TIDMFLTA
RNS Number : 1551O
Filta Group Holdings PLC
28 May 2020
Filta Group Holdings plc
("Filta", the "Company" or the "Group")
Full year audited results for the financial year ended 31
December 2019
Financial Highlights
-- Revenue up 75% to GBP24.9m (2018: GBP14.2m) reflecting GBP8.6m Watbio contribution:
o Fryer Management revenue up 25% to GBP11.7m (2018:
GBP9.3m)
o FiltaSeal revenue up 18% to GBP1.9m (2018: GBP1.6m)
o Organic revenue growth of 16% (2018: 17%)
o Franchise Development revenue GBP1.5m (2018: GBP1.5m)
-- Gross profit up 44% to GBP10.2m (2018: GBP7.1m).
-- Adjusted EBITDA* up 20% to GBP3.2m (2018: GBP2.6m).
-- Profit before tax, excluding non-cash charges (amortization,
depreciation and share based payments) of GBP2.6m (2018: 2.4m), a
7% increase.
-- Net borrowings of GBP2.1m (2018: Net cash of GBP2.1m)
inclusive of GBP1.2m of lease liabilities under newly adopted IFRS
16.
-- The Board is not recommending the payment of a final dividend
in light of the uncertainty surrounding COVID-19.
*Adjusted for non-recurring items being acquisition related
costs, share based payments.
Jason Sayers, CEO, commented:
"The acquisition of Watbio in December 2018 established the
Group as the leading independent provider of grease management
services in the UK and provided us with a platform for further
growth in FOG (Fat, Oil and Grease) services and related
activities. Despite the challenges that we encountered in
integrating the Watbio business, it contributed 34% of the Group's
revenue in 2019.
"We also saw some good performances from our other Company-owned
businesses in the UK, where revenue grew by 18% and in North
America, where revenue was up by 23%.
"We had been experiencing good trading in the period leading up
to the lockdowns, which occurred in most of our operating
territories during March. Revenues had exceeded management
expectations and, with the rationalisation and improved
productivity, operating margins were in line with our forecasts
which were significantly improved over 2019.
"During the lockdown period, in response to requests from
franchisees and customers, we have commenced a new service,
FiltaShield, which is a sanitising service that will protect
against COVID-19 for up to 30 days. We launched this service in
April and are offering it, in the UK, as a direct service to our
existing customers as well as to any other businesses or
organisations which have to ensure safety for their staff and
customers. In North America it is being provided through our
franchise network. We would potentially look to do the same in
Europe.
"Our long-term focus remains on growing the business both
organically and through acquisitions of high margin, repeat revenue
businesses in the grease management market."
27(th) May 2020
Enquiries:
Filta Group Holdings plc Tel: +1 407 996 5550
Jason Sayers, Chief Executive Officer
Brian Hogan, Chief Financial Officer
Cenkos Securities plc (NOMAD and Broker) Tel: +44 20 7397 8900
Stephen Keys, Harry Hargreaves
Yellow Jersey PR Tel: +44 7747 788 221
Charles Goodwin
Joe Burgess
Henry Wilkinson
CHAIRMAN'S STATEMENT
Introduction
The last year has been a transitional period for the Group as we
integrated the Watbio business with our existing activities in the
UK, developed our footprint in Continental Europe and continued the
growth of our franchised operations in North America.
There were some challenges in bringing two very different
cultures together in the UK with the result that it took a great
deal longer than we had anticipated at the outset to implement the
structural changes necessary to manage and control a much larger
business and to realise the associated operating efficiencies.
Prior to the introduction of the social distancing lockdown we
had completed the restructuring and implemented a number of
profit-improvement actions resulting in better operating margins
and are confident that when normal trading conditions return, we
will enjoy a significantly improved trading performance than we
experienced through much of last year.
Results
Revenue was up by 75% at GBP24.9m (2018: GBP14.2m), reflecting a
contribution of GBP8.6m from Watbio, whilst there was a 91%
increase in operating costs to GBP23.7m (2018: GBP12.4m). In
consequence, operating profit and profit before tax declined to
GBP1.2m (2018: GBP1.8m) and GBP0.9m (2018: GBP1.7m) respectively.
However, excluding non-cash charges (amortization, depreciation and
share based payments), profit before tax was to GBP2.6m (2018:
GBP2.4m) a 7% increase over the prior year.
Adjusted EBITDA, which we regard as the best financial measure
of underlying performance as it is struck before one-off and
non-cash charges, including acquisition-related costs,
depreciation, amortisation and share-based payments, was GBP3.2m
(2018: GBP2.6m). This represents a 20% increase over the prior year
and, whilst the margin was down at 13% of Revenue, we anticipate an
increase back to prior year margins following a return to normal
operating conditions and allowing for the full year effects of the
restructuring and profit improvement actions.
We finished the year with net borrowings of GBP2.1m (2018: Net
cash GBP2.1m), of which GBP1.2m was lease liabilities associated
with the adoption of IFRS 16, and with a gross cash balance of
GBP2.9m (2018: GBP6.8m). The reduction in cash resources was
largely as a result of the payment of GBP1.8m of deferred
consideration and costs for the acquisition of Watbio, the payment
of GBP0.6m related to the closing of a Watbio financing arrangement
and principal and interest payments on the term facility put in
place for the acquisition of GBP0.9m. The Group also had GBP0.3m
availability under its overdraft facility.
Strategy
The Group has created a business platform comprising a mix of
franchised and Company-owned operations offering services to the
commercial kitchen sector. Fryer Management, which is a maintenance
service delivering repeat revenues, has been the core of our
franchised activities for several years and in the UK in recent
years we have developed a number of Company-owned activities,
including refrigeration seal replacement; fat, oil and grease
control and collection; drain maintenance; and pump installation
and maintenance, all of which have a strong repeat service
pattern.
The main UK activities, FiltaSeal, FiltaFOG, FiltaPump and
FiltaDrain, whilst not currently suitable to operate within a
franchise model, are nonetheless complementary to FiltaFry, the
Fryer Management business, all being services required by
commercial kitchens. We believe that both our franchised and our
Company-owned activities offer strong growth opportunities in a
fragmented market in which there are few national providers
offering this breadth of services. We continue to seek other
complementary activities to add to our portfolio of services,
either as Company-owned operations or, if appropriate, to be
provided through a franchise structure.
In North America and Europe, we expect franchising to remain our
core operating model, but as with our Company-owned activities, we
constantly strive to help our franchisees to grow their businesses
and this may include other services to offer alongside our Fryer
Management service.
We believe that we are well-positioned to take advantage of an
increasingly regulated market and an environment in which there are
growing pressures on commercial kitchens to seek more
cost-effective solutions for their operations. However, we are also
aware of the possibility of factors beyond our control that may
slow our progress, including, at this time, disruption caused by
the coronavirus pandemic.
Coronavirus pandemic
We are currently operating in a business environment with a huge
amount of uncertainty resulting from COVID-19 and the subsequent
government actions to overcome it. A significant part of the
Group's activities are focussed on the entertainment and leisure
industries and our business has been affected by these events.
However, the Board and the executive team are working to ensure
that the business takes appropriate action to protect its people
and to maintain operational and financial stability in these
unprecedented times.
We have taken steps to protect our cash through salary
reductions, deferral of non-essential spend and by utilising
government furlough, grant and loan schemes in each of the
territories in which we operate. We have a diverse range of new and
established service offerings, some of which have still been
required during this time, resourceful management, a dedicated
workforce, a healthy cash balance in excess of GBP3.7m and GBP0.4m
of unutilised borrowing facilities. The Boards confident,
therefore, that with continued careful cash management the Group
will adapt to and overcome the current circumstances to deliver
long-term shareholder value.
We have recently launched a new service, FiltaShield, a
bacterial cleansing service that can eliminate any traces of
COVID-19 bacteria and provide protection for 30 days. The service
was launched in mid-April and we have received initial interest
from a wide range of businesses. Whilst early in the service
lifecycle, we believe that this addition not only has a place in
our service portfolio today but will continue to be required whilst
there is any threat from COVID-19.
Dividends
Notwithstanding that the cash earnings in 2019 would support the
payment of a final dividend, the Board believes, having regard to
the disruption to our businesses that may result from the continued
imposition of governments' restrictions to combat the coronavirus
pandemic, that it would be prudent for the Company to conserve its
cash resources until there is more clarity on the impact of such
restrictions. Accordingly, the Board is not recommending the
payment of a final dividend in respect of the year ended 31
December 2019.
Current trading and outlook
The Group enjoyed a strong start to the year, prior to the
lockdown, in all of our operating territories and across all of our
principal trading activities. We have already added 6 new
franchises, 4 in North America and 2 in Continental Europe; the MFU
count, which drives the income from Fryer Management and sales of
waste oil, is up by 10 since 1(st) January; and the revenues from
the UK Company-owned activities had been in line with expectations,
with operating profit margins showing improvement over 2019
levels.
With the strong pipeline of potential franchisees prior to the
lockdown and based on the continuous and positive discussions that
we have had with franchisees and key customers during the last 2
months, your Board is confident that when social distancing
restrictions are lifted and more normal trading conditions are
resumed, revenues and margins will return to the levels being
experienced in the first quarter of the year. Albeit that there has
to be some uncertainty as to how long, and to what extent the
restrictions may persist, we believe that, by the actions we have
taken, we will be able to manage the Group through that period and
to be in a strong position thereafter.
Management, staff, and Franchise Owners
The organisational culture remains a focus of our governance
principles. We feel an honest, open, and collaborative culture is
important to the Group's future success and the Board, and senior
management are aware of their influence in fostering the proper
culture. The welfare and skills development of our staff are also a
priority. For example, we have recently introduced a development
program to cross-skill and upskill our technicians allowing us
access to a more diverse talent pool whilst providing employees
with opportunities for further career growth.
I welcome to the Group those who have joined us during the year,
and I thank all our employees for their continuing hard work and
commitment to the Group.
Similarly, our Franchise Owners and their performance,
professionalism and client commitment are critical to our own
reputation and success. We devote significant time and resource to
helping our Franchisees to overcome their own challenges in
developing their businesses.
Finally, our Business Model and Strategy is contained on pages
12 to 17 and our S172 report, including insight into our commitment
to our stakeholders, is included on pages 22 to 23. Both were
approved by the Board on 27 May 2020.
Tim Worlledge
Chairman
27 May 2020
OPERATIONS REVIEW
Introduction
The acquisition of Watbio in December 2018 established the Group
as the leading independent provider of grease management services
in the UK and provided a platform for further growth in FOG (Fat,
Oil and Grease) services and related activities. Despite the
challenges that we encountered in integrating the Watbio business,
it contributed 34% of the Group's revenue in 2019.
We also saw some good performances from our other Company-owned
businesses in the UK, whose revenue grew by 18% and in North
America, where revenue was up by 23%
Our long-term focus remains on growing the business both
organically and through acquisitions of high margin, repeat revenue
businesses in the grease management market. I believe that Watbio
strengthens our market position and provides greater operational
leverage for us to develop our full range of activities.
North America
Trading in North America remained strong with total revenue of
GBP11.3m in 2019 (2018: GBP9.2m)
Network revenue, defined as the total revenue of our U.S. based
franchisees for all services provided to customers, represents the
best indicator of the Filta brands growing strength in the market.
Our U.S. franchise network generated $51m (GBP40m) of revenues in
2019 (2018: $42m/GBP33m), an increase of 21%.
Fryer Management Services in North America contributed GBP10.1m
of revenue in the year (2018: GBP7.8m). Our franchise network is
both the showpiece and the cornerstone of our business - our
franchisees connect us to our markets and our performance reflects
their performance. We are committed to providing the franchisees
with the necessary support to give them the best chance of
success.
Although we constantly seek to grow our franchise base, the
majority of our own revenue growth comes from the growth of our
existing franchise owners. One of our strategic objectives is to
encourage multi-MFU franchisees, which both allays financial risk
and provides owners with higher investment returns. In 2019, our
three highest grossing franchise owners achieved over $2.5m
(GBP1.9m) in revenue and 7 (2018: 6) franchise owners recorded over
$1m (GBP0.8m) of revenue.
We continue to take on new franchise owners for unallocated
territories and to upgrade existing franchises. Our strategy is to
recruit owners and to upgrade underperforming territories (resales)
by seeking new franchisees who have the ambition and business
acumen to expand their franchises, thereby enlarging the platform
for Filta's own Fryer Management repeat revenues to increase year
after year. In 2019 we recruited 7 new Franchise Owners (2018:16)
and achieved 4 resales (2018:5). Prior to the COVID-19 pandemic we
had seen a pickup in both new sales and resales with 4 completed by
mid-March and a strong pipeline of prospective signings.
Mainland Europe
Whilst our business in mainland Europe, which is also
principally a franchised offering, only accounts for 2% of total
Group revenue it achieved encouraging progress with its number of
franchisees increasing from 9 to 16 during the year and its own
revenue, increasing to GBP0.5m in 2019 (2018: GBP0.3m).
As the business is at an early stage in the franchise curve, the
growth comes, principally, from adding new franchisees, 7 in 2019
(2018: 8). However, it is also important to help the franchisees to
develop their businesses by, amongst other things, adding key
accounts. We have added a number of these in 2019 and are pleased
to report that we now have 6 franchise owners operating more than
one vehicle in their territories.
The start to the new year had been encouraging up to early March
when lockdown restrictions began to be imposed across the
continent. Despite the economic uncertainty, we continued to
receive interest from potential franchisees and, indeed, sold 2
franchises through March. Accordingly, we expect to see further
growth in the latter part of the year once our customers can
re-open their businesses with nearer to full capacity.
UK
In the UK, we provide Fryer Management services through a
franchise network but the majority of the revenue is derived from
Company-owned activities, Equipment Sales & Installation and
Site Services, whose revenues increased to GBP11.7m (2018: GBP3.4m)
following the acquisition of Watbio at the end of 2018.
Our strategy is to develop a range of complementary services
which provide health and safety advantages, improve efficiency or
reduce operational costs to commercial kitchens. Usually, all of
these benefits accrue to customers whilst allowing them to meet any
compliance regulations in place. The addition of Watbio to our
stable has significantly enlarged our UK business and, despite the
integration issues and delays in reaching efficiency goals which
resulted in a particularly challenging year, the sales of all
services in the UK were broadly in line with our expectations. We
believe that the business is now well-placed to build upon the
platform that we have created.
Fryer Management
Fryer Management revenue remained constant at GBP1.4m. The
majority of franchise owners in the UK are single unit operators
and we are currently executing a strategy to encourage more of
these owners to expand into multi-van operations.
Equipment Sales & Installation
Sales and installation of FOG equipment to new and existing
customers remained steady through the year, whilst pump
installations, which are typically larger value contracts, were
more uneven but finished the year strongly. Total equipment sales
and installation revenue were GBP2.8m in 2019 (2018: GBP0.7m).
Site Services
Site Services, which comprise our planned maintenance and other
recurring revenues, grew its revenue to GBP8.9m (2018:
GBP2.7m).
Revenue from FiltaSeal was GBP1.9m (2018: GBP1.6m), reflecting a
18% increase in the number of seals fitted. The increase was driven
by higher volumes from our existing customers and, importantly,
several new key account wins. The increased business from existing
customers, the fact that we are continually adding to our customer
base and the recognition that our current customers represent only
a small percentage of the addressable market are evidence of a
compelling market proposition, with considerable scope for
growth.
We now have a strong platform from which to service our FOG
customers. Our FiltaFOG service which brought together our legacy
FOG service business with that of Watbio realised revenues of
GBP3.2m in 2019 (2018: GBP1.0m).
FiltaPump and FiltaDrain services were added to our portfolio on
the Watbio acquisition and saw service revenues of GBP2.7m (2018:
GBP0.03m) and GBP1.1m (2018: GBP0.06m) respectively.
All of these activities have a common theme in being the
provision of maintenance services, a large portion of which is
planned and therefore has clear visibility, and the remainder of
which are reactive but also have a high level of predictability
because of their recurring nature.
People
Good people are key to any business and we continue to build a
great team at Filta, many of whom have worked for the Group for
well over 10 years. They have been a key component to our success
in that period both through their hard work and dedication to the
brand and by the strong relationships that they have developed with
customers and franchise owners alike.
In North America, the management team remains stable with Tom
Dunn, Chief Executive Officer North America, continuing to run the
day to day business, enabling us to continue executing on our
plans.
In the UK, Jlubomir Urosevic, who ran Filta UK for many years as
Managing Director, was recently re-appointed as Managing Director
of Filta's UK operations, adding valuable experience and skills to
the UK team managing its expansion.
Jos van Aalst, Managing Director of Filta's mainland Europe
business, continues to drive growth in Europe.
Company culture is the outcome of a Company's values,
expectations and environment. We are dedicating a significant
amount of our time as senior leaders of the organisation to
building, refining and nurturing our culture so that it is clearly
understood by everyone working for us currently and is easily
transferrable to new hires.
Market Conditions
Our fortunes are substantially dependent on many of the
businesses that have been most affected by the coronavirus
pandemic, restaurants, bars, hotels, sporting venues, colleges, and
other places for social gathering. It has therefore been inevitable
that we would see a significant fall in activity and revenues,
which has generally been the case throughout our operations.
However, we have worked hard to support our franchisees and to
formulate exit plans with our major customers during the lockdown
period, such that we are witnessing a strong determination to
resurrect and rebuild businesses as soon as regulatory and health
conditions permit. We are encouraged by the fact that during the
first quarter of the year we had been seeing strong trading across
the Group.
The strength of the US economy had led to extremely low
unemployment and, whilst this helped in service sales, it had the
potential to reduce the number of people looking to buy franchises.
Franchise sales in the US picked up significantly in the second
half of 2019 and that trend had continued into the current year
until the arrival of the coronavirus pandemic. Unemployment in the
US is now at a level not seen since the 1930's, providing a pool of
potential talent both for the sale of new franchises but also for
existing franchisees to hire staff to expand as the entertainment
and leisure industry picks up.
The UK was the focus of our attention through last year and
disappointing though it was that the integration of Watbio held
back our progress, the underlying economy in the UK had, despite
Brexit uncertainties and until the pandemic struck, been strong,
which was reflected in consistent or growing revenues in our UK
operations. The UK customer base is heavily weighted to a group of
approximately twenty customers, many of whom take multiple services
from Filta. This group of customers are some of the most well-known
catering equipment, facility management, pub, restaurant, and
supermarket chains in the UK and are well positioned to survive
this downturn. Across the service categories this customer group
accounts for 52% of FOG, 70% of Seal, 75% of Pump and 90% of Drain
revenues, respectively. A number of these customers, specifically
in the supermarket space, have not closed whilst many others have
or are planning on reopening in stages over the next 8 weeks.
In mainland Europe, we experienced a good level of interest from
potential franchisees, as is evidenced by the fact that we added 7
new franchises, in 2019 and service revenue from existing
franchises continued to grow. We had a good pipeline of potential
franchisees from countries beyond Germany, which was the start of
our European presence. This has encouraged us to believe that our
service, using the Franchise model, has potential throughout the
continent and it is noteworthy that a new franchise in Estonia has
been sold and we have received deposits on territories in
Switzerland and Bulgaria, to commence later in the year.
The market for each of Filta's services has been affected by the
pandemic in all of our
operating territories but we believe that with the
ever-increasing health, safety and food hygiene requirements the
demand for our services, including FiltaShield, the latest addition
to our stable, will be undiminished when more normal circumstances
return.
Current Trading & Outlook
We had been experiencing good trading in the period leading up
to the lockdowns, which occurred in most of our operating
territories during March. Revenues had marginally exceeded
management expectations and, with the rationalisation and improved
productivity, operating margins were in line with our
forecasts.
During the lockdown period, in response to requests from
franchisees and customers, we have commenced a new service,
FiltaShield, which is a bacterial cleaning service that will
protect against COVID-19 for up to 30 days. We launched this
service in April and are offering it, in the UK, as a direct
service to our existing customers as well as to any other
businesses or organisations which have to ensure safety for their
staff and customers. In North America it is being provided through
our franchise network. We would potentially look to do the same in
Europe. There has been strong interest but we do not anticipate any
significant revenue to flow from this until the places of principal
social gathering are permitted to re-open.
We have been forced to "mark time" over the lockdown period but
thanks to careful control of our cash resources, Filta remains in a
strong position and we look forward to a return to the trading
levels that we were enjoying in the early part of the year.
Jason Sayers
Chief Executive Officer
27 May 2020
FINANCIAL REVIEW
Summary
-- Group revenue increased 75% to GBP24.9m (2018: GBP14.2m)
-- Organic revenue grew 16% and was improved across each of our
service offerings whilst the Watbio acquisition contributed
GBP8.6m
-- Adjusted EBITDA was up 20%
-- Operating profit down 32% to GBP1.2m (2018: GBP1.8m)
-- Basic earnings per share of 1.39p (2018: 4.86p) down 71%
whilst excluding non-cash items of amortisation, depreciation and
share based payment expense down 4% at 7.10p (2018:7.43p)
Revenue
Group revenue grew by 75% to GBP24.9m (2018: GBP14.2m).
Geographic contributions to Group revenue have changed
dramatically with the acquisition of Watbio. Revenue in the U.K.
was GBP13.1m or 53% of Group revenue (2018: GBP4.8m, 33%); North
America delivered GBP11.3m of revenue, 45% (2018: GBP9.2m, 65%);
and Europe contributed revenue of GBP0.5m, 2% of Group revenue
(2018: GBP0.3m, 2%).
The increase in revenue was principally attributable to the
addition of Watbio which contributed 78% of the overall increase
whilst strong organic growth added the additional 22% as,
individually, Fryer Management and FiltaSeal grew 25% and 18%
respectively. Europe saw their revenue nearly double growing 93% to
GBP0.5m.
Fryer Management remains the largest segment of the Group with
GBP11.7m of revenue (2018: GBP9.3m) on higher royalty, national
account and waste oil revenues whilst FiltaSeal experienced a 18%
increase to the number of seals fitted, increasing its revenue to
more than GBP1.9m (2018: GBP1.6m). Revenue from Franchise
Development activities grew 2%, however, 3 additional sales in the
pipeline did not close until January 2020. Additionally, we began
to see a strong pipeline beyond the 3 January sales as we
progressed into the new year.
Gross Profit
Gross profit increased by GBP3.1m or 44% to GBP10.2m (2018:
GBP7.1m) exclusively on higher volume as gross profit margins
declined to 41% (2018: 50%) as we integrated the Watbio
acquisition, introducing structural changes and operating
efficiencies. The cost savings arising from these changes will only
be fully realised in 2020. Early 2020 results were in line with
expectations and we are confident, that following a return to more
normal conditions, both improved margins and our strong market
presence will lead to improved gross profit.
Adjusted EBITDA
Adjusted EBITDA increased by 20% to GBP3.2m (2018: GBP2.6m)
although the Adjusted EBITDA margin decreased to 12.7% (2018:
18.6%) on the full year spending impact of Watbio. Spending
increases were concentrated principally in the area of people
costs. Despite higher spending in the current year, the adjusted
overhead base as a percentage of revenue is down slightly from the
prior year.
Adjusted EBITDA reconciliation
Adjusted EBITDA has been arrived
at as follows:
2019 2018
GBP GBP
Profit before tax 936,284 1,741,838
Acquisition, legal and restructuring
costs 296,410 158,598
Share-based payments 261,631 302,506
Depreciation and amortisation 1,396,932 399,055
Finance costs, net 271,314 40,439
-------------------------------------- ---------- ----------
Adjusted EBITDA 3,162,571 2,642,436
Alternative Performance Measures
In addition to performance measures (IFRS) directly observable
in the financial statements, additional performance measures
(Adjusted EBITDA, Network Revenue and Cash Earnings Per Share) are
used internally by management to assess performance. Management
believes that these measures provide useful information as they are
used to evaluate performance of business units, to analyse trends
in cash-based operating expenses, to establish operational goals
and allocate resources. Adjusted EBITDA is defined as earnings
before interest, taxes, depreciation, amortisation, exceptional
costs and share based payment expense, net of cash settled outlays,
for all services provided to customers and is an important measure
of our growth in the markets we serve. Cash Earnings Per Share is
defined as basic earnings per share before depreciation,
amortisation and share based payment expense, net of cash settled
outlays.
Deferred Income
Group revenue for the year ended 31 December 2019 includes
GBP0.7m (2018: GBP0.8m) which was released from brought forward
deferred income during the year. We generated a further GBP0.3m of
deferred revenue relating to territory fees on both new and
existing franchises and will be recognised over the life of the
franchise agreement. The deferred revenue balance declined by
GBP0.6m to GBP3.0m and was negatively impacted by the foreign
exchange effect of a weakening dollar which had a GBP0.2m effect on
the year-end balance.
Discontinued Operations
Following an agreement to sell certain assets of the Group
subsidiary, Filta Refrigeration Limited, the transaction was
completed on 4 January 2018, and the Group exited its refrigeration
business. The results of Filta Refrigeration are therefore
disclosed as a discontinued operation. In 2019, Filta Refrigeration
contributed nil to net profit (2018: GBP0.02m).
The tax impact of discontinued operations is GBPNil (2018:
GBPNil).
Taxation
We manage all taxes, both direct and indirect, to ensure that we
pay the appropriate amount of tax in each country while ensuring
that we respect the applicable tax legislation and utilise, where
appropriate, any legislative reliefs available. This tax strategy
is reviewed, regularly monitored and endorsed by the Board. The
Group's effective tax rate for the year ended 31 December 2019 was
57.3% (2018: 24.2%). The effective rate is an amalgamation of
mainly UK, US (23.5%) and Canadian (27.6%) rates for the periods
reported. The change from prior year has been particularly affected
by the geographic mix of profits for the year and the inability to
offset US and Canadian pre-tax profits with UK losses.
Additionally, there was a significant amount of expenses that were
disallowable for tax purposes relating to the acquisition of
Watbio.
Earnings per share
The basic and diluted earnings per share for the year, from
continuing operations, were 1.39p and 1.39p (2018: 4.86p and 4.82p)
whilst the basic and diluted earnings per share, from continuing
and discontinued operations, were 1.39p and 1.39p (2018: 4.93p and
4.89p) respectively.
Cash flows and cash balance
The Group generated cash from operations of GBP0.8m (2018:
GBP2.0m) reducing to GBP0.3m (2018: GBP0.8m) after the payment of
taxes. The main cash outflows related to the final consideration
payment on the Watbio acquisition, including costs, of GBP1.8m
(2018: GBP3.7m), repayment of borrowings and related interest of
GBP1.1m (2018: GBP0.3m) and dividends GBP0.6m (2018: GBP0.4m).
At the year end the Group had cash balances of GBP2.9m (2018:
GBP6.8m) and outstanding borrowings of GBP5.0m (2018: GBP4.7m),
including a term loan balance of GBP3.2m (2018: GBP4.0m) drawn down
to provide part of the consideration paid for the Watbio
acquisition and lease liabilities related to the adoption of IFRS
16 of GBP1.2m. The Group's available cash and unutilised overdraft
facility stood at GBP3.2m (2018: GBP6.8m). Finally, the Group met
its covenant requirements throughout the year.
Liquidity
In mid-March, as the impact of the pandemic was setting in, the
Group began to take steps to strengthen liquidity. This included
participating in the UK government furlough program as well as
reducing salaries for all remaining employees and board members by
20% to 50%. Additionally, we continued to see good customer
remittance inflow which is a testament to the quality of our top
customers. Revised payment terms have also been agreed with our
major suppliers ensuring they remain there to support us as we
begin to ramp up our business. As of 26 May 2020, we are operating
with cash on hand in excess of GBP3.7m and our GBP0.4m overdraft
facility remains fully available to us. In early May, we received
GBP0.2m in funding from the US government's Paycheck Protection
Program ("PPP") and we have successfully accessed GBP1.2m of
funding through the UK government's Coronavirus Business
Interruption Loan Scheme ("CBILS" or "CBIL"). We anticipate signing
the loan agreement and receiving the funds in early June.
Through strong cash management, support from our banking partner
and access to government programs, the Group's cash position and
availability of additional funding is strong and the Board is
confident that this will support the business conservatively
through 2021.
Brian Hogan
Chief Financial Officer
27 May 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2019 2018
GBP GBP
Continuing operations
Revenue 5 24,922,526 14,213,204
Cost of sales (14,756,297) (7,130,656)
------------- ------------
Gross profit 10,166,229 7,082,548
Other income 191,404 24,507
Distribution costs (203,344) (151,209)
Administrative costs (8,946,691) (5,173,569)
------------- ------------
Operating profit 1,207,598 1,782,277
Analysed as:
Adjusted EBITDA 3,162,571 2,642,436
Acquisition and restructuring related
costs 6 (296,410) (158,598)
Depreciation and amortisation 16,17 (1,396,932) (399,055)
Share based payment expense, net
of cash settled 33 (261,631) (302,506)
--------------------------------------------- ------ ------------- ------------
1,207,598 1,782,277
--------------------------------------------- ------ ------------- ------------
Finance income 6,945 1,545
Finance costs 9 (278,259) (41,984)
------------- ------------
Profit before tax 936,284 1,741,838
Income tax expense 10 (532,418) (421,667)
Profit from continuing operations 403,866 1,320,171
Discontinued operations
Profit from discontinued operations 12 - 18,556
Net profit attributable to owners 403,866 1,338,727
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation
of foreign operations (149,110) (29,388)
Total other comprehensive income
for the year (149,110) (29,388)
Profit and total comprehensive income
for the year 254,756 1,309,339
============= ============
Earnings per share
From continuing operations
* Basic (pence) 13 1.39 4.86
* Diluted (pence) 13 1.39 4.82
From continuing and discontinued
operations
* Basic (pence) 13 1.39 4.93
* Diluted (pence) 13 1.39 4.89
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 2019 2018
GBP GBP
Non-current assets
Property, plant and equipment 17 1,336,110 1,493,180
Right of use asset 4 1,270,479 -
Deferred tax assets 11 678,497 754,728
Intangible assets 16 6,514,954 7,186,432
Goodwill 16 1,639,523 1,639,523
Deposits 5,272 2,491
Contract acquisition costs 19 415,663 342,557
Trade receivables 18 411,732 324,865
----------- -----------
12,272,230 11,743,776
----------- -----------
Current assets
Trade and other receivables 18 4,064,811 4,821,194
Contract acquisition costs 19 57,426 51,718
Inventories 20 1,759,955 1,386,383
Cash and cash equivalents 21 2,891,014 6,789,968
----------- -----------
8,773,206 13,049,263
----------- -----------
Total assets 21,045,436 24,793,039
=========== ===========
Current liabilities
Trade and other payables 22 3,260,885 6,510,302
Borrowings 23 792,672 840,641
Lease Liability 24 332,974 -
Deferred income 26 534,066 868,788
----------- -----------
4,920,597 8,219,731
----------- -----------
Non-current liabilities
Deferred tax liability 1,159,121 1,291,318
Borrowings 23 2,976,887 3,909,311
Lease Liability 24 882,447 -
Deferred income 26 2,496,173 2,791,131
----------- -----------
7,514,628 7,991,760
----------- -----------
Total liabilities 12,435,225 16,211,491
----------- -----------
Equity
Share capital 29 2,908,535 2,891,863
Share premium 29 3,659,204 3,372,351
Other reserves 30 27,415 (10,053)
Translation reserve (533,075) (383,965)
Retained profits 2,548,132 2,711,352
Total equity 8,610,211 8,581,548
----------- -----------
Total equity and liabilities 21,045,436 24,793,039
=========== ===========
The financial statements were approved and authorised for issue
by the Board on 27 May 2020 and were signed on its behalf by:
________________________
Brian Hogan, Chief Financial Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Share Share Other Merger Exchange Retained Total
Capital Premium Reserves Reserve Reserve Earnings Equity
GBP GBP GBP GBP GBP GBP GBP
Balance at 1 January
2018 2,713,266 131,400 43,786 (339,687) (354,577) 1,862,967 4,057,155
Adjustment on
initial application
of IFRS 9 net
of tax (note 4) - - - - - (118,474) (118,474)
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
At 1 January 2018
restated 2,713,266 131,400 43,786 (339,687) (354,577) 1,744,493 3,938,681
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Profit for the
year 1,338,727 1,338,727
Foreign exchange
translation differences - - - - (29,388) - (29,388)
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Total comprehensive
income - - - - (29,388) 1,338,727 1,309,339
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Dividends paid
(note 15) - - - - - (371,868) (371,868)
Issue of share
capital (note
28) 178,597 3,393,557 - - - - 3,572,154
Share issue expenses - (152,606) - - - - (152,606)
Equity consideration
due - - 250,000 - - - 250,000
Share based payments
(note 30/33) - - 35,848 - - - 35,848
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Balance at 31
December 2018 2,891,863 3,372,351 329,634 (339,687) (383,965) 2,711,352 8,581,548
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Balance at 1 January
2019 2,891,863 3,372,351 329,634 (339,687) (383,965) 2,711,352 8,581,548
Adjustment on
initial application
of IFRS 16 net
of tax (note 4) - - - - - (8,971) (8,971)
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
At 1 January 2019
restated 2,891,863 3,372,351 329,634 (339,687) (383,965) 2,702,381 8,572,577
--------------------------
Profit for the
year 403,866 403,866
Foreign exchange
translation differences - - - - (149,110) - (149,110)
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Total comprehensive
income - - - - (149,110) 403,866 254,756
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Dividends paid
(note 15) - - - - - (558,115) (558,115)
Issue of share
capital (note
28) 16,672 286,853 - - - - 303,525
Equity consideration
paid - - (250,000) - - - (250,000)
Share based payments
(note 30/33) - - 287,468 - - - 287,468
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Balance at 31
December 2019 2,908,535 3,659,204 367,102 (339,687) (533,075) 2,548,132 8,610,211
-------------------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
During the year 166,725 shares (2018: 1,785,970) were issued of
which 32,500 were issued for cash of GBP31,525 (2018: GBP2,870,000)
and the balance of shares were issued as part of the contingent
consideration related to our acquisitions in 2018.
CONSOLIDATED STATEMENT OF CASH FLOWS
Notes 2019 2018
GBP GBP
Operating activities
Profit before taxation for
the year 936,284 1,760,393
Adjustments for non-cash operating
transactions:
Finance costs 9 271,314 41,984
Depreciation 17 216,677 186,582
Amortisation of intangible
assets 16 857,992 212,474
Amortisation of right of use 322,262 -
assets
(Gain)/loss on disposal of
tangible fixed assets (10,739) 7,051
Share based payment charge 33 283,215 302,506
------------ ------------
2,877,005 2,510,990
------------ ------------
Movements in working capital:
Increase/(decrease) in trade
and other receivables 271,249 (279,474)
Increase in contract acquisition
costs (78,814) (199,407)
Decrease in trade and other
payables (1,080,879) (225,003)
Decrease in cash settled share (21,584) -
option liability
Increase in inventories (538,301) (508,421)
(Decrease)/increase in deferred
revenue (629,680) 722,592
------------ ------------
Cash flow from operations 798,996 2,021,277
------------ ------------
Taxes paid (485,798) (1,216,177)
------------ ------------
Net cash flow from operations 313,198 805,100
------------ ------------
Investing activities
Purchase of property, plant
and equipment 17 (288,251) (316,084)
Proceeds from disposals of
property, plant and equipment 12 39,697 49,288
Purchase of subsidiary undertakings,
net of cash acquired - (3,738,358)
Deferred consideration on subsidiary
acquisition 25 (1,800,293) -
Purchase of other intangible
assets 16 (176,538) (104,913)
Net cash used in investing
activities (2,225,385) (4,110,067)
------------ ------------
Financing activities
Repayment of borrowings (876,272) (252,935)
Net proceeds from borrowings - 3,790,737
Payment of lease liabilities (291,656) -
Net proceeds from issue of
share capital 31,525 2,870,000
Dividends paid to shareholders 15 (558,115) (371,868)
Interest paid 9 (226,826) (41,984)
Net cash used in financing
activities (1,921,344) 5,993,950
------------ ------------
Net change in cash and cash
equivalents (3,833,531) 2,688,983
Cash and cash equivalents,
beginning of the year 21 6,789,968 4,031,174
Exchange differences on cash
and cash equivalents (65,423) 69,811
------------ ------------
Cash and cash equivalents,
end of year 21 2,891,014 6,789,968
------------ ------------
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
Notes 2019 2018
GBP GBP
Assets
Non-current assets
Investments in subsidiaries 14 8,765,743 8,951,424
Property, plant and 1,275 -
equipment
Amount due from subsidiaries 18 3,188,966 1,506,905
11,955,984 10,458,329
----------- -----------
Current assets
Trade and other receivables 161,041 123,984
Amount due from subsidiaries 18 600,246 467,093
Cash and cash equivalents 21 109,089 3,616,685
----------- -----------
870,376 4,207,762
----------- -----------
Total assets 12,826,360 14,666,091
=========== ===========
Current liabilities
Trade and other payables 22 44,016 2,265,128
Borrowings 23 786,049 758,147
Amount due to subsidiaries 522,534 36,311
----------- -----------
1,352,599 3,059,586
----------- -----------
Non-current liabilities
Borrowings 23 2,746,541 3,032,590
----------- -----------
2,746,541 3,032,590
----------- -----------
Total liabilities 4,099,140 6,092,176
----------- -----------
Equity
Share capital 29 2,908,535 2,891,863
Share premium 29 3,659,204 3,372,351
Other reserves 30 367,102 329,633
Retained earnings 1,792,379 1,980,068
Total equity 8,727,220 8,573,915
Total equity and liabilities 12,826,360 14,666,091
=========== ===========
No statement of comprehensive income is presented by the company
as permitted by section 408 of the Companies Act. The income dealt
within the financial statements of the parent Company for the year
ended 31 December 2019 is GBP370,426 (2018: loss GBP322,435).
The financial statements were approved and authorised for issue
by the Board on 27 May 2020 and were signed on its behalf by:
____________________
Brian Hogan, Chief Financial Officer
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
Share Share Other Retained Total
Capital Premium reserve Earnings Equity
GBP GBP GBP GBP GBP
Balance at 1 January
2018 2,713,266 131,400 43,785 2,674,371 5,562,822
Loss for the year - - - (322,435) (322,435)
------------------------ ---------- ---------- -------- ---------- ----------
Total comprehensive
income (322,435) (322,435)
------------------------ ---------- ---------- -------- ---------- ----------
Dividends paid (note
15) - - - (371,868) (371,868)
Issue of share capital
(note 29) 178,597 3,240,951 - - 3,419,548
Share based payments
(note 30/33) - - 35,848 - 35,848
Purchase consideration - - 250,000 - 250,000
------------------------ ---------- ---------- -------- ---------- ----------
Balance at 31 December
2018 2,891,863 3,372,351 329,633 1,980,068 8,573,915
------------------------ ---------- ---------- -------- ---------- ----------
Balance at 1 January
2019 2,891,863 3,372,351 329,634 1,980,068 8,573,916
Profit for the year - - - 370,426 370,426
------------------------ ---------- ---------- ---------- ---------- ----------
Total comprehensive
income 370,426 370,426
------------------------ ---------- ---------- ---------- ---------- ----------
Dividends paid (note
15) - - - (558,115) (558,115)
Issue of share capital
(note 29) 16,672 286,853 - - 303,525
Share based payments
(note 30/33) - - 287,468 - 287,468
Equity consideration
paid - - (250,000) - (250,000)
------------------------ ---------- ---------- ---------- ---------- ----------
Balance at 31 December
2019 2,908,535 3,659,204 367,102 1,792,379 8,727,220
------------------------ ---------- ---------- ---------- ---------- ----------
During the year 166,725 shares (2018: 1,785,970) were issued of
which 32,500 were issued for cash of GBP31,525 (2018: GBP2,870,000)
and the balance of shares were issued as part of the contingent
consideration related to our acquisitions in 2018.
PARENT COMPANY STATEMENT OF CASH FLOWS
2019 2018
GBP GBP
Operating activities
Profit before tax 466,270 (322,435)
Adjustments for non-cash operating
transactions
Finance costs 194,997 -
Amortisation 308 -
Shared based payment charge 283,215 -
------------ -----------------
944,790 (322,435)
------------ -----------------
Movements in working capital:
Decrease/(increase) in trade and
other receivables (537,790) (17,222)
Increase in trade and other payables (7,471) 470,146
Net cash from operations 399,529 130,489
------------ -----------------
Investing activities
(Decrease)/increase/ in advances
to subsidiaries (1,242,853) 188,679
(Increase)/decrease in investment
in subsidiary 117,339 (303,387)
Purchase of subsidiary undertakings,
net of cash acquired - (3,850,000)
Deferred consideration on subsidiary (1,800,293) -
acquisition
Purchase of other intangible assets (1,583) -
------------ -----------------
Net cash used in investing activities (2,927,390) (3,964,708)
------------ -----------------
Financing activities
Repayment of borrowings (800,000) -
Proceeds from issue of share capital,
net of costs 31,525 2,870,000
Proceeds from borrowings, net
of costs 500,000 3,790,737
Dividends paid to shareholders (558,115) (371,868)
Interest paid (153,145) -
------------ -----------------
Net cash (used in)/from financing
activities (979,735) 6,288,869
------------ -----------------
Net change in cash and cash equivalents (3,507,596) 2,454,650
Cash and cash equivalents, beginning
of the year 3,616,685 1,162,035
------------ -----------------
Cash and cash equivalents, end
of year 109,089 3,616,685
------------ -----------------
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Filta Group Holdings plc was incorporated in England and Wales
on 31 March 2016. Its registered office is at The Locks,
Hillmorton, Rugby, Warwickshire, England, CV21 4PP.
The Company is listed on the AIM market of the London Stock
Exchange. The Company acts as the holding company of a group of
subsidiaries that are involved in the franchising of on-site
environmental kitchen solutions to restaurants, catering
establishments and institutional kitchens. The services include
microfiltration of cooking oil, fryer cleaning, temperature
calibration, waste oil disposal and specially designed filters for
refrigeration units and coolers. The Filta Group sells franchises
and operates in the UK, the United States and Canada. Additionally,
the Company operates two direct sale businesses including
refrigeration seal replacement and the installation, repair and
maintenance of drain dosing and grease recovery units. Further
details of the Company's subsidiaries are provided in Note 14.
2. BASIS OF PREPARATION
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted for
use in the European Union including interpretations issued by the
International Financial Reporting Interpretations Committee
(IFRIC), and with those parts of the Companies Act 2006 applicable
to companies reporting under IFRS.
The consolidated financial statements have been prepared under
the historical cost convention except for financial instruments
that have been measured at fair value through profit and loss. The
presentational and functional currency of the Company is Pounds
Sterling. The functional currency of the subsidiaries is determined
by the primary economic environment in which they operate.
Basis of consolidation
The consolidated financial statements comprise the financial
information of the Company and its subsidiaries (the "Group") made
up to the end of the reporting period.
The consolidated financial statements present the results of the
Company and its subsidiaries and joint arrangements as if they
formed a single entity. Subsidiaries are consolidated from the date
of their acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date that such
control ceases. Control comprises the power to govern the financial
and operating policies of the investee to obtain benefit from its
activities and is achieved through direct or indirect ownership of
voting rights; currently exercisable or convertible potential
voting rights; or by way of contractual agreement. Where necessary,
adjustments are made to the financial statements of subsidiaries to
align with the Group accounting policies.
Where a subsidiary undertaking is sold, the profit or loss on
disposal is calculated as the difference between the aggregate of
the fair value of the consideration received and the carrying
amount of the assets and liabilities of the subsidiary on the date
of disposal less any transaction costs relating to the disposal.
Cash received on disposal of businesses is shown within investing
activities in the Consolidated cash flow statement, net of cash and
cash equivalents disposed of and transaction costs.
All intercompany transactions and balances between Group
entities, including unrealised profits arising from them, are
eliminated upon consolidation.
Going concern
The directors have performed a detailed assessment, including a
review of the Group's budget for the 2020 financial year and its
longer term plans through 2021, including consideration of the
principal risks faced by the Group. This included the impact of a
severe but plausible downside scenario for COVID-19. The major
variables are the depth and the duration of COVID-19. The directors
considered the impact of the current COVID-19 environment on the
business for the next 12 months and the longer term.
Whilst the situation evolves daily, making scenario planning
difficult, we have considered a number of impacts on sales,
profits, and cash flows. Whilst the virus may impact across many
functions of the business the principal concern is the ability of
our franchisees and customers to service consumers in the midst of
the government lockdowns. This would most likely manifest itself in
lost volumes and require significant action in relation to
operational cost reductions. Overall, we scenario planned several
out turns with volumes dropping significantly (up to 90% in Q2) and
the impact realising some gradual improvement but lasting for a
significant part of 2020.
The revenue and operational leverage impact of such a volume
loss would have a major negative impact on Group operating
profitability however the scenario modelling would indicate that
the Group EBITDA would remain positive over the next 12 months and
we would anticipate a recovery beginning in late 2020 and into the
following years. Throughout this severe but plausible downside
scenario, the Group continues to have significant liquidity
headroom with available cash on hand and unused overdraft
facilities.
The Group has taken advantage of the Coronavirus Job Retention
Scheme as well as reducing executive pay to reduce costs and
cashflow requirements in the short term. The Group has also taken
advantage of repayment holiday's on its borrowings to further
reduce short term cash flow requirements. In addition, the Group
has negotiated appropriate post year end amendments to the
covenants following the impact of COVID-19. The directors believe
that the Group is well placed to manage its financing and other
business risks satisfactorily and have a reasonable expectation
that the Group will have adequate resources to continue in
operation for at least 12 months from the signing date of these
consolidated financial statements. They therefore consider it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
Parent Company
The parent company has taken advantage of s.408 of the Companies
Act 2016 not to publish
the parent company profit and loss account.
3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
The principal accounting policies of Filta Group Holdings plc
and its subsidiaries are set out below. These policies have been
consistently applied unless otherwise stated.
3.1 Foreign currencies
Functional and presentation currency
The consolidated financial statements are presented in Pounds
Sterling, which is also the functional currency of the parent
company.
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional
currency of the respective Group entity, using the exchange rates
prevailing at the dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions and
from the remeasurement of monetary items denominated in foreign
currency at year-end exchange rates are recognised in profit or
loss.
Non-monetary items are not retranslated at year-end and are
measured at historical cost (translated using the exchange rates at
the transaction date), except for non-monetary items measured at
fair value which are translated using the exchange rates at the
date when fair value was determined.
Foreign operations
In the Group's financial statements, all assets, liabilities and
transactions of Group entities with a functional currency other
than Pounds Sterling are translated into Pounds Sterling upon
consolidation. The functional currency of the entities in the Group
has remained unchanged during the reporting period.
On consolidation, assets and liabilities have been translated
into Pounds Sterling at the closing rate at the reporting date.
Income and expenses have been translated into Pounds Sterling at
the average rate, as an approximation of rates on the dates of the
transactions over the reporting period. Exchange difference are
charged/credited to other comprehensive income and recognised in
the currency translation reserve in equity.
3.2 Segment reporting
The results of operating segments are reported in a manner
consistent with internal reporting.
The Group has four operating segments. In identifying these
operating segments, management follows the Group's service lines
representing its main products and services. Further details of
segment reporting are provided in Note 5.
3.3 Revenue
For the year ended 31 December 2019 the Group used the five-step
model as prescribed under IFRS 15 on the Group's revenue
transactions. This included the identification of the contract,
identification of the performance obligations under same,
determination of the transaction price, allocation of the
transaction price to performance obligations and recognition of
revenue. The point of recognition arises when the Group satisfies a
performance obligation by transferring control of a promised good
or service to the customer, which could occur over time or at a
point in time.
Revenue represents the amount of consideration to which the
Group expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on
behalf of third parties.
Revenue from goods and services provided to customers not
invoiced as at the balance sheet date is recognised as accrued
income within trade and other receivables.
The Filta Group executes franchise agreements for each franchise
area which set out the terms of the arrangement with the
franchisee.
These agreements require the franchisee to pay an initial,
non-refundable franchise fee and royalties based upon the number of
filtration machines operating in each franchise area.
The franchise fee consists of two distinct components:
-- the opening package; and
-- the territory fee
Each of these revenue streams are defined in the franchise
agreement and support the treatment under our accounting
policy.
The revenue associated with the opening package is recognised
when substantially all initial services required by the franchise
agreement are performed, which is generally upon the completion of
training of the franchisee. Therefore, there is no deferral of this
revenue unless the training period spans the year-end.
The territory fee represents the exclusive right to operate in a
designated territory for a stated length of time. The territory fee
is deferred over the length of the franchise agreement and released
to the combined statements of comprehensive income on a
straight-line basis.
In circumstances where franchise territories are resold, on an
arm's length basis, between our franchisee and a third party, it is
our policy to continue to recognise the deferred revenue over the
life of the original franchise agreement. Should there be an
additional opening package, or territory sale, as part of the
resale, these components will follow the aforementioned revenue
recognition process under the new franchise agreement policy.
Royalty income is recognised as earned with an appropriate
provision for estimated uncollectible amounts, which is included in
operating expenses.
Supplies and other revenues are recognised when the product or
service is delivered or shipped to customers. Provision for
discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same
period in which the related sales are recorded.
There has been no significant change to the Group's accounting
policy for revenue as a result of the adoption of IFRS 15 from 1
January 2018.
3.4 Contract acquisition costs
The incremental costs to directly obtain a contract with a
customer are capitalised and recognised within contract assets
where management expects to recover those costs. Costs to obtain a
contract that would have been incurred regardless of whether the
contract was obtained are recognised as an expense in the period
where incurred. Contract assets are subsequently amortised over the
period consistent with the Group's transfer of the related goods or
services to the customer.
The costs capitalised include sales commission paid to employees
and broker fees paid to third parties where payment is identified
as relating directly to the sale of a territory license and
initially recognised upon the signing of a customer contract. The
costs are amortised over the contract life.
The Group was not impacted by the adoption of IFRS 15 on 1
January 2018 as the previous accounting policies also recognised an
asset in relation to sales commissions costs and broker fees paid
to third parties.
Management is required to determine the recoverability of
contract related assets at each reporting date. An impairment
exists if the carrying amount of any asset exceeds the amount of
consideration the Group expects to receive in exchange for
providing the associated goods and services, less the remaining
costs that relate directly to providing those goods and services
under the relevant contract. An impairment is recognised
immediately where such losses are forecast.
The movement in the contract asset balance in the period
therefore represents additional payments made, subsequent
amortisation and any required impairment.
3.5 Investments in subsidiaries
Investments in subsidiaries are valued at cost less provision
for any impairment, and an impairment review is carried out
annually by the directors.
3.6 Property, plant and equipment
All items of property, plant and equipment are initially
recorded at cost. All repair and maintenance expenses are
recognised in profit or loss when incurred.
After initial recognition, property, plant and equipment is
stated at cost less accumulated depreciation and any accumulated
impairment loss.
All items of property, plant and equipment are depreciated to
write off the cost of the assets over their estimated useful lives
as follows:
Annual rate
Freehold property 2%
Plant and machinery 10-15%
Motor vehicles 25%
Fixtures and fittings 20%
The estimated useful life and depreciation method are reviewed,
and adjusted as appropriate, at each reporting date. Fully
depreciated assets are retained in the financial statements until
they are no longer in use.
3.7 Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of the acquisition is measured at the aggregate of
the fair values, at the date of exchange, of assets given,
liabilities incurred or assumed, and equity instruments issued by
the group in exchange for control of the acquiree. Acquisition
costs are expenses and included in Administrative expenses. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the conditions for recognition are recognised
at their fair value at the acquisition date.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Subsequent changes to the fair value of any contingent
consideration deemed to be an asset or liability will be recognised
in accordance with IFRS 9, either in profit or loss or in other
comprehensive income.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of cost of the
business combination over the group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised. If, after reassessment, the group's
interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities exceeds the cost of
the business combination, the excess is recognised immediately in
profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. It is reviewed for impairment at
least annually. Any impairment is recognised immediately in profit
or loss and is not subsequently reversed.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to
each of the Group's cash generating units (or groups of cash
generating units) that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of
the acquiree are assigned to those units. Each unit or group of
units to which goodwill is allocated represents the lowest level
within the entity at which the goodwill is monitored for internal
management purposes. On disposal of a subsidiary the attributable
amount of goodwill is included in the determination of the profit
or loss on disposal.
3.8 Intangible assets
Intangible assets identified in a business combination are
capitalised at fair value as at the date of the acquisition and
their costs are amortised over a straight-line basis over their
expected useful lives. Software and development expenditure is
capitalised as an intangible asset if the asset created can be
identified, if it is probable that the asset created will generate
future economic benefits and if the development cost of the asset
can be measured reliably. Amortisation expense is charged to
administrative expenses in the income statement on a straight-line
basis over its useful life.
The expected useful lives of the assets are as follows:
Customer relationships - 5 to 10 years
Customer contracts - 5 to 10 years
Supply contracts - 15 years
Reacquired Rights - 6.75 years
Software development - 3 years
Those costs associated with maintaining computer software
programmes are recognised as an expense as incurred.
3.9 Impairment of tangible and intangible assets
At each reporting end date, the Company reviews the carrying
amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss (if any).
3.10 Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost is based on the first in, first out principal and
comprise direct materials and, where applicable, direct labour
costs and overheads that have been incurred in bringing the
inventories to their present location and condition. Net realisable
value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling
and distribution. A provision is made, where necessary, in all
inventory categories for obsolete, slow moving, and defective
items.
3.11 Financial instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
relevant financial instrument. Upon adoption of IFRS 9 on 1 January
2018 the accounting policy for financial instruments is as
follows:
Financial assets
(i) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, other short-term liquid investments with original
maturities of three months or less. Bank overdrafts are shown
within borrowings in current liabilities. For the purpose of the
Consolidated Statement of Cash Flows, cash and cash equivalents
consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts.
(ii) Trade and other receivables
Trade receivables are recognised initially at the invoice amount
and subsequently measured at amortised cost, less provision for
impairment.
Under IFRS 9, effective from 1 January 2018, the Group elected
to use the simplified approach to measure the loss allowance at an
amount equal to lifetime expected credit losses for trade
receivables and contract assets that result from transactions that
are within the scope of IFRS 15, irrespective of whether they
contain a significant financing component or not.
IFRS 9 requires the Group to consider forward looking
information and the probability of default when calculating
expected credit losses. The measurement of expected credit losses
reflects an unbiased and probability weighted amount that is
determined by evaluating the range of possible outcomes as well as
incorporating the time value of money. The Group considers
reasonable and supportable customer-specific and market information
about past events, current conditions and forecasts of future
economic conditions when measuring expected credit losses.
The amount of the provision is the difference between the
carrying amount and the present value of estimated future cash
flows of the asset, discounted, where material, at the original
effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of
the loss is recognised in the Income Statement within
'administrative costs'. When a trade receivable is uncollectable,
it is written off against the allowance account for trade
receivables. Subsequent recoveries of amounts previously written
off are credited against 'administrative costs' in the Income
Statement.
Financial liabilities
(i) Trade and other payables
Trade payables are not interest-bearing and are initially
measured at fair value. Subsequent to initial recognition these
liabilities are measured at amortised cost. The Group has contract
liabilities in the form of deferred income which arises from
consideration received in advance of the satisfaction of
performance obligations.
(ii) Borrowings
Interest-bearing loans and overdrafts are initially measured at
fair value, net of direct issue costs. These financial liabilities
are subsequently measured at amortised cost using the effective
interest method, with interest expense recognised over the period
of the relevant liabilities.
3.12 Equity
Equity comprises the following:
-- "Share capital" represents the nominal value of equity shares.
-- "Share premium" represents the excess over nominal value of
the fair value of consideration received for equity shares, net of
expenses of the share issue.
-- "Other reserves" represent the equity element in the form of
share options and warrants, see notes 30 and 33 for additional
information on these instruments.
-- "Retained earnings" represents retained profits and accumulated losses.
-- "Merger reserve" arose on the reverse takeover of the Group in October 2016.
Equity instruments issued by the company are recorded at the
proceeds received, net of direct issue costs.
3.13 Share-based payments
(I) Equity-settled share-based payments
Equity-settled share-based payments are measured at the fair
value of the awards based on the market value of the shares at the
grant date. Fair value excludes the effect of non-market-based
vesting conditions. The fair value is charged to the consolidated
statement of income and credited to retained earnings on a
straight-line basis over the period the estimated awards are
expected to vest.
At each balance sheet date, the Company revises its estimate of
the number of equity instruments expected to vest as a result of
the effect of non-market-based vesting conditions. The impact of
the revision of the original estimates, if any, is recognised in
the consolidated statement of income such that the cumulative
expense reflects the revised estimate, with a corresponding
adjustment to retained earnings.
(II) Cash-settled share-based payments
For cash-settled share-based payments, a liability is initially
recognised at fair value based on the estimated number of awards
that are expected to vest, adjusting for market and
non-market-based performance conditions. Subsequently, at each
reporting period until the liability is settled, it is remeasured
to fair value with any changes in fair value recognised in the
consolidated statement of income.
3.14 Taxation
The income tax expense for the year comprises current and
deferred tax.
Current tax
The charge for current taxation is the tax currently payable
based on taxable profit for the year. Taxable profit differs from
net profit as reported in the consolidated statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the
reporting end date.
Deferred tax
Deferred tax is provided using the liability method on
differences between the carrying amounts of assets and liabilities
in the consolidated balance sheet and the tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such deferred tax
assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition of
other assets and liabilities in a transaction which is not a
business combination and at the time of the transaction affects
neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each
reporting end date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset is
realised based on tax rates that have been enacted or substantively
enacted by the reporting end date. Deferred tax is charged or
credited in the statement of comprehensive income, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt with in equity. Deferred tax
arising from a business combination is included in the resulting
goodwill or excess of the acquirer's interest in the net fair value
of the acquiree's identifiable assets, liabilities and contingent
liabilities over the business combination costs.
Deferred tax assets and liabilities are offset when the Group
has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to
taxes levied by the same tax authority.
3.15 Leases
The Group adopted IFRS 16 Leases effective 1 January 2019. The
Group leases various properties, equipment, and vehicles. Contracts
typically cover fixed periods between one and 10 years and may
contain extension options as described below. Lease terms are
negotiated on an individual basis and include a wide variety of
different terms and conditions.
Leases are booked as a right-of-use asset and as a corresponding
lease liability at the date at which the leased asset is available
for use by the Group. Each lease payment is apportioned between the
reduction of the outstanding lease liability and finance cost. The
finance cost is charged to profit or loss over the lease period to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life or the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities are valued at
the net present value of the future lease payments, which includes
fixed lease payments, variable lease payments based on indexes and
rates, residual value guarantees, purchase options and termination
penalties. Lease payments are discounted using the interest rate
implicit in the lease, or if that rate cannot be determined, the
Group's incremental borrowing rate.
Right-of-use assets are measured at cost, comprising the amount
of the initial lease liability adjusted by any lease payments made
at or before the commencement date of the lease, any lease
incentives received, initial direct costs and any estimated
restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognized on a straight-line basis as an
expense in profit or loss. Short-term leases are identified as
leases with a term of 12 months or less. Low-value assets comprise
general office equipment.
3.16 Adjusted EBITDA
Adjusted EBITDA is defined as earnings before interest, taxes,
depreciation, amortisation, exceptional items and share based
payment expense. The separate reporting of these items helps
provide a better picture of the Group's underlying performance.
Items which may be included within this category include:
-- Costs associated with acquisitions; and
-- Other particularly significant or unusual items.
Adjusted EBITDA is presented separately in the statement of
comprehensive income as the Directors believe that it needs to be
considered separately to gain an understanding of the underlying
profitability of the trading businesses.
3.17 Critical accounting judgments and key sources of estimation uncertainty
Revenue recognition (Judgement)
Under IFRS 15, revenue recognition is based on the principle
that revenue is recognised when control of a good or service
transfers to a customer. Revenue is measured based on the
consideration specified in a contract with a customer and is
recognised when a customer obtains control of the services. The
Group's franchise contracts are defined as having two distinct
performance obligations, the Opening Package and the Territory
Fee.
A degree of judgement arises with respect to the recognition of
revenue on initial franchise fees, giving rise to estimation
uncertainty. Management reviews on a regular basis the allocation
within an initial franchise fee between the opening package and the
territory fee. Whereas the opening package fee is recognised, as
explained in note 3.3, generally upon the completion of the
training of the franchisee, the portion related to the territory
fee is deferred and recognised over the life of the franchise
agreement. The total amount currently in deferred income in this
respect amounts to GBP3,030,239 (2018: GBP3,659,919). The revenue
recognised in respect of the opening package and the apportioned
territory fee in the current year was GBP1,381,567 (2018:
GBP1,374,324).
Recoverability of trade receivables (Judgement)
The Group provides credit to customers and as a result there is
an associated risk that the customer may not be able to pay
outstanding balances.
Under IFRS 9 the Group uses an allowance matrix to measure
Expected Credit Loss (ECL) of trade receivables from customers.
Loss rates are calculated based on the probability of a receivable
progressing through successive chains of non-payment to write-off.
The rates are calculated at a business unit level which reflects
the risks associated with geographic region, age mix of customer
relationship and type of product purchased.
IFRS 16 "Leases" (Judgement)
Where the Group has an option to extend or terminate a lease,
management uses its judgement to determine whether such an option
would be reasonably certain to be exercised. Management considers
all facts and circumstances, including past practice and costs that
would be incurred if an option were to be exercised, to help them
determine the lease term. Management have also applied judgements
in assessing the discount rate, which are based on the incremental
borrowing rate. Such judgements could impact lease terms and
associated lease liabilities. The Group has availed of the
practical expedient available on transition to IFRS 16 not to
reassess whether a contract is or contains a lease. Accordingly,
the definition of a lease in accordance with IAS 17 and the
guidance in IFRIC 4 will continue to be applied to those leases
entered into or modified before 1 January 2019.
Going concern (Judgement and estimates)
As a result of the COVID-19 pandemic management has endeavored
to understand the uncertainties associated with this unprecedented
event, to quantify its impact on the future of the business and
assess whether these uncertainties would cast doubt on the Group's
ability to continue as a going concern. Given the current and
significant degree of uncertainty management has relied on its
knowledge of its customers, the markets they operate in and the
anticipated impact and duration of government restrictions that
have been instituted globally to stem the transmission of the
virus. To address this uncertainty, management completed a three
year forecast that estimated the impact on the Group's revenue,
profits and current and future cash resources under a best case and
worst case scenario. Significant judgment was required in preparing
these forecasts including but not limited to;
-- Duration of government restrictions - In both scenario's we
have assumed a near full shutdown our of our business in the second
quarter. As of the date of this report, governments in our two
primary markets of Europe and North America have begun to put plans
in place to loosen restrictions as they anticipate a phased
reopening of the economy over the coming months. Management has
used its judgement in both of its scenarios to estimate how and
when its customers will ramp up through the summer and fall. In our
best case, we assume a gradual ramp up in 25% increments beginning
in July with a return to our previously budgeted performance levels
by October. Our worst case scenario assumes the same level of ramp
up but delays its start until October which results in the Group
not returning to previously budgeted performance in FY20.
-- Government support - The Group has taken advantage of
government support programs put in place by in each of our
operating locations. This principally consists of the employee
furlough scheme and the Coronavirus Business Interruption Loan
Scheme in the UK and the Paycheck Protection Program offered in the
US. Whilst we estimate that the furlough program will save us
c.0.2m per month, management has used its judgement to anticipate
the duration of the furlough program, our changing resource
requirements throughout the forecast period and how and when we
will transition employees off of furlough as our customers begin to
ramp up. We have been successful in accessing both a UK CBILS loan
and a US Paycheck Protection loan/grant in the amounts of GBP1.2m
and GBP0.2m respectively each of which are factored into our
forecast.
-- Liquidity and Banking - At year end the Group's available
cash and unutilised overdraft facility totalled GBP3.3m and the
revised forecast assumed a similar starting point before factoring
in the impact of the GBP1.4m of loan proceeds. Each of these
programs include a capital repayment deferral period of 6 months
for the PPP loan and 12 months for the CBIL. We have stayed onside
of our covenant requirements under our existing term debt facility
through the first quarter of 2020 and our lender has provided us a
waiver through the third quarter. We have also negotiated
appropriate post period amendments to the covenants following the
impact of COVID-19.
Management has used its best judgement to forecast its cash
requirements and cash availability in order t o assess whether we
are able to continue as a going concern for at least, but not
limited to,12 months from the reporting date and in each scenario
the Group maintains sufficient levels of cash and unutilised
overdraft to support the business through and beyond FY20.
Business combinations (Judgement and estimates)
Where the Group undertakes business combinations, the cost of
acquisition is allocated to identifiable net assets and contingent
liabilities acquired and assumed by reference to their estimated
fair values at the time of acquisition. The remaining amount is
recorded as goodwill. The valuation of identifiable net assets
involves an element of judgement related to projected results. Fair
values that are stated as provisional are not finalised at the
reporting date and final fair values may be determined that are
materially different from the provisional values stated.
In undertaking this assessment, the Group has performed a
valuation of the intangible fixed assets acquired, on the
multi-period excess earnings method, for customer relationships and
customer contracts. For supply contracts, the royalty relief model
has been used. In performing this assessment, it has obtained a
third-party assessment of the fair values of these intangibles,
based on the expected cashflows arising from the existing customer
relationships at the time of acquisition, discounted for depletion
in contract revenue.
The multi-period excess earnings methodology is based on
expected income streams of the cash generating unit, the
significant assumptions used in the model were the discount rate
(8%) and the attrition rates (2.5%-5%). If the attrition rates were
increased by 10% the intangible asset value would decrease by
GBP93,000. If the discount rate were increased by one percentage
point the intangible asset would be GBP195,000 lower.
The key assumptions in the royalty relief calculation is the
royalty rate (2.5%), if this were reduced by one percentage point
then the asset would be GBP289,000 lower.
The amortisation charge for the year ended 31 December 2019
relating to the customer relationships and contracts is GBP0.7m and
GBP0.05m for the supply contract.
Impairment (Judgement and estimates)
The Group is required to review assets for objective evidence of
impairment. It does this on the basis of a review of the budget and
rolling forecasts, which by their nature are based on a series of
assumptions and estimates. The Group has performed impairment tests
on those cash generating units which contain goodwill, and on any
assets where there are indicators of impairment. The key
assumptions associated with these reviews are detailed in Note
16.
Taxation (Judgement and estimates)
The Group is subject to income tax in numerous jurisdictions.
Significant judgement is required in determining the worldwide
provision for income taxes. There are many transactions for which
the ultimate tax determination is uncertain. The Group recognises
liabilities based on estimates of whether additional taxes will be
due. Once it has been concluded that a liability needs to be
recognised, the liability is measured based on the tax laws that
have been enacted or substantially enacted at the end of the
reporting period. The amount shown for current taxation includes an
estimate for tax uncertainties and is based on the Directors' best
probability weighted estimate of the probable outflow of economic
resources that will be required to settle the liability. Where the
final tax outcome of these matters is different from the amounts
that were initially estimated, such differences will impact the
income tax and deferred tax provisions in the period in which such
determination is made.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which
the unused tax losses and unused tax credits can be utilised. The
Group estimates the most probable amount of future taxable profits,
using assumptions consistent with those employed in impairment
calculations, and taking into consideration applicable tax
legislation in the relevant jurisdiction. These calculations also
require the use of estimates.
4. ADOPTION OF NEW AND REVISED STANDARDS EFFECTIVE DURING 2019
The Group has adopted IFRS 16 Leases from 1 January 2019. A
number of other new standards, including IFRIC 23 Uncertainty Over
Income Tax Treatments, are effective from 1 January 2019 but they
do not have a material effect on the Group's financial
statements.
IFRS 16 introduces a single, on-balance sheet accounting model
for lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make
lease payments. The Group has applied IFRS 16 using the modified
retrospective approach. Accordingly, the comparative information
presented for 2018 has not been restated and is presented as
previously reported under IAS 17 and related interpretations. The
details of the changes in accounting policies are disclosed
below.
A. Definition of a lease
Previously, Filta determined at contract inception whether an
arrangement was or contained a lease under IFRIC 4, Determining
Whether an Arrangement contains a Lease. The Group now assesses
whether a contract is or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains a
lease if the contract conveys a right to control the use of an
identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases. Contracts that were not identified as
leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the
definition of a lease under IFRS 16 has been applied only to
contracts entered into or changed on or after 1 January 2019. At
inception or on reassessment of a contract that contains a lease
component, the Group allocates the consideration in the contract to
each lease and non-lease component on the basis of their relative
stand-alone prices. However, for leases of properties in which it
is a lessee, the Group has elected not to separate non-lease
components and will instead account for the lease and non-lease
component as a single lease component.
B. The Group's leasing activities and how these were accounted for
The Group primarily leases properties and vehicles. As a lessee,
the Group previously classified leases as operating, or finance
leases based on its assessment of whether the lease transferred
substantially all of the risks and rewards of ownership. Under IFRS
16, the Group recognises right-of-use assets and lease liabilities
for most leases. However, on transition to IFRS 16, the Group has
applied practical expedients under IFRS 16 not to recognise
right-of-use assets and leases liabilities for some leases of
low-value assets (e.g. some office equipment) and for operating
leases with a remaining lease term of less than 12 months as at 1
January 2019. The Group recognises the lease payments associated
with these leases as an expense on a straight-line basis over the
lease term.
The Group presents the right-of-use assets as a non-current
asset. The carrying amounts of right-of-use assets are as
below:
Right of use
assets
GBP
----------------------------- --------------------
Balance at 1 January 2019 846,073
Balance at 31 December 2019 1,270,479
----------------------------- --------------------
The Group presents lease liabilities in both current and
non-current liabilities in the statement of financial position.
i. Summary of new accounting policies
The Group recognises a right-of-use asset and a lease liability
at the commencement date. The right-of-use asset is initially
measured as:
-- The initial measurement of the lease liability; plus
-- Initial indirect costs; plus
-- Prepaid lease payments; plus
-- Estimated costs to dismantle, remove or restore; less
-- Lease incentives received.
The lease liability is initially measured at:
The present value of lease payments payable over the lease term
plus the present value of expected payments at the end of the
lease, discounted at the interest rate implicit in the lease, or
the incremental borrowing rate, where the interest rate implicit in
the lease cannot be readily determined.
The weighted average lessee's incremental borrowing rate applied
to the lease liabilities on 1 January 2019 was 4.24%. The lease
liability is subsequently increased by the interest cost and
decreased by the lease payment made. It is remeasured when there is
a change in future lease payments arising from a change in an index
or rate, a change in the estimate of the amount expected to be
payable under a residual value guarantee, or as appropriate,
changes in the assessment of whether a purchase or extension option
is reasonably certain to be exercised or a termination option is
reasonably certain not to be exercised.
The table below presents a reconciliation from operating lease
commitments disclosed at 31 December 2018 to lease liabilities
recognised at 1 January 2019.
The difference between the ROU assets and lease liability
values as at 1 Jan 2019 relate to the existing finance
leases prior to the adoption of IFRS 16.
GBP
Operating lease commitments disclosed as at 31 December
2018 570,612
(Less): short term and low value leases recognised
on a straight-line basis as an expense (8,031)
Undiscounted operating lease commitments at 31 December
2018 562,581
----------------------------------
Discounted using the Group's weighted average incremental
borrowing rate of 4.24% at the date of initial application 429,792
Add: finance lease liabilities recognised as at 31
December 2018 168,448
Add: new finance leases effective 1 January 2019 229,760
Lease liabilities recognised as at 1 January 2019 828,000
----------------------------------
Management has applied judgement to determine the lease term for
some lease contracts which include renewal options. The assessment
of whether the Group is reasonably certain to exercise such options
impacts the lease term, which significantly affects the amount of
lease liabilities and right-of-use assets recognised.
C. Adjustments recognised on adoption of IFRS 16
i. Impact on transition
Upon initial adoption, the Group measured the right-of-use
assets in an amount equal to the lease liabilities, adjusted for
any related prepaid and accrued lease payments previously
recognised. Lease liabilities were measured at the present value of
the remaining lease payments, discounted using the incremental
borrowing rate at the date of initial application.
1 January 2019
GBP
---------------------------- ----------------------------------
Right of use assets 846,073
Lease liabilities 828,000
----------------------------------------- ----------------------
ii. Impacts for the period
In relation to those leases under IFRS 16, for the twelve months
ended 31 December 2019, the Group has recognised amortisation and
interest costs of GBP322,262 and GBP43,655, respectively.
New standards and interpretations not applied.
A number of new standards and amendments to standards are
effective for annual periods beginning after 1 January 2020 and
earlier application is permitted; however, the Group has not early
adopted them in preparing these consolidated financial statements.
These are not expected to have a significant impact on
adoption.
5. SEGMENT ANALYSIS
In January 2019, following the acquisition of Watbio Holdings
Ltd ("Watbio"), the Group began to make a number of changes to its
organisational structure and management system consistent with its
integration of Watbio. With these changes, the Group has updated
its reportable segments. There continues to be four reportable
segments as follows:
The Site Service's segment includes our legacy Seal replacement
service as well as capabilities in providing preventive maintenance
and reactive services in the markets we serve. The Equipment Sales
& Installation segment represents the provision of design, sale
and installation solutions. The Franchise Development and Fryer
Management segments remain unchanged. The Group also has three
geographic segments: United Kingdom, North America and Europe.
Previously reported segment information has been recast, as
applicable, for all periods presented to reflect the changes in the
Company's reportable segments.
The segments represent components of the Company for which
separate financial information is available that is utilised on a
regular basis by the chief operating decision maker (which takes
the form of the Board of Directors), in determining how to allocate
resources and evaluate performance. The segments are determined
based on several factors, including client base, homogeneity of
products, technology, delivery channels and similar economic
characteristics.
Revenue and non-current assets by origin of geographical segment
for all entities in the Group is as follows:
Revenue
2019 2018
GBP GBP
North America 11,302,537 9,204,340
U.K. 13,124,702 4,752,287
Europe 495,287 256,577
Total continuing operations 24,922,526 14,213,204
Discontinued operations - 13,915
----------- -----------
Total 24,922,526 14,227,119
----------- -----------
Non-current assets
2019 2018
GBP GBP
North America 2,009,411 2,005,116
U.K. 9,643,205 9,277,362
Europe 619,614 461,298
----------- -----------
Total 12,272,230 11,743,776
----------- -----------
Revenue
2019 2018
GBP GBP
Franchise Development 1,494,674 1,487,927
Fryer Management 11,716,594 9,341,341
Equipment Sales & Installation 2,792,685 678,252
Site Services 8,918,573 2,705,684
----------- -----------
Total continuing operations 24,922,526 14,213,204
Discontinued operations - 13,915
----------- -----------
Total 24,922,526 14,227,119
----------- -----------
Management measures revenues by reference to the Group's core
services and products and related services, which underpin such
income. No customer has accounted for more than 10% of total
revenue during the periods presented. Assets and liabilities are
not fully allocated to the individual categories as such
information is not provided to the chief operating decision
maker.
Operating segment performance for the year ended 31 December
2019:
Equipment
Franchise Sales &
Development Fryer Management Installation Site Service Total
GBPm GBPm GBPm GBPm GBPm
Sales to
external
customers 1.5 11.7 2.8 8.9 24.9
Adjusted EBITDA 0.7 1.8 0.2 0.5 3.2
-------------------------------- ------------------------------- ---------------------------------- ------------------------------------- --------------------------
Acquisition and
legal costs - - (0.1) (0.3) (0.3)
Share based
payments (0.0) (0.1) (0.0) (0.1) (0.3)
Depreciation
and
amortization (0.1) (0.7) (0.2) (0.5) (1.4)
Operating
profit 0.6 1.0 (0.1) (0.4) 1.2
-------------------------------- ------------------------------- ---------------------------------- ------------------------------------- --------------------------
Net finance
costs (0.0) (0.1) (0.0) (0.1) (0.3)
Profit before
taxation 0.6 0.9 (0.1) (0.4) 0.9
-------------------------------- ------------------------------- ---------------------------------- ------------------------------------- --------------------------
Taxation (0.5)
Other
comprehensive
income (0.1)
Profit and
total
comprehensive
income 0.3
-----------------------------------------------------------------
Operating segment performance for the year ended 31 December
2018:
Equipment
Franchise Sales &
Development Fryer Management Installation Site Service Total
GBPm GBPm GBPm GBPm GBPm
Sales to
external
customers 1.5 9.4 0.7 2.7 14.3
Adjusted EBITDA 0.7 1.4 0.1 0.5 2.7
-------------------------------- ------------------------------- ---------------------------------- ------------------------------------- --------------------------
Acquisition and
legal costs - (0.1) (0.0) (0.1) (0.2)
Share based
payments (0.0) (0.2) (0.0) (0.1) (0.3)
Depreciation
and
amortization (0.04) (0.26) (0.02) (0.08) (0.4)
Operating
profit 0.6 0.9 0.0 0.2 1.8
-------------------------------- ------------------------------- ---------------------------------- ------------------------------------- --------------------------
Net finance
costs (0.0) (0.0) (0.0) (0.0) (0.0)
Profit before
taxation 0.6 0.9 0.0 0.2 1.8
-------------------------------- ------------------------------- ---------------------------------- ------------------------------------- --------------------------
Taxation (0.4)
Other
comprehensive
income (0.0)
Profit and
total
comprehensive
income 1.3
-----------------------------------------------------------------
6. Operating profit and adjusted EBITDA
The following have been included in arriving at operating
profit and adjusted EBITDA:
2019 2018
GBP GBP
Depreciation of property, plant and equipment (note
17) 216,677 186,582
Amortisation of intangible assets (note 16) 857,992 212,474
Amortisation of right of use assets 322,263 -
Gain/(loss) on disposal of plant and equipment 10,739 (4,920)
Staff costs, including directors (Note 7) 7,137,774 3,525,043
Share based payment 283,215 302,506
Cost of acquisition 60,448 149,260
Recovery on contingent consideration (138,942) -
Restructuring 374,904 -
Foreign exchange gains/(losses) 83,975 (757)
Profit before tax is stated after charging:
Auditors remuneration:
Fees payable to the Company's Auditor and their
associates for the audit of the Company's annual
accounts 66,413 49,700
Fees payable to the Company's Auditor and their
associates for other services:
The audit of the Company's subsidiaries pursuant
to legislation 39,666 42,232
Tax and other services 66,299 30,148
----------- ------------------
Total auditors remuneration 172,378 122,080
----------- ------------------
Inventory expensed 14,756,297 7,130,656
Lease rental expense 10,178 19,570
Exceptional items consist of the following:
2019 2018
GBP GBP
Acquisition related 60,448 149,260
Recovery on contingent consideration (138,942) -
Restructuring 374,904 -
Legal and professional - 9,338
296,410 158,598
Acquisition related costs and restructuring are attributable to
the Watbio Holdings Limited acquisition.
7. STAFF COSTS
2019 2018
GBP GBP
Gross salaries 6,005,194 2,819,674
Social security costs 601,968 237,994
Pension contributions 93,725 15,635
Share based payment charge 283,215 302,506
Other staff benefits 153,672 149,234
---------- ------------
7,137,774 3,525,043
---------- ------------
The average number of employees of the Group during
the year was as follows:
2019 2018
No. No.
Directors 8 7
Staff
Administration 34 13
Customer Services/Network Support 25 14
Business Development/Marketing 6 6
Sales 9 6
Other 86 22
---------- ----------
168 68
8. REMUNERATION OF KEY MANAGEMENT PERSONNEL
2019 2018
GBP GBP
Remuneration for qualifying services 658,845 712,604
------------- ------------
658,845 712,604
Details of directors' remuneration are provided
in the Remuneration Report.
9. FINANCE COSTS
2019 2018
GBP GBP
Bank and other loans 234,604 33,606
Hire purchase and finance lease charges 43,655 8,378
------------- ---------
10. INCOME TAX EXPENSE 278,259 41,984
2019 2018
GBP GBP
Corporation Tax
Charge for the year 604,458 464,025
Deferred tax
Origination and reversal of temporary differences (72,040) (42,358)
Tax charge related to change in U.S. tax rate - -
--------- ---------
Total tax charge 532,418 421,667
--------- ---------
Reconciliation of corporation taxation:
2019 2018
GBP GBP
Profit before tax on continuing operations 929,432 1,741,838
--------- ----------
Tax calculated at the domestic tax rate of 19%
(2018: 19%) 176,592 330.949
Tax effects of:
Income not subject to tax (20,689) -
Expenses not deductible for tax purposes 194,999 153,899
Tax deductions not recognised as an expense (58,150) -
Tax losses in the year for which no deferred
tax is recognised 57,909 10,618
Other timing differences 14,306 (133,890)
Withholding tax payable on intercompany dividend 53,393 -
Adjustments in respect to prior years (78,178) -
Impact of overseas tax rates 149,785 106,756
Release/(Recognition) of deferred tax on share
options 42,451 (46,665)
Total 532,418 421,667
--------- ----------
The Filta Group's effective tax rate for the year ended 31
December 2019 was 57.3% (2018: 24.2%). The effective rate is an
amalgamation of mainly UK, US (23.5%) and Canadian (27.6%) rates
for the periods reported. The change from prior year has been
particularly affected by the geographic mix of profits for the year
and the inability to offset US and Canadian pre-tax profits with UK
losses. Additionally, there was a significant amount of expenses
that were disallowable for tax purposes relating to the acquisition
of Watbio.
The Filta Group has tax losses of approximately GBP749,447
(2018: GBP667,480) to carry forward against future profits. The UK
tax losses have no expiry date and a deferred tax asset of
GBP110,731 (2018: GBP128,460) has been recognised in respect of
them.
There are no other available tax losses in the Group.
11. DEFERRED TAX ASSETS / LIABILITIES
The movement in the Group's deferred tax asset
during the year is as follows:
2019 2018
GBP GBP
At start of year 754,728 652,131
Adjustment on initial application of IFRS 9 - 39,360
Acquired with subsidiaries - 5,468
(Subtraction)/addition for the year (59,183) 25,226
Foreign exchange differences (17,048) 32,543
--------- --------
At end of year 678,497 754,728
--------- --------
The deferred tax balances relate to temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the financial information as summarised
below.
2019 2018
GBP GBP
Tax losses 110,731 128,460
Deferred revenue 545,291 546,777
Other 22,475 79,491
-------- --------
At end of year 678,497 754,728
-------- --------
The movement in the Group's deferred tax liability during the
year is as follows:
2019 2018
GBP GBP
At start of year 1,291,318 95,185
Intangible assets acquired in business combination - 1,203,206
Credit for the year (132,197) (7,073)
At end of year 1,159,121 1,291,318
---------------------- ----------
12. DISCONTINUED OPERATIONS
In December 2017, the Group agreed terms to sell certain assets
of its Filta Refrigeration business to Scotia Cooling Solutions Ltd
('Scotia'). The deal completed on 4 January 2018.
Consideration for the disposal was a combination of GBP0.1m cash
and Scotia agreed to take on all employees and to novate and/or
refinance certain Filta Refrigeration vehicles.
The results of the discontinued operations, which have been
included in the consolidated income statement, were as follows:
2019 2018
GBP GBP
Revenues - 13,915
Expenses - (17,918)
------- ---------
Profit before tax - (4,003)
Income tax expense - 22,559
------- ---------
Net profit attributable to discontinued
operations - 18,556
------- ---------
Following the completion of the sale, there were no assets or
liabilities of the operation classified as a disposal group held
for sale and presented separately on the balance sheet during the
period.
13. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders of the company by the weighted
average number of shares in issue during the year, excluding
ordinary shares purchased by the company and held as treasury
shares.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares to take account of all
dilutive potential ordinary shares and adjusting the profit
attributable, if applicable, to account for any tax consequences
that might arise from conversion of those shares.
2019 2018
Earnings attributable to equity holders of
the company 403,866 1,338,727
-------------- -----------
Weighted average number of shares 29,041,697 27,204,089
Effect of dilutive share options and awards 104,870 224,199
-------------- -----------
Weighted average number of shares for dilutive
earnings 29,146,567 27,428,288
Earnings per share from continuing operations
Basic 1.39 4.86
Diluted 1.39 4.82
Earnings per share from continuing and discontinued
operations
Basic 1.39 4.93
Diluted 1.39 4.89
14. INVESTMENT IN SUBSIDIARIES
2019 2018
GBP GBP
Cost at the beginning of the year 8,951,424 2,293,426
Additions (185,681) 6,657,998
-------------- ------------------
Cost at end of year 8,765,743 8,951,424
-------------- ------------------
The subsidiaries of Filta Group Holdings plc, all of which
are included in the consolidated Annual Financial Statements,
are as follows:
Company Class 2019 2018 Nature of business
ownership ownership
interest interest
The Filta Group
Limited Ordinary 100% 100% Environmental Services
The Filta Group
Incorporated Ordinary 100% 100% Environmental Services
Filta
Refrigeration
Limited Ordinary 100% 100% Discontinued
FiltaFry
Limited Ordinary 100% 100% Dormant
Bio Depot
Limited Ordinary 100% 100% Dormant
Filta Seal
Limited Ordinary 100% 100% Dormant
Filta
Environmental Environmental
Canada Limited Ordinary 100% 100% Services
Filta Europe Environmental
B.V. Ordinary 100% 100% Services
FiltaFry
Deutschland Environmental
GmbH Ordinary 100% 100% Services
Watbio Holdings Environmental
Limited Ordinary 100% 100% Services
Environmental
Watbio Limited Ordinary 100% 100% Services
Watling Hope Ordinary 100% - Environmental
Installations Services
Limited
Environmental Ordinary 100% - Environmental
Biotech Services
Limited
M&M Asset Ordinary 100% - Environmental
Maintenance Services
The registered office of all subsidiaries is The Locks,
Hillmorton, Rugby, Warwickshire, CV21 4PP, apart from the
following:
Company Registered Office address
The Filta Group Incorporated 7075 Kingspointe Parkway, Suite
1, Orlando, Florida 32819 United
States
----------------------------------
Filta Environmental Canada 27(th) floor, P.O. Box 49123,
Limited 595 Burrard Street, Vancouver,
British Columbia, V7X 1J2 Canada
----------------------------------
Filta Europe B.V. Debbeshoek 14B, 7071XK Ulft,
Netherlands
----------------------------------
FiltaFry Deutschland GmbH Pliniusstraße 8, 48488
Emsbüren, Germany
----------------------------------
15. DIVIDS
2019 2018
GBP GBP
Distributions to equity holders in the year:
Final dividend for the year ended 31 December
2018 of 0.92p per share 267,286 176,434
Interim dividend for the year ended 31 December
2019 of 1.00p per share 290,829 195,434
558,115 371,868
--------- ---------
The Board has not recommended a final dividend
for the year ended 31 December 2019 - 267,286
--------- ---------
The proposed final dividend for the year ended 31 December 2018
was subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability in these financial
statements.
16. INTANGIBLE ASSETS
Computer Customer Customer Supply
Software Goodwill Relationships Contracts Contract Total
GBP GBP GBP GBP GBP GBP
Cost
Balance at 1
January
2019 542,782 1,639,523 3,963,737 2,489,489 724,481 9.360.012
Additions 194,245 - - - - 194.245
Business - - - - - -
combinations
Foreign exchange (17,707) - - - - (17,707)
---------- ----------- --------------- --------------- ---------- -------------
Balance at 31
December
2019 719,320 1,639,523 3,963,737 2,489,489 724,481 9,536,550
Amortisation and
impairmen t
Balance at 1
January
2019 398,963 - 94,353 40,741 - 534,057
Amortisation 115,687 - 430,995 263,012 48,298 857,992
Foreign exchange (6,846) - - (3,130) (9,976)
---------- ----------- --------------- --------------- ---------- ----------
Balance at 31
December
2019 507,804 - 525,348 300,623 48,298 1,382,073
---------- ----------- --------------- --------------- ---------- ----------
Net book value at
31 December 2019 211,516 1,639,523 3,438,389 2,188,866 676,183 8,154,477
========== =========== =============== =============== ========== ==========
Computer Customer Customer Supply
Software Goodwill Relationships Contracts Contract Total
GBP GBP GBP GBP GBP GBP
Cost
Balance at 1
January
2018 412,117 631,380 346,210 28,071 - 1,417,778
Additions 104,913 - - - - 104,913
Business
combinations - 1,008,495 3,617,527 2,458,142 724,481 7,808,645
Foreign
exchange 25,752 (352) - 3,276 - 28,676
---------- ----------- -------------- --------------- ---------- -----------------
Balance at 31
December
2018 542,782 1,639,523 3,963,737 2,489,489 724,481 9,360,012
Amortisation
and
impairmen t
Balance at 1
January
2018 274,506 - 25,110 1,961 - 301,577
Amortisation 104,451 - 69,243 38,780 - 212,474
Foreign
exchange 20,006 - - - 20,006
---------- ----------- -------------- --------------- ---------- --------------
Balance at 31
December
2018 398,963 - 94,353 40,741 - 534,057
---------- ----------- -------------- --------------- ---------- --------------
Net book
value at
31 December
2018 143,819 1,639,523 3,869,384 2,448,748 724,481 8,825,955
========== =========== ============== =============== ========== ==============
Intangible assets are valued separately for each acquisition and
the primary method of valuation used is the discounted cash flow
method. The majority of acquired intangibles are amortised using an
amortisation profile based on the projected cash flows underlying
the acquisition date valuation of the intangible asset. The Group
keeps the expected pattern of consumption under review.
Impairment tests for goodwill and intangibles
The Group is obliged to test goodwill and other intangibles with
finite lives for impairment, at least annually, or at any time if
there are indications that these assets might be impaired.
In order to perform this test, management is required to compare
the carrying value of the relevant cash generating unit ('CGU')
including the goodwill with its recoverable amount. The CGU's to
which the goodwill has been attributed and its carrying value are
summarised below.
2019 2018
GBP GBP
Franchise development 90,946 90,946
---------- ----------
Equipment sales &
installation 369,297 369,297
---------- ----------
Site service 1,179,280 1,179,280
---------- ----------
Total 1,639,523 1,639,523
---------- ----------
The recoverable amount of a CGU is primarily determined based on
value-in-use calculations. These calculations use pre-tax cash flow
projections based on annual financial budgets which are approved by
the Board. Income and costs within the budget are derived on a
detailed, 'bottom up' basis - all income streams and cost lines are
considered and appropriate growth, or decline, rates are assumed
for each, all of which are then reviewed, challenged and stress
tested, firstly by senior management and ultimately by the Board.
Income and cost growth forecasts are risk adjusted to reflect
specific risks facing each CGU and take into account the markets in
which they operate. Cash flows beyond the budgeted period are
extrapolated using the estimated growth rate stated below in to
perpetuity. The growth rate does not exceed the long-term average
growth rate for the markets in which the CGU's operate. Further,
other than as included in the financial budgets, it is assumed that
there are no material adverse changes in legislation that would
affect the forecast cash flows.
The pre-tax discount rate used within the recoverable amount
calculations was 8.11% (2018: 9.38%) and is based upon the weighted
average cost of capital reflecting specific principal risks and
uncertainties. The discount rate takes into account, amongst other
things, the risk free rate of return, the market risk premium and
beta factor reflecting the average Beta for the Group.
The same discount rate has been used for each CGU as the
principal risks and uncertainties associated with the Group, as
highlighted on pages 18 to 21, would also impact each CGU in a
similar manner. The Board acknowledge that there are additional
factors that could impact the risk profile of each CGU. These
additional factors were considered by way of sensitivity analysis
performed as part of the annual impairment tests. The level of
impairment recognised is predominantly dependent upon judgments
used in arriving at future growth rates and the discount rate
applied to cash flow projections. Key drivers to future growth
rates are dependent on the Group's ability to maintain and grow
income streams whilst effectively managing operating costs. The
level of headroom may change if different growth rate assumptions
or a different pre-tax discount rate were used in the cash flow
projections. Where the value-in-use calculations suggest an
impairment, the Board would consider alternative use values prior
to realising any impairment, being the fair value less costs to
dispose.
A sensitivity analysis has been performed and the Board have
concluded that no reasonably foreseeable change in the key
assumptions would result in an impairment of the goodwill. In
particular, a 1% increase in the discount rate or a 1% decrease in
the terminal value growth rate would not result in material
impairment.
17. PROPERTY, PLANT AND EQUIPMENT
Details of the Group's property, plant and equipment and their
carrying amounts are as follows:
Fixture Plant and
and
Fittings Machinery Motor Total
Freehold & Equipment Vehicles
Property
GBP GBP GBP GBP GBP
Cost
At 1 January 2019 1,618,452 179,986 299,723 477,947 2,576,108
Additions 1,674 49,137 233,490 3,950 288,251
Business combinations - - - - -
Disposals (10,640) (64,989) (94,999) (24,351) (194,979)
IFRS 16 transition (287,396) (287,396)
Foreign exchange (41,626) (2,807) (1,920) (1,315) (47,668)
---------- ------------ ---------- ---------- ----------
At 31 December 2019 1,567,860 161,327 436,294 168,835 2,334,316
---------- ------------ ---------- ---------- ----------
Depreciation
At 1 January 2019 704,960 115,070 140,871 122,027 1,082,928
IFRS16 transition - - - (77,068) (77,068)
Depreciation charge 45,561 28,732 113,483 28,901 216,677
Disposals (10,468) (63,566) (94,785) (17,174) (185,993)
Foreign exchange (28,657) (3,699) (4,436) (1,546) (38,338)
---------- ------------ ---------- ---------- ----------
At 31 December 2019 711,396 76,537 155,133 55,140 998,206
---------- ------------ ---------- ---------- ----------
Net Book Values
At 31 December 2019 856,464 84,790 281,161 113,695 1,336,110
---------- ------------ ---------- ---------- ----------
Cost
At 1 January 2018 1,519,590 111,450 198,056 246,549 2,075,645
Additions 11,675 37,300 36,103 231,007 316,085
Business combination 2,511 28,477 63,196 - 94,184
Foreign exchange 84,676 2,759 2,368 391 90,194
---------- ------------ ---------- ---------- ----------
At 31 December 2018 1,618,452 179,986 299,723 477,947 2,576,108
Depreciation
At 1 January 2018 623,664 97,208 104,958 33,427 859,257
Depreciation charge 49,303 15,206 33,810 88,262 186,581
Foreign exchange 31,993 2,656 2,103 338 37,090
---------- ------------ ---------- ---------- ----------
At 31 December 2018 704,960 115,070 140,871 122,027 1,082,928
---------- ------------ ---------- ---------- ----------
Net Book Values
At 31 December 2018 913,492 64,916 158,852 355,920 1,493,180
---------- ------------ ---------- ---------- ----------
Certain of the property, plant and equipment listed above are
held as security against bank facilities referred to in note
24.
18. TRADE AND OTHER RECEIVABLES
Trade and other receivables consist of the following:
Total 2019 2018
GBP GBP
Trade receivables, gross 3,591,379 4,238,420
Impairment allowance (83,262) (184,022)
---------- ----------
Trade receivables, net 3,508,117 4,054,398
Prepayments and other receivables 402,206 572,491
Franchise payment plans 566,220 519,170
---------- ----------
4,476,543 5,146,059
---------- ----------
Current 2019 2018
GBP GBP
Trade receivables 3,508,117 4,054,398
Prepayments and other receivables 402,206 572,491
Franchise payment plans 154,488 194,305
---------- ----------
4,064,811 4,821,194
---------- ----------
Non-current 2019 2018
GBP GBP
Trade receivables - -
Franchise payment plans 411,732 324,865
---------- ----------
411,732 324,865
---------- ----------
Trade and other receivables include amounts that the Filta Group
has agreed may be settled over extended repayment terms. The amount
due from related parties in the parent company of GBP3.8m consist
of GBP1.5m of loans to subsidiaries to fund debt repayment and
acquisitions and is repayable after more than twelve months while
the balance of GBP2.3m is for normal working capital requirements.
The loans to subsidiaries bear interest at commercial rates. All
amounts are eliminated on the Group Consolidated Statement of
Financial Position.
The Group applies a simplified approach to measure the loss
allowance for trade receivables classified at amortised cost, using
the lifetime expected loss provision. The expected credit loss on
trade receivables is estimated using a provision matrix by
reference to past default experience and credit rating, adjusted as
appropriate for current observable data. The following table
details the risk profile of trade receivables based on the Group's
provision matrix.
Trade receivables - days past
due
------------------------------------------------------------------
Not
past 31 - 60 -
31 December 2019 due < 30 60 90 > 90 Total
----------------- -------------- --------------- --------------- --------------- --------------- ---------------
Gross carrying
amount 2,115,940 534,788 273,355 140,802 526,494 3,591,379
Weighted average
expected credit
loss rate 0.8% 1.8% 4.2% 6.1% 6.8% 2.3%
Loss allowance 17,826 9,698 11,421 8,624 35,693 83,262
----------------- -------------- --------------- --------------- --------------- --------------- ---------------
Trade receivables - days past
due
------------------------------------------------------------------
Not
past 31 - 60 -
31 December 2018 due < 30 60 90 > 90 Total
----------------- -------------- --------------- --------------- --------------- --------------- ---------------
Gross carrying
amount 1,563,235 1,937,492 229,229 362,412 146,052 4,238,420
Weighted average
expected credit
loss rate 1.0% 1.7% 8.8% 10.7% 52.2% 4.3%
Loss allowance 15,882 33,049 20,090 38,691 76,310 184,022
----------------- -------------- --------------- --------------- --------------- --------------- ---------------
Movement in the allowance for doubtful debt:
2019 2018
GBP GBP
At beginning of year 184,022 56,255
Adjustment on initial
application of IFRS
9 (note 4) - 157,834
Acquired with subsidiaries - 118,336
Impairment loss recognised (18,353) 7,620
Utilised (84,407) (156,023)
At end of year 83,262 184,022
19. CONTRACT ACQUISITION COSTS
The Group capitalises incremental costs to obtain contracts with
customers where it is expected these costs will be recoverable.
Incremental costs to obtain contracts with customers are considered
those which would not have been incurred if the contract had not
been obtained. For the Group, these costs relate primarily to third
party broker fees. The Group has elected to use the practical
expedient as allowable by IFRS 15 whereby such costs will be
expensed as incurred where the expected amortisation period is one
year or less. Where the amortisation period is greater than one
year, these costs are amortised over the contract term on a
systematic basis consistent with the transfer of the underlying
goods and services within the contract to which these costs relate,
which will generally be on a rateable basis. Impairment of
capitalised contract costs was GBPnil in 2019 (2018: GBPnil).
The amount of capitalised contract cost expected to be recovered
after more than one year is GBP0.4m (2018: GBP0.3m).
20. INVENTORIES
2019 2018
GBP GBP
Finished goods 1,759,955 1,386,383
Total 1,759,955 1,386,383
Inventories primarily consists of filtration machines, filters,
grease recovery units and parts and are stated at the lower of cost
(on a first-in, first-out basis) and net realisable value.
Appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors in evaluating net
realisable value.
21. CASH AND CASH EQUIVALENTS
Group 2019 2018
GBP GBP
Cash at bank and in hand 2,891,014 6,789,968
Company
Cash at bank and in hand 109,089 3,616,685
22. TRADE AND OTHER PAYABLES
2019 2018
Group GBP GBP
Trade payables 2,555,860 2,877,737
Taxes and social security 194,199 413,782
Accruals and other payables 510,826 3,218,783
3,260,885 6,510,302
Company Trade payables 39,272 37,674
Taxes and social security 4,744 -
Accruals and other payables - 2,227,454
-------
44,016 2,265,128
-------
Analysis of trade and other payables
These are classified as short term and are expected to be settled
within 12 months from the reporting date.
The 2018 Company Accruals and other payables balance includes
GBP1.7m representing the balance due on completion of the Watbio
Holdings acquisition.
23. LOANS AND OTHER BORROWINGS Group 2019 2018
GBP GBP
Total
Bank loans, net GBP167,410 debt issuance costs
(2018: GBP209,263) 3,722,617 4,531,925
Hire purchase and finance leases - 168,448
Related party loans 46,942 49,579
---------- ----------
3,769,559 4,749,952
Current 2019 2018
GBP GBP
Bank loans, net GBP41,852 debt issuance costs
(2018: GBP41,852) 792,672 791,467
Hire purchase and finance leases - 49,174
792,672 840,641
Non-current 2019 2018
GBP GBP
Bank loans, net GBP125,557 debt issuance costs
(2018: GBP167,410) 2,929,945 3,740,458
Hire purchase and finance leases - 119,274
Related party loans 46,942 49,579
----------
2,976,887 3,909,311
----------
Company 2019 2018
GBP GBP
Total
Bank loans, net GBP167,410 debt issuance costs
(2018: GBP209,263) 3,532,590 3,790,737
-----------
3,532,590 3,790,737
Current
Bank loans, net GBP41,852 debt issuance costs
(2018: GBP41,852) 786,049 758,147
786,049 758,147
Non-current
Bank loans, net GBP125,557 debt issuance costs
(2018: GBP167,410) 2,746,541 3,032,590
2,746,541 3,032,590
The bank loans are comprised of a GBP4,000,000 term loan
(GBP3,032,590 net of debt issuance costs), which carries a variable
interest rate of Libor plus 3% and is repayable in equal
instalments of GBP200,000 per quarter; and a $905,785 US Dollar
denominated mortgage loan (GBP690,027), which carries an interest
rate of 4.5% and matures in 2024.
Following the implementation of IFRS 16 on 1 January 2019,
finance leases are now carried separately on the balance sheet and,
as a result, are no longer included in Borrowings.
24. LEASE LIABILITIES
The Group adopted IFRS 16 Leases effective 1 January 2019.
Details of the Group' Lease Liabilities are as follows:
Group 2019 2018
GBP GBP
Total
Leases 1,215,421 -
---------- -----
1,215,421 -
---------- -----
Current 2019 2018
GBP GBP
Leases 332,974 -
332,974 -
Non-current 2019 2018
GBP GBP
Leases 882,447 -
882,447 -
25 CONTINGENT CONSIDERATION
As part of the business combinations completed by the Group in
2018 certain contingent consideration formed the basis of the total
consideration reported.
Filtafry Deutschland GmbH
Contingent consideration to be satisfied by the issuance of
EUR50,000 worth of Filta ordinary shares in two equal tranches on
the first and second anniversary of the closing. On 6 February
2019, 9,225 shares, calculated based on an average share price of
236p and an exchange rate of 0.8694 were, issued to the Seller.
Watbio Holdings Limited
Contingent consideration of GBP1,954,611 to be satisfied by the
following:
Final EBITDA payment GBP1,440,455
Retention debt payment GBP 264,156
Consideration shares GBP 250,000
On 22 March 2019, 125,000 ordinary shares priced at 200p were
issued to the sellers to satisfy the consideration shares due. On
28 March 2019, a payment of GBP1,440,455 was remitted to the
Sellers to satisfy the final EBITDA payment consideration. On 30
June 2019, a payment of GBP125,314 was remitted to the Sellers and
represented a full and final payment on retention debt. The
remaining amount of GBP138,942 was recognised in income in the
period. This has been included in other income in the profit and
loss accounts and has been deducted when calculating the adjusted
EBITDA.
26 DEFERRED INCOME
Deferred income relates to certain performance obligations of
franchise sales that are deferred over the life of the franchise
agreement. The deferral period is 10 years in North America and 5
years in the UK and mainland Europe.
Movements in Deferred income are as follows:
1 Jan 2019 Acquisition Utilisation Foreign 31 Dec
Exchange 2019
GBP GBP GBP GBP GBP
Deferred income 3,659,919 251,836 (680,096) (201,420) 3,030,239
Current 534,066
Non-current 2,496,173
Total 3,030,239
27. OPERATING LEASE COMMITMENTS
The amounts of future minimum lease payments under
non-cancellable operating leases are as follows:
2019 2018
GBP GBP
Minimum lease payments due:
Within 1 year - 274,467
1 to 5 years - 296,145
Total - 570,612
28. RECONCILIATION OF MOVEMENTS IN NET DEBT
1 January Cash flows Acquisition Non-cash changes 31 December
2019 2019
Foreign Fair value
exchange changes
movements
GBP GBP GBP GBP GBP GBP
Long term
borrowings 4,581,505 (832,434) - 20,488 3,769,559
Short term
borrowings - - - - - -
Lease
liabilities 168,448 (32,588) 251,561 - 828,000 1,215,421
Total 4,749,953 (865,022) 251,561 20,488 828,000 4,984,980
1 January Cash flows Acquisition Non-cash changes 31 December
2018 2018
Foreign Fair value
exchange changes
movements
GBP GBP GBP GBP GBP GBP
Long term
borrowings 928,236 (204,791) 3,840,316 17,744 4,581,505
Short term
borrowings - - - - - -
Lease
liabilities 111,315 57,133 - 168,448
Total 1,039,551 (147,658) 3,840,316 17,744 - 4,749,953
29. SHARE CAPITAL
The share capital of Filta Group Holdings plc consists of fully
paid ordinary shares with a nominal value of 10 pence. All shares
are equally eligible to receive dividends and the repayment of
capital and represent one vote.
2019 2018
Number GBP Number GBP
Allotted and fully paid
Total shares in issue at
1 January 28,918,630 2,891,863 27,132,660 2,713,266
Issue of ordinary shares 134,225 13,422 1,785,970 178,597
Issued under share option
scheme 32,500 3,250 - -
Total shares in issue at
31 December 29,085,355 2,908,535 28,918,630 2,891,863
On 31 January 2018, pursuant to a share purchase agreement
between the Company and FiltaFry Deutschland GmbH, 10,970 shares of
10 pence each were issued to Chesskin Beheer B.V. at a price of 200
pence each, giving rise to a share premium of GBP20,843.
On 19 December 2018, the Company announced that it had raised
gross proceeds of GBP3m from the issue of 1,500,000 Placing Shares
at a placing price of 200 pence each, giving rise to a share
premium of GBP2.85m.
On 24 December 2018, pursuant to a share purchase agreement
between the Company and Watbio Holdings Limited, 275,000 shares of
10 pence each were issued to the sellers at a price of 200 pence,
giving rise to a share premium of GBP522,500, to partially satisfy
share consideration due as part of the total consideration paid for
the business.
On 6 February 2019, pursuant to a share purchase agreement
between the Company and FiltaFry Deutschland GmbH, 9,225 shares of
10 pence each were issued to Chesskin Beheer B.V. at a price of
238.5 pence each, giving rise to a share premium of GBP21,078.
On 22 March 2019, pursuant to a share purchase agreement between
the Company and Watbio Holdings Limited, 125,000 shares of 10 pence
each were issued to the sellers at a price of 200 pence, giving
rise to a share premium of GBP237,500, to partially satisfy share
consideration due as part of the total consideration paid for the
business.
Between 3 June 2019 and 3 October 2019 certain employees
exercised their rights under the Company's EMI Share Option Scheme
and 32,500 shares of 10 pence each were issued to satisfy the
exercise. These shares were priced at a range of 177 pence to 224
pence and gave rise to a share premium of GBP28,275.
30. OTHER RESERVES
Group 2019 2018
GBP GBP
Merger reserve (339,687) (339,687)
Share based payment reserve 367,102 79,634
---------- ----------
27,415 (10,053)
---------- ----------
Company
Purchase consideration reserve - 250,000
Share based payment reserve 367,102 79,634
---------- ----------
367,102 329,634
---------- ----------
Merger reserve
The directors consider the substance of the acquisition of the
Subsidiaries by Filta Group Holdings plc is that of a combination
of entities under common control and therefore it fell outside the
scope of IFRS 3 (revised 2008).
Purchase consideration reserve
On 21 December 2018, the Company completed the acquisition of
100% of share capital of Watbio Holdings Limited. At 31 December
2018, consideration shares of GBP250,000 were due to the sellers
and were allotted in the first quarter of 2019.
Share based payment reserve
The Company established the Filta Group Holdings Enterprise
Management Incentive Scheme in 2017 to award U.K. employees with
equity settled share options. The options were granted on 5 May
2017 and vest equally over a three-year period beginning on 5 May
2019. Subsequent options were granted on 16 October 2017, 11
January 2019, 15 May 2019, and 18 November 2019 all with similar
vesting schedules to the original grants. The total charge
recognised for share-based payments in respect of employee services
received for the year ended 31 December 2019 was GBP287,468 (2018:
GBP79,634).
31. FINANCIAL INSTRUMENTS
Risk Management objectives and policies
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Filta Group's competitiveness and flexibility. Further details
regarding these policies are set out below.
Management reviews its monthly reports through which it assesses
the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.
Market risk management
Management do not consider the company exposed to interest rate
or inflation risks significant enough to have a material effect on
the profitability of the company.
Foreign currency sensitivity
The Filta Group is exposed to foreign currency risk on
transactions and balances that are denominated in currencies other
than Pounds Sterling. The currency giving rise to this risk is
primarily the US Dollar. Foreign currency risk is monitored closely
on an ongoing basis to ensure that the net exposure is at an
acceptable level.
A majority of the Filta Group's financial assets and liabilities
are held in Dollars and movements in the exchange rate against
Sterling has an impact on both the results for the year and equity.
The Filta Group maintains a natural hedge whenever possible, by
matching the cash inflows (revenue streams) and cash outflows in
foreign currencies.
The following table demonstrates the sensitivity to a reasonably
possible change in sterling against the US Dollar and Canadian
Dollar with all other variables held constant.
Change in Effect on Effect
rate profit before on equity
tax GBP
GBP
USD +10% (231,846) 187,634
USD -10% 283,368 (229,330)
CAD +10% (10,955) 12,492
CAD -10% 13,390 (15,268)
Interest rate sensitivity
The interest rate sensitivity has been determined based on the
exposure at the balance sheet date. For floating rate liabilities,
the analysis is prepared assuming the amount of liability
outstanding at the balance sheet date was outstanding for the full
year. All financial liabilities, other than financing liabilities,
are interest free.
The following table analyses interest bearing loans, borrowings,
and lease liabilities by fixed and floating mix.
2019 2018
GBP GBP
Floating LIBOR 3,032,590 3,790,737
Floating Base - -
Fixed 1,952,390 959,215
Total 4,984,980 4,749,952
As the Group has no significant interest-bearing assets, the
Group's income and operating cash flows are substantially
independent of changes in market interest rates. The Group's
interest rate risk arises from its borrowings, chiefly its floating
GBP LIBOR term debt. Borrowings issued at variable rates expose the
Group to cash flow interest rate risk. Borrowings issued at fixed
rates expose the Group to fair value interest rate risk.
An increase or decrease of 100 basis points in each of the
applicable rates would impact reported after-tax profit by GBP0.03m
(2018: GBP0.04m) and equity by GBP0.03m (2018: GBP0.04m).
Credit risk management:
The Filta Group's exposure to credit risk, or the risk of
counterparties defaulting, arises mainly from trade and other
receivables. The Filta Group manages its exposure to credit risk by
the application of credit approvals, credit limits and monitoring
procedures on an ongoing basis. For other financial assets
(including cash and bank balances), the Filta Group minimises
credit risk by dealing exclusively with high credit rating
counterparties.
As the Filta Group does not hold any collateral, the maximum
exposure to credit risk is represented by the carrying amount of
the financial assets as at the end of each reporting period.
Liquidity risk management:
The Filta Group currently holds cash balances to provide funding
for normal trading activity. The Filta Group also has access to
both short-term and long-term borrowings to finance capital
expenditure requirements. Trade and other payables are monitored as
part of normal management routine.
Categories of financial instruments:
The table below sets out the Group's classification of each of
its financial assets and liabilities at 31 December 2018 All
amounts are stated at their carrying value.
2019 2018
GBP GBP
Financial Assets
Loans and receivables:
Cash and cash equivalents 2,891,014 6,789,968
Trade and other receivables (excluding prepayments) 4,084,963 4,585,002
Deposits 5,272 2,491
----------
6,981,249 11,377,461
Financial Liabilities
Trade and other payables (excluding taxes) 3,066,685 6,096,520
Borrowings 3,769,559 4,749,952
6,836,244 10,846,472
The table below summarises the maturity profile (representing
undiscounted contractual cash flows) of the Group's financial
liabilities:
Less
than 3 to 12 1 to 5 Over 5
At 31 December 2019 3 months months years years Total
GBP GBP GBP GBP GBP
Trade and other
payables 3,019,615 16,817 30,253 - 3,066,685
Expected future
interest
payments 34,150 158,510 316,725 - 509,385
Borrowings 5,559 787,113 2,976,887 - 3,769,559
Total 3,059,324 962,440 3,323,864 - 7,345,628
Less
than 3 to 12 1 to 5 Over 5
At 31 December 2018 3 months months years years Total
GBP GBP GBP GBP GBP
Trade and other
payables 6,026,750 17,308 52,462 - 6,096,520
Expected future
interest
payments 49,362 140,825 401,551 - 591,738
Borrowings 13,749 826,892 3,909,311 - 4,749,952
Total 6,089,861 985,025 4,363,324 - 11,438,210
32. RETIREMENT BENEFIT SCHEMES
Defined contribution scheme
Since October 2016, the Group has operated a defined
contribution retirement benefit scheme for all eligible employees
in its U.K. subsidiary. The assets of the scheme are held
separately from those of the group in funds under the control of
the trustee. The subsidiary was required to contribute 1% of
payroll costs, increased to 2% in April 2018, to the retirement
benefit scheme to fund the benefits. The only obligation of the
Group with respect to the retirement benefit scheme is to make the
specified contributions.
The total cost charged to income of GBP93,725 (2018: GBP15,635)
represents contributions payable to the scheme by the Group at
specified rates. Any contributions unpaid at the balance sheet date
are included as an accrual at that date. The Group has no further
payment obligations once the contributions have been paid.
33. SHARE OPTION SCHEME
The Company maintains an EMI Share Option Scheme to incentivise
executives and employees of Filta Group Holdings and its
subsidiaries. For U.K. employees, Options have been awarded over a
total of 1,985,000 ordinary shares, equivalent to 6.8% of the
Company's current issued share capital. The options vest, subject
to the satisfaction of certain conditions, over a period of 4 years
from the date of grant. All options issued will meet the vesting
conditions between 2019 and 2023 and are exercisable at any time
after vesting and within 10 years from the grant date.
Additionally, all qualifying U.S. employees have been awarded
share acquisition rights (SARs). The SARs are conditional bonuses
whose value will be calculated by reference to the amount by which
the price of the Company's ordinary shares has risen above the base
price at the date of exercise, thus providing holders of SARs the
same reward value as if the SARs were share options. The qualifying
conditions and timing of vesting are identical to those within the
share option scheme for UK employees. All SARs are settled in cash
when exercised. A total of 667,500 SARs has been awarded.
In the ordinary course of business, an option will normally only
be exercisable to the extent it has fully vested, and any
applicable non-market performance conditions have been satisfied or
waived. Options shall lapse to the extent unexercised on the tenth
anniversary of the date of grant or such earlier date as specified
by the Board at the date of grant.
As at 31 December 2019, a total of 1,690,000,000 (2018: 540,000)
were outstanding, having a range of exercise prices from 0.97p to
2.30p (2018: 0.97p to 1.74p) and a weighted average exercise price
of 1.76p (2018:1.01p). These outstanding awards have a weighted
average contractual life of 8.59 years (2018: 8.33 years).
Movement in the number of share options outstanding during the
year, including grant dates and grant price were as follows:
Share acquisition
Share Options rights Total
Outstanding
at 1
January
2019 210,000 330,000 540,000
Granted on
11 January
2019
(2.15p) 1,002,500 175,000 1,177,500
Granted on
15 May 2019
(2.30p) 187,500 110,000 297,500
Granted on
18 November
2019 (1.46p) 352,500 22,500 375,000
Total
granted
during the
year 1,542,500 307,500 1,850,000
Exercised
during the
year
(0.97p) (32,500) (22,500) (55,000)
Total
exercised
during
the year (32,500) (22,500) (55,000)
Forfeited
during the
year
(0.97p) (50,000) (80,000) (130,000)
Forfeited
during the
year
(1.74p) (7,500) (20,000) (27,500)
Forfeited
during the
year
(2.15p) (407,500) (407,500)
Forfeited
during the
year
(2.30p) (50,000) (50,000)
Forfeited
during the
year
(1.45p) (30,000) (30,000)
Total
forfeited
during
the year (545,000) (100,000) (645,000)
Total
outstanding
at 31
December
2019 1,175,000 515,000 1,690,000
Exercisable
at 31
December
2019 17,500 62,500 80,000
During the year, the Company recognised total expense of
GBP283,215 (2018: GBP302,506) related to the fair value of the
share-based payment arrangements. This included GBP303,360 (2018:
GBP35,849) related to equity-settled share options and (GBP20,145)
(2018: GBP266,657) from cash-settled SARs. The SARs liability at 31
December 2018 was GBP284,117 (2018: GBP309,954).
These amounts were determined using the Black Scholes model,
with the following assumptions for each type of award granted:
Stock Options
Weighted average fair value 96.3p
Weighted average exercise price 188.1p
Expected life of option (years) 8.04
Risk free rate 1.95%
Dividend yield 1.54%
Volatility 50.14%
Share Appreciation Rights
Weighted average fair value 99.9p
Weighted average exercise price 163.1p
Expected life of option (years) 8.1
Risk free rate 1.93%
Dividend yield 0.0%
Volatility 50.24%
34. RELATED PARTY TRANSACTIONS
Remuneration of Directors and other transactions
The remuneration, interests and related party transactions with
the directors of Filta Group Holdings plc and its subsidiaries (the
"Directors") who are considered to be the key management personnel
of the entity, are disclosed in Note 8.
Notes payable to related party
On 31 January 2018, Filtafry Deutschland GmbH entered into notes
totaling GBP48,201, bearing interest at 2.5%, with related parties.
The notes mature on 31 January 2023 and include the right to repay
early without penalty. These amounts are classified within
borrowings.
Interest accrued on the notes amounted to GBP1,071 at 31
December 2019.
35. EVENTS AFTER THE REPORTING DATE
COVID-19
There remains considerable uncertainty about how Covid-19 will
develop over the coming weeks and months after it was announced as
a global health emergency by the World Health Organisation on 30
January 2020.
The Group is financially strong and has well balanced revenue
streams, and whilst a number of our franchisees and customers are
still operating it is clear that COVID-19 will have a material
impact on 2020 trading. We began the year strongly closing 6
franchise sales in Q1 but anticipate a slowdown in closing sales
pending a fuller return to normal operating conditions. In those
markets where we operate a franchise model, we introduced a
franchise support program that allows franchisees a reduced royalty
of up to 50%. As a result, our royalty revenue, which represents
10% of Group revenue is expected to be down 50% through at least
June. In addition, we continue to generate revenue in our other
Fryer Management categories but at 50% to 80% below anticipated run
rates. In the UK where we operate our company owned model, we
experienced a drop of 89% in the number of jobs completed in April
versus the average over the prior three months.
There is no indication at this stage that there will be any
material impairments of the financial assets presented in the 31
December 2019 financial statements. Credit risk is increasing as
customers, particularly smaller customers, are put under increasing
financial pressure. As such, we are managing our trade receivables
closely with our customers and whilst credit risk remains, we have
continued to see good collection patterns through the first part of
2020.
We have modelled a number of possible outcomes which consider,
amongst other things, the overall length of the lockdown in key
regions, the level of current trading during the period, as well as
the rate and timing of normalisation across our customer base.
These scenarios give a broad range of outcomes on revenue,
before considering the related margin impact and approach to
discretionary spend as we move through the year. Given the level of
uncertainty and the dynamic nature of the situation, it is too
early to quantify the impact on the outturn for the remainder of
the financial year.
The Group is in a strong financial position at year end and at
the current date. We have year-end cash and unutilised overdraft
facility of GBP3.2m, which has further increased post year end.
Banking facilities
On 30 March 2020 we concluded the extension of our GBP0.4m
overdraft facility through 31 December 2020. This arrangement
provides flexibility for short-term operational variability. As of
the date of this report the facility is unutilised and remains
fully available e as a contingency measure in light of the current
uncertainty.
Government Support
On 29 April 2020, following application through our incumbent
bank HSBC, we received a PPP loan through the US Small Business
Administration in the amount of $308,440. This loan is intended to
be used to cover payroll costs, rent and/or mortgage interest and
utilities for a period of up to 8 weeks. Loan documents were signed
on 5 May 2020 and the loan was funded the following day. There is a
stipulation in the loan agreement allowing the borrower to apply
for loan forgiveness on a prorated basis up to 100% of the loan
value. The borrower must show that at least 75% of the loan was
used to retain and compensate employees and that the average full
time equivalent employee count was not reduced over a prescribed
period. We anticipate that we will be making a request in late June
for forgiveness of the loan, however, at this time it is too early
to determine the amount and outcome of that request. Any residual
value of the loan not forgiven begins amortising on 7 November 2020
for a period of 2 years at an interest rate of 1%.
On 30 April 2020, following application through our incumbent
bank HSBC, we received credit approval for a CBILS loan in the
amount of GBP1.2m. The loan will carry a term of 6 years, interest
will be Nil for first 12 months followed by standardised interest
rate of 3.99% over Bank of England Base Rate. Monthly repayments of
GBP20,000 will start in month 13 and there is no prepayment
penalty. Loan documents are anticipated to be signed by the end of
May. Covenants for this loan will be incorporated under our
existing GBP4m term debt facility as of 31 December 2020.
There are no other material events subsequent to 31 December
2019, up to the reporting date, which would require adjustment to
or disclosure in this report.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEASSAESSEFI
(END) Dow Jones Newswires
May 28, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Filta (LSE:FLTA)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni Filta (LSE:FLTA)
Storico
Da Apr 2023 a Apr 2024
