TIDMFLTA
RNS Number : 1243W
Filta Group Holdings PLC
15 April 2019
Filta Group Holdings plc
("Filta", the "Company" or the "Group")
Full year audited results for the financial year ended 31
December 2018
Financial Highlights
-- Revenue (from Continuing Operations) up 23% to GBP14.2m
(2017: GBP11.5m) increased in all divisions:
o Fryer Management revenue up 11% to GBP9.3m (2017: GBP8.4m)
o FiltaSeal revenue up 24% to GBP1.6m (2017: GBP1.3m)
o FiltaGMG revenue GBP1.7m (2017, 4 months: GBP0.4m)
o Franchise Development revenue GBP1.5m (2017: GBP1.3m)
-- Gross margin improved to 49.8% from 49.2%.
-- Adjusted EBITDA* from Continuing operations up 25% to GBP2.6m (2017: GBP2.1m).
-- Operating profit GBP1.8m (2017: GBP1.7m) after non-cash
charges of GBP0.7m - depreciation and amortisation of GBP0.4m
(2017: GBP0.2m) and share based payments of GBP0.3m (2017:
GBP0.1m).
-- Deferred revenue balance up GBP0.7m (including GBP0.2m FX
gain) to GBP3.7m of which GBP0.9m to be released in 2019.
-- Net cash of GBP2.1m at 31 December 2018.
-- Proposed final dividend of 0.92 pence per share, which
together with the interim dividend of 0.72 pence, makes a total
dividend for the year of 1.64 pence per share, an 26% increase over
prior year.
*Adjusted for non-recurring items being acquisition related
costs, share based payments as well as finance costs, taxes,
depreciation and amortization.
Operational Highlights
-- Net increase in Franchise Owner base to 199 and a 14%
increase in the number of MFUs (mobile filtration units) from 394
to 450.
-- Two Franchise Owners achieved over $2m (GBP1.6m) in revenue
and six (2017 - four) Franchise Owners recorded revenue over $1m
(GBP0.8m).
-- Significant growth in fryer management services driven by
organic growth and new franchise development which, in turn,
enlarges the platform for increasing Fryer Management Services.
-- Robust revenue growth in Company-Owned Operations due to
strong performances from, particularly, FiltaSeal whose revenues
were up 24% and, a strong first full year from FiltaGMG.
-- Buy-in of German master licence with 6 existing franchisees
already grown to 12 franchisees and 15 MFUs providing a strong
platform for further expansion into mainland Europe
-- Acquisition of Watbio Holdings Limited, a provider of grease
and drain management solutions, which adds over GBP10m revenues to
FiltaGMG business
Jason Sayers, CEO, commented:
"2018 was an active year for the Group as we continued to
experience strong organic growth whilst completing two
strategically significant acquisitions. The buy-in of the German
master franchise gave us an immediate foothold in the German
market, where we are experiencing good initial results applying the
US franchise model, provides a base for expansion into mainland
Europe. Late in the year we completed the acquisition of Watbio
Holdings Limited, which fits squarely with our strategy of
increasing high margin repeat revenue business and moves Filta into
a market-leading position in the FOG (fats, oils and greases)
market.
"We are focused on the integration of Watbio in the first half
of 2019 and we anticipate an increase in its existing GBP10m
revenue base and profitability as we grow its client base and we
realise the benefits of already identified synergies.
"Whilst we anticipate a slowdown in new franchise sales as our
territory coverage gets closer to maturity in the US, our European
operation has picked up the mantle and we are encouraged both by
the strength of the new business pipeline and the opportunities
that will come from a broader geographic base.
"We also see a strong path for growth in FiltaSeal and our other
company-operated offerings and, with the implementation of a new
scheduling system, anticipate improved efficiencies and gross
margin."
15(th) April 2019
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: 020 7397 8900
Stephen Keys
Harry Hargreaves
This announcement contains inside information.
CHAIRMAN'S STATEMENT
Introduction
2018 saw two significant developments for the Group, being the
buy-in, in January, of our master franchise in Germany, which
provided us with the base to expand our franchise activities into
mainland Europe, and the acquisition, in December, of Watbio, one
of the leading operators in the Fats, Oils and Grease ("FOG")
market, which in combination with FiltaGMG has established Filta as
a major force in that market.
I am pleased to report that, alongside these developments, we
enjoyed another year of growth across all of our core businesses,
with the addition of 25 new franchises, including eight in mainland
Europe, 56 additional MFUs, an increase of 23% in the number of
seals fitted and an increase of 12% in the number of FiltaGMG jobs
performed, prior to any acquisition effect of Watbio.
We have continued to invest in business systems, infrastructure
and personnel both to take advantage of market opportunities and to
ensure the highest level of support to our growing and diverse
customer base.
Results
Reported profit before tax for the year ended 31 December 2018
was GBP1.7m (2017: GBP1.6m) on revenue up by 23% at GBP14.2m (2017:
GBP11.5m) and net attributable profit was GBP1.3m (2017: GBP0.8m).
Gross profit for the year was up by GBP1.4m at GBP7.1m, with a
slightly improved gross margin of 49.8% (2017: GBP5.7m and 49.2%).
The EBITDA, adjusted to exclude acquisition-related costs and
share-based payments, was GBP2.6m (2017: GBP2.1m), an increase of
25%.
The Group also increased its deferred revenue balance by a net
amount of GBP0.7m, including a GBP0.2m positive impact from a
stronger US dollar, to a year-end balance of GBP3.7m.
Operating costs were up by GBP1.3m, supporting the increased
size of the business and level of activity, but also reflecting the
acquisition-related costs of GBP0.2m (2017: GBP0.1m) being legal
and other costs related primarily to the acquisitions of the German
master franchise and Watbio Holdings Limited, a GBP0.3m charge in
relation to awards made under the Company's Share Schemes,
specifically the US Stock Appreciation Rights (2017: GBP0.1m) and a
greatly increased depreciation and amortisation charge, primarily
related to intangible assets, of GBP0.4m (2017: GBP0.2m).
Divisional Performances
The GBP0.5m increase in adjusted EBITDA reflects strong
performances in all areas of our business and was achieved from
both higher turnover and improved gross profit margins.
FiltaFry, our franchised fryer management business, has
continued to expand its number of territories as demonstrated by a
net increase in our Franchise Owner base to 199 whilst realising a
14% increase in the number of MFUs (mobile filtration units) from
394 to 450. FiltaFry remains the core of our business and it
provides the platform for further growth across the Group. Revenues
and gross profits from Fryer Management Services grew 11% and 10%
respectively to GBP9.3m and GBP4.1m. We are particularly encouraged
by our European and Canadian operations, where our franchise counts
have grown to twelve and three respectively.
The Company-owned activities, which are UK-based, have also had
a good year. FiltaSeal, whose revenues for the year were GBP1.6m,
has enjoyed growth of some 24% and started the new year with a
strong order book. FiltaGMG contributed GBP1.7m in revenue but,
more importantly, it grew 41% against the prior year on an
annualised basis. Watbio was under our ownership for only ten days
of the year and its contribution was, therefore, not
significant.
Strategic Developments
As stated above, we bought in the German master franchise at the
beginning of the year and, at the end of the year, acquired Watbio.
Both acquisitions align with existing platforms and continue to
support our strategy of focusing Filta on businesses with high
margins and low working capital requirements.
FiltaFry GmbH was acquired for a total consideration of
EUR250,000, satisfied as to EUR175,000 in cash and EUR25,000 by the
issue of 10,971 new Ordinary Shares. Further consideration of
EUR25,000 was paid by the issue of 9,225 Filta shares on 30 January
2019, with a final payment of EUR25,000 remaining to be satisfied
by the issue of Filta shares on 30 January 2020. FiltaFry GmbH is
being developed along the same lines as our North American business
with the aim being to establish a strong foothold in Germany before
extending into other European countries. We have been delighted at
the momentum that has already been built up with six new franchises
in Germany, one in Austria and one in Spain, giving us a total
franchise count in Europe of twelve already.
The acquisition of Watbio for a total consideration of up to
GBP6.4m represents a significant step in building our FOG business,
which we consider, due to the nature and timing of the service, to
be more suitable to direct ownership than to a franchise structure.
The consideration for Watbio has been satisfied by the payment of
GBP5.3m in cash and as to GBP0.8m by the issue to the vendors of
400,000 Filta shares. Additional cash consideration of up to
GBP0.3m million is contingent on certain debtor collections before
31 May 2019. The cash element of the consideration was funded by a
placing of 1,500,000 new Filta shares to raise GBP3.0m (gross) and
a fixed term bank loan of GBP4.0m.
We envisage continuing to pursue an Infill strategy to acquire
and develop additional service offerings, which, typically, will
require only modest capital investment, will be complementary to
our existing activities and will contribute to earnings as well as
improving return on capital.
Dividends
We have a stated policy to distribute one third of annual
earnings by way of dividends to shareholders in respect of each
year.
The Board is therefore proposing a final dividend of 0.92 pence
per share, which together with the interim dividend of 0.72 pence
paid on 28 September 2018 makes a total dividend of 1.64 pence per
share in respect of the year and represents an increase of 26% over
prior year. The proposed final dividend, if approved by
shareholders, will be paid on 14 June 2019 to shareholders on the
register at the close of business on 31 May 2019.
Current trading and outlook
We saw growth in all our core businesses in 2018 and this has
continued into 2019. We have secured four new franchisees,
allocated six further territories and added ten MFUs in the year to
date, all of which will contribute to additional revenues from
Fryer Management Services through the year. Our FiltaSeal activity
in the first quarter was 11% up on the same period last year and
FiltaGMG has continued to gain new clients, thus increasing the
repeat revenue base.
With the additional business to be derived from the acquisition
of Watbio and the encouraging activity that we are seeing from our
new European operations your Board is confident of achieving
further growth through the remainder of the year.
Management, staff and Franchise Owners
The Board much appreciates the considerable efforts of our
management and staff. 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.
I also take this opportunity to recognise our Franchise Owners,
whose own performance and client commitment are critical to our
success and reputation.
Finally, our Business Model and Strategy is set out below. It
was approved by the Board on 12 April 2019.
Tim Worlledge
Chairman
12 April 2019
OPERATIONS REVIEW
Introduction
I am very pleased to report that the Group delivered a strong
performance with an operating profit of GBP1.8 m, adjusted EBITDA
of GBP2.6m, an increase of 25% over the previous year, and profit
before tax of GBP1.7m. We have also increased our deferred revenue
balance and therefore go into 2019 with higher revenue visibility
than at the start of 2018.
Fryer Management Services delivered a 11% increase in revenue,
driven by both organic growth and new franchises which, in turn,
provide the platform for increased Fryer Management Services
revenue in the future.
Filta's plan has been to expand organically and through
acquisitions of high margin, repeat revenue businesses in the
grease management market. In line with this, our Company owned
operations experienced robust organic revenue growth. FiltaSeal
revenues were GBP1.6m, up 24%, and FiltaGMG completed its first
full year with revenue of GBP1.7m an annualised growth of 41%.
Additionally, the business took a significant step forward at the
end of the year with the acquisition of Watbio Limited which brings
additional revenue of over GBP10m.
Franchise Development
Our strategy is to recruit quality franchise owners who have the
ambition and business ability to expand their franchises, thereby
enlarging the platform for Filta's own Fryer Management repeat
revenues to increase year after year.
Development in North America remained relatively strong in 2018
and, although the UK continued to be weak, mainland Europe gathered
momentum with sales in Germany, Austria and Spain.
With the increasing coverage in North America, we will see a
reduction in the number of available territories for sale which
will result in a decrease in the number of new franchise sales in
North America. However, we expect Franchise Development in mainland
Europe to strengthen during the next few years.
As our franchise base grows, we are experiencing an increased
demand and opportunity for franchise resales with nine Filta
franchise owners selling their businesses during 2018, generating
fees of GBP0.1m. We expect resale transactions to grow in number
and value in the coming years, which will not only generate
increasing fees but will also provide opportunities to strengthen
the franchise network.
Fryer Management Services
Fryer Management Services contributed GBP9.3m of revenues in the
year (2017: GBP8.4m). 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.
One of our strategic objectives is to encourage multi-MFU
franchisees, which helps to allay financial risk and also provides
owners with higher investment returns. In 2018, our two highest
grossing franchise owners achieved over $2m (GBP1.6m) in revenue
and six (2017: four) franchise owners recorded over $1m (GBP0.8m)
of revenue.
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 $42m (GBP33m) of revenues in
2018 (2017: $36m/GBP28m).
In supporting our franchise owners, we endeavour to lower as
many barriers as possible for them with programmes such as:
-- Inside Sales - our Inside Sales Team, which is our "growth
engine", has daily contact with franchise owners and helps them win
new customers and upsell new products to existing customers. The
team excelled again in 2018.
-- Tech recruitment - with 450 trucks on the road at year-end
and growing quickly, hiring and keeping good technicians is the
lifeblood of our franchisees' businesses. To help them in managing
this resource, Filta has a full-time recruiter to assist in the
recruitment and retention of technicians.
-- National Accounts - we continue to grow our national account
customer base with new contracts being signed and greater
penetration being driven within existing contracts.
-- Coaching - ongoing assigned coaching for franchise owners at key stages of their growth.
Europe
We spent 2018 putting the building blocks in place for the
franchise support model in Germany before replicating the US model
by expanding the business into adjacent countries with multi-MFU
franchise owners in the years to come.
In fact, we quickly expanded into Austria and, towards the end
of the year, started our first pilot franchise owner in Spain. The
plan is to prove the model in Spain before expanding further in
Europe.
Company Owned Operations (UK)
FiltaSeal
Revenue from FiltaSeal was GBP1.6m (2017: GBP1.3m), reflecting a
23% increase in the number of seals fitted. The increase was driven
by higher volumes from our existing customers alongside several new
key account wins. The fundamentals of the business remain strong
and this, along with FiltaSeal's compelling market proposition,
should support further growth opportunities.
FiltaGMG
Revenue from FiltaGMG was GBP1.7m (2017: GBP0.4m in 4months).
With a solid customer base and experienced team, Grease Management
Limited was integrated into our existing FiltaDrain business to
create FiltaGMG in 2017, sharing the existing call-centre resources
and implementing new operational systems. The integration was
relatively straightforward, and the results fully justified our
enthusiasm for expansion into this market.
The aim was to grow this activity through organic growth and
further in-fill acquisitions and, in December, we acquired one of
the largest operators in this market, Watbio Limited.
Watbio Acquisition and Integration
The majority of Watbio's revenue is derived from the same
services as those being offered by FiltaGMG and, similarly, they
are mostly in the nature of repeat business. With revenues of over
GBP10m, an experienced team and a high-quality customer base, the
acquisition of Watbio at the end of the year was a significant step
for the Group.
The additional revenue will change the geographic split of the
revenue towards the UK in 2019 but keep the key attributes of being
high margin and repeat by nature.
We are well on the way to having the two businesses fully
integrated and expect, by mid-year, to be realising some of the
efficiency benefits with the full-year impact of these being seen
in 2020.
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, Edward Palin, former Watbio Managing Director, was
recently appointed as Managing Director of Filta's UK operations,
strengthening the experience and skills needed for our expansion in
the coming years.
Jos van Aalst, Managing Director of Filta's mainland Europe
business, proved a great addition last year and continues to drive
growth in Europe.
Lloyd Martin recently joined the Filta Board as a non-executive
director and brings with him more than 35 years of experience in
the water industry. Lloyd recently retired from his role as Chief
Executive of British Water, the leading association supporting the
UK water industry.
One of the benefits of taking Filta public was that it enabled
us to offer all employees share options in the business (SARs in
the US), thereby helping to align all goals and giving everybody
the opportunity to share in the long-term success of the business.
All employees, including the recently acquired Watbio staff, have
been offered share options.
Market Conditions
The strength of the US economy has led to very low unemployment
and, whilst this helps in service sales, it has the potential to
reduce the number of people looking to buy franchises. However, we
have experienced a steady level of enquiries from potential
franchise owners, with many superior quality candidates coming
forward, through the course of the year.
In mainland Europe, we have experienced a good level of interest
from potential franchisees, as is evidenced by the fact that we
added eight in the year, and service revenue from existing
franchises continues to grow. We are excited by the prospect of
further progress, both in Germany and Austria as well as in Spain
and other territories, in the years ahead.
The market for each of Filta's services has been largely
unaffected by economic swings in our operating territories and we
believe that with the ever-increasing health, safety and food
hygiene requirements the demand for our services is unlikely to
diminish.
Current Trading & Outlook
2018 was an active year for the Group as we continued to
experience strong organic growth whilst undertaking two
acquisitions. The acquisition of FiltaFry Deutschland GmbH ushered
us into the German market and, more broadly, the mainland Europe
franchise market where we are experiencing good initial results
with the US franchise model. The acquisition, late in the year, of
Watbio Holdings Limited was also a significant move for us.
Importantly, both transactions fit squarely with our strategy of
increasing high margin recurring revenue business and will support
further growth in the years ahead.
We are focused on the successful integration of Watbio in the
first half of 2019 and we anticipate an acceleration in revenue and
profitability as it builds its client base and we begin to realise
identified and significant synergy benefits.
Whilst we anticipate a slowdown in new franchise sales in the
US, our European operation has picked up the mantle and we are
encouraged both by the strength of the new business pipeline and
the market opportunity that will come from the broader geographic
base.
Additionally, we are experiencing strong growth in FiltaSeal and
our other company operated offerings and, with the implementation
of a new scheduling system, anticipate improved efficiencies and
gross margin.
Jason Sayers
Chief Executive Officer
12 April 2019
FINANCIAL REVIEW
Summary
-- Group revenue from continuing operations increased 23% to
GBP14.2m (2017: GBP11.5m)
-- Revenue grew across each service offering with a Group gross
margin of 49.8% (2017: 49.2%)
-- Profit from continuing operations increased 69% to GBP1.3m
(2017: GBP0.8m)
-- Adjusted EBITDA from continuing operations was up 25%
-- Deferred income balance grew by GBP0.7m to GBP3.7m
-- Basic earnings per share from continuing operations of 4.86p
(2017: 2.90p) up 68%
Revenue
Group revenue from continuing operations grew by 23% to GBP14.2m
(2017: GBP11.5m).
Revenue, from our continuing operations in North America, was
GBP9.2m, 65% of Group revenue (2017: GBP8.3m, 72%); the U.K.
delivered GBP4.8m of revenue, 33% (2017: GBP3.2m, 28%); and, in its
first year, Europe had revenue of GBP0.3m, 2% of Group revenue
(2017: Nil).
The 23% increase in revenue was a result of robust growth across
each of our core service offerings of Franchise Development, Fryer
Management, FiltaSeal and FiltaGMG, whilst we had a very modest
GBP0.2m contribution from our most recent acquisition Watbio
Holdings Limited.
Fryer Management Services continues to be the key driver of the
business, contributing GBP9.3m of revenue (2017: GBP8.4m) on higher
royalty, national account and waste oil revenues whilst FiltaSeal
experienced a 24% increase in revenue growing to more than GBP1.6m
(2017: GBP1.3m). We continue to be encouraged by the opportunity
that FiltaGMG provides and in our first full year of ownership
following its acquisition in August 2017 revenues were GBP1.7m. The
Franchise Development activities also performed solidly, growing
11% strengthened by the rollout in Europe, while maintaining a
strong pipeline entering the new year.
Gross Profit
Gross profit increased by GBP1.4m or 25% to GBP7.1m (2017:
GBP5.7m) primarily on higher volume. Strong revenue growth
contributed GBP1.3m whilst an increase in gross profit margins to
49.8% (2017: 49.2%) added an additional GBP0.1m. These results
further support the strength of the Group's position in the markets
it serves which enabled a 23% revenue gain whilst also delivering
improved gross margins.
Adjusted EBITDA
Adjusted EBITDA increased 25% to GBP2.6m (2017: GBP2.1m) whilst
the Adjusted EBITDA margin increased to 18.6% (2017: 18.3%) despite
higher spend on people and infrastructure to support a 29% annual
growth rate in revenue over the last three years. Spending
increases were concentrated in two primary areas; payroll costs
represented 1/3(rd) of the increase and were evenly distributed
between legacy and acquired businesses; and facility related spend
grew on additional facilities associated exclusively with our
acquisitions. Despite higher spending in the current year, the
adjusted overhead base as a percentage of revenue remains in line
with prior year.
Adjusted EBITDA reconciliation
Adjusted EBITDA has been arrived
at as follows:
2018 2017
GBP GBP
Profit before tax 1,741,838 1,607,727
Acquisition, legal and IPO related
costs 158,598 120,280
Share-based payments 302,506 87,082
Depreciation and amortisation 399,055 209,912
Finance costs, net 40,439 90,952
------------------------------------ ---------- ----------
Adjusted EBITDA 2,642,436 2,115,953
Alternative Performance Measures
In addition to performance measures (IFRS) directly observable
in the financial statements, additional performance measures
(Adjusted EBITDA, Network Revenue and EBITDA to Cash Conversion)
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 franchisees for all services provided to
customers and is a meaningful measure of our growth in the markets
we serve. EBITDA to cash conversion is an important metric for
management as it measures both the efficiency of the Group to
convert profits into cash and the effectiveness of our cash
management activities. It is calculated by dividing EBITDA by net
cash flow from operations (measured by earnings before interest,
taxes, depreciation and amortisation divided by net cash flow from
operations per the consolidated statement of cash flows).
Deferred Income
Group revenue for the year ended 31 December 2018 includes
GBP0.8m (2017: GBP0.6m) which was released from brought forward
deferred income during the year. We generated a further GBP1.5m of
deferred revenue, of which GBP0.2m originated from the Watbio
acquisition; GBP0.2m relates to opening package fees for franchises
that will start in 2019, and will therefore be recognised in that
year; and GBP1.1m relates to territory fees on both new and
existing franchises and will be recognised over the life of the
franchise agreement. The deferred revenue balance grew by GBP0.7m
to GBP3.7m and was favourably impacted by the foreign exchange
effect of a strengthening 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 and will not make any
measurable contribution to the Group's future earnings. In 2018,
Filta Refrigeration contributed a net profit of GBP0.02m (2017:
GBP0.03m).
The tax impact of discontinued operations is GBPNil (2017:
GBPNil).
Acquisitions
On 31January 2018, we acquired FiltaFry Deutschland GmbH, the
entity that held the master franchise license for Germany, for a
total consideration of EUR0.25 (GBP0.2m). Consideration will be
satisfied by the payment of EUR0.2m in cash and EUR0.1m through the
issue of new ordinary shares in Filta to the vendor. This business
contributed GBP0.2m to group revenue, GBP0.003m to the group's
adjusted EBITDA and GBP0.2m to the group's deferred revenue at 31
December 2018.
On 22 December 2018, we acquired Watbio Holdings Limited, a
provider of grease and drain management solutions to commercial
kitchens across the UK, for a total consideration of GBP6.4m.
Consideration was satisfied as to GBP0.8 million by the issue of
400,000 new Ordinary Shares in Filta to the vendors and by the
payment of up to GBP5.6m in cash, of which GBP0.3m remains
contingent on the collection of certain debtor balances by 31 May
2019. The business contributed GBP0.2m to Group revenue, GBP0.02m
to the Group's adjusted EBITDA and GBP0.2m to the Group's deferred
revenue at 31 December.
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
blended effective tax rate was 24.2% and the total tax charge was
GBP0.4m (2017: GBP0.8m).
Earnings per share
The basic and diluted earnings per share for the year, from
continuing operations, were 4.86p and 4.82p (2017: 2.90p and 2.87p)
whilst the basic and diluted earnings per share, from continuing
and discontinued operations, were 4.93p and 4.89p (2017: 3.03p and
2.99p) respectively.
Cash flows and cash balance
The Group generated cash flow from operations of GBP2.0m (2017:
GBP1.8m) reducing to GBP0.8m (2017: GBP1.3m) after the payment of
taxes. These were increased in the current year by the transition
in the US of corporate tax liability previously being paid in
arrears to now being estimated and paid in advance. This
effectively resulted in the payment of both 2017 and 2018 US tax
liabilities in 2018. The main cash outflows related to the
acquisition of FiltaFry Deutschland GmbH of GBP0.2m (2017: GBPNil),
cash taxes GBP1.2m (2017: GBP0.5) and dividends GBP0.4m (2017:
GBP0.2).
At the year end the Group had cash balances of GBP6.8m (2017:
GBP4.0m) and outstanding borrowings of GBP4.7m (2017: GBP1.1m),
including a term loan of GBP4m drawn down to provide part of the
consideration paid for the Watbio acquisition.
Brian Hogan
Chief Financial Officer
12 April 2019
BUSINESS MODEL & STRATEGY
Filta operates principally in the North America, the UK, and
mainland Europe, providing a range of commercial kitchen-related
services through franchise networks and Company-owned
operations.
Region 1 - North America (USA & Canada)
Corporate HQ in Orlando, Florida, USA
-- Principally a franchise network business
o Franchisees mostly multi-MFU operators
o Exclusive rights to defined area
-- All services provided through Filta Franchise Network
o Fryer management is principal service
o Ancillary services include FiltaBio waste oil collection,
FiltaGold new oil supply, FiltaCool humidity control and FiltaDrain
kitchen drain solution
-- Revenues generated mainly from franchise sales, franchise services and oil resales
-- Business growth drivers:
o New Franchise Sales & Resales
o Existing Franchise Owners expanding
o National Accounts
o New services and products offered through Franchise
Network
Region 2 - UK
Corporate HQ in Rugby, England
-- Franchise network business and Company-owned operations
-- Franchise network business:
o Franchisees mostly single MFU operators
o Services are solely fryer management under FiltaFry brand
-- Company-owned Operations:
o FiltaSeal, replacement of refrigeration seals
o FiltaGMG, incorporating Watbio, kitchen drain solution
-- Revenues derived principally from FiltaFry, FiltaSeal and FiltaGMG.
-- Business growth drivers:
o Expanding existing Company-owned services organically and by
infill acquisitions
o Development of additional related services
o Increased focus on national accounts
Region 3 - Mainland Europe
Corporate HQ in Debbeshoek, the Netherlands
-- Principally a franchise network business
o Franchisees both single and multi-MFU operators
o Exclusive rights to defined area
-- All services provided through Filta Franchise Network
o Fryer management is principal service
o Ancillary services include FiltaBio waste oil collection,
FiltaGold new oil supply
-- Revenues generated mainly from franchise sales, franchise services, oil resales
-- Business growth drivers:
o New Franchise Sales
o Existing Franchise Owners expanding
-- Adapted North America model in Germany and have started
expanding into surrounding countries.
Services
One customer - multi-services
-- FiltaFry - Fryer Management
-- FiltaSeal - First Time Seal Replacement
-- FiltaGMG - Fats Oil and Grease ("FOG") Drain and Pump Management
Fryer Management - The FiltaFry Service
FiltaFry, our unique Fryer Management service, is the
cornerstone of the Group's activities and service offering in North
America, the UK and mainland Europe. It provides an effective,
hygienic and economic service for commercial kitchens, cleaning
fryers, reducing cooking oil costs and disposing of waste cooking
oil.
-- FiltaFry provides a total fryer management service, including
the on-site micro-filtration, removal and replacement of cooking
oil.
-- 6,000+ restaurant and food service customers receive FiltaFry services on a weekly basis.
-- Fryer Management also includes supplemental services such as
FiltaCool and FiltaDrain provided by our Franchise Owners to
customers.
-- Franchisees operate a total of 450 MFUs of which 392 are in
North America, 43 in the UK and 15 in mainland Europe
FiltaSeal
FiltaSeal service is sold in the UK and is a patented system for
replacing damaged or perished refrigerator and freezer door seals
on-site in a cost and time effective manner. Specifically, the
system allows engineers, using patented on-Board equipment and
materials to replace a seal in one visit, producing cost and time
savings for its clients, who would otherwise experience ordering
and fitting delays following an initial engineer's visit. The
benefit of this service, apart from avoiding the disruption that
multiple engineer visits causes, is the energy cost saving and
avoidance of longer-running food hygiene risks.
FiltaGMG
FiltaGMG is a UK-wide provider of drain-related services
including live bacteria drain dosing, the installation and
servicing of Grease Recovery Units, and wastewater pump servicing.
The majority of FiltaGMG's revenue is recurring in nature, with
work typically being carried out quarterly under scheduled
maintenance programmes.
The Franchise Model
Our Fryer Management service is provided through a network of
Franchise Owners, who operate under 10-year franchise licences in
North America and under 5-year franchise licences in the UK and
mainland Europe.
Filta, as the franchisor, owns the intellectual property ("IP")
comprised in the equipment and systems and, through its Franchise
Model, allows its Franchise Owners to make use of that IP and of
the FiltaFry name in providing the Fryer Management Service to its
customers.
There are two key components to the creation of a successful
franchise:
-- The quality of the franchisee and
-- The provision by the franchisor of constant advice and
support to the franchisee as he first establishes and then develops
the business
Filta takes a great deal of time and care in selecting its
franchisees, who undergo an extensive interviewing and assessment
process before being awarded a franchise. Care is taken to
establish that the applicant has the necessary funds, drive and
enthusiasm to run and build the business.
Typically, in North America, franchisees are likely to develop
into multi-MFU operations, while, in the UK, they more often remain
as single MFU operators. Mainland Europe is being developed as a
multi-MFU operator model.
As the franchisees grow their businesses, both by increasing
their customer base and by adding extra units, they receive
extensive support from Filta. Filta believes that this high level
of support is critical to the success of its Franchise Owners.
Filta considers that its role is to bring down barriers,
identify opportunities, pass on experience and, above all, help to
set up all the normal business practices and systems that are
needed in young businesses.
Business Model
There are three key components of revenue generation in the
Group and each of these is important, not just to revenues, but in
providing the platform for growth in the future.
1 - Franchise Development
-- New Franchise Owners and territories
-- Territory Fee and Opening Package Fee paid by franchisee
-- 10 year Franchise Agreements (5 year in UK and mainland Europe) with annual royalties
-- Key objective is continuing improvement of our Franchise
Owner quality to provide a platform for growth as they add units,
take on new territories and enhance our brand and reputation
2 - Fryer Management Services
-- All services are provided by or through Franchise Owners
-- Franchisees pay a fixed royalty per MFU
-- All products are provided by Filta, generating additional margin
-- Franchise Owners' customer growth drives additional Filta
revenues at little or no resource cost to Filta, providing
increasing revenue visibility (2018 - repeat revenues at 94%)
-- Key objective is growth of franchisees' revenue, driving
predictable Group revenues at increasing marginal profit
3 - Company Owned Operations (UK Only)
-- FiltaSeal provides an essential service to customers with a high level of visibility
-- FiltaGMG provides services under contract to commercial kitchens
-- Key objective is to build repeat revenues, providing high
revenue-visibility maintenance contract customers
Repeat Revenues Underpinned by Growing Royalty Income
A significant base of the Group's total revenues (80%) are
earned by way of royalties and other income from an existing
customer base which requires continuing and regular service. It
provides strong cash flow and, together with a large deferred
revenue position, provides good revenue visibility into future
years. Repeat revenue includes those revenues earned from existing
customers, which are recurring in nature, and consist of our Fryer
Management revenue, FiltaSeal revenue and non-installation related
FiltaGMG revenue.
Blue Chip Client Base
The Group has a broad client base in North America, the UK and
Germany with clients ranging from small single outlet enterprises
to many blue-chip clients with multi outlets and national coverage
including major supermarket groups, national pub chains and
restaurant chains. The high quality and breadth of the client base
helps mitigate the risks of exposure to any single business or
organisation.
Strategy
Our objective is to deliver sustainable, predictable and
profitable growth founded upon the following strategic operational
pillars:
1. Recruit the best staff and Franchise Owners possible
2. Drive and support the growth of the Franchise Owners
3. Grow key and national accounts
4. Increase our range of products and services
5. Attract and develop the best people
6. Increase the use of technology to improve our offering
Growth Opportunities
North America
Fryer Management Services are the cornerstone of our business
and we continue to seek to grow this activity both by securing new
franchisees and by increasing the numbers of customers serviced by
our franchisees through higher penetration of the NCA (National and
Centralised Accounts) market. This, in turn, drives royalty and
other repeat revenue growth.
UK
Continue to support our Fryer Management franchisees and
continue to grow the Company Owned Operations, FiltaSeal and
FiltaGMG, through gaining key accounts.
Mainland Europe
With the recent expansion into Germany, we spent 2018 perfecting
the same model that we have developed in North America. Growth in
mainland Europe will come from both the sale of new franchises and
by helping our acquired franchisees to expand.
New Markets
Now we have proven the model in Germany, the plan is to expand
further within mainland Europe in the coming years using the
resource base in Filta's offices in the Netherlands.
Key Performance Indicators ("KPIs")
We focus intently on a number of KPIs that measure and help us
drive our success;
-- Sale of new franchises
-- Sale of new territories to existing franchise base
-- The number of MFUs in the field
-- National Account penetration
-- Number of seals fitted
-- Adjusted EBITDA
-- Cash flow
-- Deferred revenue
The strategic report was approved by the Board on 12 April
2019.
Brian Hogan
Chief Financial Officer
12 April 2019
PRINCIPAL RISKS AND UNCERTAINTIES
The Board has carried out an assessment of the principal risks
facing the business, which are seen to be as follows:
Risk How we manage the risk Trend on Comment
year:
Failure to attract In the USA, which represents Stable Strong pipeline
new franchisees approximately 70% of 2017: Stable across our
or to grow the the franchised operations, operating territories.
number of MFUs we have an increasing
in line with number of franchisees
the strategic who are multi-MFU operators,
targets may a trend which we are
prevent the endeavouring to develop.
Group from achieving Thus, an increasing
its operating number of new MFUs are
targets being taken up by existing
franchisees.
---------------------------------- ------------------ ------------------------
The failure We now have 199 franchisees, Stable The composition
of a major franchisee and this is increasing 2017: Stable of our franchise
may lead to each year, with no franchisee base continues
a loss of revenue accounting for more to diversify.
and/or a bad than 1% of the Group's
debt revenues, thus mitigating
our business risk.
---------------------------------- ------------------ ------------------------
Brand or reputational We provide detailed Stable Management
damage may be initial training for 2017: Stable focuses on
caused by the all new franchisees positive brand
actions of either and their operators. awareness through
franchisees There are also refresher training and
or the company's training programmes strongly monitors
own employees to ensure that all franchisees its results.
are fully cognisant
of all procedures to
be followed.
---------------------------------- ------------------ ------------------------
Undue influence There is a majority Stable The risk has
by a major shareholder of the Board who are 2017: Stable not changed
on the Company not associated with during the
and its Board the founding shareholder year. The Board
may lead to group and whose obligations has added a
decisions or to act in the best interests new independent
actions which of shareholders as a director post
are not in the whole are unfettered. year end which
best interests further strengthens
of the business independent
oversight.
---------------------------------- ------------------ ------------------------
An incident We provide regular and Stable The risk has
involving an comprehensive training 2017: Stable not changed
employee or to employees and franchisees during the
franchisee in in the operation of year. The risk
the operation MFUs and other equipment is monitored
of an MFU may supplied or used in both internally
result in a the Group's business and through
fatal or serious and the procedures are third party
injury reviewed regularly to inspections.
ensure the highest safety
levels.
---------------------------------- ------------------ ------------------------
A failure of The Group has employed Increasing With two acquisitions
the information both its CRM and Accounting 2017: Decreasing during the
or accounting software for a number year we are
systems employed of years and both have operating on
by the Group a strong reputation a number of
or a cyber-attack and have proved to be different platforms.
or data security highly reliable. We This places
breach may cause also have dedicated additional
a loss of vital IT personnel who are burdens on
information tasked with ensuring systems and
or render the the security and availability people. We
Group unable of the systems. Finally, are currently
to maintain in the new year we have working on
adequate accounting engaged our current migrating all
records accounting system provider Group companies
to partner with us on to our chosen
an overall review of operating and
our current accounting accounting
platform focused on platforms which
setup, processes and should be complete
controls. by 30 June.
---------------------------------- ------------------ ------------------------
The loss of We have widely spread Stable We have done
key people may knowledge of the Group's 2017: Stable considerable
compromise the operational systems work this year
Group's or any and procedures, thereby to improve
part of the ensuring that there our processes
Group's ability is not over-dependence for talent
to operate effectively. on any single person. management,
We also have continuous retention and
monitoring systems for succession
the identification and planning.
progress with new business
opportunities, ensuring
that there is a broad
knowledge of such opportunities.
---------------------------------- ------------------ ------------------------
Failure to comply We have undergone a Stable We have assigned
with new GDPR detailed assessment 2017: New dedicated resources
requirements of the readiness of and are working
the business and an with an external
action plan was developed consultant
to ensure compliance. to ensure we
are in compliance.
---------------------------------- ------------------ ------------------------
Acquisition All potential acquisitions New Risk Filta's management
and integration are rigorously assessed team is developing
of new businesses and evaluated, both a strong track
internally and by external record of success
advisors, to ensure in integrating
any potential acquisition acquisitions
meets the Group's strategic and this builds
and financial criteria. with each acquisition.
This process is underpinned
by extensive integration
procedures and the close
monitoring of performance
post acquisition by
both local and Group
management.
---------------------------------- ------------------ ------------------------
A significant The Group's activities Stable The risk is
fall in the are such that, the US 2017: Stable monitored on
value of the Dollar costs are covered a regular basis
US Dollar (which by US Dollar revenues against both
has accounted and, similarly, sterling in-house and
for approximately costs are covered by external mitigation
75% of the Group's sterling revenues. Furthermore, options. Following
operating profits) any third-party debt the recent
against GBP is able to be serviced acquisitions
sterling may by earnings in the currency less than 50%
have an adverse of the debt and secured of the revenues
impact on the by appropriately denominated will be in
Group assets. US dollars
---------------------------------- ------------------ ------------------------
Competition We have established Stable We have not
from new entrants a market-leading position 2017: Stable witnessed any
to the market amongst the third-party significant
may create margin providers of our services change in our
pressure or and we continually seek competitive
loss of customers to improve our service landscape.
offering to ensure that
we have the best option
available.
---------------------------------- ------------------ ------------------------
Change in consumer The demand for fried Stable This risk is
tastes or habits, food has always been 2017: Stable monitored through
as a result, and continues to be ongoing discussions
for example, enormous. We consider with franchisees
of pressures that the services that and periodic
from health we provide help to mitigate reviews of
watchdogs, may the health risks of the markets
result in less eating fried foods. we operate
demand for fryers. in.
---------------------------------- ------------------ ------------------------
Improved fryer Whilst the technologies Decreasing The Group is
technology may may improve, there will 2017: Stable continually
reduce/resolve always be deterioration reviewing changes
deterioration of the oil and, therefore, in technology
of the oil and a need for filtering and, working
therefore require and replacement. The closely with
less frequent Board believes that our long term
filtering and any improvements in supplier, recently
replacement. technology will simply introduced
drive standards to a a 4th generation
higher required level. Mobile Filtration
Unit to the
market.
---------------------------------- ------------------ ------------------------
Franchisees We devote a great deal Stable Our franchise
may seek to of resource to protecting 2017: Stable base continues
impose commercial and assisting our franchisees, to grow and
leverage on thereby building a strong diversify which
the Group, resulting bond of trust. We believe helps us ameliorate
in reduced margins that, for as long as any potential
and profitability we provide the best risk.
option and the opportunity
for franchisees to achieve
success, there would
be little reason for
them to seek commercial
advantage.
---------------------------------- ------------------ ------------------------
Economic Risk Many years of exposure New Risk Relationships
arising from to fluctuating markets are developed
political uncertainty have given us experience and maintained
of operating and with all our
developing our business key customers
successfully during and suppliers
periods of economic to ensure we
and political volatility. stay apprised
We continually monitor of uncertainties
and analyse economic in the market
and demand indicators and how those
to ensure that our supply uncertainties
chain remains flexible are impacting
and our portfolio of their business.
service offerings remains Additionally,
relevant. This analysis the Group has
provides a key input a commercially
to our business planning astute management
and go to market strategies. team and Board
The Group's who maintain
international footprint ongoing discussion
and a diversifying portfolio on economic
also provide a mitigating risks to the
balance in our exposure business.
to both EU and non-EU
markets.
---------------------------------- ------------------ ------------------------
INDEPENT AUDITOR'S REPORT
Opinion
We have audited the financial statements of Filta Group Holding
plc (the "parent company") and its subsidiaries (the "group") for
the year ended 31 December 2018, which comprise:
-- the group statement of comprehensive income for the year ended 31 December 2018;
-- the group and parent company statements of financial position as at 31 December 2018;
-- the group and parent company statements of cash flows for the year then ended;
-- the Group and parent company statements of changes in equity for the year then ended; and
-- the notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
December 2018 and of the group's profit for the year then
ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
as applied in accordance with the provisions of the Companies Act
2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which ISAs (UK) require us to report to you when:
-- The directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- The directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of
materiality. An item is considered material if it could reasonably
be expected to change the economic decisions of a user of the
financial statements. We used the concept of materiality to both
focus our testing and to evaluate the impact of misstatements
identified.
Based on our professional judgement, we determined overall
materiality for the group financial statements as a whole to be
GBP130,000 based on a percentage of adjusted EBITDA.
We use a different level of materiality ('performance
materiality') to determine the extent of our testing for the audit
of the financial statements. Performance materiality is set based
on the audit materiality as adjusted for the judgements made as to
the entity risk and our evaluation of the specific risk of each
audit area having regard to the internal control environment.
Where considered appropriate performance materiality may be
reduced to a lower level, such as, for related party transactions
and directors' remuneration.
We agreed with the Audit Committee to report to it all
identified errors in excess of GBP7,000. Errors below that
threshold would also be reported to it if, in our opinion as
auditor, disclosure was required on qualitative grounds.
Overview of the scope of our audit
The finance functions of the parent company and its UK
subsidiaries are based in the US and UK, respectively. A member
firm of Crowe Global in the US (the 'component auditor') undertook
a full scope audit of Filta Group Inc., under our direction. Filta
Group Inc., accounts for approximately 65% of the group's
revenue
We were involved in the audit of Filta Group Inc., from the
planning stage through to completion. This involved a combination
of conference call meetings, detailed working paper review and
meetings and discussions with the audit committee. We reviewed a
complete set of working papers for Filta Group Inc. and challenged
the findings of the component auditor and discussed matters with
management. Our audit of the group's UK operations was performed at
the UK headquarters in Rugby. The consolidation and annual report
are prepared by management in the US and we audited these through
regular conference call meetings with management, the use of a file
sharing platform and challenging management's assumptions and
conclusions throughout the audit.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
This is not a complete list of all risks identified by our
audit.
Key audit matter How the scope of our audit addressed
the key audit matter
==================================== =================================================================
Acquisition of Watbio Our audit procedures consisted of
Holdings Limited the following:
During the year, the group
acquired Watbio Holdings * Obtaining and assessing management's acquisition
Limited for total consideration accounting paper in relation to the acquisition.
of GBP6.4m. Intangible
assets of GBP6.6m were
identified as part of * Obtaining the share purchase agreement to understand
the acquisition excluding the terms of the transaction and we agreeing the
goodwill of GBP0.9m, a consideration paid.
deferred tax liability
of GBP1.1m was recognised
in respect of the intangibles. * Performing audit work on the acquisition balance
Accounting for business sheet to ensure that assets and liabilities were
combinations is complex appropriately recognised.
and requires management
to assess the fair value
of the assets and liabilities * Challenging the assumptions used to calculate the
acquired including any fair value intangible assets, being the discount rate
identified intangible and customer attrition rate.
assets.
We identified the acquisition
as a risk because of the * Assessing the appropriateness of the related
size of the acquisition disclosures in the financial statements.
and the judgement and
assumptions applied by
management in assessing
the fair value of the
assets and liabilities
acquired including any
identified intangible
assets.
There is a risk that inappropriate
assumptions could result
in material errors in
the acquisition accounting.
==================================== =================================================================
Revenue recognition Our audit procedures consisted of
Revenue is recognised the following:
in accordance with the
accounting policy set * Reviewing the Group's assessment of the impact of
out in the financial statements. IFRS 15 on the revenue streams in the business and
This includes the transition the accounting policies.
to IFRS 15 - Revenue from
contracts with customers.
The accounting policy * Agreeing the performance obligations identified by
contains a number of judgements management to a sample of contracts to ensure the
in respect of franchise adopted accounting policy was appropriate. This was
sales where a portion considered at the transition date as well as at 31
of the revenue generated December 2018.
is deferred and recognised
over the term of the franchise
agreement. * Testing of a sample of transactions throughout the
year to determine whether the company's accounting
policy on revenue recognition had been correctly
applied, covering royalty income, franchising and
other revenue.
* Assessing the appropriateness of the related
disclosures in the financial statements.
==================================== =================================================================
Our audit procedures in relation to these matters were designed
in the context of our audit opinion as a whole. They were not
designed to enable us to express an opinion on these matters
individually and we express no such opinion.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion based on the work undertaken in the course of our
audit
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the
parent company and their environment obtained in the course of the
audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of the directors for the financial
statements
As explained more fully in the directors' responsibilities
statement the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and parent company's ability
to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Leo Malkin (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London
12 April 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2018 2017
GBP GBP
Continuing operations
Revenue 5 14,213,204 11,547,299
Cost of sales (7,130,656) (5,870,449)
------------ ------------
Gross profit 7,082,548 5,676,850
Other income 24,507 38,377
Distribution costs (151,209) (124,690)
Administrative costs (5,173,569) (3,891,858)
------------ ------------
Operating profit 1,782,277 1,698,679
Analysed as:
Adjusted EBITDA 2,642,436 2,115,953
Acquisition related costs 6 (158,598) (120,280)
Depreciation and amortisation 17,18 (399,055) (209,912)
Share based payments 32 (302,506) (87,082)
--------------------------------------------- ------ ------------ ------------
1,782,277 1,698,679
--------------------------------------------- ------ ------------ ------------
Finance income 1,545 -
Finance costs 9 (41,984) (90,952)
------------ ------------
Profit before tax 1,741,838 1,607,727
Income tax expense 10 (421,667) (824,268)
Profit from continuing operations 1,320,171 783,459
Discontinued operations
Profit from discontinued operations 12 18,556 32,858
Net profit attributable to owners 1,338,727 816,317
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation
of foreign operations (29,388) (94,174)
Total other comprehensive income
for the year (29,388) (94,174)
Profit and total comprehensive income
for the year 1,309,339 722,143
============ ============
Earnings per share
From continuing operations
* Basic (pence) 13 4.86 2.90
* Diluted (pence) 13 4.82 2.87
From continuing and discontinued
operations
* Basic (pence) 13 4.93 3.03
* Diluted (pence) 13 4.89 2.99
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 2018 2017
GBP GBP
Non-current assets
Property, plant and equipment 18 1,493,180 1,216,388
Deferred tax assets 11 754,728 652,131
Intangible assets 17 7,186,432 484,821
Goodwill 17 1,639,523 631,380
Deposits 2,491 2,343
Contract acquisition costs 20 342,557 157,197
Trade receivables 19 324,865 302,163
----------- -----------
11,743,776 3,446,423
----------- -----------
Current assets
Trade and other receivables 19 4,821,194 2,311,192
Contract acquisition costs 20 51,718 37,671
Inventories 21 1,386,383 437,716
Cash and cash equivalents 22 6,789,968 4,031,174
----------- -----------
13,049,263 6,817,753
----------- -----------
Assets classified as held for sale 12 - 74,372
Total assets 24,793,039 10,338,548
=========== ===========
Current liabilities
Trade and other payables 23 6,510,302 2,142,906
Borrowings 24 840,641 107,786
Deferred income 25 868,788 532,682
----------- -----------
8,219,731 2,783,374
----------- -----------
Non-current liabilities
Deferred tax liability 1,291,318 95,185
Borrowings 24 3,909,311 931,765
Deferred income 25 2,791,131 2,404,645
----------- -----------
7,991,760 3,431,595
Non-current liabilities classified
as held for sale 12 - 66,425
----------- -----------
Total liabilities 16,211,491 6,281,394
----------- -----------
Equity
Share capital 28 2,891,863 2,713,266
Share premium 28 3,372,351 131,400
Retained profits 2,711,352 1,862,967
Translation reserve (383,965) (354,577)
Other reserves 29 (10,053) (295,902)
----------- -----------
Total equity 8,581,548 4,057,154
----------- -----------
Total equity and liabilities 24,793,039 10,338,548
=========== ===========
The financial statements were approved and authorised for issue
by the Board on 12 April 2019 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
2017 2,695,266 3,480,191 49,400 (339,687) (260,403) (2,256,539) 3,368,228
-------------------------- ---------- -------------- --------- ---------- ----------- ------------ ------------
Profit for the
year - - - - - 816,317 816,317
Foreign exchange
translation differences - - - - (94,174) - (94,174)
-------------------------- ---------- -------------- --------- ---------- ----------- ------------ ------------
Total comprehensive
income - - - - (94,174) 816,317 722,143
-------------------------- ---------- -------------- --------- ---------- ----------- ------------ ------------
Dividends paid
(note 16) - - - - - (226,402) (226,402)
Issue of share
capital (note
28) 18,000 131,400 - - - - 149,400
Transfer between
reserves - - (49,400) - - 49,400 -
Share premium
reduction (note
28) - (3,480,191) - - - 3,480,191 -
Share based payments
(note 29/32) - - 43,786 - - - 43,786
-------------------------- ---------- -------------- --------- ---------- ----------- ------------ ------------
Balance at 31
December 2017 2,713,266 131,400 43,786 (339,687) (354,577) 1,862,967 4,057,155
-------------------------- ---------- -------------- --------- ---------- ----------- ------------ ------------
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 16) - - - - - (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 29/32) - - 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
-------------------------- ---------- -------------- --------- ---------- ----------- ------------ ------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Notes 2018 2017
GBP GBP
Operating activities
Profit before taxation for
the year 1,760,393 1,640,585
Adjustments for non-cash operating
transactions:
Finance costs 9 41,984 90,952
Depreciation 18 186,582 109,911
Amortisation 17 212,474 100,001
Loss on disposal of tangible
fixed assets 7,051 9,992
Share based payment charge 32 302,506 87,082
------------ ------------
2,510,990 2,038,523
------------ ------------
Movements in working capital:
Increase in trade and other
receivables (279,474) (396,073)
Increase in contract acquisition
costs (199,407) (130,791)
(Decrease)/increase in trade
and other payables (225,003) 210,973
Increase in inventories (508,421) (106,743)
Increase in deferred revenue 722,592 225,969
------------ ------------
Cash flow from operations 2,021,277 1,841,858
------------ ------------
Taxes paid (1,216,177) (510,187)
------------ ------------
Net cash flow from operations 805,100 1,331,671
------------ ------------
Investing activities
Purchase of property, plant
and equipment 18 (316,084) (112,941)
Proceeds from disposals of
property, plant and equipment 12 49,288 24,836
Purchase of subsidiary undertakings,
net of cash acquired 15 (3,738,358) (1,137,901)
Purchase of other intangible
assets 17 (104,913) (55,480)
Net cash used in investing
activities (4,110,067) (1,281,486)
------------ ------------
Financing activities
Repayment of borrowings (252,935) (47,058)
Net proceeds from borrowings 3,790,737 -
Net proceeds from issue of
share capital 2,870,000 149,400
Dividends paid to shareholders 16 (371,868) (226,402)
Interest paid 9 (41,984) (90,952)
Net cash from/(used in) financing
activities 5,993,950 (215,012)
------------ ------------
Net change in cash and cash
equivalents 2,688,983 (164,827)
Cash and cash equivalents,
beginning of the year 22 4,031,174 4,392,350
Exchange differences on cash
and cash equivalents 69,811 (196,349)
------------ ------------
Cash and cash equivalents,
end of year 22 6,789,968 4,031,174
------------ ------------
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
Notes 2018 2017
GBP GBP
Assets
Non-current assets
Investments in subsidiaries 14 8,951,424 2,293,426
Amount due from subsidiaries 19 1,506,905 1,704,716
Deferred tax asset - -
----------- ----------
10,458,329 3,998,142
----------- ----------
Current assets
Trade and other receivables 123,984 25,802
Amount due from subsidiaries 19 467,093 438,496
Cash and cash equivalents 22 3,616,685 1,162,035
----------- ----------
4,207,762 1,626,333
----------- ----------
Total assets 14,666,091 5,624,475
=========== ==========
Current liabilities
Trade and other payables 23 2,265,128 44,908
Borrowings 24 758,147 -
Amount due to subsidiaries 36,311 16,745
----------- ----------
3,059,586 61,653
----------- ----------
Non-current liabilities
Borrowings 24 3,032,590 -
----------- ----------
3,032,590 -
Total liabilities 6,092,176 61,653
----------- ----------
Equity
Share capital 28 2,891,863 2,713,266
Share premium 28 3,372,351 131,400
Other reserves 29 329,633 43,785
Retained earnings 1,980,068 2,674,371
Total equity 8,573,915 5,562,822
Total equity and liabilities 14,666,091 5,624,475
=========== ==========
No statement of comprehensive income is presented by the company
as permitted by section 408 of the Companies Act. The loss dealt
within the financial statements of the parent Company for the year
ended 31 December 2018 is GBP322,435 (2017: GBP324,658).
The financial statements were approved and authorised for issue
by the Board on 12 April 2019 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
2017 2,695,266 3,480,191 49,400 (304,160) 5,920,697
Loss for the year - - - (324,658) (324,558)
------------------------- ---------- ------------ --------- ---------- ----------
Total comprehensive
income (324,658) (324,658)
------------------------- ---------- ------------ --------- ---------- ----------
Dividends paid (note
16) - - - (226,402) (226,402)
Issue of share capital
(note 28) 18,000 131,400 - - 149,400
Transfer between
reserves - - (49,400) 49,400 -
Share premium reduction
(note 28) - (3,480,191) 3,480,191 -
Share based payments
(note 29) - - 43,785 - 43,785
Balance at 31 December
2017 2,713,266 131,400 43,785 2,674,371 5,562,822
------------------------- ---------- ------------ --------- ---------- ----------
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
16) - - - (371,868) (371,868)
Issue of share capital
(note 28) 178,597 3,240,951 - - 3,419,548
Share based payments
(note 29) - - 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
------------------------ ---------- ---------- -------- ---------- ----------
PARENT COMPANY STATEMENT OF CASH FLOWS
2018 2017
GBP GBP
Operating activities
Loss before tax (322,435) (324,658)
Movements in working capital:
Decrease/(increase) in trade
and other receivables (17,222) 6
Increase in trade and other
payables 470,146 14,282
Share based payment charge - 87,082
------------- -----------------
Net cash used in operations 130,489 (223,288)
------------- -----------------
Investing activities
Increase/(decrease) in advances
to subsidiaries 188,679 (1,468,539)
Purchase of subsidiary undertakings, (3,850,000) -
net of cash acquired
------------- -----------------
Net cash used in investing
activities (3,661,321) (1,468,539)
------------- -----------------
Financing activities
Proceeds from issue of share
capital, net of costs 2,870,000 149,300
Proceeds from borrowings, 3,790,737 -
net of costs
Increase in investment in
subsidiary (303,387) (117,210)
Dividends paid to shareholders (371,868) (226,402)
------------- -----------------
Net cash from/(used in)
financing activities 5,985,482 (194,312)
------------- -----------------
Net change in cash and cash
equivalents 2,454,650 (1,886,139)
Cash and cash equivalents,
beginning of the year 1,162,035 3,048,174
------------- -----------------
Cash and cash equivalents,
end of year 3,616,685 1,162,035
------------- -----------------
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.
Group reconstruction in prior year
Filta Group Holdings plc entered into an agreement to acquire
the entire issued share capital of each of The Filta Group Limited
and The Filta Group, Inc. on 26 October 2016 from Cookband Limited
for Nil consideration. The reorganisation was affected by way of
share for share exchanges whereby each of The Filta Group Limited
and The Filta Group, Inc. became wholly-owned subsidiaries (the
"Subsidiaries") of Filta Group Holdings plc as it is currently
constituted.
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).
In accordance with IAS 8 - Accounting Policies, Changes in
Accounting Estimates and Errors, in developing an appropriate
accounting policy, the Directors have considered the pronouncements
of other standard setting bodies and specifically looked to
accounting principles generally accepted in the United Kingdom ("UK
GAAP") for guidance (FRS 102) which does not conflict with IFRS and
reflects the economic substance of the transaction.
Under UK GAAP, the assets and liabilities of both entities are
recorded at book value, not fair value. Intangible assets and
contingent liabilities are recognised only to the extent that they
were recognised by the legal acquirer in accordance within
applicable IFRS. No goodwill is recognised, any expenses of the
combination are written off immediately to the income statement and
comparative amounts, if applicable, are restated as if the
combination had taken place at the beginning of the earliest
accounting period presented.
Therefore, although the Group reconstruction completed in
October 2016, and Filta Group Holdings plc was incorporated on 31
March 2016, the consolidated financial statements are presented as
if the Group structure has always been in place, including the
activity from incorporation of the Group's principal subsidiaries.
All entities had the same management as well as controlling
shareholders.
The Directors decided that it is appropriate to reflect the
combination using merger accounting principles as a group
reconstruction under FRS 102 in order to give a true and fair view.
No fair value adjustments were made as a result of the
combination.
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 at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future and therefore continue 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
form 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 2018 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
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 29 and 32 for additional
information on these instruments.
-- "Retained earnings" represents retained profits and accumulated losses.
-- "Merger reserve" arises on business combination (Note 2).
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
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risks and rewards of
ownership to the lessees. All other leases are classified as
operating leases.
Rentals payable under operating leases, less any lease
incentives received, are charged to income on a straight-line basis
over the term of the relevant lease except where another more
systematic basis is more representative of the time pattern in
which economic benefits from the lease asset are consumed.
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 GBP3,659,919 (2017: GBP2,937,327). The revenue
recognised in respect of the opening package and the apportioned
territory fee in the current year was GBP1,374,324 (2017:
GBP1,348,193).
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.
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
(12%) 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 was 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 was reduced by one percentage point
then the asset would be GBP289,000 lower.
Given the proximity to the year-end no amortisation charge has
been recognised on the intangible assets identified. The expected
amortisation charge for the year ended 31 December 2019 relating to
the customer relationships and contracts is GBP583,000 and
GBP48,000 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
17.
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 2018
Financial instruments
The Group adopted IFRS 9 'Financial Instruments' at 1 January
2018 and applied the new rules in accordance with the transitional
provisions. Comparatives for 2017 have not been restated. The Group
has assessed the impact of adopting IFRS 9 and the only adjustment
is an increase in the provision for losses against trade debtors
which was reflected as an adjustment to retained earnings at 1
January 2018 as shown below.
2018
1 January
Retained earnings
Provision for losses against trade debtors (157,834)
Income tax 39,360
----------
Total impact at 1 January 2018 (118,474)
----------
Non-current assets
Deferred income tax assets 39,360
Current assets
Trade and other receivables (157,834)
----------
Total impact at 1 January 2018 (118,474)
----------
The adjustment arises from adoption of the expected credit loss
model for impairments under IFRS 9. The adoption of this model
requires the recognition of impairment provisions based on expected
credit losses rather than only incurred credit losses, as is the
case under IAS 39. Although there is a transition impact from
adoption of the new model there was no material impact on profit
before tax for 2018.
The following table shows the original classification and
measurement categories of financial assets and liabilities under
IAS 39 and the new classification and measurement categories under
IFRS 9 as at 1 January 2018. The effect of adopting IFRS 9 on the
carrying amounts of financial assets and liabilities relates solely
to the new impairment requirements as shown in the previous table,
all other carrying values remained the same.
Classification-measurement Classification-measurement Carrying Carrying
under IAS under IFRS amount under amount under Difference
39 9 IAS 39 IFRS 9 GBP
GBP GBP
Financial
assets
---------------------------- ---------------------------- ------------- ------------- -------------
Loans and Financial
Cash & receivables assets at
cash - amortised amortised
equivalents cost cost 4,031,174 4,031,174 -
---------------------------- ---------------------------- ------------- ------------- -------------
Loans and Financial
Trade & receivables assets at
other - amortised amortised
receivables cost cost 2,451,072 2,293,238 (157,834)
---------------------------- ---------------------------- ------------- ------------- -------------
Financial
liabilities
---------------------------- ---------------------------- ------------- ------------- -------------
Other financial
Trade & Other liabilities liabilities
other - amortised - amortised
payables cost cost 1,337,984 1,337,984 -
---------------------------- ---------------------------- ------------- ------------- -------------
Other financial
Other liabilities liabilities
- amortised - amortised
Bank loans cost cost 928,236 928,236 -
---------------------------- ---------------------------- ------------- ------------- -------------
Other financial
Finance Other liabilities liabilities
lease - amortised - amortised
liabilities cost cost 177,740 177,740 -
---------------------------- ---------------------------- ------------- ------------- -------------
Revenue recognition
The Group has adopted IFRS 15 from 1 January 2018, using the
modified retrospective approach and has not restated comparatives
for 2017. The Group used the five-step model to develop an impact
assessment framework to assess the impact of IFRS 15 on the Group's
revenue transactions. The results of our IFRS 15 assessment
framework and contract reviews indicated that the impact of
applying IFRS 15 on our consolidated financial statements was not
material for the Group and there was no adjustment to retained
earnings or material impact on the timing of revenue recognition on
application of the new rules at 1 January 2018.
A number of other new pronouncements are also effective from 1
January 2018 but they do not have a material impact on the
consolidated financial statements. Additional disclosure has been
given where relevant.
New standards and interpretations not applied.
New accounting standards and interpretations have been published
that are not mandatory for the year ended 31 December 2018. The
Group has elected not to early-adopt these new standards and
interpretations. The Group's assessment of the impact of these new
standards is set out below.
The Group will apply IFRS 16 on 1 January 2019 using the
modified retrospective approach. Under this approach, the
cumulative effect of adopting IFRS 16 will be recognised as an
adjustment to the opening balance of retained earnings on 1 January
2019, with no restatement of comparative information.
The Group has assessed the impact of adopting IFRS 16 with
reference to its existing lease portfolio. The most significant
part of the portfolio are property and vehicle leases, together
with a number of low value equipment leases. The lease liability
has been measured at the present value of the remaining lease
payments, discounted using the incremental borrowing rate at
transition. The right-of-use asset is measured at an amount equal
to the lease liability plus any lease payments made at or before
the commencement date and any initial direct costs incurred by the
lessee. Transition recognition exemptions relating to short-term
and low value leases have been applied as well as practical
expedients taken, where available, to simplify the transition
process.
It is estimated that on transition the Group will recognise a
right-of-use asset and corresponding lease liability of
approximately GBP0.5m. The impact on the income statement in 2019
is expected to be negligible with the operating lease expense
recognised under the existing standard (IAS 17) being replaced by
depreciation and finance costs. There will be no impact on the
Group's cash and cash equivalents.
5. SEGMENT ANALYSIS
Operating segments have been identified on the basis of internal
reports about components of the Group that are regularly reviewed
by the chief operating decision maker (which takes the form of the
Board of Directors), in order to allocate resources to the segment
and to assess its performance.
The Directors consider that the Group currently has four
reportable segments: the marketing and execution related to
Franchise Development; provision of services and supplies to the
fryer management sector; servicing the refrigerator seal
replacement market; and the provision of design, installation and
services provided to the grease management market. The Group also
has three geographic segments: UK, North America and Europe.
Revenue and non-current assets by origin of geographical segment
for all entities in the Group is as follows:
Revenue
2018 2017
GBP GBP
North America 9,204,340 8,349,325
U.K. 4,752,287 3,197,973
Europe 256,577 -
Total continuing operations 14,213,204 11,547,298
Discontinued operations 13,915 1,937,440
----------- -----------
Total 14,227,119 13,484,739
Non-current assets
2018 2017
GBP GBP
North America 2,005,116 1,673,329
U.K. 9,277,362 1,544,785
Europe 461,298 -
----------- -----------
Total 11,743,776 3,218,114
----------- -----------
Product and services revenue analysis
Revenue
2018 2017
GBP GBP
Franchise Development 1,487,927 1,348,193
Fryer Management 9,337,232 8,434,262
FiltaSeal 1,646,062 1,327,835
FiltaGMG 1,741,983 437,008
----------- -----------
Total continuing operations 14,213,204 11,547,299
Discontinued operations 13,915 1,937,440
----------- -----------
Total 14,227,119 13,484,739
----------- -----------
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
2018:
Franchise
Development Fryer Management FiltaSeal FiltaGMG Total
GBPm GBPm GBPm GBPm GBPm
Sales to
external
customers 1.5 9.4 1.6 1.7 14.2
Adjusted
EBITDA 0.4 1.7 0.2 0.4 2.7
--------------------------- -------------------------------------- ----------------------------------- ---------------------------------------- -------------------------------------
Acquisition
and
legal costs (0.0) (0.0) (0.0) (0.1) (0.2)
Share based
payments (0.0) (0.3) (0.0) (0.0) (0.3)
Depreciation
and
amortisation (0.1) (0.3) (0.0) (0.0) (0.4)
Operating
profit 0.3 1.1 0.2 0.2 1.8
--------------------------- -------------------------------------- ----------------------------------- ---------------------------------------- -------------------------------------
Net finance
costs (0.0) (0.0) (0.0) (0.0) (0.0)
Profit before
taxation 0.3 1.1 0.2 0.2 1.8
--------------------------- -------------------------------------- ----------------------------------- ---------------------------------------- -------------------------------------
Taxation (0.4)
Profit from
discontinued
operations 0.0
Other
comprehensive
income (0.0)
Profit and
total
comprehensive
income 1.3
-------------------------------------
Operating segment performance for the year ended 31 December
2017:
Franchise
Development Fryer Management FiltaSeal FiltaGMG Total
GBPm GBPm GBPm GBPm GBPm
Sales to
external
customers 1.3 8.4 1.3 0.4 11.5
Adjusted
EBITDA 0.3 1.5 0.2 0.1 2.1
------------------------- ------------------------------------ ------------------------- ----------------------------- -------------------------------
Acquisition
and
legal costs (0.0) (0.1) (0.0) (0.0) (0.1)
Share based
payments (0.0) (0.1) (0.0) (0.0) (0.1)
Depreciation
and
amortisation (0.0) (0.2) (0.0) (0.0) (0.2)
Operating
profit 0.2 1.2 0.2 0.1 1.7
------------------------- ------------------------------------ ------------------------- ----------------------------- -------------------------------
Net finance
costs (0.0) (0.1) (0.0) (0.0) (0.1)
Profit before
taxation 0.2 1.1 0.2 0.1 1.6
------------------------- ------------------------------------ ------------------------- ----------------------------- -------------------------------
Taxation (0.8)
Profit from
discontinued
operations 0.0
Other
comprehensive
income (0.1)
Profit and
total
comprehensive
income 0.7
-------------------------------
6. Operating profit and adjusted EBITDA
The following have been included in arriving at operating
profit and adjusted EBITDA:
2018 2017
GBP GBP
Depreciation of property, plant and equipment (note
18) 186,582 109,911
Amortisation of intangible assets (note 17) 212,474 100,001
Loss on disposal of plant and equipment (4,920) 9,992
Staff costs, including directors (Note 7) 3,525,043 2,993,670
Share based payment 302,506 87,082
Cost of acquisition 149,260 34,000
Foreign exchange losses (757) (22,238)
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 49,700 40,000
Fees payable to the Company's Auditor and their
associates for other services:
The audit of the Company's subsidiaries pursuant
to legislation 42,232 21,920
Tax and other services 30,148 8,643
---------- --------------
Total auditors remuneration 122,080 70,563
---------- --------------
Inventory expensed 7,130,656 5,870,449
Operating lease rental expense 19,570 24,399
Exceptional items consist of the following:
2018 2017
GBP GBP
Acquisition related 149,260 65,402
Legal and professional 9,338 54,878
158,598 120,280
-------- --------
Acquisition related costs are attributable to the FiltaFry
Deutschland GmbH and Watbio Holdings Limited acquisitions while the
legal and professional costs relate primarily to the disposal of
Filta Refrigeration assets.
7. STAFF COSTS
2018 2017
GBP GBP
Gross salaries 2,819,674 2,602,507
Social security costs 237,994 195,084
Pension contributions 15,635 9,062
Share based payment charge 302,506 87,082
Other staff benefits 149,234 99,935
---------- ----------
3,525,043 2,993,670
---------- ----------
The average number of employees of the Group during
the year was as follows:
2018 2017
No. No.
Directors 7 7
Staff
Administration 13 10
Customer Services/Network Support 14 11
Business Development/Marketing 6 6
Sales 6 7
Other 22 26
---------- ----------
68 67
---------- ----------
8. REMUNERATION OF KEY MANAGEMENT PERSONNEL
2018 2017
GBP GBP
Remuneration for qualifying services 712,604 723,667
-------- --------
712,604 723,667
-------- --------
Details of directors' remuneration are provided
in the Remuneration Report.
9. FINANCE COSTS
2018 2017
GBP GBP
Bank and other loans 33,606 78,452
Hire purchase and finance lease charges 8,378 12,500
------------- ------------
10. INCOME TAX EXPENSE 41,984 90,952
2018 2017
GBP GBP
Corporation Tax
Charge for the year 464,025 775,151
Deferred tax
Origination and reversal of temporary differences (42,358) (215,878)
Tax charge related to change in U.S. tax rate - 264,995
--------- ----------
Total tax charge 421,667 824,268
--------- ----------
Reconciliation of corporation taxation:
2018 2017
GBP GBP
Profit before tax on continuing operations 1,741,838 1,607,727
---------- ----------
Tax at domestic rates applicable 334,287 310,934
Expenses disallowed for tax 6,695 19,690
Loss relief (13,415) (42,959)
Overseas taxes 136,458 487,486
Total current tax 464,025 775,151
Deferred tax
Origination and reversal of temporary differences (42,358) 49,117
---------- ----------
Total tax expense 421,667 824,268
---------- ----------
The Filta Group's effective tax rate for the year ended 31
December 2018 was 24.2% (2017: 51.3%). The effective rate is an
amalgamation of mainly UK, US and Canadian rates for the periods
reported. The change from prior year has been particularly affected
by the 2017 non-recurring/non-cash tax charge related to the
revaluation of U.S. deferred tax assets due to the U.S. rate
reduction. For the prior year the effective tax rate excluding the
tax charge on the U.S. rate reduction was 35.1%.
The Filta Group has tax losses of approximately GBP667,480
(2017: GBP667,480) to carry forward against future profits. The UK
tax losses have no expiry date and a deferred tax asset of
GBP128,460 (2017: GBP124,249) has been recognised in respect of
them.
The U.S. subsidiary has no available tax losses.
11. DEFERRED TAX ASSETS / LIABILITIES
The movement in the Group's deferred tax
asset during the year is as follows:
2018 2017
GBP GBP
At start of year 652,131 755,965
Adjustment on initial application of IFRS
9 39,360
Acquired with subsidiaries 5,468
Addition for the year 25,226 210,735
Charge related to reduction in U.S. tax
rate - (264,995)
Foreign exchange differences 32,543 (49,574)
-------- ----------
At end of year 754,728 652,131
-------- ----------
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.
2018 2017
GBP GBP
Tax losses 128,460 124,249
Deferred revenue 546,777 524,658
Other 79,491 3,224
-------- --------
At end of year 754,728 652,131
-------- --------
The movement in the Group's deferred tax liability during the
year is as follows:
2018 2017
GBP GBP
At start of year 95,185 -
Acquired with subsidiaries - 29,215
Intangible assets acquired in business
combination 1,203,206 71,113
Credit for the year (7,073) (5,143)
At end of year 1,291,318 95,185
---------- --------
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 is 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:
2018 2017
GBP GBP
Revenues 13,915 1,937,101
Expenses (17,918) (1,868,489)
--------- ------------
Profit before tax (4,003) 68,612
Income tax expense 22,559 (35,754)
--------- ------------
Net profit attributable to discontinued
operations 18,556 32,858
--------- ------------
Following the sale on 4 January 2018, 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.
The major classes of assets and liabilities comprising the
operations classified as held for sale are as follows:
2018 2017
GBP GBP
Property, plant and equipment - 25,114
Inventories - 49,258
---- -------
Total classified as held for sale - 74,372
Total liabilities associated with assets
held for sale (borrowings) - 66,425
---- -------
Net assets of disposal group - 7,947
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.
2018 2017
Earnings attributable to equity holders of
the company 1,338,727 816,317
---------------- -----------
Weighted average number of shares 27,204,089 26,971,892
Effect of dilutive share options and awards 224,199 288,081
---------------- -----------
Weighted average number of shares for dilutive
earnings 27,428,288 27,259,973
Earnings per share from continuing operations
Basic 4.86 2.90
Diluted 4.82 2.87
Earnings per share from continuing and discontinued
operations
Basic 4.93 3.03
Diluted 4.89 2.99
14. INVESTMENT IN SUBSIDIARIES
2018 2017
GBP GBP
Cost at the beginning of the year 2,293,426 2,176,216
Additions 6,657,998 117,210
---------------- -----------
Cost at end of year 8,951,424 2,293,426
---------------- -----------
The subsidiaries of Filta Group Holdings plc, all of which
are included in the consolidated Annual Financial Statements,
are as follows:
Class 2018 2017 Nature of business
Company ownership ownership
interest interest
The Filta Group Environmental
Limited Ordinary 100% 100% Services
The Filta Group Environmental
Incorporated Ordinary 100% 100% 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 Ordinary 100% - Environmental Services
B.V.
FiltaFry Ordinary 100% - Environmental Services
Deutschland
GmbH
Watbio Holdings Ordinary 100% - Environmental Services
Limited
Watbio Limited Ordinary 100% - Environmental Services
Watling Hope Ordinary 100% - Environmental Services
Installations
Limited
Environmental Ordinary 100% - Environmental Services
Biotech
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. BUSINESS COMBINATIONS
A key strategy of the Group is to create and sustain market
leading positions through acquisitions in markets it currently
operates in, together with extending the Group's footprint in new
geographic markets. In line with this strategy, the acquisitions
completed during the year were as follows:
FiltaFry Deutschland GmbH
On 30 January 2018, the Group acquired 100 per cent of the
voting equity interests of FiltaFry Deutschland GmbH, the company
which held the master franchise license for Germany. The
acquisition aligns Germany with the same franchise business model
as is used in North America and the UK as well as providing a
platform for further expansion in Europe.
Details of the fair values of the identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
Book value Adjustment Fair value
GBP GBP GBP
Reacquired license rights (intangible
asset) 114,591 126,356 240,947
Property, plant and equipment 7,289 - 7,289
Inventory 2,909 - 2,909
Trade and other receivables 10,880 - 10,880
Cash 3,265 - 3,265
Trade and other payables (16,656) - (16,656)
Loans and borrowings (48,201) (48,201)
Deferred tax liability - (72,284) (72,284)
----------- ----------- -----------
Total fair value 74,077 54,072 128,149
----------- ----------- -----------
Consideration consists of: GBP
Cash 153,367
Shares 21,910
Contingent 43,818
-----------
Total Consideration 219,095
-----------
Goodwill 90,946
-----------
The fair values include recognition of an intangible asset
related to the reacquired rights to the international master
licence agreement in Germany that will be amortised on a straight
line basis over a 6.75-year period.
Regarding the acquired Trade and other receivables in the
transaction of GBP10,880, the amount estimated to be potentially
uncollectible at the acquisition date was GBPNil. At 31 December
2018, GBP10,880 of this balance had been collected.
Deferred tax has been calculated on the value of the intangible
assets acquired at a corporation tax rate of 30% and a
corresponding amount recognised as goodwill. The amount recognised
as goodwill will not be deductible for tax purposes.
Acquisition costs relating to this transaction totalled
GBP49,080 and are disclosed within the statement of comprehensive
income.
Since the acquisition date, FiltaFry Deutschland GmbH has
contributed GBP235,981 to Group revenues and a loss of GBP4,112 to
Group income. If the acquisition had occurred on 1 January 2018,
Group revenue would have increased by GBP257,435 and Group income
for the period would have decreased by GBP4,486.
The net cash sum expended on the acquisition is as follows:
2018
GBP
Cash paid as consideration on acquisition 153,367
Less cash acquired on acquisition (3,265)
--------
Net cash movement 150,102
--------
Watbio Holdings Limited
On 21 December 2018, the Group acquired 100 per cent of the
voting equity interests of Watbio Holdings Limited, a provider of
grease and drain management solutions to commercial kitchens across
the UK. The acquisition supports the Group's strategy of growing
its share of the fats, oils and grease market following on the
acquisition of Grease Management Limited in 2017.
Details of the provisional fair values of the identifiable
assets and liabilities acquired, purchase consideration and
goodwill are as follows:
Book value Adjustment Fair value
GBP GBP GBP
Customer contracts (intangible
asset) - 2,217,194 2,217,194
Customer relationships (intangible
asset) - 3,617,527 3,617,527
Supply contract (intangible
asset) - 724,481 724,481
Property, plant and equipment 86,686 - 86,686
Inventory 437,367 - 437,367
Trade and other receivables 2,255,031 - 2,255,031
Cash 261,744 - 261,744
Trade and other payables (2,114,579) - (2,114,579)
Loans and borrowings (907,518) (907,518)
Deferred tax liability - (1,140,871) (1,140,871)
------------ ------------ ------------
Total provisional fair value 18,731 5,418,331 5,437,062
------------ ------------ ------------
Consideration consists of: GBP
Cash 3,850,000
Shares 550,000
Contingent 1,954,611
------------
Total Consideration 6,354,611
------------
Goodwill 917,549
------------
The provisional fair values include recognition of intangible
assets related to customer contracts and customer relationships
that will be amortised over a 10-year period, and a supply
contract, amortised over a 15-year period, all on a straight-line
basis. The fair values are provisional as the year end has fallen
within the measurement period. Any new information about facts or
circumstances that existed at the acquisition date will be
retrospectively adjusted.
Regarding the acquired trade receivables in the transaction of
GBP1,738,685 the amount estimated to be potentially uncollectible
at the acquisition date was GBP118,336. At 31 December 2018, GBPNil
of this balance has been collected.
Deferred tax has been calculated on the value of the intangible
assets acquired at a corporation tax rate of 17.4%, which is the
effective tax rate over the amortisation period, and a
corresponding amount recognised as goodwill. The amount recognised
as goodwill will not be deductible for tax purposes.
Acquisition costs relating to this transaction totalled
GBP100,179 and are disclosed within the statement of comprehensive
income.
Since the acquisition date, Watbio Holdings Limited has
contributed GBP192,641 to Group revenues and a profit of GBP16,846
to Group income. If the acquisition had occurred on 1 January 2018,
Group revenue would have increased by GBP9,800,000 and Group income
for the period would have increased by GBP600,000.
The net cash sum expended on the acquisition is as follows:
2018
GBP
Cash paid as consideration on acquisition 3,850,000
Less cash acquired on acquisition (261,744)
----------
Net cash movement 3,588,256
----------
16. DIVIDS
2018 2017
GBP GBP
Distributions to equity holders in the year:
Final dividend for the year ended 31 December 176,434 -
2017 of 0.65p per share
Interim dividend for the year ended 31 December 195,434 -
2018 of 0.72p per share
First interim dividend, in lieu of 2016, for the
year ended 31 December 2017 of 0.19p per share - 51,210
Second interim dividend for the year ended 31
December 2017 of 0.65p per share - 175,192
--------- ----------
371,868 226,402
--------- ----------
Proposed final dividend for the year ended 31 267,286 -
December 2018 of 0.92p per share
--------- ----------
The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements.
17. INTANGIBLE ASSETS
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
impairment
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
========== =========== ============== =============== ========== ==========
Computer Customer Customer Supply
Software Goodwill Relationships Contracts Contract Total
GBP GBP GBP GBP GBP GBP
Cost
Balance at 1
January
2017 391,350 - - - - 391,350
Additions 55,480 - - - - 55,480
Business
combinations 631,380 346,210 28,071 - 1,005,661
Foreign
exchange (34,713) - - - - (34,713)
---------- ----------- -------------- --------------- ---------- -------------
Balance at 31
December
2017 412,117 631,380 346,210 28,071 - 1,417,778
Amortisation
and
impairment
Balance at 1
January
2017 224,726 - - - - 224,726
Amortisation 72,930 - 25,110 1,961 - 100,001
Foreign
exchange (23,150) - - - (23,150)
---------- ----------- -------------- --------------- ---------- ----------
Balance at 31
December
2017 274,506 - 25,110 1,961 - 301,577
---------- ----------- -------------- --------------- ---------- ----------
Net book
value at
31 December
2017 137,611 631,380 321,100 26,110 - 1,116,201
========== =========== ============== =============== ========== ==========
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.
2018 2017
GBP GBP
Franchise development 90,946 -
---------- --------
FiltaGMG 1,548,577 631,380
---------- --------
Total 1,639,523 631,380
---------- --------
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 9.38% (2017: 9.70%) 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 above, 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.
18. PROPERTY, PLANT AND EQUIPMENT
Details of the Group's property, plant and equipment and their
carrying amounts are as follows:
Fixture and Plant and
Fittings Machinery Motor Total
Freehold & Equipment Vehicles
Property
GBP GBP GBP GBP GBP
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 combinations 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
---------- ------------ ---------- --------- ----------
Cost
At 1 January 2017 1,640,785 93,095 183,632 214,643 2,132,155
Additions 4,496 16,394 13,285 78,766 112,941
Business combination 2,815 5,349 5,567 121,709 135,440
Reclass to assets held
for sale - - - (84,825) (84,825)
Disposals - - (820) (83,150) (83,970)
Foreign exchange (128,506) (3,388) (3,608) (594) (136,096)
---------- ------------ ---------- --------- ----------
At 31 December 2017 1,519,590 111,450 198,056 246,549 2,075,645
---------- ------------ ---------- --------- ----------
Depreciation
At 1 January 2017 641,013 88,529 99,166 112,795 941,504
Depreciation charge 39,202 12,096 9,175 49,437 109,911
Reclass to assets held
for sale - - - (59,711) (59,711)
Disposals - - (367) (68,759) (69,127)
Foreign exchange (56,551) (3,417) (3,016) (335) (63,320)
---------- ------------ ---------- --------- ----------
At 31 December 2017 623,664 97,208 104,958 33,427 859,257
---------- ------------ ---------- --------- ----------
Net Book Values
At 31 December 2017 895,926 14,242 93,098 213,122 1,216,388
---------- ------------ ---------- --------- ----------
Certain of the property, plant and equipment listed above are
held as security against bank facilities referred to in note
24.
The net book value of vehicles held under finance lease was
GBP0.2m.
19. TRADE AND OTHER RECEIVABLES
Trade and other receivables consist of the following:
Total 2018 2017
GBP GBP
Trade receivables, gross 4,238,420 2,084,362
Impairment allowance (184,022) (56,255)
---------- ----------
Trade receivables, net 4,054,398 2,028,107
Prepayments and other receivables 572,491 200,809
Franchise payment plans 519,170 384,439
---------- ----------
5,146,059 2,613,355
---------- ----------
Current 2018 2017
GBP GBP
Trade receivables 4,054,398 1,984,569
Prepayments and other receivables 572,491 200,809
Franchise payment plans 194,305 125,814
---------- ----------
4,821,194 2,311,192
---------- ----------
Non-current 2018 2017
GBP GBP
Trade receivables - 43,538
Franchise payment plans 324,865 258,625
-------- --------
324,865 302,163
-------- --------
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 GBP2.0m 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 GBP0.5m is comprised of GBP0.1m of management
service charges and GBP0.4m of funding of 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 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:
2018 2017
GBP GBP
At beginning of year 56,255 10,302
Adjustment on initial
application of IFRS
9 (note 4) 157,834 -
Acquired with subsidiaries 118,336 -
Impairment loss recognised 7,620 53,224
Utilised (156,023) (7,271)
At end of year 184,022 56,255
-------------- --------------
20. 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 ratable basis. Impairment of
capitalised contract costs was GBPnil in 2018.
The amount of capitalised contract cost expected to be recovered
after more than one year is GBP0.3m (2017: GBP0.2m).
21. INVENTORIES
2018 2017
GBP GBP
Finished goods 1,386,383 486,974
Inventory included in assets held for sale - (49,258)
---------- ---------
Total 1,386,383 437,716
---------- ---------
Inventories primarily consists of filtration machines and
filters 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.
22. CASH AND CASH EQUIVALENTS
Group 2018 2017
GBP GBP
---------- ----------
Cash at bank and in hand 6,789,968 4,031,174
---------- ----------
Company
---------- ----------
Cash at bank and in hand 3,616,685 1,162,035
---------- ----------
23. TRADE AND OTHER PAYABLES
2018 2017
Group GBP GBP
Trade payables 2,877,737 846,564
Taxes and social security 413,782 804,922
Accruals and other payables 3,218,783 491,420
---------- ----------
6,510,302 2,142,906
---------- ----------
Company
Trade payables 37,674 44,908
Taxes and social security - -
Accruals and other payables 2,227,454
---------- -------
2,265,128 44,908
---------- -------
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 Company Accruals and other payables balance of GBP1.7m represents
the balance due on completion of the Watbio Holdings acquisition.
24. LOANS AND OTHER BORROWINGS Group 2018 2017
GBP GBP
Total
Bank loans, net of GBP209,263 of debt issuance
costs 4,531,925 928,236
Hire purchase and finance leases 168,448 111,315
Related party loans 49,579 -
---------- ----------
4,749,952 1,039,551
---------- ----------
2018 2017
GBP GBP
Current
Bank loans, net of GBP41,852 of debt issuance
costs 791,467 64,102
Hire purchase and finance leases 49,174 43,684
840,641 107,786
-------- --------
2018 2017
GBP GBP
Non-current
Bank loans, net of GBP167,410 of debt issuance
costs 3,740,458 864,134
Hire purchase and finance leases 119,274 67,631
Related party loans 49,579 -
---------- --------
3,909,311 931,765
---------- --------
Company 2018 2017
GBP GBP
Total
Bank loans, net of GBP209,263 of debt issuance 3,790,737 -
costs
3,790,737 -
----------- -----
Current
Bank loans, net of GBP41,852 of debt issuance 758,147 -
costs
758,147 -
------------ ------
Non-current
Bank loans, net of GBP167,410 of debt issuance
costs 3,032,590 -
3,032,590 -
The bank loans are comprised of a GBP4,000,000 term loan
(GBP3,790,737 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 $940,523 US Dollar
denominated mortgage loan (GBP741,188), which carries an interest
rate of 4.6% and matures in 2024.
25. 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 2018 Acquisition Utilisation Foreign 31 Dec
Exchange 2018
GBP GBP GBP GBP GBP
Deferred income 2,937,327 1,364,388 (815,992) 174,196 3,659,919
Current 868,788
Non-current 2,791,131
Total 3,659,919
26. OPERATING LEASE COMMITMENTS
The amounts of future minimum lease payments under
non-cancellable operating leases are as follows:
2018 2017
GBP GBP
Minimum lease payments due:
Within 1 year 274,467 10,687
1 to 5 years 296,145 2,360
Total 570,612 13,047
The increase over prior year is due primarily to leases acquired
in the Watbio Holdings acquisition.
27. RECONCILIATION OF MOVEMENTS IN NET DEBT
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
1 January Cash flows Acquisition Non-cash changes 31 December
2017 2017
Foreign Fair value
exchange changes
movements
GBP GBP GBP GBP GBP GBP
Long term
borrowings 1,037,022 (36,585) (72,200) 928,236
Short term
borrowings - - - - - -
Lease
liabilities 84,296 (10,473) 37,492 111,315
Total 1,121,318 (47,058) 37,492 (72,200) - 1,039,551
28. SHARE CAPITAL
The share capital of Filta Group Holdings plc consists of fully
paid ordinary shares with a nominal value of 10 pence. All shares
are equally eligible to receive dividends and the repayment of
capital and represent one vote.
2018 2017
Number GBP Number GBP
Allotted and fully paid
Total shares in issue at
1 January 27,132,660 2,713,266 26,952,660 2,695,266
Issue of ordinary shares 1,785,970 178,597 180,000 18,000
Share buyback - - - -
Issued under share option - - - -
scheme
----------
Total shares in issue at
31 December 28,918,630 2,891,863 27,132,660 2,713,266
---------- ----------
The Company completed a reduction of capital, whereby the entire
amount standing to the credit of the Company's share premium
account was cancelled to create distributable reserves (the
"Reduction of Capital"). The Reduction of Capital was formally
approved by the High Court of Justice, Chancery Division, and the
High Court order was filed with the Registrar of Companies on 18
January 2017. The purpose of the Reduction in Capital was to create
distributable reserves to support the Board's dividend policy.
On 22 November 2017, pursuant to a share option agreement with
Cenkos Securities plc ("Option Holder"), 180,000 shares of 10 pence
each were exercised, and issued, to the Option Holder at a price of
83 pence each, giving rise to a share premium of GBP131,400.
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.
29. OTHER RESERVES
Group 2018 2017
GBP GBP
Merger reserve (339,687) (339,687)
Purchase consideration reserve 250,000 -
Share based payment reserve 79,634 43,786
---------- ----------
(10,053) (295,901)
---------- ----------
Company
Purchase consideration reserve 250,000 -
Share based payment reserve 79,634 43,786
---------- ----------
329,634 43,786
---------- ----------
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 are expected to be issued and 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. The total charge recognised for share-based payments in
respect of employee services received for the year ended 31
December 2018 was GBP79,634 (2017: GBP43,785).
30. FINANCIAL INSTRUMENTS
Risk Management objectives and policies
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Filta Group's competitiveness and flexibility. Further details
regarding these policies are set out below.
Management reviews its monthly reports through which it assesses
the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.
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% (176,751) 120,672
-----------------------
USD -10% 216,029 (147,488)
-----------------------
CAD +10% (4,514) 17,100
-----------------------
CAD -10% 5,517 (20,900)
-----------------------
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 and
borrowings by fixed and floating mix.
2018 2017
GBP GBP
Floating GBP
LIBOR 3,790,737 -
Floating Base - 201,375
Fixed 959,215 838,176
Total 4,749,952 1,039,551
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 GBP0.04m
(2017: GBP0.002m) and equity by GBP0.04m (2017: GBP0.002m).
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.
2018 2017
GBP GBP
Financial Assets
Loans and receivables:
Cash and cash equivalents 6,789,968 4,031,174
Trade and other receivables (excluding prepayments) 4,585,002 2,451,072
Deposits 2,491 2,343
---------- ----------
11,377,461 6,484,589
Financial Liabilities
Trade and other payables (excluding taxes) 6,096,520 1,337,984
Borrowings 4,749,952 1,105,976
10,846,472 2,443,960
The table below summarises the maturity profile (representing
undiscounted contractual cash flows) of the Group's financial
liabilities:
Less
At 31 December than 3 to 1 to Over
2018 3 months 12 months 5 years 5 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
Less
At 31 December than 3 to 1 to Over
2017 3 months 12 months 5 years 5 years Total
GBP GBP GBP GBP GBP
Trade and other
payables 1,290,679 16,038 31,267 - 1,337,984
Expected future
interest payments 8,762 43,229 162,694 42,356 257,041
Borrowings 21,828 109,140 809,815 165,193 1,105,976
Total 1,321,269 168,407 1,003,776 207,549 2,701,001
31. RETIREMENT BENEFIT SCHEMES
Defined contribution scheme
Since October 2016 the Group has operated a defined contribution
retirement benefit scheme for all eligible employees in its U.K.
subsidiary. The assets of the scheme are held separately from those
of the group in funds under the control of the trustee. The
subsidiary 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 GBP15,635 (2017: GBP9,062)
represents contributions payable to the scheme by the Group at
specified rates. Any contributions unpaid at the balance sheet date
are included as an accrual at that date. The Group has no further
payment obligations once the contributions have been paid.
32. SHARE OPTION SCHEME
The Company maintains an EMI Share Option Scheme to incentivise
executives and employees of Filta Group Holdings and its
subsidiaries. For U.K. employees, Options have been awarded over a
total of 442,500 ordinary shares, equivalent to 1.5% 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 2021 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 360,000 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 2018, a total of 540,000 (2017: 562,500) were
outstanding, having a range of exercise prices from 0.97p to 1.74p
(2017: 0.97p to 1.74p) and a weighted average exercise price of
1.01p (2017:1.03p). These outstanding awards have a weighted
average contractual life of 8.33 years (2017: 9.13 years).
Movement in the number of share options outstanding during the
year, including grant dates and grant price were as follows:
Share Share Total
options acquisition
rights
---------
Outstanding at 1 January
2018 232,500 330,000 562,500
---------
Total granted during the - - -
year
---------
Forfeited during the year
(0.97p) (7,500) - (7,500)
Forfeited during the year
(1.74p) (15,000) - (15,000)
---------
Total forfeited during the
year (22,500) - (22,500)
---------
Outstanding at 31 December
2018 (0.97p) 180,000 330,000 510,000
Outstanding at 31 December
2018 (1.74p) 30,000 30,000
---------
Total Outstanding 31 December
2018 210,000 330,000 540,000
---------
Exercisable at 31 December - - -
2018
---------
During the year the Company recognised total expense of
GBP302,506 (2017: GBP87,082) related to the fair value of the
share-based payment arrangements. This included GBP35,849 (2014:
GBP43,785) related to equity-settled share options and GBP266,657
(2017: GBP43,297) from cash-settled SARs. The SARs liability at 31
December 2018 was GBP309,954 (2017: GBP43,297).
These amounts were determined using the Black Scholes model,
with the following assumptions for each type of award granted:
Stock Options
Weighted average share price 108.0p
Exercise price 97.0p
Risk free rate 0.59%
Dividend yield 0.9%
Volatility 54.99%
Share Appreciation Rights
Weighted average share price 156.9p
Exercise price 97.0p
Risk free rate 1.83%
Dividend yield 0.0%
Volatility 53.41%
33. RELATED PARTY TRANSACTIONS
Remuneration of Directors and other transactions
The remuneration, interests and related party transactions with
the directors of Filta Group Holdings plc and its subsidiaries (the
"Directors") who are considered to be the key management personnel
of the entity, are disclosed in Note 8.
Franchise rights
In 2012, The Filta Group, Inc. granted franchise rights for a
prescribed territory to Roxanna Holdings Inc. Roxanna Holdings
Inc., a company owned by Jason Sayers and Victor Clewes, directors
of The Filta Group, Inc.
The rights were then assigned to EKS North Atlantic LLC, which
is 50% owned by Roxanna Holdings and 50% by an unrelated 3rd party.
During 2018, the related franchise operator purchased GBPNil of
equipment and supplies from the company (2017: GBPNil).
On 16 January 2017 the franchise rights were sold by the related
party entity to a non-related third party.
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 GBP1,378 at 31
December 2018.
34. EVENTS AFTER THE REPORTING DATE
There have been no material events subsequent to 31 December
2018, 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 SFIFWLFUSEIL
(END) Dow Jones Newswires
April 15, 2019 02:00 ET (06:00 GMT)
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