
288
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freehold land and building property
was included at its net book value of £784,000 at the date of
acquisition, being the fair value of the land and buildings at
£815,000, less accumulated depreciation of £31,000. The property
was valued by an independent valuer with a recognised and relevant
professional qualification and with recent experience in the
location and category of investment property being valued, Savills
(UK) Limited, as at 22 May 2015 on the existing use value basis in
accordance with the Appraisal and Valuation Manual of The Royal
Institution of Chartered Surveyors. The critical assumptions made
relating to its valuation are the market rent at £65,000 per annum
and the yield at 8.00%.
The bank facilities detailed in note
26 are secured on the property, plant and equipment of the Group.
The bank facility does not impose any restrictions of use on the
assets.
17.
Right-of-use assets
|
|
|
|
Office
and
computer
equipment
£'000
|
|
|
Cost
|
|
|
|
|
|
At 1 April 2023
|
263
|
1,256
|
-
|
1,519
|
|
Additions
|
83
|
914
|
-
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
At 1 April 2023
|
59
|
531
|
-
|
590
|
|
Charge for the year
|
60
|
525
|
-
|
585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
At 1 April 2023
|
204
|
725
|
-
|
929
|
|
|
|
|
|
|
|
|
|
|
Office
and
computer
equipment
£'000
|
|
|
Cost
|
|
|
|
|
|
At 1 April 2022
|
263
|
992
|
56
|
1,311
|
|
Additions
|
-
|
656
|
-
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
At 1 April 2022
|
7
|
468
|
50
|
525
|
|
Charge for the year
|
52
|
456
|
5
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
Inventories
19.
Trade and other receivables
|
|
|
|
|
Current
|
|
|
|
Trade receivables
|
4,866
|
3,610
|
|
Other receivables
|
77
|
173
|
|
Prepayments
|
287
|
238
|
|
|
|
|
|
|
|
|
The ageing of trade receivables that
are past due but not impaired is shown below:
|
|
|
|
|
Between 1 and 2 months
|
573
|
629
|
|
Between 2 and 3 months
|
37
|
107
|
|
|
|
|
|
|
|
|
No allowance for doubtful debt has
been made as management does not consider that there are any issues
over recoverability, due to the creditworthiness of the customer
profile and little historical issue of default.
In 2023, an allowance for doubtful
debt of £29,000 was recognised in the above balance for trade
receivables. This was a specific provision resulting from a
commercial agreement rather than an issue with
collection.
The Group's exposure to credit risk
is discussed in note 26 to the consolidated financial statements,
including how the Group assesses the credit quality of potential
new customers and its policy for providing against overdue
invoices.
The average credit period taken on
invoiced sales of services as at 31 March 2024 is 28 days (31 March
2023: 21 days). No interest was charged on overdue receivables
during the year.
The Directors believe that the
carrying value of the trade and other receivables is considered to
represent its fair value. The maximum exposure to credit risk at
the reporting date is the carrying value of each class of
receivable shown above. The Group does not hold any collateral as
security.
The bank facilities detailed in note
26 are secured on the trade receivables of £4,866,000 (2023:
£3,610,000).
The Group's trade and other
receivables are all denominated in Pounds Sterling.
20.
Cash and cash equivalents
Cash and cash equivalents comprise
cash at bank. The Group's cash and cash equivalents are held at
floating interest rates and are primarily held at HSBC UK Bank Plc
which has an AA- credit rating as assessed by Fitch Ratings. The
Directors consider that the carrying amount of cash and cash
equivalents approximates to their fair value.
|
|
|
|
|
Cash at HSBC UK Bank Plc
|
486
|
1,311
|
Other cash and bank
balances
|
|
|
|
|
|
|
21.
Borrowings
The maturity analysis of borrowings,
inclusive of finance charges, is included below. All of the loans
are denominated in Pounds Sterling.
|
|
|
|
|
Non-current borrowings
|
|
|
|
Bank and other
borrowings:
|
|
|
|
Other loans
|
-
|
-
|
|
|
|
|
Total non-current borrowings
|
|
|
|
Current borrowings:
|
|
|
|
Bank and other
borrowings:
|
|
|
|
Other loans
|
-
|
34
|
|
|
|
|
|
|
|
|
|
Bank and other
borrowings:
|
|
|
|
Other loans
|
-
|
34
|
|
|
|
|
|
|
|
|
The fair value of the borrowings
outstanding as at 31 March 2024 is not materially different to its
carrying value since interest rates applicable on the loans are
close to the current market rates.
(a) Working capital
facilities
At 31 March 2024 the Group had an
unused £2.5 million working capital facility with HSBC UK Bank Plc.
The facility has an interest rate of 2.85% above base rate and
is repayable on demand. All cash at bank balances are
denominated in Pounds Sterling.
The £2.5 million working capital
facility with HSBC UK Bank Plc was renewed after the period end
until April 2025, at an interest rate of 3.5% above base rate and
is repayable on demand.
(b) Other
loans
Mortgage loan
A ten-year mortgage loan of £570,000
with HSBC UK Bank Plc was drawn down in July 2015, with interest
payable at 1.9% above base rate. The mortgage is held over
the freehold property of Purdy known as Brooklyn Lodge, Mott
Street, Chingford, London E4 7RW. £85,500 remained unpaid at the
end of the period.
Other loan
A five-year term loan, originally
drawn down in September 2018 of £317,000 with Funding Circle, was
assumed by the Group on the acquisition of Dunhams in
November 2018 and was fully repaid in the period.
(c)
Security
Bank loans are secured on related
property, plant and equipment and debtor books of the
Group.
In respect of bank debt there is an
Unlimited Composite Company Guarantee given by Kinovo plc, Purdy,
P&R, Spokemead and Dunhams to secure all liabilities
of each borrower.
22.
Lease liabilities
As at 31 March 2024 the following
amounts are included in the Statement of Financial Position in
relation to non-cancellable leases:
|
|
|
|
|
Lease liabilities
|
|
|
|
Current
|
594
|
452
|
|
|
|
|
|
|
|
|
The maturity analysis of obligations
under non-cancellable leases is shown in the following
table:
|
|
|
|
|
No later than 1 year
|
594
|
452
|
|
Later than 1 year and no later than
5 years
|
606
|
491
|
|
|
|
|
The interest expense recognised
through the Consolidated Statement of Comprehensive Income during
the year in relation to lease liabilities was £36,000 (2023:
£30,000).
23.
Trade and other payables
|
|
|
|
|
Trade payables
|
14,654
|
13,025
|
|
Other payables
|
88
|
63
|
|
Other taxation and social
security
|
3,488
|
1,977
|
|
|
|
|
|
|
|
|
Trade and other payables principally
comprise amounts outstanding for trade purchases and ongoing costs.
They are non-interest bearing.
The Directors consider that the
carrying value of trade and other payables approximates their fair
value as the impact of discounting is insignificant.
The Group has financial risk
management policies in place to ensure that all payables are paid
within the credit time frame and no interest has been charged by
any suppliers as a result of late payment of invoices.
Included within trade payables is a
balance of £4,126,000 (2023: £4,609,000) on a purchasing card
facility provided by HSBC UK Bank Plc. The purchasing card is
typically used to facilitate administration and reporting of costs
on maintenance contracts at a granular level. Payment terms for
Kinovo plc on the purchasing cards are typically 90 days, which
aligns with existing credit terms with suppliers. Approved
suppliers benefit from increased volumes and receive funds upfront
from HSBC UK Bank Plc. Based on the nature of the transactions the
Board considers it appropriate to disclose the balance within trade
creditors.
The average credit period taken on
trade purchases (excluding those settled on purchasing card) is 85
days (2023: 66 days). Trade purchases include the purchase
of materials and subcontractor costs.
24.
Share capital and reserves
24.1. Ordinary
shares
Ordinary shares of £0.10 each
|
|
|
|
At the beginning of the
year
|
6,213
|
6,213
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
|
At the beginning of the
year
|
62,137,757
|
62,137,757
|
|
|
|
|
|
|
|
|
Issued in the year
During the year the Company issued
650,457 of shares to allocate to members of the SIP scheme (Please
see note 28 for further details on the SIP). 23.5p was paid for
325,229 of these shares, a total consideration of £77,000. This was
allocated as £33,000 of share capital,and £44,000 of share premium.
The remaining 325,228 shares were a share based payment for the
members of the scheme, and therefore 10p per share (a total
consideration of £33,000) was transferred to share capital from the
share based payment reserve as payment for these.
During 2023 the Company repurchased
364,402 of its own shares for £132,000 at 36p per share. These
shares will be held in trust to use to settle obligations under the
SIP scheme as they become due. £68,000 was received from the SIP
Trust in contribution towards this, thus the total purchase netted
to £64,000.
During the year ended March 2021,
the Company issued a total of 2,492,858 ordinary shares to RBC Cees
Trustee (Nominees) Limited for £850,000. These shares are to be
held for future redemption by members of the JSOP scheme subject to
successful achievement of vesting conditions. Within the Group
accounts the share trust is consolidated and the £850,000 value of
shares is shown in equity as the Group ownership of own share
capital.
24.2. Share
premium
|
|
|
|
|
At the beginning of the
year
|
9,245
|
9,245
|
Issued in the year (net of share
issue costs)
|
|
|
|
|
|
|
24.3. Merger
reserve
|
|
|
|
At
the beginning and end of the year
|
|
|
25.
Note to the Consolidated Statement of Cash Flows
|
|
12 months
ended
31 March
2024
£'000
|
12
months
ended
31
March
2023
£'000
|
|
Cash flow from operating activities
|
|
|
|
Loss before income tax
|
(1,610)
|
(852)
|
|
Adjustments for:
|
|
|
|
Net finance cost
|
341
|
401
|
|
Depreciation
|
732
|
645
|
|
Amortisation of intangible
assets
|
116
|
457
|
|
Share based payments
|
103
|
103
|
|
Movement in receivables
|
(1,820)
|
(461)
|
|
Movement in payables
|
3,019
|
(1,050)
|
|
Movement in provisions
|
(325)
|
3,478
|
|
|
|
|
|
|
|
|
26.
Financial instruments
The Group's principal financial
assets are cash and cash equivalents and trade and other
receivables. All financial assets are classified as loans and
receivables.
The Group's principal financial
liabilities are financing liabilities and trade and other payables.
All financial liabilities are held at amortised cost.
The Group is exposed to the risks
that arise from its use of financial instruments. This note
describes the objectives, policies and processes of the Group for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these consolidated financial statements.
26.1. Principal financial
instruments
The principal financial instruments
used by the Group, from which financial instrument risk arises, are
as follows:
• cash and
cash equivalents;
• trade and
other receivables;
• trade and
other payables;
•
borrowings; and
•
leases.
The Group held the following
financial assets at each reporting date:
|
|
|
|
|
Loans and receivables:
|
|
|
|
Trade receivables
|
4,866
|
3,610
|
|
Accrued income
|
7,677
|
7,066
|
|
Other receivables
|
364
|
411
|
Cash and cash equivalents
|
|
|
|
|
|
|
The Group held the following
financial liabilities at each reporting date:
|
|
|
|
|
Held at amortised cost:
|
|
|
|
Bank loans and overdrafts
|
86
|
177
|
|
Lease liabilities
|
1,200
|
943
|
|
Accruals
|
2,802
|
2,948
|
|
Trade payables
|
14,654
|
13,025
|
|
Other payables including tax and
social security
|
3,576
|
2,040
|
|
|
|
|
|
|
|
|
26.2. Financial risk
management
The Group's treasury function
monitors and manages the financial risks in relation to its
operations. These risks include those arising from interest rate
risk, credit risk, liquidity risk and capital risk. The Group seeks
to minimise the effects of these risks by using effective control
measures. The Group's policies for financial risk management are
outlined below.
(a) Interest rate risk management
The Group finances its operations
through a combination of retained earnings and bank borrowings from
major financial institutions, with a minimum Fitch rating of B,
at floating rates of interest above the Bank of England base
rate. 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.
The Group's treasury function
reviews its risk management strategy on a regular basis and gives
careful consideration to interest rates when considering its
borrowing requirements and where to hold its excess
cash.
The Group currently has loans
totalling £85,500 (2023: £176,500) at variable interest rates. The
Group is exposed to interest rate risk on some of its financial
assets, being its cash and cash equivalents. The interest rate
receivable on these balances at 31 March 2024 was at an average
rate of less than 1% (2023: less than 1%).
The Group's policy is to minimise
interest charges through active cash management. Interest charged
on the Group's borrowings is kept under constant review.
(b) Credit risk management
Credit risk refers to the risk that
a counterparty will default on its contractual obligations
resulting in financial loss to the Group. Credit risk arises
principlely from the Group's trade and other receivables and its
cash balances. The Group has an established credit policy under
which each new customer is analysed for creditworthiness before the
Group's required payment and delivery terms and conditions are
offered.
The maximum exposure the Group will
bear with a single customer is dependent upon that customer's
credit rating, the level of anticipated trading and the time period
over which the relationship is likely to run.
Social housing customers are
typically local authorities or housing associations and the nature
of which means the credit risk is minimal. Other trade receivables
contain no specific concentration of credit risk with amounts
recognised representing a large number of receivables from various
customers.
(c) Trade and other receivables
The Group is exposed to the risk of
default by its customers. At 31 March 2024, the Group had 6
customers with an outstanding balance over £250,000 (31 March 2023:
6). An allowance for impairment is made where there is an
identified loss event which, based on previous experience, is
evidence of a reduction in the recoverability of the cash flows. No
allowance for doubtful debts has been recognised in the current
year. In 2023, a specific provision against receivables of
£29,000 was recognised in relation to settlement of commercial
negotiations on one client.
There are no other significant
concentrations of credit risk at the balance sheet date.
At 31 March 2024, the Group held no
collateral as security against any financial asset. The carrying
amount of financial assets recorded in the consolidated financial
statements, net of any allowances for losses, represents the
Group's maximum exposure to credit risk without taking account of
the value of any collateral obtained.
(d) Liquidity risk management
Liquidity risk is the risk that the
Group will not be able to meet its financial obligations as they
fall due. The Group's approach to managing liquidity risk
management is to ensure it will always have sufficient
liquidity to meet the Group's working capital requirements.
Management monitors rolling forecasts of the Group's liquidity and
cash and cash equivalents on the basis of expected cash
flow.
The Directors manage liquidity risk
by regularly reviewing cash requirements by reference to short-term
cash flow forecasts and medium-term working capital projections
prepared by management and operate a centralised treasury function
and actively manage cash flows on both a daily and longer-term
basis.
The Group had total available
working capital facilities at an interest rate of 2.85% over base
rate amounting to £2,500,000 with HSBC UK Bank Plc as at 31 March
2024. The Group maintains a good relationship with its bank, which
has a high credit rating. As at 31 March 2024, the Group had cash
and cash equivalents of £489,000
(2023: £1,322,000).
The table below shows the maturity
profile of the Group's non-derivative financial
liabilities:
|
|
|
|
|
|
|
|
Non-derivative financial liabilities
|
|
|
|
|
|
|
HSBC mortgage
|
57
|
29
|
-
|
-
|
86
|
|
Funding Circle unsecured
loan
|
-
|
-
|
-
|
-
|
-
|
|
Lease liabilities
|
594
|
444
|
134
|
28
|
1,200
|
|
Trade and other payables and
accruals
|
21,032
|
-
|
-
|
-
|
21,032
|
|
Provisions
|
2,349
|
804
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-derivative financial liabilities
|
|
|
|
|
|
|
HSBC mortgage
|
57
|
57
|
29
|
-
|
143
|
|
Funding Circle unsecured
loan
|
34
|
-
|
-
|
-
|
34
|
|
Lease liabilities
|
452
|
286
|
157
|
48
|
943
|
|
Trade and other payables and
accruals
|
18,013
|
-
|
-
|
-
|
18,013
|
|
Provisions
|
3,478
|
|
|
|
3,478
|
|
|
|
|
|
|
|
(e) Capital management risk
The Group manages its capital to
ensure that entities in the Group will be able to continue as a
going concern so that it can continue to provide returns for
shareholders and benefits for other stakeholders through the
optimisation of debt and equity.
The capital structure of the Group
consists of net debt as disclosed below and equity as disclosed in
the Consolidated Statement of Changes in Equity.
|
|
|
|
|
Net cash comprised as
follows:
|
|
|
|
Cash and cash equivalents
|
489
|
1,322
|
|
Bank borrowings and
overdrafts
|
(86)
|
(177)
|
|
|
|
|
|
|
|
|
The movement in the net cash/(debt)
position for the year can be reconciled as follows:
|
|
|
|
|
New
lease
agreements
£'000
|
|
|
|
Cash and cash equivalents
|
1,322
|
(833)
|
-
|
-
|
-
|
489
|
|
Bank borrowings and
overdrafts
|
(177)
|
91
|
-
|
-
|
-
|
(86)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
lease
agreements
£'000
|
|
|
|
Cash and cash equivalents
|
2,504
|
(1,182)
|
-
|
-
|
-
|
1,322
|
|
Bank borrowings and
overdrafts
|
(2,843)
|
2,666
|
-
|
-
|
-
|
(177)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.
Related party transactions
During 2023, Kinovo plc paid the
Non-Executive Chair of Kinovo plc, Sangita Shah the sum of £60,000
in relation to additional time spent on DCB including liaising
with lawyers and advisers. These amounts were paid to Odyssean
Enterprises Limited, a company in which Sangita Shah has an
interest.
There have been no related party
transactions in the current year.
27.1. Key management
compensation
The Group's key management is
considered to comprise the Directors of Kinovo plc and the Chief
Operating Officer. The aggregate remuneration of the key management
is as follows:
|
|
|
|
|
The aggregate remuneration
comprised:
|
|
|
|
Aggregate emoluments
|
1,313
|
1,460
|
|
|
|
|
|
|
|
|
The remuneration of the highest paid
Director during the year was £498,000 (2023: £513,000). The
remuneration of individual Directors is disclosed in the
Remuneration Committee Report. The aggregate emoluments in the
prior year includes related party transactions as set out in note
27. There were no related party transactions in 2024.
There were no other transactions
with Directors or key personnel to disclose.
The 2023 comparative has been
adjusted by £102,000 to reflect finalisation of the FY23 bonus
award, paid in 2024.
28.
Share based payments
As at 31 March 2024 the Group
maintained four share based payment schemes for employee
remuneration, a Share Incentive Plan ("SIP"), Company Share Option
Plan ("CSOP"), Joint Share Ownership Plan ("JSOP") and Enterprise
Management Incentive ("EMI").
Share Incentive Plan
("SIP")
The SIP is an HMRC-approved scheme
plan open to all employees. The plan was established on 1 August
2020. Employees were invited to buy shares in the Company at a
price, of 17.5 pence, being the market price immediately prior to
the date of establishment of the plan. The acquisition of the
shares is funded through a salary sacrifice scheme with monthly
deductions taken through payroll over a twelve-month accumulation
period. At the end of the accumulation period (31st July 2021) the
SIP Trust used the contributions to acquire the shares on behalf of
the employees ("partnership shares"). Further tranches were rolled
out on the 1 August 2021, 1 August 2022, and 1 August 2023
operating on the same basis as the original, however with a share
purchase price of 34.0 pence, 23.5 pence and 44.5 pence
respectively. At 31 March 2024 employees had accumulated
contributions of £56,102 on the FY24 scheme (2023: £52,200 in
relation to FY23 scheme).
Employees are also awarded a
matching share for each partnership share acquired. Once awarded
these shares are held in trust, and are subject to forfeiture, in
accordance with the scheme rules, for three years. The retention
rate has been estimated as 82%.
The SIP is considered a hybrid
financial instrument with characteristics of both share and option
awards and linked to a twelve-month accumulation contract. The
obligation of the Company arose when the plan was established, at
the beginning of the accumulation period. The employee pays the
market value for the partnership shares and therefore no share
based payment charge is recognised. The matching shares give rise
to a share based payment charge based on the market value of the
shares at the date the plan was established adjusted for the risk
of forfeiture.
Company Share Option Plan
("CSOP")
The CSOP is open to all employees at
the discretion of the Remuneration Committee. In the year ended 31
March 2021, the Company issued four CSOP awards totalling 1,772,142
ordinary shares at market prices ranging from 20.50 pence to 35.00
pence.
The vesting period is for three
years, during which the holder must remain in the employment of the
Group. There are no performance conditions attached to the awards.
At 31 March 2024, 1,402,142 CSOP awards had vested but had not been
exercised.
The CSOP and EMI schemes were valued
using the Black Scholes model. The use of this model to calculate a
charge involves using a number of estimates and judgements to
establish the appropriate inputs to be entered into the model,
covering areas such as the use of an appropriate interest rate and
dividend rate, exercise restrictions and behavioural
considerations. A significant element of judgement is therefore
involved in the calculation of the charge.
Joint Share Ownership Plan
("JSOP")
The JSOP is open to certain senior
executives at the discretion of the Remuneration Committee. In the
year ended 31 March 2021, the Company issued two JSOP awards,
250,000 ordinary shares of 10 pence each on 21 December 2020 at the
market price of 26.0 pence and 2,242,858 ordinary shares of 10
pence each on 5 March 2021 at the market price of 35.0 pence, to
three senior executives. There were no JSOP awards in the year
ended 31 March 2024 (2023: nil).
Under the JSOP, shares in the
Company were jointly purchased at fair market value by the
participating executives and the trustees of the JSOP trust, with
such shares held in the JSOP trust.
Under IFRS, the awards are treated
as a share based payment arrangement. The JSOP trust holds the
shares of the JSOP until such time as the JSOP shares are vested
and the participating executives exercise their rights under the
JSOP.
The JSOP trust is granted a
non-interest-bearing loan by the Company in order to fund the
purchase of its interest in the JSOP shares. The loan held by the
trust is eliminated on consolidation in the financial statements of
the Group.
The Company funded portion of the
share purchase price is deemed to be held as own shares until such
time as they are transferred to the employee and is recorded
as a reduction in equity and subject to board
discretion.
The award on 21 December 2020 had no
performance conditions. The awards on 5 March 2021 vest based on
certain non-market conditions and specific fair market share price
hurdles, as defined by the plan. 2,492,858 shares have vested at 31
March 2024 (2023: nil) but have not been exercised.
Under the JSOP , participating
executives will, when the JSOP shares are sold, be entitled to a
share of the proceeds of sale equal to the growth in market value
of the JSOP shares versus the exercise price, net of executives'
cash contribution at inception, as agreed for each grant (the
"Carry Charge").
The balance of the proceeds will
remain to the benefit of the JSOP trust and will be applied to the
repayment of the loan originally made by the Company to the JSOP
trust. Any funds remaining in the JSOP trust after settlement of
the loan and any expenses of the JSOP trust are for the benefit of
the Company.
The JSOP awards are valued based on
the component conditions comprising each of the awards. Components
of awards containing non-market-based conditions and awards with no
performance conditions are valued using the Black Scholes model.
Components of awards with market-based performance conditions are
determined by the Monte Carlo simulation.
A number of estimates and judgements
are required to establish the appropriate inputs to be entered into
the model, covering areas such as the use of an appropriate
interest rate and dividend rate, exercise restrictions and
behavioural considerations. A significant element of judgement is
therefore involved in the calculation of the charge.
Having established the full value of
the JSOP awards using the Black Scholes model and Monte Carlo
simulation outlined above, a deduction is made in respect of the
anticipated Carry Charge in order that the expense recorded in the
financial statements only represents the participating executives'
net interest in the awards.
Enterprise Management
Incentive Scheme ("EMI")
The EMI options scheme was open to
all employees at the discretion of the Remuneration Committee. In
the year ended 31 March 2023, no grants were awarded
and the majority of the grants have now been
cancelled.
The vesting period is for three
years, during which the holder must remain in the employment of the
Group subject to the discretion of the Remuneration Committee. They
can be exercised at any time from the date of vesting to the day
before the tenth anniversary of their grant and are not subject to
performance conditions.
The net charge recognised for share
based payments in the year was £103,000 (2023: £103,000) analysed
as follows:
All share based employee
remuneration will be settled in equity. Options are generally
exercisable at a price equal to the market price of the Kinovo plc
shares on the day immediately prior to the date of the grant.
Options are forfeited if the employee leaves the Group before the
Options vest except in specific circumstances allowed by the
terms of the schemes.
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
At 1 April 2022
|
639,190
|
1,427,142
|
2,492,858
|
500,000
|
5,059,190
|
|
Granted
|
541,340
|
50,000
|
-
|
-
|
591,340
|
|
Exercised
|
(194,713)
|
-
|
-
|
-
|
(194,713)
|
|
|
|
|
|
|
|
|
At 31 March 2023
|
969,968
|
1,477,142
|
2,492,858
|
500,000
|
5,439,968
|
|
Granted
|
470,026
|
-
|
-
|
-
|
470,026
|
|
Exercised
|
(346,073)
|
-
|
-
|
-
|
(346,073)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price (pence)
|
|
|
|
|
|
|
At 1 April 2023
|
-
|
25.0
|
34.1
|
95.0
|
|
|
Granted
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used in estimating the fair
value
|
|
|
|
|
|
|
Exercise price (pence)
|
17.5-44.5
|
20.5-35.0
|
26.0-35.0
|
95.0
|
|
|
Expected dividend yield
|
n/a
|
1.00%
|
1.00%
|
2.15%
|
|
|
Risk free rate
|
n/a
|
0.50%
|
0.50%
|
4.00%
|
|
|
Expected volatility
|
n/a
|
35.00%
|
35.00%
|
45.70%
|
|
|
|
|
|
|
|
|
Expected volatility for the CSOP and
JSOP awards is based upon the historical volatility as adjusted for
management expectations over the life of the schemes. The expected
life is based upon scheme rules and reflects management's best
estimates for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The risk free interest rate for the
CSOP and JSOP awards is based upon the expected yield of UK gilts
over the expected life of the awards.
The Company has applied an expected
dividend yield of 1% for the CSOP and JSOP awards as the Company
anticipates making dividend payments during the expected life of
the awards.
29.
Deferred tax
The following are the significant
deferred tax liabilities and assets recognised by the Group and the
movements thereon during the current and prior reporting
period.
|
|
Intangible
assets
acquired
£'000
|
|
Short-term
timing
differences
£'000
|
Right-of-use
assets
£'000
|
|
Share
based
payments
£'000
|
|
|
At 1 April 2022
|
(72)
|
306
|
(3)
|
(150)
|
151
|
74
|
306
|
Credit/(charge) to Statement of
Comprehensive Income or recognised directly through
shareholders, equity
|
|
|
|
|
|
|
|
|
At 31 March 2023
|
-
|
515
|
-
|
(178)
|
179
|
94
|
610
|
Credit/(charge) to Statement of
Comprehensive Income or recognised directly through
shareholders, equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
1,908
|
788
|
|
|
|
|
|
|
|
|
30.
Discontinued operations
Following its rebranding and
strategic review, Kinovo determined that DCB (Kent) Limited
("DCB"), the Group's construction business, was non-core and was
disposed in the year ended 31 March 2022.
On 16 May 2022, DCB filed for
administration and as at the date of the financial statements
Kinovo has limited expectation of recovery of amounts owed under
the terms of the disposal of DCB.
Kinovo had residual commitments
under various parent company guarantees for the DCB construction
projects and working capital support. Under the terms of the parent
company guarantees, Kinovo is responsible for the completion of the
projects.
The activities of DCB are presented
as discontinued operations.
There are nine projects in total,
five have been completed by Kinovo and one project is in progress
on site and scheduled to be completed by Kinovo in July 2024.
Another was completed directly by the client and another client
itself was placed into administration with no further obligation
expected. On the remaining project Kinovo has agreed, in principle,
to settle, for £2.2 million, payable over eighteen months, the
obligation under the construction contract and parent company
guarantee, releasing Kinovo from its obligations to complete the
project. £860,000 of the £2.2 million settlement is payable in
three equal monthly instalments from July 2024. The balance is
payable by fifteen equal monthly instalments thereafter.
Three of the nine DCB contracts
originally had performance bonds, which were indemnified by Kinovo
plc, totalling £2.10 million. Only one bond of £860,000 remains
outstanding relating to the final project. The bond was called at
the end of February 2024 but with Kinovo's continuing engagement
with the insurer, underwriter and client and the ongoing
discussions between the parties, the bond holder agreed to defer
payment obligations. The settlement in principle of the final
project will include the cancellation of the performance bond once
Kinovo has fulfilled, after three months, the equivalent value of
the bond to the client.
On 8 March 2024 the Group announced
that it expected the overall net cost to complete the construction
projects to be approximately £8.7 million, an increase of £3.4
million on the costs to complete forecast reported at 31 March 2023
of £5.3 million, resulting from unexpected remedial works partly
related to the adverse weather of winter 2023/24 but mainly as a
result of poor legacy workmanship.
The net costs to complete of £8.7
million included anticipated claims made by Kinovo as a result of
poor sub-contractor workmanship and other contractual recoveries
which had not been confirmed at the date of signing of the
financial statements. The potential recoveries, of up to
approximately £2.6 million are required to be recognised in future
periods, when they have been realised.
With the settlement in principle on
the final project (net of £0.9 million already provided in the
expected cost to complete provision) and the deferral of the
recognition of potential recoveries to future periods, the reported
pre-tax costs to complete all the projects has increased to a total
of £12.9 million with a £7.6 million (FY23: £5.3 million) pre-tax
loss reported in the year ended 31 March 2024.
A total of £9.0 million has been
paid in FY23 and FY24 on the fulfilment of the project obligations
with a further £1.7 million paid in the first quarter of FY25.
Other than the outstanding amounts on the settlement in principle
of the final project, Kinovo has paid, at the end of the first
quarter almost all of the gross costs to complete the projects. The
settlement on the final project will be payable during FY25 and
FY26 set off by final account recoveries, claims and
retentions.
At 31 March 2024 the outstanding
balance on the costs to complete provision was £3.2 million
representing the balance of the total £12.9 million due to be
fulfilled. £0.7 million costs had been incurred at 31 March 2024
that were paid after the year end. An analysis of the movement on
the provision is set out below.
|
|
|
|
|
At the beginning of the
year
|
3,478
|
-
|
|
Cost to complete
provision
|
7,649
|
5,260
|
|
|
|
|
|
|
|
|
The fulfilment of the remaining cost
to complete commitments are expected to be funded from cash flows
from the strong cash generation from the underlying operations and
existing banking facilities which were renewed post year
end.
In 2023, £1.2 million was also paid
to DCB for contracted working capital support which is in
addition to the £12.9 million costs to complete the DCB projects.
The total amount paid relating to DCB in 2023 including the working
capital support of £1.2 million was £2.7 million.
The disposal of DCB allowed the
Group to harmonise its operations and increase the focus on its
three strategic workflow pillars: Regulation, Regeneration and
Renewables as demonstrated by the results delivered for FY24. These
pillars are centred on compliance-driven, regulatory-led specialist
services that offer long-term contracts, recurring revenue streams
and strong cash generation.
Financial performance and
cash flow information from discontinued
operations
|
|
|
|
|
Revenue
|
3,878
|
532
|
|
|
|
|
|
Gross loss
|
(7,649)
|
(5,260)
|
Underlying administrative
expenses
|
|
|
|
Operating loss
|
(7,649)
|
(5,260)
|
|
|
|
|
|
Loss before taxation
|
(7,649)
|
(5,260)
|
|
|
|
|
|
|
|
|
|
Loss per share from discontinued operations
|
|
|
|
Basic (pence)
|
(9.17)
|
(6.86)
|
|
Diluted (pence)
|
(9.17)
|
(6.86)
|
|
Cash flows from discontinued operations
|
|
|
|
Net cash outflow from operating
activities
|
(7,428)
|
(2,750)
|
|
Net cash outflow from investing
activities
|
-
|
-
|
Net cash outflow from financing
activities
|
|
|
Net reduction in cash generated by
the subsidiary
|
|
|
31.
Ultimate controlling party
The Directors consider that there is
no ultimate controlling party of Kinovo plc.
32.
Events after the balance sheet date
Details of the status of the DCB
projects and post period end agreed in principle the settlement of
the final project and outstanding performance bond is set out in
note 30.
There have been no other post
balance sheet events.