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Hercules Site Services Plc Earnings Release 2021
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Earnings Release
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RNS Number : 1452G
Hercules Site Services PLC
28 March 2022
28 March 2022
Hercules Site Services plc
("Hercules" or "the Company")
Final Results
Hercules Site Services plc (AIM: HERC), a leading technology enabled labour supply company for the UK infrastructure sector, is pleased to announce its audited results for the year ended 30 September 2021.
Financial Highlights
· Revenue increased by 42% year-on-year to £32.7m (2020: £23.0m) and was up from £30.7m in 2019
· Adjusted EBITDA* increased by 70% to £2.4m (2020: £1.4m)
· Pre-tax profit was £515,000 for the year (2020: £1.0m), including exceptional non-recurring items such as IPO costs
· Pre-tax profit before exceptional non-recurring items was £1.4m (2020: £1.0m)
· Adoption of a progressive dividend policy with a proposed inaugural dividend of 1.7p per share for the year ended 30 September 2021
*Adjusted EBITDA excludes exceptional non-recurring items of £890k relating to IPO costs and a bad debt expense
Operational Highlights
· Appointed as a labour supply partner to the Balfour Beatty Vinci joint venture on HS2 (Phase 1, northern section), which is expected to underpin significant revenue growth over the next six years
· Suction Excavator Services business successfully established, with demand outstripping supply, leading to the order of eleven more suction excavators due for delivery in 2022
· Won the award for Best Health, Safety and Wellbeing Initiative at the British Construction Industry Awards 2021
Post Period End Highlights
· Successful IPO on the AIM Market of the London Stock Exchange with a £4m raise (before expenses)
· Growth achieved within the rail labour supply sector, with a framework agreed with Volker Fitzpatrick to supply safety critical rail workers
· Approved supplier to the M Group with new projects underway for Dyer & Butler and Milestone
· Appointed labour supply partner to Vinci for the Southampton to London pipeline, and to Skanska on the M42 Junction 6 improvement scheme
· Growth throughout the water utilities sector due to the significant ramp up of the current Asset Management Programme cycle
· Appointed to deliver increased labour requirements throughout the HS2 supply chain including labour supply to Blackwell Earthmoving on the central section of Phase 1
Hercules CEO Brusk Korkmaz said: "We are delighted to present these results, our first since our successful listing in February 2022, and to propose our inaugural dividend to investors. Our results for the period show a strong and rapid bounce-back from 2020, where our year-on-year growth track record experienced an interruption due to the impact of covid on the construction and infrastructure sectors. They also show that we have delivered solid growth on the prior, non-covid year of 2019, thanks to our reputation in the industry for our ability to quickly meet our blue-chip clients' labour needs through our use of proprietary digital technology. The construction and infrastructure sectors are now as buoyant as ever and set to benefit from more than £650 billion projected public and private investment spend over the next ten years.
"The current financial year has kicked off to a fantastic start, with trading in line with our expectations and exciting growth initiatives already underway. The award of a contract to provide labour to HS2 is expected to step-change our growth over the next six years and we have been placing workers on site over recent months. We are also ramping up our award-winning Suction Excavator Services business following a successful 2021, where demand outstripped supply. We are also having positive conversations in respect to monetising our digital technology and wellbeing services, demonstrating the positive reception we are experiencing for the aspects of our business which set us apart from our peers. We thank our new investors for their support in our recent IPO and look forward to communicating our progress towards our stated goals in the coming months."
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 which has been incorporated into UK law by the European Union (Withdrawal) Act 2018.
Enquiries
| Hercules Site Services plc Brusk Korkmaz (CEO) Paul Wheatcroft (CFO) |
c/o SEC Newgate |
| SP Angel (Nominated Adviser and Broker) Matthew Johnson / Adam Cowl / Harry Davies-Ball (Corporate Finance) Grant Barker / Rob Rees (Sales and Broking) |
+44 (0) 20 3470 0470 |
| SEC Newgate (Financial PR) Elisabeth Cowell / Ian Silvera / Max Richardson |
+44 (0) 20 3757 6882 [email protected] |
About Hercules Site Services plc
Hercules is a leading tech enabled labour supply company for the UK infrastructure sector. Founded in 2008, Hercules has an established track record of profitability and fast-growth and has built a blue-chip customer base which includes Balfour Beatty, Costain, Kier, Skanska, Dyer & Butler and Volker Fitzpatrick. The Company has been appointed to provide labour for a range of high-profile infrastructure projects, such as HS2, due to its agile, innovative, digital first approach and complete service offering. It is well-placed to benefit from any government increase in infrastructure spending and its experienced management team has identified multiple opportunities for growth.
HAIRMAN'S REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2021
I am delighted to present my first Chairman's report for Hercules Site Services plc ("Hercules" or "the Company") since joining the Board at the time of the Company's IPO on AIM on 4 February 2022. Hercules is a leading, dynamic provider of labour and construction services to blue-chip clients in the UK infrastructure sector. We believe that the Company is well positioned to benefit from the UK Government's commitment to spending on infrastructure as it supplies labour for these projects and can also provide civil engineering services and specialist plant hire, which comprises a fleet of suction excavators, an innovative method of safe excavation. Our "one stop shop" service enables us to cross sell between divisions and our experienced management team is adept at delivering projects efficiently for clients.
In its labour supply business, the Company's proprietary digital technology is used to accelerate the recruitment and onboarding process for workers, which not only enables the Company to quickly meet the client's labour needs but also enables the Company to focus on sourcing this labour locally which often is a stipulation in government-funded projects. This local focus has built Hercules' reputation across the UK. We believe more traditional suppliers of labour struggle to do this without a local presence and are also facing difficulties replenishing their labour pool following shifts in the labour force caused by the COVID-19 pandemic and Britain's exit from the European Union, among other things. In contrast, Hercules has a low staff turnover which we attribute to the Company's culture, focus on innovation and on developing its people, many of whom have progressed through the business to senior management positions.
Hercules is also developing its digital solutions to provide clients with data analysis tools to help improve their ability to understand their own labour supply needs and make long-term planning decisions. It is innovation such as this that has led to the Company winning multiple awards and being recognised by both its blue chip-clients and third parties, such as Highways England, in areas such as its innovative business practices, digital connectivity and excellent client delivery.
The UK construction sector is set to benefit from nearly £650 billion of projected public and private investment spend on infrastructure projects over the next ten years. Ongoing and upcoming major infrastructure projects include HS2, the Lower Thames Crossing, Water Infrastructure Asset Management Plan 6 (AMP6) and 7 (AMP7) and Highways England's Smart Motorways and Regional Development programme, among others.
The Company's innovative approach has been attractive to clients and enabled the Company to establish framework agreements with large blue-chip companies, such as Balfour Beatty Highways, Costain, Kier, Skanska, Dyer & Butler and Volker Fitzpatrick, who we believe value the quality and reliability of the services such innovation provides. These framework agreements provide a basis for Hercules to collaborate with clients on multiple projects and also means the Company has increased visibility on its clients' pipeline of projects, as well as promoting the cross selling of its services.
In August 2021, the Company was selected as one of six labour supply partners for the Balfour Beatty Vinci joint venture constructing the northern section of HS2 from London to Birmingham (Phase One). We believe the Company's use of digital technology in the recruitment and on-boarding of workers was a key factor in securing this business which is expected to underpin significant revenue over at least the next six years.
On 4 February 2022, Hercules was admitted to the AIM market of the London Stock Exchange, beginning a new chapter in its development. Following the Company's admission to AIM, the Board has adopted a progressive dividend policy and is pleased to propose a dividend of 1.7 pence per share for the year ended 30 September 2021. Hercules Real Estate Limited, the Company's 71% shareholder, has waived its entitlement to this payment. The dividend will be paid on 1 June 2022 to shareholders on the register at close of business on 29 April 2022. The shares will go ex-dividend on 28 April 2022.
The fundamental market drivers for our business look positive and we believe an exciting few years now lie ahead as we seek to grow the business both organically and via selective acquisitions. The Company's recent appointment as a labour supply partner to the Balfour Beatty Vinci joint venture on HS2 is testament to the team's hard work and should lead to a significant increase in our revenue. The Company has already started to provide labour for this important project.
We are pleased to report a strong start to the new financial year, with current trading in line with management expectations.
Henry Pitman, Non-Executive Chairman
Date: 25 March 2022
CHIEF EXECUTIVE OFFICER'S REVIEW FOR THE YEAR ENDED 30 SEPTEMBER 2021
The year ended 30 September 2021 was an excellent year for Hercules, achieving the highest turnover since I founded the Company in 2008. The second half of the financial year ended 30 September 2020 was adversely impacted by the COVID-19 pandemic, but recovery was strong from Autumn 2020 onwards, and continued throughout the financial year.
Post period end, on 4 February 2022, we successfully listed Hercules on the AIM market, raising £4 million (before expenses) for the Company. The proceeds will be used to fund the expansion of the suction excavator fleet, HS2 transport investment and provide working capital for the HS2 project.
Construction Services comprises the Company's labour supply and civil projects divisions. The Company's core business is supplying skilled and qualified labour to blue-chip construction companies to deliver key infrastructure, civil engineering, utilities, groundworks, highway and railway projects £650 billion is planned to be spent in the infrastructure sector in the next ten years and Hercules is well placed in the market to benefit from this expenditure. Our dedicated operations and resource teams, personnel management system and innovative mobile recruitment and onboarding apps ensure that we can supply the right person to the right location on time to fulfil client requirements.
In the last 12 months, on average, the Company has been supplying between 400 and 500 personnel to projects each day. These projects range from only a handful of staff through to 140 operatives deployed on the M4 project with Balfour Beatty Highways. The Company's major focus for labour supply is transport projects such as road and rail projects. Currently the Company is supplying labour to major road projects such as the M4 and M3 Smart Motorway projects and key regional projects such as the A30 upgrade in Cornwall, A2 Ebbsfleet Project in Kent and A63 Project in Hull, in addition to numerous smaller projects under the Highways England Regional Development Programme. On the rail side, the Company is working with Hochtief on Crossrail projects in West Drayton, Hayes and Harlington and Southall. On utilities projects, the Company is supplying labour to water companies including Thames Water, Southern Water and Anglian Water.
In August 2021, the Company was selected as a partner for the Balfour Beatty Vinci joint venture to supply labour in the West-Midlands area around Birmingham on the Northern Section of HS2. Hercules is one of the six companies making up the labour desk, which it is anticipated will collectively provide at least 4,000 workers during the life of the project.
We have begun recruitment for this project and individuals have been selected to run the Company's part of the labour desk with other members of staff assigned to HS2 project-specific roles. We will need to significantly expand our labour force for the project and plan to use our recruitment and onboarding apps in achieving this. We expect to source further workers through our relationships with the Department of Work and Pensions and local job centres. We will also seek to attract further ex-military personnel and anticipate recruiting from overseas to fill certain roles (if necessary) and are in discussions with the Home Office regarding its Immigration Sponsorship Management process. We are committed to upskilling and cross skilling our workforce and finding local jobs for local people through our apps.
In relation to civil projects, we partner with some of the UK's top contractors to provide end to end project delivery. The Company is recognised for its work in the water industry and has expanded into all areas of the civil engineering sector. We are currently working with TGE at Avonmouth on a new gas storage facility, which is expected to be worth approximately £2 million in revenue to Hercules, the Irish Archaeological Consultancy on various sites on the HS2 Central Section and with Galliford Try and Black & Veatch on various AMP7 projects.
Suction Excavator Services
Despite the difficult conditions in the sector caused by the COVID-19 pandemic in 2020, Hercules started investing in a fleet of state-of-the-art suction excavators, a more efficient and safer way of removing debris for digging teams. We were operating nine suction excavators at the end of September 2021, and have a further eleven scheduled to be delivered from January 2022 onwards. Demand is outstripping supply for suction excavator services and I am very pleased this new business division has been such a success.
Brusk Korkmaz, Chief Executive Officer
Date: 25 March 2022
CHIEF FINANCIAL OFFICER'S REVIEW FOR THE YEAR ENDED 30 SEPTEMBER 2021
Introduction
The ongoing challenges of the COVID-19 pandemic in 2020-21 have had a significant impact on the UK construction industry. Additional health and safety concerns and supply chain difficulties generated by the pandemic contributed to a marked downturn in productivity within the construction industry in 2020. However, the industry has shown strong signs of recovery across all sectors with infrastructure proving particularly resilient. By January 2021, infrastructure was the only sector where the level of work had recovered above February 2020 pre-pandemic levels, growing by 8 per cent. The Directors anticipate continued growth alongside significant investment in infrastructure as outlined by the UK Government.
Financial Performance
In 2021, revenue increased to £32,754,468 (2020: £22,950,757) representing an increase of approximately 42% in revenues year-on-year.
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Construction Services | 30,586,172 | 22,937,327 | |||
| Suction Excavator Services | 2,168,296 | 13,430 | |||
| 32,754,468 | 22,950,757 |
The Company received £164,631 of grants from the Construction Industry Training Board, (2020: £142,675), as well as £52,565 in Coronavirus Job retention Scheme grants (2020: £249,049).
Administrative costs rose to £6,118,558 (2020: £3,701,746) - an increase of more than 60% compared to the prior year. Excluding depreciation, revaluation and R&D (see Note 8) they rose to £5,326,797 (2020: £3,368,725). This was a combination of new activity (the suction excavator business started September 2020 and the management and administration infrastructure was built in the following year), and a planned management expansion in readiness for commencing the HS2 contract.
The Company delivered:
Pre tax profit of £515,517 (2020: £1,010,420)
Pre tax profit before exceptional non-recurring items (see below) of £1,413,506 (2020: £1,010,420)
EBITDA (see below) of £2,437,739 (2020: £1,409,006).
Year ended Year ended
30 September 30 September
2021 2020
£ £
Profit from operations 786,106 996,654
Depreciation 724,843 383,364
Research & Development 17,505 54,555
(Profit)/Loss on sales of assets 11,297 (25,567)
Exceptional items (see below) 897,988 -
EBITDA 2,437,739 1,409,006
Exceptional items related to:
Cost relating to AIM admission £297,058
NMCN Bad debt £600,930
Total £897,988
NMCN plc (North Midland Construction), a client of the Company, went into administration at the end of September 2021, and while we may recover some of the funds, this is uncertain, and we have therefore fully provided for the debt. Hercules has never previously had to make a provision for a bad debt in its 14 year history.
Statement of Financial Position
As at 30 September 2021, the Company's net assets were £3,436,950 (2020: £6,787,344) of which £1,465,292 (2020: £2,015,552) were cash and cash equivalents.
Current assets at 30 September 2021 were £10,113,832 (2020: £10,989,500).
Net current assets as 30 September 2021 were £1,366,772 (2020: £5,155,872).
The change in assets in 2021 over 2020 was due to the approval in March 2021 of an interim dividend of £3,294,192. This was an in-specie dividend that cleared the debt owed to the company by the parent company, leaving a credit balance of £470,453. A contra settlement was agreed with the parent company eliminating this credit balance and the Director current account.
Company loans & borrowings were £3,139,463 as at 30 September 2021 (2020:£344,639). This is the balance on a working capital facility with Investec that was introduced in May 2021 - originally capped at £4m, which was increased to £10m in November 2021 in the light of winning the HS2 contract.
There was a bank loan outstanding at the end of 2020, but this was repaid by September 2021. The borrowings at the end of September 2021 relate to the Investec working capital facility (see note 20).
At 30 September 2020, the Company anticipated that it would be making a Research and Development tax claim that would lead to an increased level of tax losses being available. The relevant claim has not yet been submitted and the Directors do not consider there was sufficient certainty at 30 September 2021 to be able to continue to recognise the corresponding deferred tax asset. As a result the deferred tax charge in the year ended 30 September 2021 includes an amount of £465,503 relating to the reversal of the previously recognised asset.
The financial position of the Company was further improved following admission to the AIM market of the London Stock Exchange on 4 February 2022 with a net fundraise of circa £2.7m.
Seven more suction excavators were added to the fleet during the year (the first two arrived in September 2020), all are financed with conventional asset funding from several different providers. Eleven more suction excavators are due to be delivered in the year ending 30 September 2022, all to be similarly funded.
Paul Wheatcroft, CFO
Date: 25 March 2022
STATEMENT OF COMPREHENSIVE INCOME
| Year ended 30 September 2021 |
Year ended 30 September 2020 |
||||||||
| Continuing operations | Note | £ | £ | ||||||
| Revenue | 6 | 32,754,468 | 22,950,757 | ||||||
| Cost of sales | (26,066,999) | (18,647,906) | |||||||
| Gross profit | 6,687,469 | 4,302,851 | |||||||
| Other operating income | 7 | 217,195 | 395,549 | ||||||
| Administrative expenses | (6,118,558) | (3,701,746) | |||||||
| Profit from operations | 8 | 786,106 | 996,654 | ||||||
| Fair value (losses)/gains | 16 | (38,116) | 79,331 | ||||||
| Finance income | 27 | 15,278 | |||||||
| Finance costs | 12 | (232,500) | (80,843) | ||||||
| Profit before tax expense | 515,517 | 1,010,420 | |||||||
| Tax (charge)/credit on profit | 13 | (571,720) | 198,244 | ||||||
| Net (loss)/profit for the year | (56,203) | 1,208,664 | |||||||
| Total comprehensive (loss)/ income for the year | (56,203) | 1,208,664 | |||||||
| Earnings per share | |||||||||
| Basic | 4 | (2.66) | 604,332 | ||||||
| There is no difference between basic and diluted earnings per share | |||||||||
STATEMENT OF FINANCIAL POSITION
| 30 September 2021 | 30 September 2020 | 1 October 2019 |
||||
| Note | £ | £ | £ | |||
| Non-current assets | ||||||
| Property, plant and equipment | 15 | 9,236,223 | 6,613,726 | 2,514,193 | ||
| Deferred tax assets | 14 | - | 124,133 | - | ||
| 9,236,223 | 6,737,859 | 2,514,193 | ||||
| Current assets | ||||||
| Inventories | 1,973 | 5,597 | - | |||
| Trade and other receivables | 17 | 8,292,227 | 8,604,583 | 7,079,497 | ||
| Current tax receivable | 82,890 | 54,202 | 558,753 | |||
| Assets at fair value through profit or loss | 16 | 271,450 | 309,566 | 230,235 | ||
| Cash and cash equivalents | 1,465,292 | 2,015,552 | 979,372 | |||
| Total current assets | 10,113,832 | 10,989,500 | 8,847,857 | |||
| TOTAL ASSETS | 19,350,055 | 17,727,359 | 11,362,050 | |||
| Equity and liabilities | ||||||
| Equity attributable to equity holders of the parent | ||||||
| Share capital | 24 | 50,000 | 2 | 2 | ||
| Retained earnings | 3,386,950 | 6,787,342 | 5,578,678 | |||
| Total equity | 3,436,950 | 6,787,344 | 5,578,680 | |||
| Non-current liabilities | ||||||
| Deferred tax liabilities | 14 | 447,587 | - | 62,805 | ||
| Lease liabilities | 21 | 6,718,458 | 5,106,387 | 1,373,190 | ||
| Total non-current liabilities | 7,166,045 | 5,106,387 | 1,435,995 | |||
| Current liabilities | ||||||
| Trade and other payables | 18 | 4,520,533 | 4,753,287 | 4,031,311 | ||
| Provisions | 19 | 259,537 | 143,312 | 83,805 | ||
| Loans and borrowings | 20 | 3,139,463 | 344,639 | 60,006 | ||
| Lease liabilities | 21 | 827,527 | 592,390 | 172,253 | ||
| Total current liabilities | 8,747,060 | 5,833,628 | 4,347,375 | |||
| TOTAL LIABILITIES | 15,913,105 | 10,940,015 | 5,783,370 | |||
| TOTAL EQUITY AND LIABILITIES | 19,350,055 | 17,727,359 | 11,362,050 | |||
Brusk Korkmaz, CEO
Date: 25 March 2022
STATEMENT OF CHANGES IN EQUITY
| Share capital | Retained earnings | Total equity | ||||||
| £ | £ | £ | ||||||
| Balance at 1 October 2019 as previously stated | 2 | 5,671,658 | 5,671,660 | |||||
| Prior year adjustment | - | (67,691) | (67,691) | |||||
| IFRS transition adjustments | - | (25,289) | (25,289) | |||||
| Balance at 1 October 2019 as restated | 2 | 5,578,678 | 5,578,680 | |||||
| Profit for the year as restated | - | 1,208,664 | 1,208,664 | |||||
| Balance at 30 September 2020 | 2 | 6,787,342 | 6,787,344 | |||||
| Loss for the year | - | (56,203) | (56,203) | |||||
| Bonus issue of shares | 49,998 | (49,998) | - | |||||
| Dividends paid | - | (3,294,191) | (3,294,191) | |||||
| Balance at 30 September 2021 | 50,000 | 3,386,950 | 3,436,950 |
Retained earnings represent the accumulated profits and losses of the company, less distributions and similar items, since its incorporation.
| STATEMENT OF CASH FLOWS | Year ended 30 September | |||
| 2021 | 2020 | |||
| Note | £ | £ | ||
| Cash flows from operating activities: | ||||
| (Loss)/profit after taxation | (56,203) | 1,208,664 | ||
| Taxation charge/(credit) | 13 | 571,720 | (198,244) | |
| Finance income | (27) | (15,278) | ||
| Finance costs | 12 | 232,500 | 80,843 | |
| Fair value movements loss/(gain) | 16 | 38,116 | (79,331) | |
| Depreciation of property plant and equipment | 15 | 724,844 | 381,796 | |
| Loss/(Profit) on disposal of property, plant and equipment | 11,297 | (25,567) | ||
| Decrease/(increase) in inventories | 3,625 | (5,597) | ||
| (Increase)/decrease in trade and other receivables | (2,981,835) | 634,654 | ||
| (Decrease)/increase in trade and other payables and provisions | (116,529) | 952,813 | ||
| Cash generated from operations | (1,572,492) | 2,934,757 | ||
| Tax (paid)/received | (28,688) | 515,856 | ||
| Net cash (used in)/generated from operating activities | (1,601,180) | 3,450,613 | ||
| Cash flows from investing activities: | ||||
| Purchase of tangible assets | 15 | (358,146) | (233,727) | |
| Proceeds from disposal of tangible assets | 20,001 | 26,411 | ||
| Interest received | 27 | 15,278 | ||
| Net cash used in investing activities | (338,118) | (192,038) | ||
| Cash flows from financing activities: | ||||
| Payment of lease liabilities | 21 | (1,282,403) | (339,926) | |
| Interest paid | (123,383) | (7,360) | ||
| Bank loan advances | 2,794,824 | 284,633 | ||
| Payments on behalf of parent company | - | (2,159,742) | ||
| Net cash from financing activities | 1,389,038 | (2,222,395) | ||
| Net increase / (decrease) in cash and cash equivalents | (550,260) | 1,036,180 | ||
| Cash and cash equivalents at start of year | 2,015,552 | 979,372 | ||
| Cash and cash equivalents at end of year | 1,465,292 | 2,015,552 | ||
NOTES TO THE FINANCIAL STATEMENTS
Net debt
| At 30 September 2020 | Cash flow | Non-cash movement | At 30 September 2021 | |
| Cash and cash equivalents | ||||
| Cash | 2,015,552 | (550,260) | - | 1,465,292 |
| Debt | ||||
| Bank loans | (344,639) | (2,794,824) | - | (3,139,463) |
| Lease liabilities | (5,698,778) | 1,282,403 | (3,129,610) | (7,545,985) |
| (6,043,417) | (1,512,421) | (3,129,610) | (10,685,448) | |
| Net debt | (4,027,865) | (2,062,681) | (3,129,610) | (9,220,156) |
Non-cash movements represent new liabilities recognised under IFRS 16 in respect of leases.
1 General Information
The Company is a public company limited by share capital incorporated and domiciled in England and Wales. The principal activity of the Company is that of general construction and civil engineering.
The address of its registered office and principal place of business is:
Hercules Court
Lakeside Business Park
South Cerney
Cirencester
GL7 5XL
The immediate and ultimate parent undertaking of the Company is Hercules Real Estate Limited, the financial statements of which can be obtained from the above address.
The financial information set out in this preliminary announcement does not constitute statutory accounts for the purposes of the Companies Act 2006.
The statement of financial position at 30 September 2021, the income statement, statement of changes in equity, statement of cash flows and associated notes for the year ended 30 September 2021 have been extracted from the Group's 2021 financial statements upon which the auditor opinion is unqualified.
2 Summary of significant accounting policies
Statement of compliance
The financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006
Summary of significant accounting policies and key accounting estimates
The principal accounting policies applied in the preparation of the financial statements are set out below. These policies including IFRS 9, IFRS 15 and IFRS 16 have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The financial statements have been prepared on the following basis:
· The financial information for the Company for the years ended 30 September 2020 and 30 September 2021;
· Using the historical cost convention except for, where disclosed in the accounting policies, certain items shown at fair value.
The financial statements are presented in Pounds Sterling, being the functional currency of the Company.
For all periods up to and including the year ended 30 September 2020, Hercules Site Services Plc previously prepared its statutory financial statements in accordance with Financial Reporting Standard 102 ("UK GAAP"). These financial statements are the first that Hercules Site Services Plc has prepared in accordance with IFRS and the date of transition was 1 October 2019. In preparing these financial statements, the Company's opening statement of financial position was prepared as at 1 October 2019. The principles and requirements for first time adoption of IFRS are set out in IFRS 1. IFRS 1 allows certain exceptions and exemptions in the application of particular standards to prior years in order to assist companies with the transition process.
The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. These are disclosed in note 3.
Changes in accounting policy and disclosures
(a) New and amended accounting standards
None of the standards, interpretations and amendments, with the exception of IFRS 16, effective for the first time from 1 October 2017 have had a material effect on the financial statements.
(b) Future standards
At the date of authorisation of the financial statements, the Company has not early adopted the following amendments to Standards and Interpretations that have been issued but are not yet effective:
- Amendments to IAS 1 : Classification of Liabilities as Current or Non-Current (1 January 2023)
- Amendments to IFRS 3 : Reference to the Conceptual Framework (1 January 2022)
- Amendments to IAS 16 : Proceeds before Intended Use (1 January 2022)
- Amendments to IAS 37 : Onerous Contracts - Cost of Fulfilling a Contract (1 January 2022)
- Annual Improvements to IFRS Standards 2018-2020 (1 January 2022)
- Amendments to IFRS 17 (1 January 2023)
- Interest Rate Benchmark Reform - Phase 2 (1 January 2021)
- Amendments to IAS 1 and IFRS Practice Statement 2 : Disclosure of Accounting Policies (1 January 2023)
- Amendments to IAS 8 : Definition of Accounting Estimates (1 January 2023)
- Amendment to IFRS 16 : Covid-19 Related Rent Concessions beyond 30 June 2021 (1 April 2021)
- Amendments to IAS 12 : Deferred Tax related to Assets and Liabilities arising from a Single Transaction (1 January 2023)
These Standards and amendments are effective from accounting periods beginning on or after the dates shown above. The directors do not expect any material impact as a result of adopting the standards and amendments listed above in the financial year they become effective.
Going concern
The directors have prepared forecast information which takes into account the current COVID-19 outbreak and its potential impact on the business.
The financial information has been prepared assuming the Company will continue as a going concern. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future. In assessing whether the going concern assumption is appropriate, management has considered the Company's existing working capital and management are of the opinion that the Company has adequate resources to undertake its planned programme of activities for a period of at least 12 months from the date of approval of these financial statements.
Further information can be found in the Strategic Report and Directors' Report.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors that make strategic decisions. The Company operates from one location but, in the Directors' opinion, has two reportable segments : Construction services and the hire of suction excavators.
Revenue
Revenue arises from the provision of construction and civil engineering services under fixed price contracts, as well as the hire of suction excavators under hire contracts. Contract duration can vary and can range from the supply of labour only to the provision of fully managed construction and engineering projects.
To determine whether to recognise revenue, the Company follows the 5-step process as set out within IFRS 15:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are satisfied
Contracts with customers take the form of signed agreements from customers.
The key judgements and policies in respect of revenue from the Company's various activities are described further below.
Day works
This represents the provision of labour to customers. The amount of revenue is based on agreed contractual hourly rates with customers. The customer simultaneously receives and consumes the benefits provided by the Company's performance under these contracts and the performance obligation (being the provision of labour) is therefore satisfied over time. In the majority of cases, the Company invoices customers monthly in arrears for the hours of labour supplied during that month. Amounts invoiced but unpaid at the balance sheet date are included within trade receivables.
In some cases, the monthly invoice will not correspond with a calendar month, and the Company is therefore required to include an amount in receivables for revenue relating to periods for which labour has been provided but not yet invoiced.
Price works
This represents work performed under contracts with customers to undertake construction and/or civil engineering works. These contracts contain a number of individually identified services. However, the directors consider that the services being provided are highly interdependent and interrelated and therefore should not be considered to be separate performance obligations under IFRS 15. Furthermore, the services provided by the Company either enhance an asset that the customer controls and/or do not create an asset with alternative use to the Company and there is an enforceable right to payment for performance completed to date. The Company therefore considers the delivery under these contracts to be a single performance obligation that is satisfied over time.
Under these contracts, the Company produces a monthly 'application' to the customer detailing the work performed to date and requesting payment accordingly. Within a period of one to two months (in the majority of cases) the customer will confirm agreement to the 'application' and remit the necessary funds to the Company. Historically, the Company's experience is that instances of customers materially disagreeing with the 'application' are rare and that this is therefore a reliable method by which to recognise revenue earned.
At the balance sheet date, the Company includes a balance in receivables for the amount of revenue receivable on contracts based on the work performed. The Company used the output method for all projects still in operation at the end of March 2021 (until those projects are completed), but all new projects since then use the input method, based on costs incurred to date, to estimate the amount of revenue earned and includes an amount in contract assets within receivables. The input method is based on costs incurred at the balance sheet date compared to expected costs to be incurred throughout the life of the contract.
Suction excavators
Revenue from the hire of suction excavators is recognised in line with the income received over time under the relevant hire contract.
Other operating income - Government grants
Government grants relate to amounts receivable under the Construction Industry Training Board scheme. Grants are recognised in the income statement on a systematic basis over the periods in which the entity recognises the related expenditure for which the grant is intended to compensate.
Taxation
The tax expense or credit for the period comprises current and deferred tax. Tax is recognised in the income statement, except that a change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.
The current tax charge or credit is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the United Kingdom, where the Company operates and generates taxable income.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and on unused tax losses or tax credits available to the Company. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date and that are expected to apply in the period when the liability is settled or the asset realised.
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. The carrying amounts of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up against deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered based on current or future taxable profit.
Deferred tax assets and liabilities are only offset against each other when there is a legally enforceable right to set off current taxation assets against current taxation liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on either (a) the same taxable entity, or (b) different taxable entities which intend to settle these on a net basis, or to realise the assets and settle the liabilities simultaneously. In the Company's accounts all taxes are levied by H M Revenue and Customs. Management review the offset of deferred tax assets and liabilities to ensure such an offset is appropriate.
Research and Development tax claims
Where the Company has made Research and Development tax claims under the Small and Medium Enterprise scheme and tax losses have been surrendered for a repayable tax credit, a current tax credit is reflected in the income statement based on the best estimate of the submission to be made in relation to that financial year.
Property, Plant and Equipment
Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in its acquisition and installation.
Depreciation
Depreciation is charged so as to write off the cost of assets over their estimated useful lives, as follows:
Asset class Depreciation method and rate
Plant and machinery 10% reducing balance
Fixtures, fittings and equipment 20% reducing balance
Right-of-use assets Straight line over the term of the lease or the asset's useful life if shorter
Impairment
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately independent cash inflows (CGU). Those intangible assets including goodwill are tested for impairment at least annually. All other individual assets or CGUs are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment charge is recognised for the amount by which the asset's or CGUs carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.
Financial instruments
The Company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the underlying contractual arrangement. Financial instruments are recognised on the date when the Company becomes a party to the contractual provisions of the instrument. Financial instruments are initially recognised at fair value. Financial instruments cease to be recognised at the date when the Company ceases to be party to the contractual provisions of the instrument.
Financial assets are included on the balance sheet as trade and other receivables or cash and cash equivalents. Financial liabilities include borrowings, trade payables and accruals.
(a) Trade receivables
Trade receivables are amounts due from customers for services performed in the ordinary course of business. They are recognised initially at the amount of consideration that is unconditional. The Company holds the trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established based on the expected credit loss. The Group applies the IFRS 9 simplified approach to measure expected credit losses that uses a lifetime expected loss allowance for all trade receivables, which are grouped based on shared credit risk characteristics and the days past due. The amount of the provision is recognised in the balance sheet within trade receivables. Movements in the provision are recognised in the profit and loss account in administrative expenses. Any change in their value through impairment or reversal of impairment is recognised in the income statement.
(b) Borrowings
All borrowings are initially recorded at fair value. Borrowings are subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing. Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
(c) Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if the company does not have an unconditional right, at the end of the reporting period, to defer settlement of the creditor for at least twelve months after the reporting date. If there is an unconditional right to defer settlement for at least twelve months after the reporting date, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and all are repayable within one year and hence are included at the undiscounted amount of cash expected to be paid.
(d) Contract assets
A contract asset is recognised within receivables where the Company has earned the right to revenue through performance under contracts. Contract assets are also potentially subject to credit losses and are therefore subject to a provision for expected credit losses in the same way as trade receivables as described above.
Assets at fair value through profit or loss
The Company owns a number of gold bars which are held for the purposes of their potential appreciation in value. These are therefore accounted for as an asset at fair value through profit or loss. This is considered a Level 1 fair value asset as the value is determined by reference to readily available market information, with the movement in fair value in each accounting period being accounted for through the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that have a maturity date of 3 months or less, are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.
Leases
The Company as lessee
Short term leases or leases of low value are recognised as an expense on a straight-line basis over the term of the lease.
The Company recognises right-of-use assets under lease agreements in which it is the lessee. The underlying assets comprise property, plant and machinery and motor vehicles, and are used in the normal course of business. The right-of-use assets comprise the initial measurement of the corresponding lease liability payments made at or before the commencement day as well as any initial direct costs and an estimate of costs to be incurred in dismantling the asset. Lease incentives are deducted from the cost of the right-of-use asset. The corresponding lease liability is included in the statement of financial position as a lease liability.
The right-of-use asset is depreciated on a straight-line basis over shorter of the asset's useful life and the lease term and if necessary impaired in accordance with applicable standards. The lease liability shall initially be measured at the present value of the lease payments that are not paid at that date, discounted using the rate implicit in the lease or, where this cannot be determined, the Company's incremental borrowing rate. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (application of the effective interest method) and by reducing the carrying amount to reflect the lease payments made. No lease modification or reassessment changes have been made during the reporting period from changes in any lease terms or rent charges.
Share capital
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement is on a present value basis.
Defined contribution pension obligation
A defined contribution plan is a pension plan under which fixed contributions are paid into a pension fund and the Company has no legal or constructive obligation to pay further contributions even if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Contributions to defined contribution plans are recognised as employee benefit expense when they are due. If contribution payments exceed the contribution due for service, the excess is recognised as a prepayment.
3 Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company's accounting policies, management is required to make judgements, estimates and assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.
The key sources of estimation uncertainty that have a significant effect on the amounts recognised in the Financial statements are described below.
Key judgements
Lease discount rate
IFRS 16 requires the carrying value lease liabilities and the corresponding right of use assets to be calculated using the net present value of future lease payments. This calculation inherently requires a discount rate to be applied, which requires judgement. The Directors have used the Company's incremental borrowing rate for property leases where the rate implicit in the lease cannot be determined. The incremental borrowing rate applied is based on the interest rate applied to the bank loan disclosed in note 21.
Revenue recognition
The nature of the Company's revenue streams requires judgement to be applied regarding the level of work performed at the balance sheet date. Further information is disclosed in note 2 under 'Revenue'.
Key sources of estimation uncertainty
Provision
As disclosed in note 19, a provision is included in this Financial statements relating to the potential underpayment of National Insurance Contributions under the Construction Industry Scheme. There is a level of uncertainty in the quantum and timing of future payments related to this liability. Further information is included in note 19.
Property, plant and equipment
Property, plant and equipment is depreciated over the economic useful lives of the assets. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are reviewed annually for continued appropriateness. The useful economic lives applied are set out in the accounting policies in note 2.
4 Earnings per share
| Year ended 30 September | ||||
| 2021 | 2020 | |||
| Basic | £ | £ | ||
| Earnings used in calculation of earnings per share: | ||||
| Total (losses)/profits attributable to equity holders | (56,203) | 1,208,664 | ||
| Weighted average number of shares in issue | 21,097 | 2 |
Shares in issue
| Ordinary shares in issue | 50,000 | 2 |
(Loss)/earnings per share
| On total profits attributable to equity holders | (2.66) | 604,332 |
There are no potentially dilutive shares and therefore there is no difference between basic and diluted earnings per share.
5 Segmental reporting
During the year, the Company began earning revenues from a new activity, being the hire of suction excavators. The Company began leasing a number of excavators in September 2020 in preparation for the commencement of this activity, and further assets were leased in the year ended 30 September 2021. In total, at 30 September 2021 suction excavators accounted for £3,339,920 of right-of-use assets, and £2,896,058 of lease liabilities.
The Company's management has identified this activity as a separate operating segment from the core activities described in its financial statements for the year ended 30 September 2020, which were treated as a single operating segment. The segments are monitored by the Company's chief operating decision maker and strategic decisions are made based on the segments' operating results.
No segment information is provided for the year ended 30 September 2020 as, during that year, there was considered to be only one operating segment.
Segment information for the year ended 30 September 2021 is as follows:
| Construction services | Suction excavator Services | Total | ||||||||
| £ | £ | £ | ||||||||
| Revenue (all from external customers) | 30,586,172 | 2,168,296 | 32,754,468 | |||||||
| Cost of sales | (25,279,912) | (787,087) | (26,066,999) | |||||||
| Gross profit | 5,306,260 | 1,381,209 | 6,687,469 | |||||||
| Administrative expenses | (1,099,327) | (422,711) | (1,522,038) | |||||||
| Other operating income | 217,195 | - | 217,195 | |||||||
| Operating profit from segments | 4,424,128 | 958,498 | 5,382,626 | |||||||
| Administrative expenses not attributable to segments | (4,596,520) | |||||||||
| Profit from operations | 786,106 | |||||||||
6 Revenue
The total turnover of the Company has been derived from its principal activity wholly undertaken in the United Kingdom, being the provision of service through supply of labour and the operation of construction and engineering contracts. During the year the Company commenced a further activity, being the hire of suction excavators.
The Company's revenue from each activity is shown below and is all derived in the United Kingdom.
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Day works | 22,890,070 | 17,031,656 | |||
| Price works | 7,696,102 | 5,905,671 | |||
| Total from construction services | 30,586,172 | 22,937,327 | |||
| Suction excavator services | 2,168,296 | 13,430 | |||
| 32,754,468 | 22,950,757 |
Other than suction excavator hire, the Company derives its income from two main activities, both of which are linked to the principal activity of the delivery of construction and civil engineering services, being the provision of labour and services provided under construction and/or civil engineering contracts. These are referred to internally as 'day works' and 'price works' respectively.
Significant customers
In the year ended 30 September 2021 one customer represented 25% of revenue (2020 : 16%), and another customer represented 23% of revenue (2020 : 14%). No other customers represented more than 10% of revenue in either year.
Contracts with customers
The Company has contract assets relating to revenue earned from the supply of labour and construction services. Due to the nature of this revenue, balances defined as contract assets will vary and depend on the number, timing and nature of the contracts in progress at the balance sheet date. The relevant balances are shown as contract assets in note 17. The increase in contract assets compared to the prior year represents the increased level of activity at the year end.
Revenue from contract assets
Revenue in the year relating to previously recognised contract assets was £2,168,062 (2020 : £3,211,505)
Contract balances
The nature of the Company's revenue recognition is such that the only contract balances arising relate to accrued income, which is shown as a contract asset. The balance at 30 September 2021 was £3,362,862 (2020 : £2,168,062).
Significant changes in contract assets
The Company has many contracts for services and underway at any point in time, and these are a mix of large and small contracts, generally with monthly invoicing. The level of contract assets therefore fluctuates depending on the mix of contracts and the stage of contract completion at the balance sheet date by reference to costs incurred to date.
7 Other operating income
Other operating income arises mainly from the receipt of government grants. Since this is not considered to be part of the main revenue generating activities, the Company presents this income separately from revenue.
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Construction Industry Training Board grants | 164,631 | 142,675 | |||
| Coronavirus Job Retention Scheme grants | 52,564 | 249,049 | |||
| Intercompany recharges receivable | - | 3,825 | |||
| 217,195 | 395,549 |
There are no unfulfilled conditions or other contingencies attaching to these grants. The Company did not benefit directly from any other forms of government assistance.
8 Profit from operations
Operating profit is stated in the income statement after charging/(crediting):
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Depreciation - owned assets | 126,280 | 120,528 | |||
| Deprecation - right-of-use assets | 598,564 | 261,268 | |||
| Loss/(profit) on disposal of fixed assets | 11,297 | (25,567) | |||
| Research and development costs | 17,505 | 54,555 | |||
9 Auditors' remuneration
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| For audit of the financial statements | 74,000 | 19,500 | |||
| Non-audit services : | |||||
| Review of interim financial information | 15,000 | - | |||
| Taxation compliance | - | 3,550 | |||
| Other services relating to taxation | - | 6,450 | |||
| All other services | - | 2,075 | |||
| 15,000 | 12,075 |
Other non-audit services above include assistance with the process of the Company's admission to the Alternative Investment Market. No non-audit services have been provided since the listing was completed.
10 Staff costs
The aggregate employee benefit expenses were as follows:
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Wages and salaries | 7,183,515 | 8,433,618 | |||
| Social security costs | 787,729 | 822,668 | |||
| Defined contribution pension costs | 178,891 | 177,167 | |||
| 8,150,135 | 9,433,453 |
The average monthly number of employees during the year was as follows:
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| Site based operatives | 99 | 138 | |||
| Administrative and Managerial | 54 | 43 | |||
| 153 | 181 |
11 Directors' remuneration
Key management of the Company are the members of the board of directors. Key management personnel remuneration includes the following expenses:
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Salaries | 515,734 | 376,512 | |||
| Benefits | 19,540 | 15,689 | |||
| Pension contributions | 95,951 | 89,403 | |||
| 631,225 | 481,604 |
During the year retirement benefits were accruing to 3 directors (2020: 3) in respect of defined contribution pension schemes.
Amounts paid to the highest paid director were as follows:
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Salary and benefits | 151,091 | 136,419 | |||
| Pension contributions | 40,000 | 40,000 | |||
| 191,091 | 176,419 |
12 Finance costs
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Lease finance costs | 215,278 | 75,509 | |||
| Interest on loans measured at amortised cost | 3,676 | 5,334 | |||
| Other interest | 13,546 | - | |||
| 232,500 | 80,843 |
13 Income taxes
| Year ended 30 September | |||||
| 2021 | 2020 | ||||
| £ | £ | ||||
| Current tax: | |||||
| UK corporation tax | - | - | |||
| Adjustments to prior periods | - | (11,306) | |||
| Total current tax charge | - | (11,306) | |||
| Deferred tax: | |||||
| Origination and reversal of timing differences | (1,584) | (233,418) | |||
| Adjustments in respect of prior periods | 465,503 | 27,218 | |||
| Effect of tax rate change on opening balance | 107,801 | 19,262 | |||
| 571,720 | (186,938) | ||||
| Tax on profit on ordinary activities | 571,720 | (198,244) |
Tax on loss on ordinary activities for the year is lower than the standard rate of corporate tax in the UK of 19%, (2020: 19%).
The differences are reconciled below:
| Year ended 30 September | ||||||
| Continuing operations | 2021 | 2020 | ||||
| £ | £ | |||||
| Profit on ordinary activities before taxation | 515,517 | 1,010,420 | ||||
| Tax at the UK rate of 19% (2020: 19%) | 97,948 | 191,980 | ||||
| Effect of: | ||||||
| Expenses not deductible for tax purposes | 68,819 | 4,251 | ||||
| Effect of IFRS 16 adjustments | - | 3,726 | ||||
| Fixed asset temporary differences | (163,193) | - | ||||
| Adjustments in respect of prior periods | 465,503 | 15,912 | ||||
| Remeasurement of deferred tax for change in tax rates | 107,801 | 19,262 | ||||
| R&D tax credit estimate | - | (433,375) | ||||
| Other differences affecting tax charge | (5,158) | - | ||||
| Total tax charge/(credit) | 571,720 | (198,244) | ||||
At 30 September 2020, the Company anticipated that it would be making a Research and Development tax claim that would lead to an increased level of tax losses being available. The relevant claim has not yet been submitted and the directors do not consider there was sufficient certainty at 30 September 2021 to be able to continue to recognise the corresponding deferred tax asset. As a result the deferred tax charge in the year ended 30 September 2021 includes an amount of £465,503 relating to the reversal of the previously recognised asset.
14 Deferred tax
Deferred tax balances are analysed as follows:
| Deferred tax balances before offset | 30 September 2021 | 30 September 2020 | 1 October 2019 |
|||||
| £ | £ | £ | ||||||
| Deferred tax liability | (1,093,676) | (344,302) | (64,080) | |||||
| Deferred tax asset | 646,089 | 468,435 | 1,275 | |||||
| Total deferred tax (liability)asset | (447,587) | 124,133 | (62,805) | |||||
| Deferred tax balances after offset | 30 September 2021 | 30 September 2020 | 1 October 2019 |
|||||
| £ | £ | £ | ||||||
| Deferred tax asset | - | 124,133 | - | |||||
| Deferred tax liability | (447,587) | - | (62,805) | |||||
| Total deferred tax (liability)/asset | (447,587) | 124,133 | (62,805) |
The amounts reflect the differences between the carrying and tax amounts of the following balance sheet headings as at each year end.
Credits/(charges) during each year are as follows:
| Tax losses | Short term temporary differences | Fixed asset temporary differences | Total | ||||
| £ | £ | £ | £ | ||||
| At 1 October 2019 - asset/(liability) | - | 1,275 | (64,080) | (62,805) | |||
| Tax credit/(charge) in respect of current year | 465,503 | 1,657 | (280,222) | 186,938 | |||
| At 30 September 2020 - asset/(liability) | 465,503 | 2,932 | (344,302) | 124,133 | |||
| Tax credit/(charge) in respect of current year | 180,443 | (2,789) | (749,374) | (571,720) | |||
| At 30 September 2021 - asset/(liability) | 645,946 | (143) | (1,093,676) | (447,873) |
Deferred tax has been calculated at 19% for the year ended 30 September 2020 on the basis that it was at that point assumed that the underlying temporary differences would unwind at this rate.
In May 2021 an increase in the main corporation tax rate to 25% was enacted, to be applied from 1 April 2023 onwards.
15 Property, Plant and Equipment
| Plant and machinery | Fixtures & office equipment | Right-of-use assets | Total | ||||||||
| £ | £ | £ | £ | ||||||||
| Cost | |||||||||||
| At 1 October 2019 | 1,018,914 | 335,370 | 1,909,245 | 3,263,529 | |||||||
| Additions | 90,373 | 57,689 | 5,534,302 | 5,682,364 | |||||||
| Surrender of lease | (37,547) | - | (1,332,549) | (1,370,096) | |||||||
| At 30 September 2020 | 1,071,740 | 393,059 | 6,110,998 | 7,575,797 | |||||||
| Additions | 325,007 | 33,139 | 3,020,493 | 3,378,639 | |||||||
| Disposals | (49,245) | - | - | (49,245) | |||||||
| At 30 September 2021 | 1,347,502 | 426,198 | 9,131,491 | 10,905,191 | |||||||
| Depreciation | |||||||||||
| At 1 October 2019 | 218,760 | 196,792 | 333,784 | 749,336 | |||||||
| Charge for the year | 85,354 | 35,174 | 261,268 | 381,796 | |||||||
| Disposals | (8,046) | - | (161,015) | (169,061) | |||||||
| At 30 September 2020 | 296,068 | 231,966 | 434,037 | 962,071 | |||||||
| Charge | 92,648 | 33,632 | 598,564 | 724,844 | |||||||
| Disposals | (17,947) | - | - | (17,947) | |||||||
| At 30 September 2021 | 370,769 | 265,598 | 1,032,601 | 1,668,968 | |||||||
| Net book value | |||||||||||
| At 30 September 2021 | 976,733 | 160,600 | 8,098,890 | 9,236,223 | |||||||
| At 30 September 2020 | 775,672 | 161,093 | 5,676,961 | 6,613,726 | |||||||
| At 30 September 2019 | 800,154 | 138,578 | 1,575,461 | 2,514,193 | |||||||
Certain right-of-use assets are pledged as security on the lease agreements to which they relate.
16 Assets at fair value through profit or loss
| 2021 | |||
| £ | |||
| At 1 October 2019 | 230,235 | ||
| Change in fair value | 79,331 | ||
| At 30 September 2020 | 309,566 | ||
| Change in fair value | (38,116) | ||
| At 30 September 2021 | 271,450 |
The asset above comprises 6kg of gold bars held by the Company. Whilst gold bars are not strictly speaking a financial asset, given their nature as an investment with high liquidity and readily ascertainable value, the directors have developed an accounting policy in accordance with the guidance in IAS 8 to treat them as a financial asset at fair value through profit or loss. The gold is physically held by a director on behalf of the Company. The director has confirmed that ownership resides with the Company.
The fair value of the gold bars is based on 'Level 1' inputs as the fair value is readily available from market sources.
17 Trade and other receivables
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
|||||||
| Amounts falling due within one year: | £ | £ | £ | ||||||
| Trade receivables - gross | 4,882,502 | 2,681,225 | 2,808,589 | ||||||
| Provision for impairment | (749,683) | - | - | ||||||
| Trade receivables - net | 4,132,819 | 2,681,225 | 2,808,589 | ||||||
| Amounts owed by Hercules Real Estate Limited | - | 2,827,619 | 667,877 | ||||||
| Amounts owed by director | - | 466,102 | 321,666 | ||||||
| Other receivables | 343,742 | 155,216 | 25,750 | ||||||
| Contract assets | 3,362,862 | 2,168,062 | 3,211,505 | ||||||
| Prepayments | 452,804 | 306,359 | 44,110 | ||||||
| 8,292,227 | 8,604,583 | 7,079,497 | |||||||
Trade and other receivables are all current and any fair value difference is not material. Trade and other receivables are assessed for impairment based upon the expected credit losses model. In order to manage credit risk, the Directors set limits for customers based on a combination of payment history and third party credit references. Credit limits are reviewed on a regular basis in conjunction with debt ageing and collection history
Trade receivables are regularly reviewed for bad and doubtful debts. The Company's policy is to include a provision for impairment based on estimated credit losses. This includes an assessment where relevant of forward-looking information on macroeconomic factors that may affect the ability of customers to settle receivables. Trade receivables are written off where is no reasonable expectation or recovery, for example where the customer has entered insolvency proceedings or where a customer has failed to make contractual payments for an extended period.
During the year ended 30 September 2021 the Company recorded a charge to the income statement of £600,930 (2020 : £Nil) in respect of credit losses. This charge was in respect of a single customer and was considered by the Directors to be an exceptional event. It was therefore excluded when considering the provision required under the expected credit loss model.
The maturity analysis of trade receivables is shown below:
| < 1 month | 1-2 months | 2-3 months | > 3 months | Total | ||||||
| £ | £ | £ | £ | £ | ||||||
| 30 September 2021 | 2,616,935 | 1,318,166 | 528,436 | 418,965 | 4,882,502 | |||||
| 30 September 2020 | 1,516,933 | 662,170 | 291,191 | 210,931 | 2,681,225 |
Included in other receivables in 2021 was an amount owed by the director of £Nil (2020 : £466,102). Interest was charged on this loan at the HMRC Official Rate.
There are no formal terms applied to the amounts owed by the Company's parent undertaking, i.e. Hercules Real Estate Limited, the amounts owed by related parties or the amount owed by director. The balances in relation to the parent undertaking and the amount owed by the director at 30 September 2021 were cleared via a dividend after the year end as disclosed in note 26.
18 Trade and other payables
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
|||||||
| Amounts falling due within one year: | £ | £ | £ | ||||||
| Trade payables | 1,307,541 | 752,810 | 980,920 | ||||||
| Social security and other taxes | 1,503,300 | 2,643,632 | 1,428,766 | ||||||
| Other payables | 1,423,852 | 1,229,611 | 373,668 | ||||||
| Accrued expenses | 285,840 | 127,234 | 1,247,957 | ||||||
| 4,520,533 | 4,753,287 | 4,031,311 | |||||||
Trade payables are all current and any fair value difference is not material.
19 Provisions
| 2021 | 2020 As restated |
2019 As restated |
|||||||
| £ | £ | £ | |||||||
| At 1 October | 143,312 | 83,805 | 58,585 | ||||||
| Additional provision for year | 116,225 | 59,507 | 25,220 | ||||||
| At 30 September | 259,537 | 143,312 | 83,805 | ||||||
The Directors have identified a potential underpayment of National Insurance contributions in respect of payments made to subcontractors. Following extensive professional consultation and advice, the Directors considered the roles for all subcontractors provided by the Company. Whilst the Directors consider that many of the roles were outside the scope of the Agency legislation, there were several that were potentially considered within the scope of the rules.
The Company has recently commenced the process of voluntary disclosure to HM Revenue & Customs in this regard. The provision of £259,357 (2020 : £143,312), based on those roles that the Directors deemed were inside the scope of the Agency legislation, was recognised as at 30 September 2021, although the timing of any resulting payment and the quantum thereof, currently remains uncertain. The directors have not provided for a penalty which may be between 0% and 30% of any liability arising from the disclosure, on the basis that they are making a voluntary disclosure to HM Revenue & Customs. The Directors have used their best estimate based on the advice provided and their analysis of the potential underpayments.
The provision stated above is subject to uncertainty in both amount and timing of cash flows due to the fact that the Company has only recently commenced the process of voluntary disclosure to HM Revenue & Customs. It is possible that, following the voluntary disclosure exercise, HM Revenue & Customs may challenge that more of the roles should be caught by the Agency rules and therefore the final liability may be higher. The amounts stated above are, in the Directors opinion, reflective of the best estimate and are confident of having a robust position to defend their judgements to which the Company is exposed.
20 Loans and borrowings
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
|||||||
| £ | £ | £ | |||||||
| Included within current liabilities | |||||||||
| Bank loans | 3,139,463 | 344,639 | 60,006 |
The bank loan is secured by guarantees from the Company's parent undertaking, Hercules Real Estate Limited, and by a personal guarantee from a director. The loan is a revolving facility with a rolling 12 month notice period, is secured on trade receivables and attracts interest at a rate of 2.25% over base rate.
21 Leases
The Company leases properties and certain items of plant and machinery. With the exception of short-term leases and leases of low value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset (Note 15) and a lease liability.
The Company had recognised two property leases in 2021 (2020 - three), sixteen vehicle leases (2020 - eighteen) and seven plant and machinery leases (2020 - three).
All future cashflows are included. The leases are subject to rent reviews every five years. The nature of the rent reviews is such that annual rentals are adjusted to prevailing market rates, unless that would lead to a reduction. In accordance with IFRS 16, any future increases in annual rentals arising from rent reviews are not included in the calculation of the lease liabilities. Any future increases in annual rentals will result in prospective adjustments to the lease liabilities at the point of the rent review.
Amounts recognised in the Statement of Financial Position relating to leases, categorised by underlying type of asset, are:
| Leasehold property £ |
Plant and machinery £ |
Motor vehicles £ |
Total £ |
|||||
| Net book value | ||||||||
| At 1 October 2019 | 1,199,295 | 258,658 | 117,507 | 1,575,460 | ||||
| Additions | 4,573,223 | 856,650 | 104,429 | 5,534,302 | ||||
| Surrender of lease | (1,171,533) | - | - | (1,171,533) | ||||
| Depreciation charge for the year | (140,976) | (36,240) | (84,052) | (261,268) | ||||
| At 30 September 2020 | 4,460,009 | 1,079,068 | 137,884 | 5,676,961 | ||||
| New leases recognised in the year | - | 2,920,076 | 100,417 | 3,020,493 | ||||
| Depreciation charge for the year | (228,662) | (286,083) | (83,819) | (598,564) | ||||
| At 30 September 2021 | 4,231,347 | 3,713,061 | 154,482 | 8,098,890 |
Maturity analysis
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
|||||||
| £ | £ | £ | |||||||
| Due within one year | 1,042,939 | 685,721 | 206,315 | ||||||
| Due within two to five years | 3,377,289 | 1,876,626 | 529,229 | ||||||
| Due after five years | 4,581,294 | 4,350,443 | 1,067,976 | ||||||
| Future finance charges | (1,455,537) | (1,214,014) | (258,078) | ||||||
| 7,545,985 | 5,698,776 | 1,545,443 | |||||||
Amounts recognised in the Statement of Comprehensive Income
The statement of comprehensive income shows the following amounts relating to leases:
| 2021 | 2020 | |||||||
| £ | £ | |||||||
| Depreciation charge of right of use asset | 312,481 | 261,268 | ||||||
| Interest expenses (within finance costs) | 215,278 | 75,509 | ||||||
| 527,759 | 336,777 |
Amounts recognised in the Statement of Cash Flows
The statement of cash flows shows the following amounts relating to leases:
| 2021 | 2020 | ||||||||
| £ | £ | ||||||||
| Cash outflows | 1,282,403 | 339,926 | |||||||
Low value leases and short-term leases
The Company has no leases for which the low value or short-term exemptions of IFRS 16 has been applied.
Reclassification of existing leased assets
On transition to IFRS 16, assets under existing leases that were accounted for as finance leases under UK GAAP have been reclassified as right-of-use assets. The amounts reclassified are shown below
| Plant and machinery | 2021 | 2020 | 2019 | |||||
| £ | £ | |||||||
| Cost | 2,920,076 | 1,144,050 | 287,400 | |||||
| Accumulated depreciation | (286,083) | (64,980) | (28,740) | |||||
| Net book value | 2,633,993 | 1,079,070 | 258,660 |
22 Financial instruments
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
||||||
| Financial assets held at amortised cost: | £ | £ | £ | |||||
| Trade receivables | 4,132,819 | 2,698,688 | 2,808,589 | |||||
| Amounts owed by Hercules Real Estate Limited | - | 2,840,209 | 667,877 | |||||
| Amounts owed by directors | - | 508,714 | 321,666 | |||||
| Other receivables | 343,742 | 259,757 | 25,750 | |||||
| Cash and cash equivalents | 1,465,292 | 2,015,552 | 979,372 | |||||
| 5,941,853 | 8,322,920 | 4,803,254 |
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
||||||
| Assets held at fair value through profit or loss: | £ | £ | ||||||
| Gold bars | 271,450 | 309,566 | 230,235 |
| As at 30 September 2021 |
As at 30 September 2021 |
As at 1 October 2019 |
||||||
| Financial liabilities held at amortised cost: | £ | £ | £ | |||||
| Bank borrowings | 3,139,463 | 344,639 | 60,006 | |||||
| Trade payables | 1,307,541 | 770,274 | 980,920 | |||||
| Other payables | 1,423,852 | 630,399 | 373,668 | |||||
| Accrued expenses | 285,840 | 708,982 | 1,247,957 | |||||
| Lease liabilities | 7,545,985 | 5,698,777 | 1,545,443 | |||||
| 13,702,681 | 8,153,071 | 4,207,994 |
23 Financial Risk management
The Company uses various financial instruments. These primarily include bank borrowings, cash and various items, such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to finance the Company's operations.
The existence of these financial instruments exposes the Company to a number of financial risks, which are described in more detail below.
a) Market risk
Market risk encompasses three types of risk, being currency risk, interest rate risk and price risk. The Company is exposed to price risk on the value of its gold bars. These were purchased by the Company some years ago as a long-term investment with the expectation of future capital appreciation and are not actively managed. A fluctuation in the value of 10% would have given rise to a further increase or decrease in the value of bars of £30,957.
Exposure to interest rate risk is considered further below. There is no exposure to currency risk as the Company operates entirely with the United Kingdom and all transactions are denominated in Pounds Sterling.
b) Liquidity risk
The Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs by closely managing its cash balance. The Company has significant levels of cash reserves available and continues to generate profit before taxation (the loss after taxation in the year was due to a large deferred tax charge on the reversal of a previously recognised asset). In this context, liquidity risk is therefore considered to be low.
The Company's borrowing facilities are continually monitored against forecast requirements and timely action is taken to put in place, renew or replace credit lines. The Company acquires items of property, plant and equipment on lease agreements where appropriate to assist in managing liquidity risk by avoiding the depletion of cash on large capital purchases. The Company also manages its liquidity needs by carefully monitoring cash outflows due on a day-to-day basis.
The Company's financial liabilities comprise bank borrowings, trade payables, other payables, accruals, amounts due to related parties and lease liabilities. The maturity of lease liabilities is disclosed in note 21 above. All other financial liabilities are expected to be settled within 12 months of the balance sheet date.
c) Interest rate risk
Interest rate risk is limited to interest paid on the Company's variable rate bank borrowings and interest received on cash deposits. Due to the relatively low level of borrowings and the low rates of interest on cash deposits, the impact of any changes in interest rate is not considered significant.
d) Credit risk
The Company's principal financial assets are cash and trade receivables. Credit risk is also attached to contract assets that represent accrued income. The credit risk associated with cash is limited, as the counterparties have high credit ratings assigned by international credit-rating agencies. The credit risk associated with trade receivables is minimal as invoices are based on contractual agreements with long-standing customers. Credit losses historically incurred by the Company have consequently been immaterial, other than a single bad debt incurred in the year ended 30 September 2021 of approximately £600,000 that the directors consider to be exceptional. This arose due to the unexpected business failure of a major customer.
Notwithstanding the lack of historical credit losses, the Company maintains a provision against receivables. However, this is not necessarily linked to credit risk and the ageing of receivables is not the most relevant indicator to determine the potential impairment of a receivable. The nature of the Company's operations is such that misunderstandings or minor disagreements may arise during the course of contracts, which may sometimes require an adjustment to be made to achieve settlement.
The Company's provision is broadly on the basis of any receivables that remain outstanding after 6 months. The Company had no material individual receivables past due or impaired at 30 September 2020 or 30 September 2021, other than the exceptional amount referred to above.
Further details regarding expected credit losses can be found in note 17.
Capital management
The Company's capital comprises total equity and net debt. The Company's capital management objectives are:
- To ensure its ability to trade as a going concern; and
- To provide an adequate return to shareholders.
The Company monitors capital based on the carrying amount of equity and net debt. Adjustments are made as necessary based on the Directors' assessment of the needs of the business and external factors such as the Company's industry and the wider economy. The Company has traded profitably and therefore generally levels of debt have been low. More recently a revolving credit facility has been utilised to assist with working capital, and debt has also been increased by the leasing of a number of capital items, particularly suction excavators which are expected to be a significant future source of income and profitability.
Therefore, whilst the Company was more highly geared at 30 September 2021 than in previous years, this is in line with the Directors' strategy to grow the business. The Company has also raised further equity after the balance sheet date following its successful flotation on the Alternative Investment Market.
The Directors are able to maintain and adjust the capital stricture by adjusting dividends, issuing new shares or selling assets to reduce debt.
A summary of the Company's gearing is shown below.
| 30 September 2021 | 30 September 2020 | 1 October 2019 |
||||||
| £ | £ | |||||||
| Total equity | 3,436,950 | 6,787,344 | 5,578,678 | |||||
| Net debt | 9,711,300 | 4,027,865 | 626,077 | |||||
| Total capital | 13,148,250 | 10,815,209 | 6,204,755 | |||||
| Gearing ratio (net debt / capital) | 74% | 74% | 10% |
24 Share capital
| Issued capital | ||||||||
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
||||||
| Authorised | Number | Number | Number | |||||
| Ordinary shares of £1 each | 50,000 | 1,000 | 1,000 | |||||
| As at 30 September 2021 |
As at 30 September 2020 |
As at 1 October 2019 |
||||||
| Allotted, called up and fully paid | £ | £ | £ | |||||
| Ordinary shares of £1 each | 50,000 | 2 | 2 |
Share rights
The ordinary shares have attached to them full voting, dividend and capital distribution rights (including on winding up). They do not confer any right of redemption.
Share issues
On 29 April 2021 the company issued 49,998 shares for consideration of £1 per share.
25 Defined contribution pension scheme
The Company operates a defined contribution pension scheme. The pension cost charge for the year represented contributions payable by the Company to the scheme and amounted to £178,891 (2020 - £177,167). Contributions totalling £1,336 (2020 - £9,432) were payable to the scheme at the end of the year and are included in other payables.
26 Related party transactions
Ultimate controlling party
During the historical financial period, the Company was controlled by B K Korkmaz and Mrs N Korkmaz by virtue of their shareholding in the parent undertaking, Hercules Real Estate Limited.
Key management personnel compensation
Key management personnel remuneration has been set out in note 11 to the Financial statements
Transactions with parent entity
The following transactions occurred with the Company's ultimate controlling party, Hercules Real Estate Limited:
| 2021 | 2020 | ||||
| £ | £ | ||||
| Rental payments | 313,562 | 195,896 | |||
| Provision of building services (income) | (257,831) | - |
Outstanding balances arising from sales/purchases of goods and services
The following balances are outstanding at the end of the reporting period in relation to transactions with related parties:
| As at 30 September 2021 |
As at 30 September 2020 |
|||||||
| Current receivables | £ | £ | ||||||
| Hercules Real Estate Limited | - | 2,840,209 | ||||||
| Director | - | 508,714 | ||||||
| - | 3,348,923 |
During the year ended 30 September 2021, the Company repaid the amounts shown above via the declaration of a dividend to its parent company.
During the year ended 30 September 2020, the Company provided additional funds to Hercules Real Estate Limited resulting in the increase in the receivables balance noted above. The key element of this funding was £1,110,000 for the purchase of the Sunhill site, part of which was subsequently leased back to the Company.
27 Capital commitments
At 30 September 2021, the Company had orders committed on the lease purchase of suction excavators to a value of £4,785,000.
28 Post Balance Sheet Events
The Company was admitted to trading on the Alternative Investment Market of the London Stock Exchange on 4 February 2022. This resulted in the raising of net equity capital of approximately £2.7 million in the process.
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FR UVAKRUOUOUAR