14 March 2024
Restore
plc
("Restore" or the "Group" or the "Company")
Full year 2023
results
Restore plc (AIM: RST), the UK's
leading provider of digital and information management and secure
lifecycle services, today announces its results for the year ended
31 December 2023.
SUMMARY OF RESULTS
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2023
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2022
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Change
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Revenue (£m)
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277.1
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279.0
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(1%)
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Adjusted operating
profit1 (£m)
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44.3
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51.9
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(15%)
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Adjusted operating margin2 (%)
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15.9%
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18.6%
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(270bps)
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Adjusted profit before
tax3 (£m)
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30.3
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41.0
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(26%)
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Statutory (loss)/profit before tax
(£m)
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(29.0)
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23.3
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(224%)
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Net debt4
(£m)
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97.8
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103.5
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6%
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Adjusted basic earnings per
share5 (pence)
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17.0p
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24.3p
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(30%)
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Statutory basic (loss)/earnings
per share (pence)
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(22.5p)
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12.3p
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(283%)
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Dividend per share
(pence)
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5.2p
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7.4p
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(30%)
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STRATEGY
· New
Chair, Chief Executive Officer and Chief Financial Officer
appointed in H2.
· New
strategy announced in November 2023, focused on improving
operational performance, margins and maintaining high levels of
cash generation.
· Initial actions include reduction in head office functions
with devolution of responsibilities to businesses and the
appointment of new management teams.
TRADING PERFORMANCE
· Group revenue broadly flat at £277.1m (2022:
£279.0m):
o Digital and Information Management revenue £170.1m (2022:
£168.2m); strong growth in Records Management storage revenues,
Digital impacted by fewer major scanning projects than
2022.
o Secure Lifecycle Services revenue £107.0m (2022: £110.8m);
record revenue at Harrow Green, Technology and Datashred impacted
by slower IT replacement market and lower recycled paper prices
respectively.
· Significant contract awards and projects in the year included
HM Revenue & Customs, the BBC and the largest pharmaceutical
company move in the UK.
· Adjusted profit before tax down 26% to £30.3m, reflecting
weak trading in Technology, Digital and Datashred, and higher
interest costs.
· Proposed final dividend of 3.35 pence (2022: 4.8 pence);
total dividend for the year of 5.2 pence (2022: 7.4
pence).
CHARLES SKINNER, CEO, commented:
"While the 2023 results were disappointing given the calibre
of Restore's market positions and recurring income streams, the
core strengths of the Group remain intact.
Restore has undergone considerable change over the last six
months, including a change in operating style and approach to
certain of our markets, a reduction in head office functions to
give power and responsibility back to the businesses, and
management changes which have brought new energy, enthusiasm, and
entrepreneurial spirit to the Group. Encouragingly, the Group is
already showing strong signs of improved financial performance and
given the strength of our market positions in attractive sectors
and our highly contracted and recurring income streams, we believe
Restore should be targeting an adjusted operating margin of no less
than 20% in the medium term.
Trading since the start of the year has been in line with the
Board's expectations, and we anticipate all of our businesses, with
the possible exception of Harrow Green, to deliver an improvement
in adjusted operating margins in the current
year."
1)
Calculated as statutory operating profit before adjusting items
(reconciled below Consolidated statement of comprehensive
income).
2)
Calculated as adjusted operating profit divided by
revenue.
3)
Calculated as statutory profit before tax and adjusting items
(reconciled below Consolidated statement of comprehensive
income).
4)
Calculated as external borrowings less cash, excluding the effects
of lease obligations under IFRS16 (reconciled in note
9).
5)
Calculated as adjusted profit before tax with a standard tax charge
applied, divided by the weighted average number of shares in issue
(reconciled in note 5).
Cautionary Statement: This
announcement contains certain statements, statistics and
projections that are or may be forward-looking. The accuracy and
completeness of all such statements, including, without limitation,
statements regarding the future financial position, strategy,
projected costs, plans and objectives for the management of future
operations of Restore and its subsidiaries is not warranted or
guaranteed. These statements typically contain words such as
'intends', 'expects', 'anticipated', 'estimates' and words of
similar import. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. Although Restore
believes that the expectations will prove to be correct. There are
a number of factors, many of which are beyond the control
of Restore, which could cause actual results and developments
to differ materially from those expressed or implied by such
forward-looking statements.
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For
further information please contact:
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Restore plc
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www.restoreplc.com
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Charles Skinner, CEO
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+44 (0) 207 409 2420
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Dan Baker, CFO
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Chris Fussell, Company
Secretary
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Investec (Nominated Adviser and Joint
Broker)
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www.investec.com
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Carlton Nelson
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+44 (0) 207 597 5970
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James Rudd
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Canaccord Genuity (Joint Broker)
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www.canaccordgenuity.com
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Max Hartley
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+44 (0) 207 523 8000
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Alex Aylen
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FTI
Consulting (PR Enquiries)
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www.fticonsulting.com/uk
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Nick Hasell
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+44 (0) 203 727 1340
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Alex Le May
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CHAIR'S INTRODUCTION
This is my first annual statement
as Chair of Restore, and my time to date, together with my previous
positions on the Board, confirm my view not only of the Group's
resilience, but also of its excellent fundamentals and potential
for growth. The business has seen a new Chair, CEO and CFO all
within a short period of time in the year - a very significant
amount of change for any organisation. Additionally, this has been
against a backdrop of challenging macroeconomics and cost increases
driven by inflationary pressures, particularly in labour costs.
Despite these disruptions and challenges, the core strengths of the
business remain unchanged; high levels of contracted and recurring
revenues and strong cash generation are qualities of Restore that
endure and have
underpinned delivery of a solid
revenue performance. Specific challenges in Technology, Digital and
Datashred, combined with a higher cost base together with increased
interest costs, have impacted profits. The full year profit
performance is significantly lower than the Board's expectations at
the start of the year and we rebased our financial guidance during
2023 as a result.
2023 performance
Although the Group's performance
in 2023 was not as the Board expected or hoped, our highly
contracted and recurring income streams delivered solid revenue of
£277.1m, broadly flat on 2022.
Within our Digital and Information
Management division, revenue was £170.1m (2022: £168.2m) driven by
a mix of a continued strong performance from our Records Management
business - delivering its highest ever revenues - offset by
significant drop offs in bulk scanning activity negatively
impacting our Digital business. Revenue in our Secure Lifecycle
Services division was £107.0m (2022: £110.8m), a result of reduced
levels of quality IT assets for resale offsetting record revenues
in our commercial relocation business, Harrow Green.
Inflationary cost pressures
continued to be a significant drag on profits, compounded by lower
recycled paper pricing and interest rate increases. These factors
were also present for the wider market. Therefore, adjusted profit
before tax decreased significantly to £30.3m, down 26.1% from
adjusted profit before tax of £41.0m in 2022. As a result of the
reduced profits of the Group, adjusted basic earnings per share
decreased to 17.0 pence for the year, a fall of 30.0% compared to
the 24.3 pence achieved for 2022.
Leadership changes in the year
The Board was pleased to welcome
the return of Charles Skinner as Chief Executive Officer in
September, bringing over thirty years of senior management
experience in listed companies, twenty of which were as Chief
Executive. Charles was CEO of Restore between 2009 and 2019, and
that extensive knowledge of the Group has meant he has hit the
ground running. Since his appointment he has made a large number of
changes in the team and operational structure, principally with the
objective of giving the divisions and business units the power and
responsibility to run their businesses, drawing on their extensive
knowledge of their customer base. That has led to the scaling back
of the Head Office functions, a rebased focus for the leadership
team on improving margin, and a pause on strategic
acquisitions.
After a nine-year non-executive
tenure, Sharon Baylay-Bell stood down as Chair in October. In that
period, she has served as Risk Committee Chair, Senior Independent
Director, and has been Chair since 2021. During her tenure as
Chair, she has successfully managed the evolution of the Board and
over the second half of 2023 had led the transition to a new
executive leadership team. The Board would like to thank Sharon for
her contributions during her nine years at Restore.
The new executive team was
completed with the appointment of Dan Baker as CFO in November. Dan
brings considerable commercial and technical accounting knowledge
as well as a strong understanding of listed company and growth
environments. Dan succeeded Mike Killick, who was interim CFO from
August; again, the
Board would like to thank Mike for
his efforts in that time.
I would like to thank Charles
Bligh and Neil Ritchie for the contributions they have made over
the last four years, and we wish them both well for the
future.
Our colleagues
As a result of our weaker trading,
we had to reduce our workforce by c7% to around 2,700 at the end of
the year. Whilst this was necessary to ensure our future
competitiveness, it has not been easy to say goodbye to so many
colleagues and I recognise this has been difficult for our people.
I would like to thank all of our team for their dedication and
perseverance throughout the past financial year, during which I
know for many of them the changes will have been unsettling. Having
made these changes, I believe we are now well positioned to look to
the future with strength and resilience. I look forward to working
together with them to rebuild value in 2024 and beyond.
Health and safety
Health and safety has always been
the first item for Board discussion with Sharon as Chair, and
remains so today, and I am pleased with the sustained focus across
the business on ensuring Restore remains a safe place to
work.
The Group Health & Safety
Non-Executive committee has maintained a high level of focus
throughout the year and has been further reconstituted and
strengthened following the changes in leadership. We have continued
to work on enhancing culture, communications, systems and training
during 2023. Management's relentless approach to continuous
improvement is commended and I extend my gratitude to the health
and safety, and management team for their diligence and evolution
of focus, especially against a backdrop of change.
During the year the Board and I
visited several sites across our divisions where we were pleased to
see the business operating effectively and safely.
Dividends
Your Board is recommending a final
dividend of 3.35 pence, payable on 9 July 2024 to shareholders on
the register at close of business on 7 June 2024. This brings the
total dividend for the year to 5.2 pence (2022: 7.4
pence).
Stakeholder engagement
Engagement with our key
stakeholders enables the Board to understand their needs and
priorities in order to deliver value and build a better business.
During my role as interim CEO, and now as Chair, I met with several
of our major institutional investors. These interactions have
remained insightful and instructive in shaping the changes we have
made to the business and provided valuable feedback for the
Board.
Strategic progress
During the year we have simplified
our strategy and message, and are now focused on improving
operational performance, enhancing margins and maintaining high
levels of cash generation. We do not plan to undertake any
strategic acquisitions, although to the extent an immediate return
on capital can be made, we will deploy capital where it makes sense
to do so.
The changes in leadership,
particularly Charles and Dan, have underlined this strategy and
they have already made changes to drive improved margins. We have
strong market positions which give us scale and opportunities for
further efficiencies over the next two years. Once we have
demonstrated our ability to deliver on this strong platform, we
will be able to consider larger scale expansion.
I am very proud of the high levels
of customer service we deliver, which is showcased in the case
studies included in the 2023 annual report. We pride ourselves in
providing critical solutions and services to our customers, and it
is especially pleasing when we receive such strong
feedback.
In this context, I am very pleased
to say that the business is well set for the future; we are
extremely focused on our direction, and I am confident we have the
right strategy and right people to deliver.
CHIEF EXECUTIVE OFFICER'S STATEMENT
Introduction
I was CEO of Restore plc from June
2009 to March 2019 and was re-appointed as CEO in September 2023.
Since my return, I have been pleased to note that the core
strengths of the Group remain intact. All the businesses in each of
our divisions retain a deep understanding that excellence at the
point of service delivery to
the customer is what underpins
long-term success and personal job satisfaction.
The Group is comprised of two
divisions, Digital and Information Management and Secure Lifecycle
Services, with five businesses within them: Records Management,
Digital, Technology, Datashred and Harrow Green. The businesses all
hold market-leading positions, being either the largest or second
largest operator in their UK markets. Having said that, they are at
different stages of maturity and require different styles of
management. The core driver of the Group is the Records Management
business within our Digital and Information Management division. It
operates in a mature market in which it has strong recurring
revenues and can command highly attractive margins, based on its
long history of excellent delivery and continuous cost
minimisation. Records Management still has opportunities to enhance
margins, particularly through rationalisation of its extensive and
fragmented property portfolio, but volume growth is unlikely to be
material in the long term.
In contrast, our other businesses
all have organic growth opportunities in front of them. Digital's
recent digital mailroom contract wins with HMRC (the Group's
largest ever contract) and HM Land Registry highlight its unique
strengths in digitisation. Technology similarly has significant
growth opportunities as the largest and most disciplined IT
lifecycle manager, offering the secure service increasingly
required by blue-chip and government customers. Datashred has the
opportunity over time to establish itself as the key player in what
remains a less
consolidated market than might be
expected. Harrow Green, having established itself by some distance
as the pre-eminent UK office mover, now has specialist platforms in
fast-growing sectors such as life sciences to build on.
Both of our divisions, and in
particular three of our businesses, faced industry-specific
headwinds in 2023. A dearth of major bulk scanning contracts
impacted Digital's revenues, weak global IT sales meant low levels
of IT recycling for Technology, and a steep decline in recycled
paper prices during the year translated into reduced profitability
at Datashred. Nonetheless, these factors highlighted the need for
business model changes to these three businesses which are now
underway.
Both of our divisions have a
similar customer base, with most enterprises of any scale needing
some or all of our services. There are a multitude of areas in
which the businesses collaborate. Nevertheless, the excellent
specialists running our business know what will deliver the best
results for our stakeholders and they need to have the power and
responsibility to execute as they see appropriate. To facilitate
this, head office functions were reduced during the second half of
the year.
Health and safety
Health and safety is the first
priority across the Group. 2023 saw a 7% reduction in accidents,
with a 35% decrease in lost time. We attribute this reduction to
the focus placed on amplifying colleague voice, through safety
observation schemes and developing competency in our workforce.
Over 11,000 Royal Society for the
Prevention of Accidents ("ROSPA")
assured mandatory training courses have been delivered to
colleagues, in key risk areas such as manual handling, fire safety
and slips, trips and falls.
Manual handling remains the
biggest contributor to accident statistics (26%), with collisions
(20%) and slips trips and falls (18%) as other areas of
significance. As we look ahead, we will target these key areas of
risk for reduction by improving the two-way conversation with our
people, which will be evidenced with an increase in safety
observation reporting and perpetuating structured risk consultation
and participation.
2024 will also see us focus on our
ability to benchmark ourselves internally and externally.
Internally we will utilise ISO 45001 and ISO 45003 as critical
frameworks to prioritise the health and happiness of our people and
to create a more resilient organisation. Externally we will partner
with NatWest Mentor to create a bespoke
audit programme, which will enable
the Group to receive an impartial, competent review of our
practices and with feedback strive for continuous
improvement.
To ensure simple lines of
responsibility and facilitate best practice across the Group, we
have streamlined our health and safety governance structure. Of our
nine dedicated health and safety officers, the most senior in each
division comprise our Health & Safety Best Practice committee.
This committee has standardised divisional reporting and provides
key performance indicator data monthly, so trend and risk analysis
can be undertaken dynamically.
The Health & Safety Best
Practice committee reports to the Group Health & Safety
Non-Executive committee which comprises our Chair, CEO and
Non-Executive Director responsible for ESG. Also in attendance is
one divisional health and safety lead and a variety of divisional
senior leaders, each a specialist in critical areas such as
operations, logistics, people and facilities. Our health and safety
auditor reports to this committee, which in turn reports to the
Board.
Trading performance
Revenue for 2023 was broadly flat
at £277.1m. Records Management achieved record revenues of £124.1m
(2022: £113.7m) driving the Digital and Information division's
total revenues to £170.1m (2022: £168.2m) despite Digital's
revenues decreasing from £54.5m to £46.0m. A similar pattern was
seen in the Secure Lifecycle Services division where revenues
declined from £110.8m to £107.0m. Harrow Green's record revenues of
£40.0m (2022: £37.6m) were offset by declines in revenue in both
Technology (from £35.8m to £31.1m) and Datashred (from £37.4m to
£35.9m).
Adjusted profit before tax
declined from £41.0m to £30.3m, despite Records Management and
Harrow Green achieving strong profits. Both Digital and Datashred
recorded lower profits year-on-year while Technology recorded an
adjusted operating loss. Interest costs increased from £10.9m to
£14.0m.
These results were disappointing,
given the strength of the Group's market positions in all its
markets and the recurring nature of the bulk of the Group's
revenues. As noted earlier, the three underperforming businesses
faced market-specific headwinds, but it is our firm view that the
strength of the Records Management business should not be expected
to subsidise underperformance elsewhere.
Actions undertaken
Between my appointment in
September and the year-end, the Group has undergone considerable
change. The most obvious of these has been the reduction in Head
Office functions. This was no reflection on the capabilities of
those at Head Office but that the divisions lacked the power and
responsibility to use their deep knowledge and understanding of
their businesses to manage them on a day-to-day basis.
Accordingly, the central
marketing, sales, customer relationship management, risk
management, and mergers and acquisitions teams were scaled back to
ensure that these functions were the right size and fit for the
future direction of the Group.
In November, Dan Baker was
appointed as our CFO. His experience as a senior divisional
financial director in two blue-chip companies, together with an
enthusiasm for maintaining an entrepreneurial spirit in our
divisions, has had a swift impact, not least on recognising how
Head Office can add value to the divisions rather than controlling
them.
In addition, we have changed the
management structure in Technology to a leadership team that fully
understands the business market dynamics. Natalie Matthews, who has
overseen several business transformations across the Group, has
been appointed Managing Director of Datashred. There has been a new
energy in both businesses as the Technology management team focus
on its core activity of servicing the IT recycling and lifecycle
needs of larger customers and Natalie drives through our achievable
ambition of being the lowest cost operator in the UK shredding
industry.
Core business narrative
Given the strength of our market
positions in attractive sectors and our recurring revenue streams,
I believe the Group should be targeting an adjusted operating
margin of no less than 20% in the medium term.
Within the Digital and Information
Management division, Records Management had previously been charged
with achieving appreciable net box growth. This goal has been
removed with the new focus being on driving up profits, primarily
through increasing margins.
If Records Management can increase
profits further, the remainder of the Group (excluding Harrow
Green) will still need to achieve adjusted operating margins of at
least 15%, to get the Group adjusted operating margin to 20%.
Therefore, these businesses' goal over the next two years is to
show that they have the capability of delivering adjusted operating
margins of 15%.
Harrow Green, which has steadily
increased revenues and adjusted operating margins since its
acquisition in 2012, has a capital-light business model such that
lower adjusted operating margins than 15% are
acceptable.
While we focus on driving up
margins, we do not intend to undertake strategic acquisitions. But
we will deploy capital on add-on acquisitions to our existing
operations where we can achieve a strong immediate return on
invested capital. We will also undertake capital investment where
the long-term returns are attractive, particularly around the
consolidation of our Records Management estate, steadily moving out
of smaller, inefficient legacy sites.
We expect to be able to show the
cash-generative capabilities of the Group over the next two years.
Once we have demonstrated this and our capability of achieving
adjusted operating margins of 20%, we expect to have a strong
platform to consider a more expansive strategy.
Digital and Information Management
Our Digital and Information
Management division comprises Records Management and Digital. For
2023 revenue was £170.1m, up 1% on 2022 with adjusted operating
profit of £40.9m, down 9.5% on 2022 due to a disappointing result
in the Digital business. Statutory operating profit was £35.2m, a
reduction of 15.4% from 2022.
Records Management
Records Management increased
revenues by 9.1% to £124.1m. There was a marginal increase in net
box growth with price changes accounting for most of the revenue
increase. Despite price changes, adjusted operating margins
declined slightly as the cost base increases of the last two years,
particularly in labour and property costs, were not fully
recovered.
Over several decades, Records
Management has continuously reduced its costs through more
efficient operations and finding ways to store boxes more cheaply.
This resulted in many customers rarely receiving price rises. This
helped increase the cost benefits to customers but resulted in poor
mechanisms to adjust prices and under-recovery of cost increases in
the recent inflationary environment. This has now been resolved
with most contracts having inflation-related pricing structures and
prices reflecting more closely historic and prospective cost
increases.
The pattern of increasing rates of
destructions being offset by growth from existing customers
continued. The vended market (customers who have an existing
supplier) remained steady across the industry as the cost of
switching suppliers made it unattractive for storers to switch
suppliers. We are focusing our sales function on
the unvended market, particularly
in the public sector where there remains a significant opportunity
for institutions and government to save considerable cost by
outsourcing their in-house facilities. This has been the area of
greatest growth for us in recent years as illustrated by the
recently completed move of the BBC archives from Perivale to our
site in the South-East of England. The move itself was undertaken
by Harrow Green, taking just under a year to complete. The result
is greater storage efficiency for the BBC. A similar but smaller
exercise was undertaken for the Department for Work and
Pensions.
We are currently operating at 95%
of box storage capacity (utilisation of the available capacity).
Since the year-end, we have signed a long-term lease on a 103,000
square foot facility in the East Midlands which has a capacity of
well in excess of 1m boxes. Over the next year, we will be
decanting boxes from two of our most expensive legacy sites into
this facility where storage costs per box are far cheaper,
resulting in an improvement in margins. After this exercise, there
will still be surplus space enabling us to decant boxes from other
more expensive sites.
We intend to continue this steady
transfer of boxes from smaller, more expensive sites into larger,
cheaper sites over the coming years. We view this as an excellent
opportunity to drive margins upwards. For many of our smaller
competitors, this option is not available, and I expect our cost
advantages to strengthen our long-term market position.
Digital
Digital revenue experienced a
steep drop from £54.5m to £46.0m. This decline reflected both a
spike in 2022 revenues on the back of a one-off government project
and an absence of major digitisation projects particularly from NHS
Trusts. The impact was felt in margins which also fell
significantly.
The majority of Digital's revenues
are recurring, particularly from digital mailrooms, scanning exam
papers, online storage and a long-term onsite government agency
contract. We have no genuine competitors of scale in these areas
although some competitors manage large single-contract sites. There
is however a significant overhead to support these activities
meaning that low-margin bulk scanning activities are undertaken
which are
underpinned by major contracts
typically lasting for between three months and two years. The
fluctuation in such major one-off contracts accounts for the swing
between the 2022 and 2023 revenues.
During the course of the year, we
responded to the lower levels of bulk scanning activities by
closing our general scanning bureaus in Hanworth, South West
London, and Redditch in the West Midlands, transferring ongoing
work to our larger facilities in Manchester and Wolverhampton. We
also closed our microfiche facility in Inverness. Consolidating
these facilities is expected to reduce surplus capacity across
Digital as a start to
increasing margins towards the
level appropriate to a dominant operator with unique skillsets and
capabilities.
Several significant contracts were
won in the year reflecting our pre-eminence in the digitisation
sector. The most notable of these was with HMRC. The contract,
valued at up to £140m (dependent on transactional volumes), spans a
duration of five to seven years and started in September 2023.
Under this contract, Digital is responsible for outbound print and
messaging services (SMS, email, rich messaging) which are
sub-contracted to two strategic partners, as well as the inbound
mailroom and scanning services which Restore already provides to
HMRC under its existing contract. Within this service, Digital is
delivering a communications platform, working with its strategic
partners to move HMRC's customers to digital
communications.
Other significant contracts won in
the year included a digital mailroom for HM Land Registry, multiple
digitisation projects for the Ministry of Defence and two
significant contracts in the private healthcare sector. During 2023
we renewed 14 of our largest 25 contracts for at least two years.
Given our undoubted strengths as market leader in this attractive
sector, the short-term challenge is to increase margins to reflect
this pre-eminence by focusing on high-margin activities, reducing
overheads and being less reliant on one-off bulk scanning
contracts, particularly those with limited visibility.
Secure Lifecycle Services
Our Secure Lifecycle Services
division comprises Technology, Datashred and Harrow Green. For 2023
revenue was £107.0m, down 3.4% on 2022 with adjusted operating
profit of £6.2m, down 43.6% on 2022. Statutory operating profit was
£5.0m, a reduction of 49.5% from 2022.
Technology
Technology recorded an adjusted
operating loss on revenues which declined from £35.8m to £31.1m.
There were considerable sector-specific headwinds, primarily the
low level of IT purchases globally and therefore a significant
decline in recycled IT equipment, but the weak performance also
reflected misapprehension of the commercial opportunities available
to Technology.
The primary service which
Technology currently supplies is the secure and responsible
recycling of IT equipment, known by the acronym ITAD or IT Asset
Disposal. In this field, our key relationships are with large
companies and government departments looking to ensure that their
IT equipment carries no trace of its former content and that it is
disposed of ethically with minimal damage to the environment. There
are typically two charging models: one where all related costs are
charged to the customer and the customer receives a higher
proportion of any
equipment resold and another where
the customer receives the services for free and has limited
interest in the sale proceeds on any sales of the recycled
equipment. Under both of these models, we wish to receive IT
equipment from responsible customers who value our expertise and
generally recycle their equipment at a
comparatively young
age.
The key element in securing the
right customers for ITAD is building long-term relationships with
large customers who want the highest standard in the disposal of
their IT equipment. Such customers will share information about the
timing of prospective IT disposals and will value the thoroughness
and breadth of the services we provide. Technology had through
acquisition established a presence in the lower end of the ITAD
market where customers simply wanted their old equipment taken away
- that is not the market for Technology.
The highest-growth area in which
Technology operates is in managing the IT lifecycle. This means
being responsible for a customer's IT equipment from its purchase
to its disposal, often including loading programmes on a new
machine and delivering it to the end user, monitoring its location
during its lifetime and finally arranging for its collection and
disposal. Increasingly IT equipment vendors look to partner with us
on a high-volume sale with the vendor providing the equipment to
the customer and Technology managing the lifecycle of the
equipment. An example of this is Technology's agreement with the
vendor CDW and their customer, a large government organisation,
under which Technology is currently managing the lifecycle of a
significant number of their laptops.
Technology has three purpose-built
IT recycling sites together with a specialist destruction site,
which also offers onsite destruction of IT equipment. It also
provides engineering services for the connection and disconnection
of IT equipment.
Our Ultratec operation is a market
leader in the wiping of hard drives which can then be sold. As part
of its operations, Ultratec has developed a platform called Genesis
that can recover hard drives that have failed during industry
standard software wiping of data. This offers a unique opportunity
for Technology as approximately 30% of hard drives fail when being
wiped. Historically, these are then destroyed (to make safe the
data they are storing) with minimal value but using the Ultratec
Genesis platform, there is the opportunity to further recover over
80% of these failed drives, wipe them and then resell at the
relevant market price. Ultratec also provides this Genesis platform
on a rental model (SaaS model) to a number of international
partners, and this highly contracted service offering provides
further growth opportunities.
Given the scale, breadth and
market leadership of Technology, its financial performance in 2023
was very disappointing, even allowing for the low volume of
activity in the industry. The new management team is addressing
this through simple pragmatic measures:
· moving out of the low-end IT recycling market where the
customer simply wants to surrender end-of-life
equipment;
· prioritising close customer relationships with blue-chip
high-end recycling customers;
· creating a specialist sales team to work with the large IT
vendors who need a lifecycle management partner; and
· upskilling the production floor with enthusiasts who can
recognise the potential value of individual types of recycled
equipment.
It is likely that the IT equipment
sales market will pick up in 2024 which will be helpful in ensuring
a return to profitability for Technology. However, the greater
commercial potential over the medium term lies in leveraging our
technical and market skills to capitalise fully on the range of
opportunities available to Technology.
Datashred
Datashred recorded a decline in
revenues in 2023 from £37.4m to £35.9m, despite service revenues
increasing to £27.1m. The reduction in revenues was attributable to
a decline in the price of recycled paper during the year. As a
business recycling c50,000 tonnes of paper annually, the drop in
the average recycled paper price from an average of £238 per tonne
in 2022 to £185 per tonne in 2023 had an impact on revenues of
£2.8m, which fell straight through to profit. Without conventional
hedging instruments available, swings in recycled paper prices can
lead to volatile earnings.
Nevertheless, being one of the two
major operators in this dynamic market means that there are also
many long-term opportunities. The main feature is that, while the
use of paper is expected to show a slow decline over the very long
term, paper will continue to be used for the foreseeable future,
and the proportion of that paper which needs to be shredded is
likely to increase. So, there will be a need to shred paper for a
very long time to come. The attractions to Datashred of this market
are manifold: a consistent, albeit slightly declining, market
attracts few, if any, new entrants; smaller, long-established
operators, particularly those impacted by higher interest costs in
a capital-intensive business, feel the pinch of a sharp decrease in
the paper price far more, and will be inclined to look for an exit
- this is not a sector in which you would want to hand on a
business to the next generation; benefits of scale in a mature
market become overwhelming; service charges eventually reflect the
risk that a supplier is assuming around the value of the recycled
paper value; a strong Group balance sheet enables
Datashred to cope with swings in
the paper price; and volume and quality guarantees to regular
buyers of recycled paper, typically UK mills, facilitate hedging
capability.
Datashred has unique advantages in
its market: a captive client in Records Management who supplied
c10,800 tonnes of paper to Datashred in 2023; the attractions of
"chain of custody" to Group customers knowing that documents can be
stored, scanned and shredded by one trusted supplier; and the
opportunity to reduce rent costs by sharing paper collection sites
with other Group businesses, typically Records Management sites
where many of its sites have ample yard space to accommodate a
Datashred collection site as is in place already at Southampton and
Coventry.
Under the new MD, Natalie
Matthews, the Datashred management team is targeting many actions
to ensure Datashred fully exploits its strong market position.
These include a reduction in central costs, a review of
profitability and pricing by category of customer which spans
partners (typically the facilities management agents), large
customers and SMEs, building closer long-term relationships with
established buyers of recycled paper and reviewing opportunities to
share sites with Group businesses.
There are also significant growth
opportunities in providing additional services which utilise our
powerful infrastructure such as collecting, bundling and reselling
non-secure wastepaper and shredding non-paper materials. Since the
year-end, appreciable price increases have been achieved,
reflecting historic under-pricing
of our services to certain
customer sectors. A re-jig of customer relationship allocations has
reduced the number of accounts held by business development
managers who can now focus on new business.
Operationally, we have made good
progress on improving efficiencies with average number of visits
per day increasing from around eight to around eleven. This has
enabled an increase in margins in the field and gives us an
excellent bedrock for achieving market-leading margins. This is
particularly true when combined with a focus on more intelligent
sales and customer relationship management. The logic of supplying
paper shredding alongside paper storage and scanning is
ineluctable.
Similarly, secure destruction of
paper sits alongside the secure destruction of IT hardware and
software as undertaken by Technology. I am confident that Datashred
will be the best-placed shredding operator in the UK market and
that adjusted operating margins in excess of 15% are achievable in
due course.
Harrow Green
Harrow Green increased revenues by
6.4% to a record £40.0m leading to an improved adjusted operating
profit. This reflected a total of 413,400 desk moves, delivered by
c400 full-time employees. The increase in moving activity resulted
in an increase in storage revenues of 33%.
Major moves were undertaken for
the British Library, Credit Agricole and the University of Glasgow.
Many of the largest moves were undertaken in conjunction with other
Group businesses. Most notable was the move of the BBC archive from
Perivale to Records Management's bespoke site in the South-East of
England with ongoing contracts including the reorganisation of BT's
sites across the UK in partnership with both Technology and
Datashred.
Harrow Green has leveraged its
pre-eminence in complex large-scale office relocations into
establishing a market-leading presence in specialist sectors such
as life sciences and heritage. On the former, the massive
relocation of one of the world's leading pharmaceutical companies'
facilities in Cambridge bore testimony
to our ability to execute a
complex move in this highly demanding sector. We have recently
commissioned a biobank at our branch storage facility in Cambridge,
which enhances our capability to service this sector and is
expected to generate an excellent return on invested capital. We
are also opening a new branch in the Oxford area which will further
develop our service offering to the life sciences
sector.
As part of our Group-wide
commitment to environmental progress, we significantly increased
our Harrow Green fully electric vehicle fleet. Across the Group, we
are aware that such a commitment can be costly, and customers will
often not be prepared to contribute to the sharply increased costs.
Nevertheless, where the limited range of EVs is not a handicap in
terms of customer service, we look to deploy EVs in appropriate
geographies such as the City of London where distances travelled
are small and range anxiety is not a concern.
Harrow Green's Net Promoter Score
of 87 is higher than it ever has been and is testimony to our
service levels in a sector where good customer experience and trust
is the key to both generating ongoing business and commanding
premium pricing.
Harrow Green is not expected to
achieve as high a margin as other Group activities given its
variable cost structure, but it requires very little capital and
thus generates an excellent return on invested capital.
Furthermore, it enhances the Group's offering to its customer base
in many areas. This ranges from sourcing IT equipment for
Technology's recycling capability to assisting Records Management
on box relocation, both in terms of executing
the move and providing a total
package for the customer.
Our People
As a result of weaker trading, we
unfortunately had to reduce our workforce by nearly 7% during the
course of the year to c2,700 at the end of 2023. There were
redundancies in all businesses, together with a reduction in
headcount at Head Office and in our central HR department over the
second half of the year.
This rightsizing was necessary to
ensure we can be fully competitive in the markets in which we
operate. Our people are by far the most important element in our
Group, and we are wholly reliant on their ability to ensure
excellent service delivery at the point of contact with our
customers. I am confident that the steps we have taken will not
impair this and that, as a result of these changes, the future of
our employees is more secure and their opportunities for personal
development are greater.
I would like to thank our people
for their resilience in what has been a difficult year and look
forward to their sharing in the future success of the
Group.
Our planet
The Group has made great progress
in putting our "Restoring our world" strategy into action
throughout 2023. We have reestablished our net zero commitments, as
well as articulating the journey we will take to meet these
commitments in the short, medium and long-term. With the majority
of our carbon emissions generated from our fleet, it is very
encouraging to see an increase in our EV/ hybrid fleet from 3% to
17% of our total fleet throughout the year, with 91% of our company
cars now EV or hybrid. Our estate now has 86% of our directly
procured electricity backed by REGO-certified contracts and we
expect to see this increase in 2024.
Outlook
The Group has undergone a
significant change in management over the last six months. There
has been a change in operating style and approach to certain of our
markets over that period, and the Group is already showing strong
signs of improved financial performance.
Trading since the start of the
year has been in line with the Board's expectations, and we
anticipate all of our businesses, with the possible exception of
Harrow Green, to deliver an improvement in adjusted operating
margins in the current year.
CHIEF FINANCIAL OFFICER'S STATEMENT
Financial highlights
|
£m
|
|
2023
|
2022
|
%
|
|
Revenue
|
|
277.1
|
279.0
|
(1%)
|
|
Adjusted operating
profit
|
|
44.3
|
51.9
|
(15%)
|
|
Adjusted profit before
tax
|
|
30.3
|
41.0
|
(26%)
|
|
Statutory (loss)/profit before
tax
|
|
(29.0)
|
23.3
|
(224%)
|
|
Free
cashflow6
|
|
37.3
|
34.6
|
8%
|
|
Net debt
|
|
97.8
|
103.5
|
6%
|
6 Calculated as cash generated
from operations less income taxes paid, capital expenditure and
lease payments, but before the cash impact of adjusting items
(reconciled below Consolidated statement of cash flows).
Overview
Revenue for the year ended 31
December 2023 was broadly flat at £277.1m. Revenue and adjusted
profit before tax have been largely underpinned by a continuing
high proportion of recurring storage income and services in our
Records Management business, part of our Digital and Information
Management division, together with highly contracted services
across the rest of the Group. However, the headwinds of less
non-recurring bulk scanning in Digital, weak volumes of IT assets
translating to lower recycling volumes for resale in Technology,
and reduced paper prices in Datashred have resulted in a lower
adjusted operating profit of £44.3m (2022: £51.9m). These
challenges, combined with higher interest charges, have resulted in
a lower adjusted profit before tax of £30.3m (2022:
£41.0m).
On a statutory basis, the Group
made a loss before tax of £29.0m (2022: profit of £23.3m). This
loss was driven by £59.3m of adjusting items, the largest component
of which is £36.3m relating to asset impairments, primarily in the
Datashred cash generating unit, due to reduced expectations of
future growth and an increase in the Group's cost of
capital.
Good cash generation endures as a
key quality of the Group with cash conversion7 of 110%
for 2023 (2022: 82%) and a free cashflow of £37.3m (2022: £34.6m).
As a result, net debt decreased to £97.8m as at 31 December 2023
(2022: £103.5m). Due to the Group's lower profitability, the
leverage ratio increased to 1.9x (2022: 1.7x), although this is
still well within the Group's target range and covenant
levels.
7 Calculated as free cashflow
divided by net operating profit after tax (reconciled below
Consolidated statement of cash flows).
Revenue
|
£m
|
|
2023
|
2022
|
Variance
|
|
Records Management
|
|
124.1
|
113.7
|
10.4
|
|
Digital
|
|
46.0
|
54.5
|
(8.5)
|
|
Digital and Information management
|
|
170.1
|
168.2
|
1.9
|
|
Technology
|
|
31.1
|
35.8
|
(4.7)
|
|
Datashred
|
|
35.9
|
37.4
|
(1.5)
|
|
Harrow Green
|
|
40.0
|
37.6
|
2.4
|
|
Secure Lifecycle Services
|
|
107.0
|
110.8
|
(3.8)
|
|
Total
|
|
277.1
|
279.0
|
(1.9)
|
Income statement
Digital and Information Management
Records Management had another
year of strong revenue growth, achieving record revenues of
£124.1m. This was driven from a base of highly recurring revenues,
primarily from quality blue-chip and government customers, and
further benefited from a major contract win with the BBC alongside
structured price increases across most contracts. This business
continues to provide a resilient income stream for the Group and
underpins the overall
revenue and profit performance of
the Group.
Fewer non-recurring contracts,
particularly in bulk scanning, has led to a more challenging year
for Digital against a strong comparator with revenue decreasing by
£8.5m to £46.0m. This was partially offset by major contract wins
with HMRC and HM Land Registry for digital mailroom services, both
of which commenced in 2023 and will continue into 2024.
Secure Lifecycle Services
The global slowdown in the IT
sector has seen many companies cutting back spending on new
hardware. That has adversely impacted Technology due to the
knock-on impact of lower volumes and a reduced quality of IT assets
for recycling and has therefore resulted in a lower revenue of
£31.1m.
Datashred's service activity
increased during the year, but the business was negatively impacted
by significantly lower global recycled paper prices. Prices
continued to be depressed in the second half of 2023, giving rise
to a lower revenue of £35.9m.
Harrow Green had a very strong
2023, in particular winning and delivering a significant contract
for a large multinational pharmaceutical firm. This led to revenue
growth of £2.4m and strong revenues of £40.0m.
Adjusted profit
Despite revenue in the Group being
broadly flat, the impact of lower non-recurring contract work,
reduced recycled paper prices and significant cost inflation noted
throughout the year has resulted in lower Group profitability.
Although the headwinds noted were partially mitigated by cost
control actions implemented in the
second half of the year, adjusted
operating profit for the year was significantly lower than 2022 at
£44.3m.
Additionally, progressively rapid
increases in the Bank of England base rate during 2023
significantly increased the interest burden, resulting in finance
costs of £14.0m (2022: £10.9m). Consequently, the Group's adjusted
profit before tax decreased to £30.3m for the year (2022: £41.0m),
a reduction of 26.1%.
Adjusting items
Due to the nature of certain
income or costs, the Directors believe that an alternative measure
of profit before tax and earnings per share provides readers of the
annual report with a useful representation of the Group's
performance that should be considered together with statutory
profit and earnings per share.
The adjusting items in arriving at
adjusted profit before tax are as follows:
|
£m
|
|
2023
|
2022
|
|
Asset impairments
|
|
36.3
|
-
|
|
Amortisation
|
|
12.2
|
12.1
|
|
Acquisition transaction
costs
|
|
0.2
|
1.4
|
|
Restructuring and
redundancy
|
|
5.9
|
2.6
|
|
Property related costs
|
|
3.1
|
0.9
|
|
Strategic IT
organisation
|
|
1.6
|
0.7
|
|
Total
|
|
59.3
|
17.7
|
The largest component of adjusting
items in 2023 relates to asset impairments of £36.3m. This
primarily comprises a £32.5m non-cash impairment of the goodwill in
the Datashred cash generating unit following a reassessment of
future growth expectations, and £3.6m impairment of assets relating
to a business
exit in the Technology
business.
There was a slight increase in
amortisation to £12.2m in 2023 as a result of acquisitions made in
2022, no material acquisitions have been made in 2023. This lack of
M&A activity has also driven a reduction in the acquisition
transaction costs incurred during the year.
The second half of 2023 saw a new
Chair, new CEO, new CFO, new management teams in the Technology and
Datashred businesses, and a reduction in the head office team.
Additionally restructuring has been taking place within the
businesses to right size the Group and drive margins. This activity
has resulted in restructuring and
redundancy charges of
£5.9m.
Following the changes in the
senior leadership team, a strategic review of the Group's property
estate was conducted. This led to a reassessment of sites in the
Group, categorising them into those that were considered to be
strategic to the Group and would be unlikely to be exited until the
end of their useful life and those which were not considered to be
strategic to the Group and would be exited before the end of their
useful life. This reassessment has driven a review of the
dilapidation provision needed to be held by the Group as we are now
expecting to exit more sites in the short and medium term than was
previously expected and we therefore need to recognise the
associated increase in dilapidations provision that we expect to
crystallise in the future. This reassessment and subsequent review
of the dilapidations provision has led to an additional charge of
£3.1m being recognised in the income statement.
Investment has continued in the
Group's strategic IT programmes, with new finance systems
implemented in Digital and Technology in 2023. Due to the nature of
cloud-based accounting, these costs are expensed as they are
incurred.
Following these adjusting items,
the Group made a statutory loss before tax of £29.0m (2022:
statutory profit before tax of £23.3m).
Earnings per share
|
|
|
2023
|
2022
|
|
Weighted average number of shares
in issues
|
|
136,580,425
|
136,761,738
|
|
Weighted average fully diluted
number of shares in issue
|
|
137,302,753
|
138,025,803
|
|
Adjusted profit before tax
(£m)
|
|
30.3
|
41.0
|
|
Tax at 23.5% (2022: 19%)
(£'m)
|
|
(7.1)
|
(7.8)
|
|
Adjusted profit after tax
(£m)
|
|
23.2
|
33.2
|
|
Adjusted basic earnings per
share
|
|
17.0p
|
24.3p
|
|
Adjusted fully diluted earnings
per share
|
|
16.9p
|
24.1p
|
Adjusted basic earnings per share
is calculated by reference to the adjusted profit before tax for
the year with a standard tax charge applied, divided by the
weighted average number of shares in issue during the
year.
Adjusted fully diluted earnings
per share is calculated by reference to the adjusted profit before
tax for the year with a standard tax charge applied, divided by the
weighted average fully diluted number of shares in
issue.
The 30.0% decrease in adjusted
basic earnings per share to 17.0 pence (2022: 24.3 pence) resulted
primarily from a 30.1% decrease in adjusted profit after tax plus a
slight decrease in the weighted average number of
shares.
Statutory basic loss and diluted
loss per share was 22.5 pence, primarily as a result of profit
decline in the year.
Financing and interest expense
Net debt closed the year at £97.8m
(2022: £103.5m) with leverage increasing from 1.7x to
1.9x.
|
|
2020
|
2021
|
2022
|
2023
|
|
Net debt (£m)
|
66.1
|
100.8
|
103.5
|
97.8
|
|
Leverage
|
1.8x
|
1.8x
|
1.7x
|
1.9x
|
Interest expense relating to bank
and other secured borrowings increased to £8.9m following the
increase in interest rates during the year, which is linked to the
Bank of England base rate. Non-cash interest on finance lease
liabilities, primarily property, reduced by £0.6m as a result of
the lease liability reducing from £114.9m at 31 December 2022 to
£103.5m at 31 December 2023.
|
£m
|
|
2023
|
2022
|
|
Interest on borrowings
|
|
8.9
|
5.0
|
|
Interest on finance lease
liabilities
|
|
4.4
|
5.0
|
|
Amortisation of deferred finance
costs
|
|
0.6
|
0.9
|
|
Other finance costs
|
|
0.1
|
-
|
|
Total finance costs
|
|
14.0
|
10.9
|
In the first half of 2023 the
Group entered into US Private Placements ("USPP") of £25m with a
fixed term and rate. Together with a £200m Rolling Credit Facility
("RCF"), this increased the total facilities available to the Group
to £225m from £200m at 31 December 2023 alongside a £1.5m undrawn
overdraft facility. The Group also developed relationships with
financing providers to introduce a variety of fixed interest rate
instruments to create
greater certainty over the cost of
debt.
Subsequent to the year-end,
following the change in the Group's strategy to move away from
acquisitions and instead focus on improving operational performance
and maintaining good cash generation, the Group has made the
following changes to its financing arrangements in order to more
appropriately match the facilities to the Group's needs:
· voluntarily cancelled £75m of the RCF, decreasing the RCF
from £200m to £125m;
· extended the RCF to 30 April 2027; and
· entered into a £10m overdraft facility with Barclays Bank plc
to accommodate short-term cash requirements and free-up excess cash
at bank and in-hand.
After the changes the Group has
£150m of available facilities, which Restore believes is ample
given its revised strategy. Should it be needed, the RCF includes
an accordion which the Group can exercise to increase the facility
by up to a further £25m.
Taxation
The tax charge for the period is
£1.7m (2022: £6.5m).
Cashflow
Cash generation endures as a key
quality of Restore and in 2023 the Group generated free cashflow
before financing costs of £37.3m (2022: £34.6m).
Net cash generated from operating
activities was in line with 2022 at £47.8m with cash conversion
within target range at 110% (2022: 82%).
Capital allocation
Our near-term focus is to improve
operational performance, deleverage the balance sheet and maintain
shareholder returns. The Group therefore has the following
priorities on capital allocation:
· specific targeted investments will be made where they make
business sense, with the emphasis on organic growth;
· pay
down debt, decreasing leverage whilst keeping the range 1.5-2x
adjusted EBITDA;
· maintain dividends, increasing relative to our profits albeit
at a measured and sustainable rate; and
· a
limited purchase of shares, of at least sufficient shares to
satisfy employee incentive schemes to eliminate the otherwise
dilutive effect, whilst staying within our target leverage
range.
Statement of Financial Position
The Group's Statement of Financial
Position continues to be in good health. Working capital management
remains a strength of the business with debt ageing broadly
consistent at 57 days and key working capital ratios in line with
previous years. Whilst total equity has decreased to £232.1m (2022:
£273.2m) due primarily to
the asset impairments recorded in
the year, the current asset to current liability ratio is
consistent at 1.3x.
The strength of the Statement of
Financial Position is indicative of the overall good health of the
business and provides substantial capacity to support future growth
and investment requirements.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group considers the following
risks to be their principal risks; each are aligned to our
strategy. They are regularly reviewed and mitigated through
targeted investment, proactive actions and continuous
improvement.
|
Risk
|
Mitigation
|
|
Organic growth
Failure of the business to achieve
organic growth in line with expectations, particularly in the
Digital, Datashred and Technology businesses which have high fixed
cost bases.
|
· We
have realigned the Group's strategy to empower the businesses to
unlock their potential and to ensure a focus on profitable growth
from target sectors.
· We
have restructured and refreshed the Group's sales functions to
align with the revised strategy, with a mandate to improve
cross-selling and referral opportunities.
· We
have overhauled the Group's budgeting process to ensure that the
targets in place are
stretching but realistic and have
incentivised based on these accordingly.
· Costs
and headcount at the Group's head office have been re-evaluated
with significant cost savings implemented to support the Group's
new strategy.
|
|
Systems, technology, data and cyber defence
failure
Failure or loss of systems,
operational technology or
cyber defences results in business
interruption, loss of service and potential data breaches,
impacting customers as well as revenues and business reputation for
the Group.
|
· A
Group IT strategy is in place with appropriate investment plans to
mitigate material operational and cyber risk. This includes
significant approved budget spend in 2024 for investment in
hardware along with platforms to further improve resilience and
disaster recovery performance.
· The
Group IT strategy is in line with NCSC Cyber Security Guidelines
with Cyber Essential Plus certifications achieved across all
businesses.
· Key
cyber threats are continuously assessed and managed through the
implementation of industry standard methodologies with external
advisory support as well as managed services contracts with market
leading providers.
· Disaster recovery and business continuity plans are in place
and tested for each site and as required for the Group's IT
platforms.
· There
is comprehensive cyber insurance in place in the Group's Digital
and Technology businesses, where the risk is deemed to be the most
prevalent.
|
|
Workforce health, safety and wellbeing
Any loss of life, injury or
wellbeing issues are of serious concern to the Group and have the
potential to impact the Group's reputation, workforce morale
and financial performance.
|
· The
health, safety and wellbeing governance structure was reviewed and
changed in the
year to promote clear
communication from the front line to the board. This
governance
has rationalised KPI reporting
within the businesses as well as dynamically sharing
information at Group and Board
level.
· There
are clear policies in place across the Group covering a wide range
of key health,
safety and wellbeing risks; health
and safety, fire prevention, wellbeing, stress, safe
driving,
drugs and alcohol.
· There
was the creation of a Group-wide initiative "A Safe Place To Work",
governed by the
Group Safety and Wellbeing
Committee and developed by dedicated health and safety
leaders from each
business.
· The
Group refreshed the focus on a strong safety culture and the
reporting of
occupational risk, focusing on a
two-way conversation with the organisation.
· There
continues to be a holistic approach to driver and vehicle risk
management. There
is a well-maintained fleet that is
fit for purpose, with driving risk management systems
conducting licence checks, driver
assessments, training, and telematics.
· There
was an ongoing review and audit of compliance with the Group's fire
prevention
policy and framework.
|
|
Environment - impact of climate-related
matters
Our climate-related commitments
are challenging
and will require the appropriate
decarbonisation of our fleet and the ability to work with our value
chain to reduce emissions both upstream and downstream. There is a
reputational, and potentially commercial, risk to the Group from
not meeting these stated
commitments.
|
· The
net zero commitments made by the Group are subject to annual review
by the ESG
Committee, in conjunction with
external advisors. Changes will be made where required, in line
with SBTi Corporate Net Zero Standard, to ensure the Group's
journey to net zero is credible.
· The
Group has already moved its company car policy to one of "hybrid or
electric only" with 91% of all cars currently using this
technology. 17% of our overall fleet is now EV/hybrid.
· EV
chargers have been installed at 14% of all sites and a further
network of charging infrastructure is being assessed for deployment
over the coming years along with the potential for solar panels on
our sites.
· 86%
of our directly procured electricity is now REGO backed with the
remainder of the directly procured electricity moving onto these
contracts in 2024.
|
|
Staff recruitment and retention resulting in insufficient
resources to meet objectives
Potential difficulties in
expansion of resources or loss of operational staff or management
makes it harder to deliver an effective and efficient business and
maintain customer service expectations.
|
· We
have insourced the recruitment function into the Group which has
resulted in control of the hiring process along with associated
improvements to the overall recruitment and onboarding process
performance. We have also committed to additional investment to
enhance the Group's careers website in 2024.
· We
have seen strong improvements in our Glassdoor ratings, which are
reflective of the focus in our people agenda to date. We now have a
4.0 rating on Glassdoor against a UK
average of 3.49.
· The
people leadership programme is on-going to further augment
leadership talent and support succession planning.
· We
have invested in people management learning content and tools for
c500 people
leaders within the
Group.
· A
full review of the people-related policies was completed to ensure
our policies and
procedures are colleague friendly
and support our plans.
· We
are continuing our partnership with The Happiness Index
(neuro-science based
engagement provider). This will
embed our ongoing focus on improving engagement and
retention.
|
|
Property - extent, complexity, and suitability of the Group's
property portfolio
Property is the Group's second
largest cost and the property network is a key enabler of business
efficiency. Damage to property or inefficient utilisation impacts
customer service, whilst headwinds of unforeseen dilapidation,
rents and rates
increase costs.
|
· The
focus and governance surrounding our property risk has been
enhanced going into
2024 with the introduction of a
monthly Property Committee meeting with the Chair, (who has real
estate expertise), CEO; CFO; Group Facilities and Mines Director
and the Group Property Director. There has been strategic
consideration and progress with the execution of site consolidation
opportunities to support the Group's strategy of margin
optimisation (to counter cost headwinds) and expansion
strategies.
· Property Working Group Meetings (formerly the Property
Committee in 2023) continue with representation from Operations
Directors across all businesses, finance and Group Facilities
Director, chaired by the Group Property Director and sponsored by
the CFO.
|
|
Financial
Ongoing macro-economic instability
could lead to pressure on our financial covenants through volatile
interest rates, increasing level of inflationary costs, restricted
access to future liquidity and enhanced credit risk as customers
face their own challenges to the instability.
|
· The
Group's RCF is provided by a broad and supportive banking syndicate
with a
credit facility of up to £125m in
place and extended until April 2027.
· We
have introduced a portion of fixed rate debt into our debt profile
with £25m of US private placement debt in place until 2028 at a
fixed term and rate. We also opted to hedge a portion of our debt
with an interest rate swap to fix the interest paid.
· The
Group operates well within borrowing covenants with monthly reviews
of the Group's cashflow forecasts and forecast covenant
compliance.
· Credit risk is assessed by the businesses at the time of
onboarding customers and then subsequently on a monthly
basis.
|
Consolidated statement of comprehensive
income
For the year ended 31 December
2023
|
|
|
Year ended
31 December
2023
£'m
|
Year
ended
31
December
2022
£'m
|
|
Revenue - continuing operations
|
|
277.1
|
279.0
|
|
Cost of sales
|
|
(160.7)
|
(155.4)
|
|
Gross profit
|
|
116.4
|
123.6
|
|
Administrative expenses
|
|
(94.4)
|
(89.2)
|
|
Movement in trade receivables loss
allowance
|
|
(0.7)
|
(0.2)
|
|
Impairment of non-current
assets
|
|
(36.3)
|
-
|
|
Operating (loss)/profit
|
|
(15.0)
|
34.2
|
|
Finance costs
|
|
(14.0)
|
(10.9)
|
|
(Loss)/profit before tax
|
|
(29.0)
|
23.3
|
|
Taxation
|
|
(1.7)
|
(6.5)
|
|
(Loss)/profit after tax
|
|
(30.7)
|
16.8
|
|
Other comprehensive loss
|
|
(0.1)
|
-
|
|
Total comprehensive (loss)/income for the year from continuing
operations and (loss)/profit
attributable to owners of the parent
|
|
(30.8)
|
16.8
|
|
(Loss)/earnings per share attributable to owners of the parent
(pence)
|
|
|
|
|
Total - basic
|
|
(22.5)p
|
12.3p
|
|
Total - diluted
|
|
(22.5)p
|
12.2p
|
The reconciliation between the
statutory results shown above and the non-GAAP adjusted measures
are shown below:
|
|
|
Year ended
31 December
2023
£'m
|
Year
ended
31
December
2022
£'m
|
|
Operating (loss)/profit
|
|
(15.0)
|
34.2
|
|
Adjusting items - Administrative
expenses
|
|
10.8
|
5.6
|
|
Adjusting items - Amortisation of
intangible assets
|
|
12.2
|
12.1
|
|
Adjusting items -
Impairment
|
|
36.3
|
-
|
|
Total adjusting items
|
|
59.3
|
17.7
|
|
Adjusted operating profit
|
|
44.3
|
51.9
|
|
Adjusted operating
profit
|
|
44.3
|
51.9
|
|
Tax at 23.5% (2022:
19.0%)
|
|
(10.4)
|
(9.9)
|
|
NOPAT (Net operating profit after tax)
|
|
33.9
|
42.0
|
|
(Loss)/profit before tax
|
|
(29.0)
|
23.3
|
|
Adjusting items (as stated
above)
|
|
59.3
|
17.7
|
|
Adjusted profit before tax
|
|
30.3
|
41.0
|
Consolidated statement of financial
position
At 31 December 2023
Company registered no.
05169780
|
|
|
31
December
2023
£'m
|
31
December
2022
Restated*
£'m
|
|
ASSETS
|
|
|
|
|
Non-current assets
|
|
|
|
|
Intangible assets
|
|
284.7
|
331.9
|
|
Property, plant and
equipment
|
|
79.4
|
79.7
|
|
Right of use assets
|
|
91.6
|
106.8
|
|
Other receivables
|
|
5.2
|
5.1
|
|
|
|
460.9
|
523.5
|
|
Current assets
|
|
|
|
|
Inventories
|
|
1.5
|
2.0
|
|
Trade and other
receivables
|
|
63.1
|
64.9
|
|
Cash and cash
equivalents
|
|
22.7
|
30.2
|
|
Current tax assets
|
|
1.2
|
-
|
|
|
|
88.5
|
97.1
|
|
Total assets
|
|
549.4
|
620.6
|
|
LIABILITIES
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other
payables
|
|
(44.9)
|
(49.1)
|
|
Financial liabilities - lease
liabilities
|
|
(18.6)
|
(19.2)
|
|
Derivative liability
|
|
(0.1)
|
-
|
|
Current tax liabilities
|
|
-
|
(1.6)
|
|
Provisions
|
|
(4.4)
|
(1.7)
|
|
|
|
(68.0)
|
(71.6)
|
|
Non-current liabilities
|
|
|
|
|
Financial liabilities -
borrowings
|
|
(120.5)
|
(133.7)
|
|
Financial liabilities - lease
liabilities
|
|
(84.9)
|
(95.7)
|
|
Deferred tax liability
|
|
(29.3)
|
(30.9)
|
|
Provisions
|
|
(14.2)
|
(15.4)
|
|
Other payables
|
|
(0.4)
|
(0.1)
|
|
|
|
(249.3)
|
(275.8)
|
|
Total liabilities
|
|
(317.3)
|
(347.4)
|
|
Net assets
|
|
232.1
|
273.2
|
|
EQUITY
|
|
|
|
|
Share capital
|
|
6.8
|
6.8
|
|
Share premium
|
|
187.9
|
187.9
|
|
Other reserves
|
|
3.7
|
6.9
|
|
Retained earnings
|
|
33.7
|
71.6
|
|
Total equity
|
|
232.1
|
273.2
|
*Refer to Note 1 for details of the
restatement
Consolidated statement of changes in equity
For the year ended 31 December
2023
|
|
Attributable to owners of
the parent
|
|
|
Share
capital
£'m
|
Share
premium
£'m
|
Other
reserves
£'m
|
Retained
earnings
£'m
|
Total
equity
£'m
|
|
|
|
|
|
|
|
|
Balance at 1 January
2022
|
6.8
|
187.9
|
7.0
|
63.5
|
265.2
|
|
Profit for the year
|
-
|
-
|
-
|
16.8
|
16.8
|
|
Total comprehensive income for the
year
|
-
|
-
|
-
|
16.8
|
16.8
|
|
Transactions with
owners:
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
(9.9)
|
(9.9)
|
|
Share-based payments
|
-
|
-
|
1.7
|
-
|
1.7
|
|
Deferred tax on share-based
payments
|
-
|
-
|
(0.7)
|
-
|
(0.7)
|
|
Transfer*
|
-
|
-
|
(2.1)
|
2.1
|
-
|
|
Purchase of treasury
shares
|
-
|
-
|
(1.1)
|
-
|
(1.1)
|
|
Disposal of treasury
shares
|
-
|
-
|
2.1
|
(0.9)
|
1.2
|
|
Balance at 31 December
2022
|
6.8
|
187.9
|
6.9
|
71.6
|
273.2
|
|
Balance at 1 January
2023
|
6.8
|
187.9
|
6.9
|
71.6
|
273.2
|
|
Loss for the year
|
-
|
-
|
-
|
(30.7)
|
(30.7)
|
|
Other comprehensive loss for the
year
|
-
|
-
|
(0.1)
|
-
|
(0.1)
|
|
Total comprehensive loss for the
year
|
-
|
-
|
(0.1)
|
(30.7)
|
(30.8)
|
|
Transactions with
owners:
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
(9.1)
|
(9.1)
|
|
Share-based payments
|
-
|
-
|
(0.5)
|
-
|
(0.5)
|
|
Deferred tax on share-based
payments
|
-
|
-
|
(0.2)
|
-
|
(0.2)
|
|
Transfer*
|
-
|
-
|
(3.3)
|
3.3
|
-
|
|
Purchase of treasury
shares
|
-
|
-
|
(0.6)
|
-
|
(0.6)
|
|
Disposal of treasury
shares
|
-
|
-
|
1.5
|
(1.4)
|
0.1
|
|
Balance at 31 December 2023
|
6.8
|
187.9
|
3.7
|
33.7
|
232.1
|
|
|
|
|
|
|
|
* In 2023 a net amount
of £3.3m (2022: £2.1m) was reclassified from the share-based
payments reserve to retained earnings in respect of lapsed and
exercised options.
Consolidated statement of cash flows
For the year ended 31 December
2023
|
|
|
Year ended
31
December
2023
£'m
|
Year
ended
31
December
2022
£'m
|
|
Cash generated from operating activities
|
|
66.9
|
65.2
|
|
Net finance costs
|
|
(12.8)
|
(11.4)
|
|
Income taxes paid
|
|
(6.3)
|
(6.0)
|
|
Net cash generated from operating
activities
|
|
47.8
|
47.8
|
|
Cash flows from investing activities
|
|
|
|
|
Purchase of property, plant and
equipment and applications software IT
|
|
(10.3)
|
(11.0)
|
|
Purchase of subsidiary
undertakings, net of cash acquired
|
|
(1.3)
|
(10.8)
|
|
Purchase of trade and
assets
|
|
(0.4)
|
(0.7)
|
|
Net cash used in investing activities
|
|
(12.0)
|
(22.5)
|
|
Cash flows from financing activities
|
|
|
|
|
Dividends paid
|
|
(9.1)
|
(9.9)
|
|
Purchase of treasury
shares
|
|
(0.6)
|
(1.1)
|
|
Proceeds from disposal of treasury
shares
|
|
0.1
|
1.2
|
|
Repayment of revolving credit
facility
|
|
(48.0)
|
(145.8)
|
|
Drawdown of revolving credit
facility
|
|
10.0
|
146.8
|
|
Drawdown of US Private Placement
notes facility
|
|
25.0
|
-
|
|
Lease principal
repayments
|
|
(20.7)
|
(19.2)
|
|
Net cash used in financing activities
|
|
(43.3)
|
(28.0)
|
|
Net decrease in cash and cash equivalents
|
|
(7.5)
|
(2.7)
|
|
Cash and cash equivalents at start of year
|
|
30.2
|
32.9
|
|
Cash and cash equivalents at end of year
|
|
22.7
|
30.2
|
A reconciliation between the
statutory results above and the non-GAAP cashflow measures is shown
below:
|
|
|
Year ended
31
December
2023
£'m
|
Year
ended
31
December
2022
£'m
|
|
Cash generated from operating activities
|
|
66.9
|
65.2
|
|
Income taxes paid
|
|
(6.3)
|
(6.0)
|
|
Purchase of property, plant and
equipment and applications software IT
|
|
(10.3)
|
(11.0)
|
|
Lease principal
repayments
|
|
(20.7)
|
(19.2)
|
|
Add back: Cash impact of adjusting
items - administrative expenses
|
|
7.7
|
5.6
|
|
Free cashflow
|
|
37.3
|
34.6
|
|
NOPAT (Net operating profit after
tax)
|
|
33.9
|
42.0
|
|
Cash conversion
|
|
110%
|
82%
|
Notes to the preliminary financial
information
For the year ended 31 December
2023
1. Basis of preparation
The financial information in this
preliminary announcement has been extracted from the audited
consolidated financial statements for the year ended 31 December
2023 and does not constitute the Group's statutory accounts for the
years ended 31 December 2023 or 2022 within the meaning of s435 of
the Companies Act 2006.
The Group's statutory accounts for
the year ended 31 December 2022 have been filed with the Registrar
of Companies, and those for 2023 will be delivered following the
Company's Annual General Meeting. The Auditor has reported on the
statutory accounts for 2023 and 2022. Their report for 2023 and
2022 was (i) unqualified, (ii) included no matters to which the
auditor drew attention by way of emphasis and (iii) did not contain
statements under Sections 498 (2) or 498 (3) of the Companies Act
2006 in relation to the financial statements.
The consolidated financial
statements of the Group have been prepared in accordance with
UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006.
The consolidated financial
statements have been prepared on a historical cost basis, except
for certain financial assets and liabilities and share options
which are held at fair value. The accounting policies have been
consistently applied, other than where new policies have been
adopted. The preparation of financial statements in conformity with
IFRS requires the use of certain accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The consolidated
financial statements are presented in pounds sterling and, unless
stated otherwise, shown in pounds million to one decimal
place.
The Directors are satisfied that
climate change does not have a material impact on either individual
assets or cash-generating units in the consolidated financial
statements.
Going concern
The Group meets its day-to-day
working capital requirements through its financing facilities.
Details of the Group's borrowing facilities are given in note 9.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for a
period of at least 12 months from the approval date of the
consolidated financial statements, having taken into consideration
the downturn in trading during 2023 and the current economic
climate. Thus, they continue to adopt the going concern basis of
accounting in preparing the consolidated financial statements. In
making this assessment, the Directors have considered the financing
arrangements available to the Group and the Group's cashflow
forecasts through to 30 June 2025, taking into account reasonably
possible downside trading scenarios involving a reduction to
non-recurring income streams. The Directors' assessment includes
reviewing the level of liquidity headroom and financial covenant
compliance headroom over the period in review, including in the
downside scenarios modelled. The Group's budget for 2024 and
forecasts for 2025 show that the Group is expected to operate
within the level of its current facilities.
Prior year restatement
During the year the Group reviewed
the classification and presentation of contract assets within trade
and other receivables and contract liabilities within trade and
other payables. It was determined, following this review, that
these balances should be re-presented based on the expected timing
of the realisations of these assets and liabilities. In addition,
right of use assets and lease liabilities have been restated to
correct an error in the recording of a legacy lease.
As a result, the Consolidated
statement of financial position as at 31 December 2022 has been
restated as follows:
|
|
As
reported
2022
£m
|
Impact
of restatement
2022
£m
|
Restated
2022
£m
|
|
Non-current assets
|
|
|
|
|
Right of use assets
|
101.4
|
5.4
|
106.8
|
|
Other receivables
|
-
|
5.1
|
5.1
|
|
Current assets
|
|
|
|
|
Trade and other
receivables
|
70.0
|
(5.1)
|
64.9
|
|
Non-current liabilities
|
|
|
|
|
Lease liabilities
|
(90.3)
|
(5.4)
|
(95.7)
|
|
Other payables
|
-
|
(0.1)
|
(0.1)
|
|
Current liabilities
|
|
|
|
|
Trade and other
payables
|
(49.2)
|
0.1
|
(49.1)
|
The restatement did not result in
any change to reported profit, earnings per share, net assets or
cash flows reported in 2022.
2. Segmental analysis
The vast majority of the trading
of the Group is undertaken within the United Kingdom. Segment
assets include intangible assets, property, plant and equipment,
right of use assets, inventories, receivables and operating cash.
Central assets include deferred tax and head office assets. Segment
liabilities comprise operating liabilities. Central liabilities
include income tax and deferred tax, corporate borrowings and head
office liabilities. Capital expenditure comprises additions to
computer software, property, plant and equipment and includes
additions resulting from acquisitions through business
combinations. Segment assets and liabilities are allocated between
segments on an actual basis.
Revenue
The revenue from external
customers was derived from the Group's principal activities
primarily in the UK (where the Company is domiciled) as
follows:
|
Revenue - continuing operations
|
|
2023
£'m
|
2022
£'m
|
|
Records Management
|
|
124.1
|
113.7
|
|
Digital
|
|
46.0
|
54.5
|
|
Digital & Information
Management
|
|
170.1
|
168.2
|
|
Technology
|
|
31.1
|
35.8
|
|
Datashred
|
|
35.9
|
37.4
|
|
Harrow Green
|
|
40.0
|
37.6
|
|
Secure Lifecycle
Services
|
|
107.0
|
110.8
|
|
Total Revenue
|
|
277.1
|
279.0
|
For the year ended 31 December
2023 no customers individually accounted for more than 3% (2022:
3%) of the Group's total revenue.
The Group had sales of goods of
£27.4m (2022: £33.8m) relating to the sale of recycled paper and
recycled IT assets. The remainder of revenue relates to the
sales of services.
Segmental information
|
(Loss)/profit before tax
|
|
2023
£'m
|
2022
Restated
£'m
|
|
Digital & Information
Management
|
|
36.1
|
42.6
|
|
Secure Lifecycle
Services
|
|
5.4
|
10.2
|
|
Central
|
|
(8.0)
|
(6.5)
|
|
Adjusting items - amortisation and
impairment of non-current assets
|
|
(48.5)
|
(12.1)
|
|
Operating (loss)/profit
|
|
(15.0)
|
34.2
|
|
Finance costs
|
|
(14.0)
|
(10.9)
|
|
(Loss)/profit before
tax
|
|
(29.0)
|
23.3
|
The impairment of goodwill and
customer relationships and the amortisation of acquired intangible
assets have been recorded centrally.
|
Digital & Information Management
|
|
2023
£'m
|
2022
Restated
£'m
|
|
Operating profit
|
|
35.2
|
41.6
|
|
Adjusting items
|
|
5.7
|
3.6
|
|
Adjusted operating
profit
|
|
40.9
|
45.2
|
|
Revenue
|
|
170.1
|
168.2
|
|
Adjusted operating
margin
|
|
24%
|
27%
|
|
|
|
|
|
|
Secure Lifecycle Services
|
|
2023
£'m
|
2022
Restated
£'m
|
|
Operating profit
|
|
5.0
|
9.9
|
|
Adjusting items
|
|
1.2
|
1.1
|
|
Adjusted operating
profit
|
|
6.2
|
11.0
|
|
Revenue
|
|
107.0
|
110.8
|
|
Adjusted operating
margin
|
|
6%
|
10%
|
The prior year balances in the
segmental information tables above have been restated to ensure
consistent presentation with the disclosures in 2023.
|
2023
|
Digital & Information
Management
£'m
|
Secure
Lifecycle
Services
£'m
|
Central
£'m
|
31 December 2023
Total
£'m
|
|
Segment assets
|
428.4
|
116.5
|
34.5
|
549.4
|
|
Segment liabilities
|
116.0
|
45.3
|
156.0
|
317.3
|
|
Capital expenditure
|
8.4
|
1.8
|
0.1
|
10.3
|
|
Depreciation and
amortisation
|
32.2
|
12.3
|
0.5
|
45.0
|
|
Impairment
|
0.1
|
0.1
|
36.1
|
36.3
|
|
2022 (restated)
|
Digital
& Information Management
£'m
|
Secure
Lifecycle
Services
£'m
|
Central
£'m
|
31
December 2022
Total
£'m
|
|
Segment assets
|
451.7
|
158.3
|
10.6
|
620.6
|
|
Segment liabilities
|
120.8
|
63.7
|
162.9
|
347.4
|
|
Capital expenditure
|
8.4
|
2.2
|
0.4
|
11.0
|
|
Depreciation and
amortisation
|
29.2
|
11.9
|
0.6
|
41.7
|
3. Adjusting items
Management believe it is useful to
provide readers of the financial statements with alternative
performance measures ("APMs") that describe the performance of the
Group before the effects of significant costs or income that are
considered to be distorting due to their nature, and non-cash
amortisation primarily arising from acquired intangible
assets.
Adjustments made from statutory
measures to adjusted measures are referred to as adjusting items
within the financial statements and include impairments,
amortisation, expenses associated with acquisitions and subsequent
integration costs, costs associated with major restructuring
programmes, and other significant costs and credits that are
considered to be distorting due to their nature when assessing the
performance of the business. The Group's adjusting items are set
out below:
|
|
|
|
2023
£'m
|
2022
£'m
|
|
Impairments
|
|
|
36.3
|
-
|
|
Amortisation
|
|
|
12.2
|
12.1
|
|
Acquisition transaction
costs
|
|
|
0.2
|
1.4
|
|
Restructuring and
redundancy
|
|
|
5.9
|
2.6
|
|
Property related costs
|
|
|
3.1
|
0.9
|
|
Strategic IT
reorganisation
|
|
|
1.6
|
0.7
|
|
Total
|
|
|
59.3
|
17.7
|
Impairment
The non-cash impairment charge
relates primarily to an impairment of goodwill in the Datashred CGU
(£32.5m) resulting from reduced expectations on service activity,
paper volumes and recycled paper pricing. In addition to this,
there is a £3.6m impairment in the Technology CGU following a
business exit, this comprises the impairment of customer
relationship related intangible assets (£3.4m) and right-of-use
assets (£0.2m). Given the overall quantum of the impairment charge
and its non-cash nature, this cost is adjusted for in deriving the
Group's alternative performance measures.
Amortisation
The amortisation charge primarily
relates to acquired intangible assets arising from business
combinations in prior years alongside a charge relating to the
amortisation of software. Given the overall quantum of the
amortisation charge and its non-cash nature, this cost is adjusted
for in deriving the Group's alternative performance measures. For
transparency, we note that the Group does not similarly adjust for
the related revenue and profits generated from its business
combinations in its alternative profit measures.
Acquisition transaction costs
Acquisition related transaction
adjustments primarily relate to legal, due diligence, financing and
advisory costs incurred in association with business acquisition
activity. The lower level of acquisition related costs incurred
during the year were as a result of less acquisition activity. For
transparency, we note that the Group does not similarly adjust for
the related revenue and profits generated from its acquisitions in
its alternative profit measures.
Restructuring and redundancy
Restructuring and redundancy
adjustments relate primarily to the Group-wide organisational
restructuring and "right-sizing" programme which has been ongoing
across the Group throughout 2023 (£4.7m) and will continue into
2024. £1.2m also relates to the incremental costs that have been
incurred from the senior management changes ongoing during the
year. For 2022, restructuring and redundancy costs were classified
as adjusting and principally arose from acquisition related
restructuring and integration activity (£2.1m), with the remaining
cost in connection with other Group-wide restructuring programmes
(£0.5m). Future cost savings are expected from some of the
restructuring activity during the year, however, for transparency
we note that these cost savings will not be adjusted for in
deriving the Group's alternative performance measures.
Property related costs
Following the changes in the
senior leadership team, a strategic review of the Group's property
estate was conducted. This led to a reassessment of sites in the
Group, categorising them into those that were considered to be
strategic to the Group and would be unlikely to be exited until the
end of their useful life and those which were not considered to be
strategic to the Group and would be exited before the end of their
useful life. This reassessment has driven a review of the
dilapidation provision needed to be held by the Group as we are
now
expecting to exit more sites in
the short and medium term than was previously expected and we
therefore need to recognise the associated increase in
dilapidations provision that we expect to crystallise in the
future. This reassessment and subsequent review of the
dilapidations provision has led to an additional charge of £3.1m
being recognised in the income statement. During 2022, property
related adjustments related to a significant property dilapidation
settlement on one site (£0.9m) which crystalised in excess of
amounts provided for within
the financial statements. The
dilapidation provision is a critical accounting estimate, and any
individual small under or over provision of a property dilapidation
is not separately identified within alternative performance
measures, however given the quantum of the incremental costs
incurred across over the last 2 years and the strategic nature of
the review in 2023, the resultant additional charge is considered
to be appropriately adjusted for in deriving the Group's
alternative performance measures.
Strategic IT reorganisation
The Group is undertaking a
multi-year programme to deliver cloud-based strategic IT
programmes, particularly in relation to its financial systems. The
implementation costs associated with these systems transformations
are to be expensed to the income statement as incurred, with the
in-year cost of these programmes being £1.6m for 2023 (2022:
£0.7m). Future cost savings are expected from these systems
implementations, however, for transparency we note that these cost
savings will not be adjusted for in deriving the Group's
alternative performance measures.
4. Taxation
|
|
|
2023
£'m
|
2022
£'m
|
|
Current tax:
|
|
|
|
|
UK corporation tax on
(loss)/profit for the year
|
|
3.7
|
6.0
|
|
Adjustment in respect of previous
years
|
|
(0.2)
|
0.1
|
|
Total current tax
|
|
3.5
|
6.1
|
|
Deferred tax:
|
|
|
|
|
Current year (decrease)/increase
in deferred tax
|
|
(1.7)
|
0.3
|
|
Adjustment in respect of previous
years
|
|
(0.1)
|
0.1
|
|
Total deferred tax
|
|
(1.8)
|
0.4
|
|
Total tax charge
|
|
1.7
|
6.5
|
The charge for the year can be
reconciled to the (loss)/profit in the Consolidated statement of
comprehensive income as follows:
|
|
|
2023
£'m
|
2022
£'m
|
|
(Loss)/profit before
tax
|
|
(29.0)
|
23.3
|
|
(Loss)/profit before tax
multiplied by the rate of corporation tax of 23.5%
(2022:19.0%)
|
|
(6.8)
|
4.4
|
|
Effects of:
|
|
|
|
|
Expenses not deductible
|
|
0.4
|
1.3
|
|
Adjustment in respect of
corporation tax for previous years
|
|
(0.1)
|
0.1
|
|
Adjustment in respect of deferred
tax for previous years
|
|
(0.2)
|
0.1
|
|
Goodwill impairment
|
|
7.7
|
-
|
|
Share-based payments
|
|
0.7
|
0.3
|
|
Effect of change in rate used for
deferred tax
|
|
-
|
0.3
|
|
Tax charge
|
|
1.7
|
6.5
|
5. (Loss)/earnings per share attributable to owners of the
parent
Basic (loss)/earnings per share
have been calculated on the (loss)/profit for the year after
taxation and the weighted average number of ordinary shares in
issue during the year.
|
|
|
2023
|
2022
|
|
Total (loss)/profit for the year
(£'m)
|
|
(30.7)
|
16.8
|
|
Total basic (loss)/earnings per
share (pence)
|
|
(22.5)
|
12.3
|
|
Weighted average number of shares
in issue
|
|
136,580,425
|
136,761,738
|
|
Dilutive options
(number)
|
|
722,328
|
1,264,065
|
|
Weighted average fully diluted
number of shares in issue
|
|
137,302,753
|
138,025,803
|
|
Total fully diluted
(loss)/earnings per share (pence)
|
|
(22.5)
|
12.2
|
Adjusted earnings per share
The Directors believe that
adjusted earnings per share provides a more appropriate
representation of the underlying earnings derived from the Group's
business. The adjusting items are shown in the table
below:
|
|
|
2022
£'m
|
2021
£'m
|
|
(Loss)/profit before
tax
|
|
(29.0)
|
23.3
|
|
Adjusting items - administrative
expenses
|
|
10.8
|
5.6
|
|
Adjusting items - amortisation of
intangible assets
|
|
12.2
|
12.1
|
|
Adjusting items -
impairment
|
|
36.3
|
-
|
|
Adjusted profit before
tax
|
|
30.3
|
41.0
|
The adjusted earnings per share
and adjusted fully diluted earnings per share, based on the
weighted average number of shares in issue during the year of
136.6m (2022:136.8m) and weighted average fully diluted number of
shares in issue during the year of 137.3m (2022: 138.0m)
respectively, are calculated below using a standard tax
charge:
|
|
|
2023
|
2022
|
|
Adjusted profit before tax
(£'m)
|
|
30.3
|
41.0
|
|
Tax at 23.5% (2022: 19.0%)
(£'m)
|
|
(7.1)
|
(7.8)
|
|
Adjusted profit after tax
(£'m)
|
|
23.2
|
33.2
|
|
Adjusted basic earnings per share
(pence)
|
|
17.0
|
24.3
|
|
Adjusted fully diluted earnings
per share (pence)
|
|
16.9
|
24.1
|
6. Dividends
The Directors recommend a final
dividend of 3.35p per share for the year ended 31 December 2023
(2022: 4.8p per share) to give a full year dividend of 5.2p per
share (2022: 7.4p). The aggregate amount of the proposed dividend
expected to be paid on 9 July 2024 out of retained earnings at 31
December 2023, but not recognised as a liability at year end is
£4.6m. An interim dividend of 1.85p was paid during the year (2022:
2.6p).
7. Intangible Assets
|
|
Goodwill
£'m
|
Customer relationships
£'m
|
Trade
names
£'m
|
Applications software IT
£'m
|
Total
£'m
|
|
Cost
|
|
|
|
|
|
|
1 January 2022
|
212.5
|
168.8
|
4.3
|
10.3
|
395.9
|
|
Arising on acquisition of
subsidiaries
|
4.7
|
8.4
|
-
|
0.2
|
13.3
|
|
Arising on acquisition of trade
and assets
|
0.2
|
0.7
|
-
|
-
|
0.9
|
|
Fair value adjustment
|
1.7
|
-
|
-
|
-
|
1.7
|
|
Additions
|
-
|
-
|
-
|
0.9
|
0.9
|
|
Disposals
|
-
|
-
|
-
|
(0.7)
|
(0.7)
|
|
31 December 2022
|
219.1
|
177.9
|
4.3
|
10.7
|
412.0
|
|
Additions
|
-
|
0.4
|
-
|
0.6
|
1.0
|
|
Disposals
|
-
|
-
|
-
|
(0.2)
|
(0.2)
|
|
31 December 2023
|
219.1
|
178.3
|
4.3
|
11.1
|
412.8
|
|
Accumulation amortisation and
impairment
|
|
|
|
|
|
|
1 January 2022
|
17.6
|
42.6
|
2.8
|
5.7
|
68.7
|
|
Charge for the year
|
-
|
10.4
|
0.2
|
1.5
|
12.1
|
|
Disposals
|
-
|
-
|
-
|
(0.7)
|
(0.7)
|
|
31 December 2022
|
17.6
|
53.0
|
3.0
|
6.5
|
80.1
|
|
Charge for the year
|
-
|
10.8
|
0.2
|
1.2
|
12.2
|
|
Disposals
|
-
|
-
|
-
|
(0.2)
|
(0.2)
|
|
Impairment
|
32.5
|
3.5
|
-
|
-
|
36.0
|
|
31 December 2023
|
50.1
|
67.3
|
3.2
|
7.5
|
128.1
|
|
Carrying amount
|
|
|
|
|
|
|
31 December 2023
|
169.0
|
111.0
|
1.1
|
3.6
|
284.7
|
|
31 December 2022
|
201.5
|
124.9
|
1.3
|
4.2
|
331.9
|
Annual test for impairment
Goodwill is tested annually for
impairment, or more frequently if there are indicators that an
impairment may be required. For the purpose of impairment testing,
goodwill, other intangible assets and property, plant and equipment
are allocated to cash-generating units ("CGU's") which represent
the smallest identifiable group of assets that generate cash
inflows from continuing use, in the case of Restore this is
considered to be the Business Unit level. The recoverable amount of
each CGU is determined from value-in-use calculations. The
calculations use pre-tax cash flow projections based on financial
budgets and forecasts approved by the Directors.
At the half year, an impairment to
goodwill of £32.5m was recognised in Datashred. This impairment
resulted principally from reduced expectations on service activity,
paper volumes and recycled paper pricing, as well as an increase in
the discount rate partly driven by the change in the interest
rate.
At the year-end, an impairment of
customer relationship related intangible assets and right-of-use
assets amounting to £3.6m was recognised in the Technology CGU in
relation to a business exit.
After the recognition of these
impairments, an impairment review was conducted over the residual
carrying values including downside scenario modelling, which
indicated that no further impairment was required. The year-end
model utilises forecasts based upon the Group's FY24 Budget and 5
Year-Plan through to FY28. Terminal cash flows are based on the
Group's FY28 projections assumed to grow perpetually at 2%. In
accordance with IAS 36, the growth rates for beyond the initially
forecast years do not exceed the long-term average growth rate for
the industry. The forecasts have been discounted using a pre-tax
discount rate specific to each CGU ranging from 11.9%-12.5% (2022:
9.5%).
A summary of management's base case
value-in-use calculation, including key assumptions is set out
below:
|
|
Base
case value in use calculation summary
|
|
|
FY23 to
FY28
revenue
cumulative
annual
growth
rate
(%)
|
FY23 to
FY28
EBIT
cumulative
annual
growth
rate
(%)
|
FY23 to
FY28
EBIT
margin
growth
(bps)
|
Discount
rate
(%)
|
Carrying
value
of
assets
(£'m)
|
Headroom
(£'m)
|
Headroom
as
%
of
asset
carrying
value
(%)
|
NPV
of
terminal
year
cashflows
into
perpetuity
as %
of
value-in-use
calculation
(%)
|
|
Records Management
|
3.2%
|
5.0%
|
280
|
11.9%
|
319.8
|
193.6
|
60.5%
|
58.7%
|
|
Digital
|
2.9%
|
18.6%
|
800
|
12.1%
|
52.9
|
17.3
|
32.8%
|
64.8%
|
|
Technology
|
6.2%
|
(240.1%)
|
1790
|
12.5%
|
37.8
|
8.0
|
21.2%
|
69.0%
|
|
Datashred
|
3.3%
|
9.0%
|
220
|
12.4%
|
26.3
|
17.5
|
66.4%
|
52.5%
|
|
Harrow Green
|
4.6%
|
6.4%
|
100
|
12.1%
|
19.5
|
43.4
|
222.7%
|
56.6%
|
Climate related matters
The Group monitors climate-related
risks and opportunities and has considered the potential impact of
climate change on the impairment review conducted. Based on our
assessment of climate-related risks likely to emerge, we do not
expect these risks to drive a significant downturn in cashflows
across the Group. Therefore, there are no overriding changes to key
assumptions built into the forecasts and no specific sensitivities
relating to climate change are considered necessary over and above
the sensitivities performed below.
Sensitivity
A number of sensitivities have been
modelled to highlight the way in which changes in trading and/or
market conditions affect the value-in-use calculation. The table
below highlights the sensitivity of the value-in-use calculation to
changes in forecast cashflows and the discount rate.
In the Records Management and Harrow
Green CGUs, the Group have not identified any reasonably possible
changes that would result in an impairment. Across the remaining
CGUs, there are considered to be some reasonably possible scenarios
which could result in an impairment.
A summary of the sensitivity
analysis performed covering Digital, Technology and Datashred is
summarised below:
|
|
Revenue
reduction
assuming
gross
margin
in line
with
plan
(%)
|
FY23 to
FY28
revenue
cumulative
annual
growth
rate
(%)
|
Headroom/
(impairment)
(£'m)
|
Headroom/
(Impairment)
as %
of
carrying
value
(%)
|
EBIT
reduction
(%)
|
FY23 to
FY28
EBIT
margin
growth
(bps)
|
Headroom/
(impairment)
(£'m)
|
Headroom/
(impairment)
as %
of
carrying
value
(%)
|
|
Digital
|
(7%)
|
1.4%
|
0.4
|
0.8%
|
(24%)
|
420
|
0.3
|
0.6%
|
|
|
(8%)
|
1.2%
|
(2.1)
|
(4.0%)
|
(25%)
|
410
|
(0.4)
|
(0.8%)
|
|
|
(9%)
|
1.0%
|
(4.5)
|
(8.5%)
|
(26%)
|
390
|
(1.1)
|
(2.1%)
|
|
Technology
|
(5%)
|
5.1%
|
0.6
|
1.6%
|
(17%)
|
1,550
|
0.3
|
0.8%
|
|
|
(6%)
|
4.9%
|
(0.8)
|
(2.1%)
|
(18%)
|
1,530
|
(0.1)
|
(0.3%)
|
|
|
(7%)
|
4.7%
|
(2.3)
|
(6.1%)
|
(19%)
|
1,520
|
(0.6)
|
(1.6%)
|
|
Datashred
|
(9%)
|
1.4%
|
1.4
|
5.3%
|
(55%)
|
(300)
|
0.1
|
0.4%
|
|
(10%)
|
1.1%
|
(0.4)
|
(1.5%)
|
(56%)
|
(310)
|
(0.2)
|
(0.8%)
|
|
(11%)
|
0.9%
|
(2.2)
|
(8.4%)
|
(57%)
|
(320)
|
(0.5)
|
(1.9%)
|
|
|
Discount
rate
increase
|
Headroom/
(impairment)
(£'m)
|
Headroom/
(impairment)
as %
of
carrying
value
(%)
|
Revenue
reduction
dropping
down to
EBIT
at
100%
reflecting
paper
income
(%)
|
FY23 to
FY28
revenue
cumulative
annual
growth
rate
(%
|
Headroom/
(impairment)
(£'m)
|
Headroom/
(impairment)
as %
of
carrying
value
(%)
|
|
Digital
|
1%
|
10.8
|
20.4%
|
|
|
|
|
|
|
2%
|
5.3
|
10.0%
|
|
|
|
|
|
|
3%
|
0.7
|
1.3%
|
|
|
|
|
|
Technology
|
1%
|
3.6
|
9.5%
|
|
|
|
|
|
|
2%
|
(0.1)
|
(0.3%)
|
|
|
|
|
|
|
3%
|
(3.3)
|
(8.7%)
|
|
|
|
|
|
Datashred
|
1%
|
14.0
|
53.2%
|
(4%)
|
2.4%
|
2.6
|
9.9%
|
|
|
2%
|
11.1
|
42.2%
|
(5%)
|
2.2%
|
(1.1)
|
(4.2%)
|
|
|
3%
|
8.6
|
32.7%
|
(6%)
|
2.0%
|
(4.8)
|
(18.3%)
|
Digital
The drop in Digital's revenue and
profitability in FY23 was driven by non-recurring contracts from
FY22 benefiting the comparative. Given that c25% of Digital's
revenue is non-recurring, there is a reasonably possible scenario
in which non-delivery of revenue and profit in line with the base
plan could result in a potential impairment. A revenue reduction of
8% in each of the forecast years dropping down to profit with gross
margin in line with the plan would trigger an impairment of £2.1m.
A 25% reduction to EBIT in each of the forecast years would drive
an of £0.4m.
Technology
At the year-end, an impairment of
£3.6m was recognised in the Technology CGU in relation to a
business exit. The goodwill impairment review which was conducted
at the year-end was based on the carrying value of assets after the
recognition of this impairment.
The reduced level of profitability
in Technology during FY23 is considered to be cyclical. Given that
Technology's revenue is subject to cyclical market dynamics, there
is a reasonably possible scenario in which non-delivery of revenue
and profit in line with the base plan could result in a potential
impairment. A revenue reduction of 6% in in each of the forecast
years dropping down to profit with gross margin in line with the
plan would trigger an additional impairment of £0.8m. A 18%
reduction to EBIT in each of the forecast years would drive an
additional impairment of £0.1m.
Datashred
At the half year, following a
sharp decline in the paper price and a re-assessment of long-term
volume in Datashred, an impairment of £32.5m was recognised to
goodwill. The goodwill impairment review which was conducted at the
year-end was based on the carrying value of assets after the
recognition of this impairment.
While no further impairment has
been recognised at the year-end, given that the recycled paper
price is driven by market conditions and there is some uncertainty
around the long-term volumes within the sector, there is a
reasonably possible scenario in which non-delivery of revenue and
profit in line with the base plan could result in a potential
additional impairment. The scenario which forms the basis of
management's base case assumes paper pricing of £183 per tonne,
steady growth in paper tonnages and service visits of 1.0%, and
3.0% growth in service income per visit. The quoted growth rates
have been applied to the FY24 budget. Were the average paper prices
seen in the second half of 2023 to continue, a potential impairment
of c£1.6m would be recognised. A revenue reduction of 10% in each
of the forecast years dropping down to profit with gross margin in
line with the plan would trigger an additional impairment of £0.4m.
A revenue reduction of 5% in each of the forecast years dropping
down to profit at 100%, to reflect a drop in paper income, would
trigger an additional impairment of £1.1m. A 56% reduction to EBIT
in each of the forecast years would drive an additional impairment
of £0.2m.
The scenario which formed the
basis of the impairment at the half-year assumed paper pricing of
£170-£175 per tonne, steady compound average growth in paper
tonnages of 1.0%, and 4.5% compound average growth in service
revenue, using a pretax discount rate of 12.8%. There is additional
headroom in the impairment model at the year-end for Datashred
compared to the half-year as a result of a reduction in the pre-tax
discount rate and the removal of H2 2023 from the model which was
replaced by an additional more profitable year of trading in
FY28.
8. Cash generated from operating activities
|
Cash generated from operations
|
2023
£'m
|
2022
£'m
|
|
(Loss)/profit before tax
|
(29.0)
|
23.3
|
|
Depreciation of property, plant and
equipment and right-of-use assets
|
32.8
|
29.6
|
|
Amortisation of intangible
assets
|
12.2
|
12.1
|
|
Impairment charge
|
36.3
|
-
|
|
Net finance costs
|
14.0
|
10.9
|
|
Share-based payments charge
(including related NI)
|
-
|
1.9
|
|
Share-based payment
settlement
|
(0.7)
|
-
|
|
Profit on sale of fixed
assets
|
0.2
|
-
|
|
Decrease / (increase) in
inventories
|
0.5
|
(0.3)
|
|
Decrease / (increase) in trade and
other receivables
|
1.8
|
(11.9)
|
|
Decrease in trade and other
payables
|
(1.2)
|
(0.4)
|
|
Cash generated from operating
activities
|
66.9
|
65.2
|
9. Financial liabilities - borrowings
|
|
|
2023
£'m
|
2022
£'m
|
|
Non-current
|
|
|
|
|
Bank loans - secured
|
|
97.0
|
135.0
|
|
Other loans - secured
|
|
25.0
|
-
|
|
Deferred financing costs
|
|
(1.5)
|
(1.3)
|
|
|
|
120.5
|
133.7
|
At 31 December 2022 the Group's
financing arrangements comprised of a six lender syndicated £200m
Revolving Credit Facility ("RCF") (due 30 April 2025). The RCF
included an additional £50m uncommitted accordion and an overdraft
facility of £1.5m with Barclays Bank plc. The RCF borrowings were
subject to a floating interest rate, at SONIA, plus credit adjusted
spread and a margin of 1.80% which can vary depending on the
leverage the Group.
On the 27 January 2023, the Group
extended the RCF maturity through to 30 April 2026. On the 28 March
2023, the Group entered into US Private Placements ("USPP") to
raise £25m through the issue of secured notes at a fixed rate of
6.30% due 28 March 2028. This reduced the uncommitted accordion to
£25m.
At 31 December 2023 the Group's
financing arrangements therefore comprise a £200m RCF (due 30 April
2026) and £25m of USPP fixed rate secured notes (due 28 March
2028). £97m of drawn RCF debt and £25m of USPP fixed rate secured
notes was outstanding at year-end. Committed but undrawn borrowings
at 31 December 2023 amounted to £103.0m (2022: £65.0m). £1.5m of
the overdraft facility was unutilised (2022: £1.5m).
Subsequent to the year-end, the
Group has made the following changes to its financing arrangements.
There was no material financial cost involved in executing these
transactions.
· voluntarily cancelled £75m of the RCF, decreasing the RCF
from £200m to £125m;
· extended the RCF to 30 April 2027; and
· entered into a £10m overdraft facility with Barclays Bank
plc.
Under the borrowings facilities
the Group was required to meet quarterly covenant tests in respect
of interest cover and leverage. All covenant tests were met during
the year.
|
Analysis of net debt
|
|
2023
£'m
|
2022
£'m
|
|
Cash at bank and in hand
|
|
22.7
|
30.2
|
|
Borrowings due within one
year
|
|
-
|
-
|
|
Borrowings due after one
year
|
|
(120.5)
|
(133.7)
|
|
Net debt
|
|
(97.8)
|
(103.5)
|
10. Provisions
|
|
|
2023
£'m
|
2022
£'m
|
|
1 January
|
|
17.1
|
8.8
|
|
Additional provision
|
|
6.2
|
8.6
|
|
Acquired provision
|
|
-
|
0.2
|
|
Utilised
|
|
-
|
(0.3)
|
|
Released
|
|
(4.7)
|
(0.2)
|
|
31 December
|
|
18.6
|
17.1
|
The balance above represents
dilapidation provisions which relate to the future anticipated
costs to restore leased properties into their original state at the
end of the lease term. Estimates are stated at nominal value and
therefore the impact of discounting is not material. An increase in
costs of 5% per square foot across the portfolio would result in an
increase in the provision of £0.7m.